Why Bother? What Matters? If we have data, let s look at data. If all we have are opinions, let s go with mine - Jim Barksdale, former CEO of Netscape

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2 Our objective: a scientific approach to measuring digital money readiness and quantifying associated benefits 1 Why Bother? 2 What Matters? If we have data, let s look at data. If all we have are opinions, let s go with mine - Jim Barksdale, former CEO of Netscape -2-

3 Measuring digital money readiness Rule of Law Market Efficiency Regulatory Quality Innovation Environment Financial Services Access Financial Restrictions ICT Readiness egovernment Electronic Payments Transit and Toll ways ecommerce Digital Money Readiness Index Business Sophistication ICT Usage Perceived Corruption Technology Diffusion -3-

4 Index Understanding digital money readiness Digital Money Readiness Maturity Stages 2.0 Incipient Emerging In-transition Materially Ready Deviations from baseline Source: Citi Imperial Digital Money Readiness index -4-

5 Index Understanding digital money readiness Digital Money Readiness Maturity Stages 2.0 Incipient Emerging In-transition Materially Ready Deviations from baseline Source: Citi Imperial Digital Money Readiness index -5-

6 Index Understanding digital money readiness Digital Money Readiness Maturity Stages 2.0 Incipient Emerging In-Transition Materially Ready Deviations from baseline Source: Citi Imperial Digital Money Readiness index -6-

7 Index Understanding digital money readiness Digital Money Readiness Maturity Stages 2.0 Incipient Emerging In-transition Materially Ready Deviations from baseline Source: Citi Imperial Digital Money Readiness index -7-

8 Index Score Does readiness translate into usage of digital money? Reasonable correlation indicating that Correlation: 0.79 DEU JPN ARE BEL FRA FIN SWE NOR SGP NLD GBR DNK USA CAN AUS KOR some factors are now understood while others are not 0.5 ESP CHL CZE MYS PRT MAR TUN EGY IND VNM HUN ITA GRC PHL MEX THA ROU IDN COL PER KEN RUS UKR TUR BRA ARG KWT Getty Images Note: Source: VEN Cashlessness Citi Cashless Intensity: consumer spending using credit, debit or prepaid cards / total consumer expenditure Lafferty, Bundesbank, ECB, BIS, World Bank, Trading Economics, Citi-Imperial analysis -8- Corbis

9 Index Score Extent of adoption depends on unique circumstances High cash usage as compared to readiness Germany Cultural preference; proliferation of cash-out infrastructure Correlation: 0.79 DEU JPN ARE ESP MYS CHL CZE FIN SWE NOR SGP NLD GBR DNK USA CAN BEL AUS FRA KOR PRT High digital money usage as compared to readiness Argentina Government incentives for digital money adoption Japan Cultural bias against liabilities; high interchange rate MAR TUN EGY IND VNM HUN ITA GRC PHL MEX THA ROU IDN COL PER KEN RUS UKR VEN TUR BRA ARG KWT Cashlessness Venezuela Digital money favored due to security concerns; runaway inflation has increased usage Source: Citi Analysis -9-

10 The economic impact of digital money adoption Government Business Consumer The Digital Money Readiness Index finds that when executed properly, digital money adoption can result in tangible benefits for the Government, Business and Consumer -10-

11 The economic impact of digital money adoption Government Business Consumer USD 1 trillion of new flows in the formal economy 1 USD 100 billion 5 25% estimated increase in tax collections 2 Reduced leakage in government disbursements due from electronic G2C payments Potential for new flows in the formal economy via financial inclusion Government disbursement through digital money, arguably, has the potential for higher social impact 1. Based on regression against GNI across 90 countries which is estimated to be $81 tn (source: World Bank, 2012) 2. Assuming 10% tax collection rate 3. World Economic Forum Note: refer to approach slides in appendix for details -11-

12 The economic impact of digital money adoption Government Business Consumer USD 80 billion Associated increase in deposits 1 USD 70 billion Associated increase in loans times Revenues from service adjacencies 2 Businesses can benefit from efficiency gains in terms of the reduced costs of handling cash along with new revenue upside due to higher spending from existing consumers and access to new customers 1. Size of deposits and loans estimated using avg. savings and loan sizes in microfinance; Avg. MF deposit across 90 countries: $620; Avg. MF loan value across 90 countries: $2,500 (Source: MixMarket) 2. Fighting poverty profitably, Gates Foundation 3. World Economic Forum Note: refer to approach slides in appendix for details -12-

13 The economic impact of digital money adoption Government Business Consumer 220 million ~USD 630 the formal financial sector 1 Number of individuals entering Lower cost of financing, additional savings per individual 1 7% Increase in employment for every 10% gain in financial inclusion 2 Formal inclusion resulting from digital money adoption provides access to affordable financial services; At a minimum, it removes friction associated with a transaction making life convenient 1. Avg. loan rate for informal sector: 41%; Avg. loan rate for formal sector: 8% (Source: World Bank); Cost of financing estimated assuming 60% reduction in loan rate on moving to formal FI sector; Interest from savings computed using average savings rate (4.45%, source: World Bank) and assuming that current savings outside of formal FI does not attract any interest 2. The Economic Impact of Banking the Unbanked; Alliance for Financial Inclusion, World Bank Note: refer to approach slides in appendix for details -13-

14 Increasing digital money readiness Incipient Enable Build enabling ICT and payments infrastructure Address availability and affordability of basic financial services Address regulatory gaps Emerging Drive Improve ease of doing business (e.g., secure property rights, market friendly business norms) Educate consumers on benefits, provide incentives for adoption Implement government and corporate digital money solutions as accelerators In-transition Foster Materially Ready Facilitate market innovation and investment towards innovative and ubiquitous digital money solutions Focus on fostering a favorable regulatory, business and innovation environment to capitalize on consumer and business propensity to adopt -14-

15 It s a journey, join us -15-