In Post We Trust Role of the Post in expanding access to digital finance

Case Study No. 1 Financial Inclusion Technical Assistance Facility (FITAF)

Berne, November 2019 Copyright © 2019 Universal Postal Union. All rights reserved.

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TITLE: In Post We Trust, Role of the Post in expanding access to digital finance, 2019

CONTACT: Saleh Khan [email protected]

Glossary

App (Mobile telephone) application ATM Automated teller machine DFS Digital financial services FITAF UPU Financial Inclusion Technical Assistance Facility SMEs Small and medium enterprises TA Technical assistance (project) UPU Universal Postal Union TABLE OF CONTENTS

Introduction 5

Role of trust in increasing uptake of financial services 9

Building trust in financial services 11

A Postal Trust Framework 13

Four factors enabling Posts to build trust in postal financial services 17

Leverage the postal brand 17

Offer financial, numerical and digital literacy skills to customers 20

Ensure that Post-customer interaction is secure, simple and seamless 22

Provide access to real people 24

Conclusion and policy recommendations 29

For designated operators 30

For governments and regulators 32

Future research direction 33

Acknowledgements and about FITAF 37

Bibliography 38

Disclaimers 39 | In Post We Trust

INTRODUCTION Role of the Post in expanding access to digital finance | 5

Posts form the largest integrated physical The postal financial services network as a Around the world, Posts are at very distribution network in the world, with over whole comprises 1.96 billion accounts different stages of corporate, technical 668,000 postal offices operating in the belonging to approximately 1 billion and product maturity. Their maturity and 192 UPU member countries and employing customers. An estimated 900 million the breadth of financial services offered 5.3 million people. A further 1.4 million people also use the as an depend on a number of factors including: postal carriers, who visit hundreds of access point to make or receive payments millions of households each day, augment (UPU, 2016). Posts are increasingly using this large physical presence. DFS channels for service delivery in Market demand for inclusive financial response to customer demand. services, or the market failure The network itself comprises two million thereof; points of contact around the world, not Data collected by the UPU shows that Conducive including letter boxes and automatic nearly 91% of postal operators provide policy and regulatory ; dispensers. Today, the postal network some form of financial service in the environment makes it possible to physically connect UPU member countries and territories Level of innovation in designing everyone around the world in a single (183 out of a total 201 designated products, services and delivery postal territory. operators,* referred to in this paper as channels; “Posts”). Most Posts see postal financial Posts have a long tradition of offering services as a source of revenue Investment made in human and financial services, dating back to 1861 diversification, in the face of declining technical capabilities; when the first postal savings bank was revenue from traditional services such as established in the United Kingdom. From letter post. Value-driven partnerships with their early days, most postal and telecom financial institutions, mobile operators (P&T) operators have provided various The most common financial services and fintech businesses; and financial services, most notably money offered by Posts aremoney transfers orders, telegraphic money orders and and remittances, provided either by the The level of trust that the Post, as an savings accounts. They have come a Posts themselves or in partnership with institution, enjoys with communities long way since, and most are starting to banks and money transfer companies, as and individuals. venture into providing digital financial well as bill payments and government- services (DFS) to their customers. to-person (G2P) payments. Only 8% of Posts are fully fledged postal banks offering a broad range of products and The postal network makes services. it possible to physically It is important to recognize that not all connect everyone around Posts offer the same set of inclusive the world in a single postal financial products and services. territory.

* A designated operator (DO) is any organization that has been designated by a UPU member country or territory as a postal operator responsible for fulfilling part or all of the member’s obligations arising from adherence to the UPU Convention and agreements, including the universal service obligations. A full definition can be found at: www.upu.int/uploads/tx_sbdownloader/glossaryStandardsDocumentsEn.pdf. 6 | In Post We Trust

The UPU’s Financial Inclusion Technical Assistance Facility (FITAF) is undertaking a series of studies to investigate the role played by these factors in the uptake “Trust has different of inclusive financial services. In the first study of the series, we explore a key factor meanings in different that helps Posts to attract, retain and grow geographies and even their customer base – trust in the Post. among different people, We hypothesize that increased trust and touches upon complex in the Post as an institution leads emotional and psychological to increased uptake of postal layers of user experience. financial services. It also empowers and encourages customers to engage with the There is no straightforward Post through multiple channels, including technical intervention digital platforms. that is guaranteed to We acknowledge that there is no increase trust.” universal definition of the concept (Spencer, Nakhai, & Weinstock, 2018). of trust, or pre-defined measures to build trust, within the context of inclusive financial services. A USAID (United States Agency for International Development) Through a mixed method of literature report captures this, stating: review, interviews and case studies, this paper explores the basic tenets of trust in financial institutions, the role of trust in an institution to increase uptake of financial services and DFS, and how these learnings from the formal financial sector mightapply to Posts. Role of the Post in expanding access to digital finance | 7

The paper is divided into the following sections: Policymakers (government and/ An overview of The intended audience for this paper is as follows: or regulator) – so that postal financial they remain aware of services, and the role that Posts can a Postal Trust Posts that already play in achieving their Framework; offer DFS and wish to government’s policy extend these services, objectives, attaining and Posts that are in the human development Identification process of deploying goals as defined in of four factors DFS – allowing them the UN Sustainable enabling Posts to to prepare strategies Development Goals, and build trust with based on the Postal Trust ensuring the broader their customers, Framework intended socio-economic illustrated by case to build trust with development of their studies; and customers, leading to country; increased uptake and retention; A set of non- Lastly, at a later stage, binding consultants who will recommendations Posts that are planning capture lessons for Posts and deployment of DFS – learned as the UPU’s policymakers. allowing them to reach technical assistance out to countries with (TA) projects reach their similar regulatory evaluation phase environments for knowledge exchange and peer-based learning; 8 | In Post We Trust

ROLE OF TRUST IN INCREASING UPTAKE OF FINANCIAL SERVICES Role of the Post in expanding access to digital finance | 9

In this section, we explore current literature on the need to build trust with customers so as to increase uptake and encourage regular use of financial services in general, and DFS in particular.

The section concludes with the Postal Trust Framework, which identifies trust-building measures, drawing upon findings from the literature review and the UPU’s experience in the sector. 10 | In Post We Trust

BUILDING TRUST IN FINANCIAL SERVICES Role of the Post in expanding access to digital finance | 11

To understand the role of trust in the This human contact, however, is increasingly When it comes to the uptake of financial uptake of financial services, we refer to the being augmented though digital services, and specifically digital financial 2018 Edelman Trust Barometer. The survey channels. Customers can choose to services, a common theme that emerges revealed an overall decrease in trust engage with financial service providers from the literature review is that trust in in financial services in the key markets either through an agent at a physical an underlying institution and in the surveyed after five years of growth. branch, or via the Internet, by telephone, or technologies used is a major factor in using an application on their phone. Digital how fast customers adopt a specific Given this erosion of trust in financial channels are beginning to be used to product. services, and in broader formal financial enable customers to carry out transactions institutions, respondents identified five that were traditionally handled over the measures that would serve to build trust counter by bank employees. This is echoed in an EY with them: easy-to-understand terms and conditions; reliable fraud protection; Using digital channels comes with its study which found that easy-to-find product/serviceinformation ; own challenges, and the uptake of digital “trust plays a large role business convenience; and access to financial services is suffering the same fate in fintech adoption, as real people (Edelman, 2018). as the adoption of any new or emerging technology. non-adopters choose to The survey also finds thathuman remain with traditional contact ranks highly among customers’ There is a play-off betweenproviding financial services because requirements when seeking a financial access to digital accounts (such as mobile services provider. This human contact is wallets) and ensuring digital liquidity, they trust them more [...]’” especially important when dealing with i.e. ensuring that people use digital funds (EY, 2019). the more vulnerable and underbanked for everyday use and do not habitually segments of society, where customers may revert to the use of cash. The Bank for be less literate and therefore more reliant International Settlements (BIS) confirms this This is where Posts can play a critical role, on advice from a trusted source, i.e. an in a study which found that, in the face of given their proximity to communities, their employee of the financial institution. increasing and continuing digitalization brand strength – which is often drawn from of payments, cash in circulation is not being part of the government – and their decreasing in most countries (Bech, ability to leverage a physical network to Faruqui, Ougaard, & Picillo, 2018). provide human contact when needed. 12 | In Post We Trust

A POSTAL TRUST FRAMEWORK 13

Posts recognize the role that trust in an institution plays in the uptake of services – both traditional postal services and financial ones. They recognize Leverage Offer financial, numerical that greater customer trust in the the postal brand and digital literacy skills Post as an institution could lead to customers to an increased uptake of financial As a community-centric institution that has services, through physical and a high level of engagement with people, Trust starts with a clear understanding digital channels. Posts in certain countries, but not all, enjoy of the financial products and services a trust premium. To improve the uptake of for which customers sign up. This clarity To meet customer demands financial services, Posts should tap into the and understanding become even more and remain relevant in a rapidly trust capital that they have built up over the important when the amounts are small, changing market, Posts are years. when customers have limited literacy or increasingly seeking to leverage numeracy skills, and when they are not digital channels in order to offer This trust capital can be further augmented accustomed to using technology. financial services. A recent Digital by the perception that Posts are not Economy Report published by the part of the “banking empire.” In some Capitalizing on their reach and presence, UPU provides evidence of this. countries, Posts have strong and trusted Posts can provide literacy programmes The study found that, globally, the brand recognition as being part of the and human interaction to better explain most commonly shared reason for government – although, in other countries, products and services, as well as imparting launching digital postal services is this might translate into a trust deficit. basic financial skills to customers. to “leverage the Post’s image and reputation as a trusted provider”, Posts can take advantage of this trust with 83% of Posts characterizing premium, where it exists, to reach this as a “very significant” factor customers on a wide scale and become the for digitization (UPU, 2019). financial institution of choice for customer segments such as welfare recipients, Drawing on the UPU’s experience civil servants working in rural areas, and of working with Posts to achieve pensioners. their inclusive financial services strategy, and based on an assessment of existing literature, we have identified four measures to increase trust in Posts in general, and postal financial services in particular. 14 | In Post We Trust

In the following sections, we Ensure that Post- Provide access to real explore how Posts leverage each customer interaction people of these trust-building measures is secure, simple and to their advantage, using current seamless Easy access to human interaction, both examples and early lessons at customer service locations and on the learned from the UPU’s FITAF. Customers must have simplified access to customer’s doorstep, is a critical factor postal financial services, through multiple that helps to build trust in postal financial Through these examples, we channels that aim to make their financial institutions. demonstrate how Posts are lives easier. Posts also need to make already leveraging these an effort to provide simple, robust and Leveraging their physical distribution critical success factors to build interoperable solutions. network, which often extends to remote trust with their customers. We rural locations, and with the help of postal also emphasize how they serve Customers must feel that their information carriers, Posts have a natural advantage as measures that Posts seeking to and money are kept secure using the latest over formal financial institutions when increase uptake of their financial tools and technologies. Posts must provide it comes to building trust with their services might adopt, learning peace of mind and security to those customers. from their peers. who have little to lose and are extremely cautious in terms of the institutions that Owing to an absence of granular they trust. data, this paper does not use longitudinal, empirical data to Posts must also be mindful of their assess whether a specific measure customers’ privacy and adhere to has proven successful in building data protection and customer privacy trust. Instead, the paper captures regulations. experiences of Posts where they have knowingly, or unknowingly, adopted specific measures that are designed to foster trust with customers. 15 | In Post We Trust

FOUR FACTORS ENABLING POSTS TO BUILD TRUST IN POSTAL FINANCIAL SERVICES Role of the Post in expanding access to digital finance | 17

Leverage the postal brand

Customers are more likely to access This trust surplus or deficit also services from an organization that extends to a Post’s financial products they trust, and Posts, like any other and services. Nearly 55% of all Posts service-delivery organization, need offer government-to-person and to strengthen their brand image person-to-government (P2G) payment by cultivating the trust of their services (UPU, 2016). In emerging and customers and society. developed economies alike, the Post is often the first point of contact for However, unlike their private-sector P2G and G2P interactions. financial service counterparts,nearly 90% of Posts worldwide are Whether for paying government state-owned. This intrinsically links a fees, obtaining citizen services, or Post’s brand image, and the trust that receiving social benefits, Posts play a customers have in the Post, with that vital role as an extended arm of the of the government. Depending on the government. The mandate of Posts country and context, this could lead to to provide citizen services is a reliable a trust surplus or a trust deficit. indicator of a government’s willingness to leverage its postal network as a tool to achieve public policy objectives. An example of this is Payments Bank (IPPB), which helped the federal government of India to achieve its financial inclusion objectives, as seen below. | In Post We Trust

helps to achieve Posts also play a major India Post role in facilitating the government’s financial inclusion goals government salary and social safety net payments, and in India Post Payments Bank (IPPB) was Provide affordable banking serving underserved set up in 2017 under the Department services, especially for small segments of the of Posts, Ministry of Communications, account holders; population, which with 100% equity ownership by the renews their standing in Government of India. IPPB co-locates Provide doorstep banking, mobile society as trustworthy within and leverages the physical banking, and easy access to financial institutions. locations of India Post to deliver on its financial services for rural Indian households; mission. The reliance of governments and civil Drawing on this connection to the Provide cutting-edge, servants on postal bank Post, IPPB linked the millions of postal interoperable and limited-literacy- accounts adds to the savings accounts held by India Post friendly technological solutions to legitimacy and societal with one of the most ambitious financial securely and seamlessly operate standing of Posts. inclusion drives in recent times. these accounts; and Examples are Pakistan Acting as an arm of the federal Steadily expand the service Post and Post, government, IPPB was mandated to offering to provide other services, which facilitate pension deliver on and ensure the success of including investments. and civil service salary payments, as illustrated the Pradhan Mantri Jan Dhan Yojana The PMJDY programme was below. (PMJDY) programme. an intense drive to achieve The key expectations of the IPPB universal banking access and are to: bring ordinary Indians into the economic mainstream. At the time of roll-out, this was the biggest financial inclusion initiative in the world, bringing millions of Indian households into an inclusive financial system.

IPPB played a vital role in ensuring the success of the PMJDY programme. 19

Pakistan Post facilitates By bringing these government payments provides easy access government payroll closer to the people, the to civil and military payments Posts ensure that the postal network remains pensions a relevant institution Egypt Post is one of the oldest for the population, not governmental institutions in the only in terms of logistics, operates over 12,200 post country. It serves its customers through but also for financial office locations throughout the country. 4,000 retail branches, 12,000 point of services. These include 3,200 sites run and sale (POS) machines, and 350 ATMs. managed by the department itself, and However, the customer The Post has 26 million active customer an additional 9,000 extra-departmental categories to which accounts, representing nearly a quarter post offices. These are normally Posts most often cater of the country’s population, including outsourced in far-flung and remote might have a different civil servants. areas to provide services to the masses. level of literacy to than The Egyptian Ministry of Finance, with of customers of formal Pakistan Post disburses pensions to the MasterCard and Visa as technical banks, thus requiring retirees of a number of organizations, partners, customized a government Posts to offer a certain including former military, postal, Capital payroll programme to digitize salary level of training and Development Authority, and Pakistan payments to government employees literacy to attract and Telecommunication employees. The across the country. Under the retain customers. Post thus acts as an essential link in the programme, nearly 4.6 million cards public sector in the country, especially have been issued to government since it caters to the needs of both civil employees (Aad, 2019) and 108 billion and armed forces retirees. Egyptian pounds is loaded annually During the 2018 financial year, Pakistan onto prepaid cards, reducing the Post disbursed over 904 million USD burden of paperwork as well as the to more than 1.6 million military operational costs of handling cash pensioners. In addition, a further (Salazar & Marra, 2018). 70 million USD was disbursed to Government staff no longer need to 74,000 pensioners from the other travel to specific bank branches in the organizations. capital or nearest town to collect their salaries. Since these salary cards are tied to virtual postal accounts, customers can use the nearest Egypt Post branch to withdraw their salaries free of charge or use an ATM for a small fee. 20 | In Post We Trust

Offer financial, numerical and digital literacy skills to customers

UPU studies have shown that, Access to people, i.e. human contact, Postal workers can teach people in rural compared with formal financial and to training is critical with regard areas how to use banking services and institutions, Posts are more likely to to the needs of the less literate and access various government-sponsored provide accounts to individuals from numerate. Therefore, the provision of financial inclusion schemes. In India, financially vulnerable groups,such financial, numerical and digital literacy for example, the India Post Payments as the poor, less educated, and skills is a critical mechanism in building Bank is training postal workers to those outside the labour force trust with customers, and in improving provide basic financial information and (Ansón, Berthaud, Klapper, & Singer, the uptake and usage of postal financial guidance to customers in rural areas. 2013). Postal customers may not be as services. confident in using new technologies In developed economies, Posts have and digital channels to manage The need for training so as to improve been offering structured financial their financial needs, compared with the uptake of digital financial services literacy and awareness training for customers of private banks. becomes even more relevant when a a number of years. As outlined in customer is essentially asked to trust the example below, Bank technology, perhaps for the first time, builds trust with young people and to manage their financial resources. adults alike, through flexible financial education seminars held across the With their extensive physical country. networks, Posts can provide a physical location where customers can ask their DFS-related questions, resolve issues, and learn how to use these new technologies effectively. To augment this, postal carriers act as multipliers. Role of the Post in expanding access to digital finance | 21

Posts can also play a Japan Post Bank Poste Italiane role in early financial wants to be the most provides financial education for children, building up their digital trustworthy bank in literacy training to and financial literacy the country young people skills as they prepare for adulthood. Poste Italiane, for example, Japan Post Bank has the explicit objective of In collaboration with the Italian Ministry of has been contributing to becoming “the most accessible and trustworthy Education, Universities and Research, Poste Italy’s National Strategy bank in Japan”. It wishes to educate its Italiane has held around 500 events aimed at for Financial Education customers early. In Japan, financial education promoting financial literacy. In addition, around since 2015. and knowledge is cultivated from a young age. 20 short seminars have been held in post In primary school, Japanese schoolchildren offices in various towns across the country. Training and customer open a postal savings account and deposit a literacy efforts might The Post also promotes the concept of saving small amount every month for six years. go a long way towards as part of school programmes. The project establishing the postal In addition, instructors give lessons at primary stimulates young people to develop better financial sector, but and secondary schools using Japan Post Bank’s knowledge of financial and economic topics. training alone may not proprietary teaching materials. The goal is to This initiative targets primary school pupils, be enough to retain help children develop good financial sense by and students aged 11 to 18. At the end of customers; in addition, teaching them the importance of money and this educational path, students acquire a the technological how to manage it. There are specific products comprehensive understanding of the concept channels used must be and services that are offered to younger of saving, and are encouraged to act in a intuitive, simple to use Japanese citizens to bring them into the formal financially responsible way. and transparent, and financial system from an early age. The students also benefit from an online must instil a sense of To educate its adult clientele, Japan Post information platform, run directly by the security for customers. Bank continually provides information to help ministry, enabling them to gain even more Essentially, customers improve financial and investment knowledge, in-depth financial knowledge. The project must be assured that as well as understanding of market trends. has been one of the most successful financial the channels – especially Seminars are often organized in collaboration education projects implemented in recent digital – through which with other companies and take place in various years, and the intention is to train one million they choose to engage formats and at times to suit customers who students by 2022. and interact with Posts find it difficult to visit a branch on a weekday or are secure, and they are during the day. not likely to lose their To ensure customer financial literacy and money to theft and planning, these seminars are structured around fraud. “life plans that match our customers’ lifestyles”. In the first three quarters of 2019, Japan Post Bank held 2,615 seminars in 233 branches (Japan Post Bank, 2019). 22 | In Post We Trust

Egypt Post uses biometrics to ensure Ensure that security for benefit Post-customer payments Egypt Post has automated the two largest conditional cash transfer interaction is programmes of the Ministry of Social Solidarity (MOSS). MOSS business priorities include enhancing transaction secure, simple transparency, eliminating human errors, reducing the potential for leakages and, most importantly, ensuring that funds and seamless reach the correct beneficiary. To these challenges, Egypt Post issued nearly 2 million Visa-branded EasyPay cards to beneficiaries of the Strengthening Social Safety Nets EY has found that, in relation to However, this comes with the programme, who can withdraw money financial services, “The foundations of challenges of securing transactions, from any Egypt Post ATM or at POS- trust are built on fulfilling the most basic simplifying access and integrating enabled post offices. expectation that consumers have of all services under a single window – all financial institutions: to protect their without sacrificing ease of use. money and identity” (EY, 2016). We find that postal DFS projects are There is a clear demand and business increasingly focused on providing case for Posts to provide a robust e-wallet and remittance services, as well and trustworthy financial services as integrating existing applications into platform that protects customers from a single platform. fraud and theft. To meet this need, Posts are increasingly leapfrogging Ensuring security in accessing money traditional technology adoption and is critical to gaining customer trust. maturity models to take a mobile-first Posts employ techniques that range approach. from traditional chip and PIN cards, to biometric authentication, as outlined in the example below. Role of the Post in expanding access to digital finance | 23

In addition to security, Benin Post simplifies simplifying the customer experience virtual and physical is essential in order to increase the uptake transactions for and use of any DFS customers solution. Linking complimentary products To keep up with the increasing need to These cards can be biometrically to offer multi-channel automate and increase the security of its authenticated at POS and ATMs to capability is one way operations, as well as catering to customer ensure that only the beneficiary of to meet the growing demands for e-banking services, Benin Post the social safety net payment has needs of customers. set up an ambitious programme to digitally access to the funds. This ensures that In the example below, transform its financial services. the right person has access to cash, Benin Post links virtual With the support of the UPU’s FITAF, Benin thus avoiding benefit fraud, theft and accounts with physical Post is embarking on its digital transformation proxy cash collection. payment cards. journey with the creation of a mobile This feature has the potential to Growing organically to platform that simplifies the customer reduce gender-based violence, offer DFS solutions often experience by offering a mobile wallet backed whereby a male family member means that there are by a payment card. could, potentially, collect benefits multiple legacy systems Benin Post is collaborating with a fintech that are due to a female beneficiary. between which data company which is working with several With the use of biometric cannot be exchanged. West African Posts and has developed an authentication, the female On their digitization electronic money transfer platform. beneficiary must authenticate and journey and as their service portfolio grows, collect the payment herself. Through this partnership, Benin Post Posts move towards customers will have a virtual account at the In 2019, the Post transferred around seamless integration Post, linked to a Visa card and an e-wallet 23.4 million USD per month to these and interoperability account. The entire customer portfolio, as 2 million card accounts. between products. The well as transaction capabilities, is accessible example below is drawn using both standard feature phones and from Tunisia Post, which smartphones. is integrating its core banking and legacy systems with support from the UPU. 24 | In Post We Trust

Tunisia Post In providing financial services, Posts them – or not? Do they care who sees seamlessly integrates need to take fiduciary responsibility their data (providers, government or vis-à-vis their customers, to ensure neighbours)?” (Medine, Making the e-DINAR with Postal customer data protection and Case for Privacy for the Poor, 2016). Accounts privacy. In some cases, these customer protection principles Customer privacy is relevant and pertinent to postal financial services. Tunisia Post relies on an online account are self-regulated and voluntarily It forms one of the basic tenets of platform that does not offer interoperability declared, or they may be enshrined in building trust with customers between the various financial products and national regulatory guidelines. and is part of regulatory compliance. services that the Post offers. With support In the United States of America, However, there is a lack of evidence from the UPU, the Post is working to offer for example, a data protection to show that these topics are of a fully-fledged e-banking system which will bill seeks to ensure that “[financial concern for Posts’ customers. allow customers to securely and seamlessly services] providers could not use access a broad range of services through a data in ways that benefit themselves This could be an avenue for future single app. over their clients or sell or share research and case studies by Posts wishing to explore all possible The Post will also expand its DFS capabilities clients’ data with third parties that pathways to build trust with their to allow app-based account opening through don’t put the client’s best interests customers. a simplified know-your-customer (KYC) first” (Medine & Murthy, 3 Data Protection Approaches That Go process, and provide an e-banking space While digitizing and securitizing Post- Beyond Consent, 2019). The European that enables customers to operate all their customer interactions, and providing General Data Protection Regulation accounts (savings, current, e-DINAR) from training therein, are important (GDPR), which was adopted in 2016, one place. aspects, the literature review and sets out similarly strict rules for in-the-field experience have revealed As the first step, Tunisia Post has launched a personal privacy protection. that human contact is a vital element postal banking app called D17. This mobile in retaining customer loyalty, and payment app provides all Tunisia Post The Consultative Group to Assist this is where Posts have a natural customers with a virtual e-DINAR account, the Poor (CGAP) recommends advantage. enabling them to manage their accounts, an evidence-driven approach reload, pay loan instalments, send and towards customer data protection: receive money from one account to another, “a key first step is getting feedback and pay various types of bill ( from consumers about their personal Tunisienne, 2019). preferences regarding privacy. To what extent does extensive information D17 is integrated with Masterpass QR, collection trouble which allows Tunisia Post customers to make payments to merchants that accept Mastercard seamlessly from their e-DINAR accounts. Role of the Post in expanding access to digital finance | 25

Sri Lanka Post

Sri Lanka Post leveraged its network of Provide access 4,692 post offices to roll out financial education and literacy materials. For comparison, there are 2,876 licensed commercial bank branches in the country to real people (Central Bank of Sri Lanka, 2018). Sri Lanka Post is continually working to expand its postal services, especially in rural areas, and to increase its service quality.

For the government, the postal network is By their nature, Posts have a broad might be too expensive for individual a key asset that links the government with physical distribution network and financial institutions, it is part of Posts’ society. Postal branches serve as centres wide reach within a country. Posts can daily routine. This outreach advantage for public information, financial literacy leverage these physical outlets and is especially marked in peri-urban and education, and community meetings. postal carriers so as to overcome a rural areas, where postal outlets are key barrier to the uptake of financial more common than bank branches. services, namely limited interest among banks and financial institutions to With the increase in postal financial expand and service markets beyond services, a number of Posts have found large cities. themselves with a distinct geographic outreach advantage compared The outreach of traditional financial with formal financial institutions. institutions, through their brick-and- In certain countries, postal branches or mortar branches, is not extensive outlets exceed the number of bank enough to serve unbanked or branches, as is the case in Sri Lanka, underbanked customers. While shown in the example below. reaching out to rural communities 26 | In Post We Trust Role of the Post in expanding access to digital finance | 27

Country case study: Viet Nam

Vietnam Post (VNP) has been working since 2013 to broaden the social safety net in Viet Nam to bring citizens under government- Posts can cost-effectively provide The network advantage is slowly sponsored insurance. VNP is authorized a human contact to explain the diminishing with increased uptake to work with the Vietnam Social Insurance advantages of DFS and encourage the of DFS, an increase in independent Agency to collect social and health uptake thereof, as well as educating financial service agents and agent insurance premiums through its network. customers on how to use their digital banking, and the proliferation of devices. This human outreach is microfinance and other institutions Through postal carriers, the VNP collects coupled with the Posts’ ability to use that have a strong focus on rural areas. social and health insurance premiums and their physical premises as an on- transfers these to the respective national demand training and customer care Nevertheless, Posts continue to enjoy insurance agencies. As of December 2017, centre. close proximity to communities and nearly 4 million people have participated in rural populations. the voluntary social insurance programme, Providing human contact gives Posts a and the VNP network has collected over 100 major competitive edge over any single million USD. DFS provider or financial institution. The need to reach trusted advisors The VNP is in the process of expanding quickly and efficiently is an this service, leveraging mobile applications important factor when dealing with for postal staff with a grant from the UPU’s a segment of customers who have very FITAF. This expansion aims to further small sums of money. increase social and health insurance coverage to up to 20 million people, by It is equally important when encouraging people to participate in the governments wish to increase uptake of insurance schemes as well as conveniently inclusive financial programmes, such as capturing their information through a PMJYD in India, or of mandatory health mobile-based solution. and voluntary social insurance in Viet Nam, as outlined below. 28 | In Post We Trust

CONCLUSION AND POLICY RECOMMENDATIONS Role of the Post in expanding access to digital finance | 29

As institutions, Posts hold a unique role To do so, however, requires Posts to in society. They were trusted over the refocus and reinvent their services in centuries to deliver vital information and order to become affordable, accessible they continue to enjoy a certain level and customer-centred. Achieving these of trust to this day. As the nature of the goals also requires trust, confidence postal business is changing, the time has and support from policymakers and come for Posts to realign themselves to regulators. To remain a trusted institution, serve the evolving needs of society. Posts must build and retain trust with policymakers, government Unlike their formal financial counterparts, and citizens alike. Posts are the institution of choice for unbanked and underbanked The following is a set of limited, populations around the world non-binding recommendations for (UPU, 2016). Posts are able to reach both policymakers and Posts to consider out and serve this segment, so as to when designing or re-designing their achieve the pro-growth policies of their financial services and DFS products respective governments and greater and services. socio-economic growth. 30 | In Post We Trust

Offer customers a secure, seamless experience

Advocate for financial Trust in a financial product and uptake of and postal regulators any DFS solution depends on the perceived, to ensure that the and actual, security of customer data, access FOR postal network acts as and money. Customers need to feel that an enabler for digital the Post is a trustworthy institution that can financial inclusion safeguard their limited finances and which DESIGNATED works tirelessly to protect their money from fraud and theft. We echo the recommendations made OPERATORS by the International Telecommunication In addition, access to DFS applications must Union’s Focus Group on Digital Financial be foolproof, with minimal complexity, yet Building upon the above findings Services, of which the UPU is a member: ensure security. Having apps, documentation “policymakers and other stakeholders and case studies, and the Postal and a help desk in the local language goes are encouraged to leverage existing Trust Framework, we recommend a long way towards ensuring customer infrastructures and capabilities within their the following for Posts: satisfaction and uptake. countries, in an effort to avoid duplication Posts need to digitize their operations – of costs. In particular, policymakers are both back office and financial services. We encouraged to consider ways to use postal realize that this is often a challenge in the networks to support the DFS ecosystem” face of limited investment in the postal (International Telecommunication Union sector, combined with the limited revenue- (ITU), 2017). generating capability of most Posts. This aligns with our findings in relation to Digital security is a complex and fast- trust-building measures to leverage the evolving topic that requires ongoing and postal brand. continual investment, as well as forward- looking planning. However, with the right partnerships and with the trust of the government to provide citizen-centred services, Posts can rapidly turn their finances around to generate a surplus. Posts that are in the early stages of their digitization journey could benefit from value- driven partnerships with more experienced organizations. We will explore this in more detail in an upcoming paper on the need for value-driven partnerships, with examples from emerging and more developed economies. This aligns with our findings in relation to trust-building measures to ensure that Post–customer interaction is simple, secure and seamless. Role of the Post in expanding access to digital finance | 31

Invest in the financial Realize that going literacy of customers cashless or going digital is not for everyone Invest in strengthening Customers in the postal segment are human capital, typically underserved, marginalized and technology and internal Poor, marginalized and vulnerable members often less educated than those of formal processes of society are more reliant on cash than financial institutions (Ansón, Berthaud, their economically better-off counterparts. Klapper, & Singer, 2013). Ensuring financial Forcing a one-size-fits-all approach may To achieve the goals of building trust in and digital literacy will go a long way not work for the range of customers served society and with their customers, Posts towards establishing institutional credibility by Posts. need to be well prepared and possess the and will build trust through customer-Post ideal mix of human capital, technology and interaction. It is critical to understand the customer other resources. There is a need to train segments in question, and their An ideal way to do this is to leverage postal and upskill postal employees to provide demographics and requirements, and to branches, especially in peri-urban and services and advice to customers. Back- tailor digital financial solutions that cater rural areas, as a touchpoint for knowledge, office and technological infrastructure must to their needs. This not only fosters trust assistance and training. Postal carriers can be appropriate to the ambitions of the Post, between Posts and their customers, but also be trained to provide basic technical including its outreach and DFS strategy. also presents a low-risk operating model support and train users through their day- for Posts offering DFS. This growth can be achieved in phases, with to-day interaction. Posts learning from the experience of rolling Leaving windows open for cash-based This aligns with our findings in relation to out basic and entry-level products before transactions ensures that Posts can capture trust-building measures to provide financial, expanding into more complex solutions. a wide range of customers from various numerical and digital literacy skills to The phased approach also reduces the socio-economic strata, and helps to customers. need for a large, upfront capital investment minimize the growing digital divide. in technological solutions.

As a final step, and in support of transparency for the institution, internal control and risk management frameworks must be strong enough to assure customers that their resources are safe and in good hands.

This aligns with our findings in relation to trust-building measures to build upon the postal brand, to ensure that Post-customer interaction is simple, seamless and secure, and to use technology to protect customers. 32 | In Post We Trust

Include Posts as a core partner in national FOR GOVERNMENTS development blueprints Bringing Posts into the design phase for programmes that have a citizen- AND REGULATORS centred service delivery component could prove beneficial and reduce costs Posts can play an important role in furthering the socio-economic for governments. Posts have made a development of a nation. As an arm of the government and with a pre- remarkable difference in acting as the deployed physical delivery network, the capabilities of Posts can be leveraged service delivery arm for G2P interactions, to address multiple human development challenges, including social and including revenue collection, the provision financial inclusion, literacy and education, healthcare, and the growth of of official documents, and financial inclusion micro, small and medium-sized enterprises to expand the economy. of the underserved, to name but a few examples. However, for Posts to achieve these goals, there must be an enabling regulatory and policy support environment. If Posts are to fulfil their mission Policymakers ought to think of Posts as and serve the broader development needs of society, we recommend that a pre-existing service delivery channel policymakers – which includes both government and regulators – note that can quickly and efficiently deliver the following: services to citizens, with appropriate levels of investment in human capacities, infrastructure and technology. Doing so will allow Posts to generate revenue, rather than remain cost centres that put a strain on limited public funds. Role of the Post in expanding access to digital finance | 33

Ensure regulatory Ensure an enabling measures to build environment to facilitate consumer confidence in digital financial services digital finance and digital liquidity FUTURE We endorse the recommendations made To boost consumer confidence in DFS, we by ITU’s Focus Group on Digital Financial recommend regulatory measures for DFS Services (International Telecommunication RESEARCH transactions that afford the same level Union (ITU), 2017), to encourage of consumer protection as in the formal policymakers to create the necessary DIRECTION financial sector. This might also lead to directives to foster an open, interconnected, higher digital liquidity as more consumers interoperable and transparent digital As the DFS maturity of Posts choose digital over cash transactions. financial ecosystem. improves, the following topics can To promote digital liquidity, regulators could be explored as potential areas for In order to promote the uptake of postal establish guidelines to incentivize digital future research: financial services and DFS products, financial transactions, thus encouraging a there is a clear need for a conducive Multi-year country case studies to move away from a reliance on cash. These regulatory environment that is pro-digital identify an increase in the number incentives could include VAT deduction, finance for the entire sector. This enabling of accounts in specific socio- discounts or cashback facilities when using environment should also extend beyond economic groups, or increased digital cash and credit cards. financial regulations to encompass access liquidity in DFS accounts, after to affordable technologies, for example by Regulators also need to consider adopting adopting specific trust-building ensuring that smartphones, Internet access measures that help to achieve the broader measures. Both an increase in and data are accessible and affordable. public policy objective of promoting the number of accounts and increased growth of SMEs and micro-SMEs through liquidity could be considered proxy We recommend establishing proportional the acceptance of digital payments. indicators of greater trust in the and risk-based regulatory measures, This includes providing a regulatory Post and its financial services. including accounts with tiered know- environment that promotes appropriate your-customer requirements. These Multi-year customer satisfaction pricing structures and flexible business risk mitigation regulations need to be and perception surveys could models that cater to the needs of small augmented by a coherent, easy-to-access be carried out in specific target entrepreneurs. national identification scheme, which, customer groups to see if their backed by digital identities, will make Finally, there is a need to adjust deposit perceptions of trust in the customer acquisition easier. insurance for the digital age. This insurance institution change over time as should be focused on product and service specific trust-building measures Regulators also need to ensure a types, rather than the channel employed are adopted. marketplace that prevents rent-seeking to access them. Digital liquidity in mobile behaviour and establishes a level playing wallets and digital cash should be insured field for all competitors. at an appropriate level against theft, fraud and cyberattacks. 34 | In Post We Trust Role of the Post in expanding access to digital finance | 35 36 | In Post We Trust

ACKNOWLEDGEMENTS AND ABOUT FITAF Role of the Post in expanding access to digital finance | 37

The UPU would like to express its sincere appreciation to the Bill & Melinda Gates Foundation and Visa Inc. for their generous support to the UPU Financial Inclusion Technical Assistance Facility (FITAF), which funded this research.

FITAF provides technical and financial resources to designated postal operators to design and deploy digital financial services to further advance financial inclusion and better meet the needs of unbanked and underbanked populations and small businesses.

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This study is being made available to the general public for discussion only. Readers are encouraged to conduct their own due diligence and not to rely on any information presented in this paper. Every effort has been made to present accurate information at the time of publication of this report. Any errors or omissions are the author’s own.

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