Financial inclusion: a virtuous circle – Banking is not global while half the world’s population remains unbanked

Digital payments delivered on mobile technology promises to bring banking services to the unbanked and underprivileged, slashing the costs of payments services and helping raise people out of poverty

Leveraging mobile technology will be vital to extending financial inclusion to the world’s poor and underprivileged, with the potential to introduce as many as 2.5 billion ‘unbanked’ people to financial services.

For panellists at Tuesday’s plenary session on financial inclusion and the role of payments, supporting technology for payments was seen as a vital first step to introducing people in the developing world to the broader universe of financial products. “Payments are the connective tissue that can help onboard the world’s poor into other financial services,” stated Rodger Voorhies, director of financial services for the poor at the Bill & Melinda Gates Foundation. Financial services play a major role in bringing people out of poverty, Voorhies said, by pro- viding opportunities and buffering people against risks that can change lives for the better.

As the founder of the Opportunity Bank of Malawi, Voorhies has seen for himself the life-changing effects that using alternative de- livery methods for bank payment services, including mobile phones and biometric smart cards, can have. “In Malawi, there were of- ten situations where farmers who needed fertiliser would lack the cash to buy enough upfront when supplies were high to see them through times when there was less availability. By providing people with the finance tools they needed to invest in basic supplies, we in- creased the use of fertiliser and this led to a 17% growth in income for the farmers,” he told the audience.

Banks looking to extend their reach into emerging markets should be looking to leverage existing technology infrastructure to drive down costs and increase access. Tapping into mobile phone technology, which has become ubiquitous across the developed and developing world in the past decade, should form the back- bone of any strategy to extend financial services to the unbanked, according to Al Fardan Exchange CEO, Osama Al Rahma. “The technology is already there and it is advanced, mobile technology offers many possibilities through smartphone apps and eWallet services to bring payments services to people in remote communities who have never had a bank account before.”

Many of the most widely used payment systems today are not even run by banks themselves, but are helping to create a financial ecosystem that all aspects of financial services can benefit from.

Mobile money transfer systems, such as M-Pesa, enable cost-effective and easy access for de- posits, bill payments and sending money. The panellists agreed that providing this kind of basic access to financial services though an accessible platform helps to increase financial literacy and, ultimately, drive demand for more complex products such as savings accounts, loans and insurance.

Working with government?

While mobile technology has a major role to play, panelists said industry collaboration with governments and NGOs to combine payment technology with charity, welfare and national identity schemes could also extend the reach of financial services to billions.

In India, collaboration between banks and the government has helped bring banking services to remote communities. “The government has used a unique identifier for every citizen as part of its welfare programme and by linking with this, we’re able to offer them a pre-paid card which can be automatically loaded with their benefits. This is really bringing banking to people’s doorsteps in India,” explained KR Kamath, chairman and managing director of Punjab National Bank.

Other governments have also sought to collaborate with financial services providers on payments to help extend the reach of banking to their citizens. MasterCard’s president of international markets, Ann Cairns, discussed how moving to digital methods of payments is cut- ting the costs associated with cash and extending bank services to those once deemed too costly to reach. “We’ve been working with the South African government to improve the security of its welfare programme though the use of pre-paid, biometric identity cards,” she told the audience. “Not only had this reduce fraud, but we’ve partnered with local technology firms to bring card payment to shops, reducing the need for cash and driving down the cost of payments for poor people in South Africa.”

Voorhies argued that cash-focused economies were one of the biggest barriers to providing affordable financial services solutions to the developing world. “By moving from cash to digital payments, you can cut your costs by around 90%,” he added.

The above article originally appeared in the Wednesday 18 September 2013 publication of Sibos Issues.