Italy, Electronic Payments and SME Credit Information - the central role of electronic payments to SME Finance

I'll be disappointing anyone who's expecting something on the present Italian political situation...that's beyond my pay grade...but was in Italy last week for 2 very interesting meetings, the first on retail and "corporate" payments, the second on SME credit information.  At both were a number of regulators (mostly central bank officials), industry representatives (from the likes of VISA, MasterCard and the private credit information industry), and colleagues from the World Bank and IFC.  In the former meeting we focused on how to bridge the currently huge gap between EU and OECD countries and emerging market countries in electronic payments use (well over 100 transactions/person per year versus fewer than 1/person in sub-saharan Africa, for example).  While the gap is formidable, the innovations taking place are very encouraging.  We received an update on the universal ID program in India, for example, which already has captured more than 300 million people, and will serve as a bridge for electronic means for government to person, government to business, business to business, and business to person payments.  At the same time, new research coming from the Gates Foundation suggested, to me anyway, that even in cases like M-Pesa, payments services by themselves don't make money, and the business case must depend on additional services that piggy-back on top of the electronic payments - such as further sales or purchases generated at the electronic transaction points, or new credit markets developed through the payments platforms (whether by financial institutions or by supply/value chain participants). "Corporate payments", which doesn't mean electronic payments services for large corporations, but covers a range of issues affecting electronic payments options for all enterprises, is an area that hasn't received as much attention as government or consumer electronic payments - but it's an area ripe for growth and attention, and it was clear from hearing from the likes of VISA, JP Morgan, Citi and others that the potential is huge.  An estimated market of $109 trillion/year was mentioned...so it was clear that the problem was not potential demand, but transforming business processes and incentives to encourage more commercial payments to take electronic channels.  This transformation will require transforming firms' internal systems - a particular challenge for smaller firms.  If this challenge can be overcome, it will greatly reduce costs for finance and other services for smaller firms, and it may open up new ways to encourage small firms to formalize with respect to tax, labor and other obligations...but this raises further issues on tax administration systems and other legal/policy matters that presently may discourage change in these areas.  The meeting on SME credit information highlighted the particular challenges of getting reliable, useful information from this segment - and, in particular, the importance of tapping into sources beyond banks to overcome these obstacles.  Getting information from other payments behavior, and trade payments, in particular, is a key gap to close.  The problems are less technical than policy/regulatory, as it's rules, rather than technology, that block this access.   As this group has a number of senior regulators, and a track record of having produced the General Principles for Credit Reporting, I'm very hopeful that it will be finding ways to overcome these barriers.all in all, a most interesting few days in Italy...watch both these groups for more of great interest to SME Finance!   matt