The importance of technology in the banking sector has long been recognised in Papua New Guinea. Both the regulators and the institutions understand that advanced systems, networks and devices can help promote growth and stability. Their adoption is also seen as instrumental in improving inclusiveness. Laws and regulations have been written to accommodate technology, while relevant infrastructure has been built and products launched.
In recent months PNG has started considering a revolutionary solution. Blockchain technology is seen as a good fit for the country, and both state and private interests are now seriously studying the possibility of its introduction.
Regulations on the use of technology in financial services have been in place for some time. In 2011 the central bank issued prudential standards for mobile banking and mobile payments, making clear that these activities are considered banking under the Banks and Financial Institutions Act of 2000. These apply both to banks and to any other companies, such as mobile phone operators, involved in mobile finance. Those undertaking mobile financial services must have a risk management framework, provide a list of products and services to be offered, have policies in place regarding consumer protection, have anti-money laundering and know-your-customer policies, and have written contracts with providers and partners. Directors and managers must meet fit and proper guidelines, while non-bank institutions applying to engage in mobile financial services are required to have minimum capital of PGK500,000 ($158,500). Services must be interoperable, allowing for transfers with other mobile banking and mobile payment services.
The standards indicate that the regulators in PNG are taking a strong approach to oversight. They have chosen the bank-led model with regards to technology, rather than the operator-led model, with existing institutions and regulations acting as the foundation for new platforms. A parallel banking system will not be allowed to develop in the ICT space.
A Range Of Offerings
The mobile finance sector is already fairly well developed, with some offerings predating the regulations. Products include: Mobile SMK, by Post PNG; BSP Mobile Banking; BSP’s Wontok Money; Digicel’s CellMoni; Nationwide Microbank’s MiCash; ANZ goMoney; and Westpac’s Everywhere Banking. An estimated 9.2% of the country’s population has access to mobile banking.
Other hi-tech interfaces are available. All the major commercial banks, as well as some smaller local financial institutions, offer online banking products. In many ways, the platforms mirror those available in Australia and other developed markets.
ATMs and the electronic funds transfer at point of sale system are becoming increasingly sophisticated. The latest terminals being installed provide payment approvals in two seconds, down from 15 seconds at previously installed terminals.
Some banks have rolled out devices that work when the internet is down. Inclusiveness is central to some terminals, with People’s Micro Bank having an ATM that allows withdrawals of amounts as low as PGK10 ($3.17). Coverage has greatly increased, and the number of ATMs in the country per 100,000 people has nearly doubled in a decade.
Electronic banking, mobile and otherwise, can change the way the people of PNG relate to financial institutions. As in the rest of the world, technology will make transactions more convenient and possibly less expensive, but in PNG it may also help address issues related to challenging topography and geography, and the complex security environment.
Most important to electronic banking is the development of payment systems, a long-time priority of the central bank. The authorities understand that to have an innovative front-end a robust back-end is necessary. In 2013 the National Payment Systems Act was passed. The Kina Automated Transfer System (KATS) was developed and rolled out over three years, with the final stage completed in 2015. A range of features and functionalities have been brought to the financial system by KATS. Real-time gross settlement has been available since October 2013. Cheque truncation was introduced in 2014 and direct credits in 2015.
The next step is development of the national switch, which will enable all finance platforms, including microfinance institutions and superannuation funds, to be interoperable. This is seen as a significant evolution, as it will allow for smaller institutions to become more integrated with the rest of the banking network. This is expected to make the market broader and more dynamic. The switch is an application of one of the central bank’s guiding principles: that institutions should battle it out on price but cooperate on infrastructure.
PNG is increasingly proactive about new technologies. Some are so promising, and so directly address issues in the country’s financial system, that they are being considered for adoption before they have been widely implemented elsewhere. In the near term blockchain technologies are getting the most attention. Blockchain is seen as especially useful in countries like PNG as it has the potential to remove the risk inherent in less-developed financial infrastructure. In environments where some institutions are weak and some counterparties are not credible, trust can be shifted to the code. It is thought that the technology can be used for more than just banking, for example in registration of land titles. The Bank of PNG and the Australian government are studying blockchain, with Australia committing $151,000 to the research.
Some observers believe that PNG is not only a good place for utilising the new technology, but that it could also take the lead as it puts the cutting edge idea into practice. While other countries are saddled with legacy systems and practices, PNG could leapfrog them. A country which has until now been noted for its low level of financial inclusion is now being referred to as a possible disrupter.
One start-up working on developing blockchain solutions for PNG, led by Papua New Guinean managing director Shane Ninai, is Day One, a Silicon Valley-based enterprise. In early 2017 the company was raising funds for its development and had received local and international commitments, with support coming from US venture capitalist Tim Draper. The pilot programme will take place in East New Britain Province. Ninai said that the use of traditional shell money in the area parallels some of the concepts that blockchain utilises.
Regulatory support is vital if blockchain is to work in PNG. Ninai suggested that the central bank allow for the creation of so-called regulatory sandboxes, where certain aspects of the technology can be tested in a limited way. He said that official backing is also important, as it helps to create the credibility that is needed. Without this support, people may not fully believe in the system.
While some proponents of the technology see blockchain as a way of avoiding the existing infrastructure altogether, Ninai advocates a more moderate approach. He believes that the private sector has to work with established institutions to get the technology to work. He said that the dream of blockchain transforming the developing world overnight is unrealistic, but believes that it is applicable to traditional economies if it is introduced properly.
Ninai noted that education and human capital will be key to getting the technology to work, but he believes that the young generation in PNG should adapt to the technology quickly and provide the talent necessary to build out the blockchain system.
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