Assessment of the retail payments ecosystem in the Solomon Islands
The Central Bank is thrilled to announce the release of our latest report, the “Assessment of the Retail Payments Ecosystem in the Solomon Islands.” This report provides a comprehensive overview of the current retail payments landscape in the Solomon Islands and outlines key strategies to promote financial inclusion and modernize our payment systems.
In 2020, cash transactions accounted for a significant 80% of all transactions, underscoring the heavy reliance on cash in our retail payments ecosystem. Despite the availability of supporting financial infrastructure, electronic payment methods such as cards, mobile money wallets, and online banking remain underutilized.
This situation is primarily due to the concentration of financial service access points in the capital city of Honiara, leaving most of our rural provinces without access to bank branches, ATMs, agents, and connectivity. Currently, the nation’s four commercial banks have only 15 branches nationwide, with over 70% located in Honiara. While mobile money wallets have been introduced, they have yet to gain significant traction, and interoperability between providers remains a challenge.
The report highlights the ongoing modernization efforts, such as the Automated Transfer System (ATS) infrastructure project, which will replace manual cheque clearing for interbank payments. However, several cross-cutting challenges still hinder the adoption of digital payment methods, including limited infrastructure, identification issues, heavy cash reliance, absence of interoperability, and regulatory gaps.
To address these challenges, the report identifies five focus actions to achieve financial inclusion:
- Implement a fully interoperable digital payments infrastructure through an optimal centralized model. A regulator-led model that offers standardization and oversight can connect providers through a national switch with unified rules and standards, enabling accessible and efficient digital transactions. Regulators and the Central Bank should evaluate the best approach between market-led, regulator-guided, regulator-initiated, and regulator-led models.
- Establish necessary supporting infrastructure, including a national ID and physical (postal) addressing systems. Integrating a national digital ID system with payments can enable innovative services like proxy identifiers, simplifying customer payment initiation and eliminating the need to remember account details.
- Foster a proactive regulatory environment by updating legislation and frameworks for data protection, cybersecurity, anti-money laundering (AML), and fintech. These reforms can accelerate progress and attract investments.
- Fourthly, promote the sustainability of digital payment products by driving growth and adoption. Collaboration between providers and the government can offer subsidies, fee reductions, tax breaks, cashback, and marketing support to incentivize merchant acceptance of digital payments. Achieving a critical mass of users and touchpoints is crucial for sustainability.
- Diversify products and services beyond basic transfer services. Given the small market size of the Solomon Islands, digital payment providers should consider offering additional digital financial services tailored to market needs after establishing core payment capabilities.
In summary, modernizing retail payments in the Solomon Islands requires coordinated efforts in regulation, infrastructure development, incentive programs, and public awareness. A shared vision, partnerships, and regional coordination will be instrumental in unlocking digitization and achieving financial inclusion.
The “Assessment of the Retail Payments Ecosystem in Solomon Islands” was produced by the Central Bank of Solomon Islands (CBSI) in collaboration with key stakeholders, including Kapronasia (KA), the Government of Australia, and the UN Capital Development Fund (UNCDF) through the Pacific Digital Economy Programme (PDEP).
Stay tuned for further updates and progress in our journey towards a modern and inclusive retail payments ecosystem in the Solomon Islands.
