19 Aug Payments firms using digital technology for financial inclusion
BI Intelligence has published the financial inclusion report that explores how the payment companies are using digital technology to reach the un- and underbanked. The report explores who the un- and underbanked people are, how they differ by region and what are the benefits of bringing these individuals into the formal banking system.
According to a survey from The World Bank, over 2 billion working-age adults does not have access to financial services. These individuals can be classified into 2 groups – the ‘Unbanked’, who do not use banks or banking institutions in any capacity, and the ‘Underbanked’, an undeserved group who might use banks for basic functions like checking but lack access to more advanced features like lending and credit.
Key points from the report are:
- Opportunity for Payments companies to leverage the digital technology – Earlier, the Un- and Underbanked individuals were typically seen as low income and thus non-lucrative. But now with the digital technology payment companies can gain significant market share and revenue.
- Brining the unbanked into the financial system through mobile services – Mobile money services such as M-Pesa accounts for around 70% of all non-cash transactions in Kenya. Also, by engaging with clients more frequently through mobile, some segments can adopt services such as mobile check or financial management tools, which could give banks higher balances and increased revenue.
- Payment cards becoming a viable way of providing access to financial services in developing nations- Cards are inexpensive, safer than cash and also serve as identification for individuals.
- Rise of prepaid cards among the un- and underbanked in developed countries – In 2014, around 27% of US prepaid cardholders didn’t had a checking account.
The report also highlights the fact that globally, the individuals are most often unbanked and underbanked because of major infrastructural barriers that keep these individuals from accessing banking services. Other self reported barriers such as lack of trust in banking system, religious reasons, distance to financial institutions and price associated with maintaining the account are also responsible for a large population of un- and underbanked individuals.
Payment companies are focussing on the digital solutions to cater to the barriers as stated above. Mobile phones and payments cards are widely used to expand financial access across the world. In the developing world, financial products are deployed via mobile phones and are serving as a substitute for traditional banking services. Brands like M-PESA or MTN have tied up with mobile network operators like Vodafone and Safaricom respectively to transmit funds using SMS-based virtual ‘e-money’.
