separate account with commercial banks to safeguard user funds.<sup>77</sup> In countries such as Colombia, Kenya, and Mexico, payment service providers need to ensure that funds received are placed in a ring-fenced account at commercial banks exclusively.

Governments have to strike a balance between risk control and business efficiency so that they do not impose additional burdens on business operations. Ten countries such as Kenya and Korea in the Digital Business Indicators sample set a limit on the amount of a single payment transaction. Such a limit prevents money laundering, terrorist financing, and other digital payment criminal activities. Although there is no global census on the ideal level of a limit, an excessively low amount could pose an extra operational burden on businesses.

# _Logistics_

The digital economy is not constrained to businesses operating in a virtual environment; it also brings traditional businesses closer to markets thanks to e-commerce. E-commerce, defined as “the process of buying and selling products or services using electronic data transmission via the Internet,” has been booming.<sup>78</sup> Globally, e-commerce is expected to become the largest retail channel by 2021. Because physical products must be shipped to customers using conventional transport after online purchases,<sup>79</sup> logistics is a critical link connecting online transactions to offline production.<sup>80</sup> The rise of e-commerce has increased the flow of small parcels processed by third-party logistics and postal services. In 2013, 86 percent of Amazon products weighed 5 pounds or less. International parcel post grew by an impressive 29.7 percent from 2016 to 2017, with 0.18 billion items shipped globally in 2017; domestic parcel post grew by 8.6 percent, with 13.7 billion items shipped.<sup>81</sup> Customers’ expectations about efficient logistics are also growing. According to a 2018 study, 91 percent of U.S. online shoppers said they will leave a retail website if critical services such as “fast, free shipping” are not available.<sup>82</sup> Poor logistics remains a barrier for the growth of both domestic and cross-border e-commerce in many developing countries. A lack of quality physical infrastructure such as ports, railroads, and roads is the first bottleneck. According to the Logistics Performance Index, low-income countries score 2.2 out of 5 on the physical infrastructure indicator, compared with high-income countries’ score of 3.5 on average. An infrastructure investment gap also exists between rural and urban areas. In the Lao People’s Democratic Republic, 65 percent of the rural population does not have access to an all-weather road.<sup>83</sup> Beyond the need for investment in physical infrastructure, governments should also support the provision of logistics services through better administrative governance. In many countries, home delivery of purchases is still challenging because of lack of a national addressing system. A large percentage of the population has to pick up or send mail from a postal establishment, which gives them no incentive to engage in e-commerce activities (figure 9).

# **Figure 9. Some countries lack a national addressing system to support e-commerce**

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