By Alix Murphy
Last week, the World Bank quietly released an important report on financial inclusion. It sets out clear guidelines from one of the world’s most influential organisations about how to get the world’s 2 billion unbanked into the formal financial system.
While the word ‘FinTech’ isn’t mentioned, the Payment Aspects of Financial Inclusion Report (co-authored by the Bank for International Settlements) shows how technology will play a critical role in helping people gain access to financial services: by helping them to go cashless.
The report urges policymakers to leverage existing mobile and digital innovations across the developing world such as Mobile Money, and to tap into large and recurrent payment streams like remittances, to stimulate a ‘virtuous cycle’ of cashless payments throughout the economy.
If you don’t want to read the full 82 page report, here are some of the key findings:
1. Financial inclusion is no longer just about having a bank account
While it’s been the talk of the payments industry for years, the World Bank has officially recognised that you don’t need a bank account to access financial services, but simply a “transaction account” through which payments can be made and received, and where money can be stored safely.
Previous financial inclusion efforts focused too narrowly on getting everybody “banked”, but these failed to reach hundreds of millions of people because of the high costs of extending banking infrastructure into rural areas, especially in developing countries.
The World Bank now says that simple transaction accounts offered by non-bank entities such as e-money issuers and Mobile Money, are “an essential financial service”, reflecting a visionary about-turn in the international development sector and fight against global poverty.
2. Mobile Money is one of the key drivers enabling financial inclusion.
Mobile phones now reach the most remote communities across the world, in places where banks cannot penetrate. Mobile Money, a simple electronic account linked to a mobile phone number, is now available in 93 countries, enabling unbanked customers to make basic transfers and payments at very low cost.
“…e-money payment services through mobile phones seem to be especially well suited for rural and isolated areas, where providing physical points of access to payment services can be expensive”.
A payments account is one thing, but full financial inclusion also depends on access to crucial services such as credit, savings and insurance, which help to protect households against income shocks and disaster. Mobile Money providers are among the payment services most innovatively driving financial inclusion by providing access to micro-insurance, micro-loans and even interest-bearing savings accounts.
3. Remittances are a “catalytic pillar” in driving electronic payments and boosting financial inclusion
One in seven of the world’s population is a migrant, yet migrants and their families are among those least likely to be financially included. Remittances – the money sent by migrants back to their home country – comprise a crucial part of daily subsistence and financial security for hundreds of millions of people around the world.
Up until now the potential of remittances have remained “largely untapped”. This is because many remittance payments are made and received in cash and so are disconnected from the broader domestic payments infrastructure.
Channelling remittances directly into Mobile Money provides a missing link to financial inclusion by enabling the recipients of remittances to make payments like utility bills and other essential transactions directly from their account.
4. Financial inclusion depends on an ‘ecosystem’ of businesses and services accepting electronic payments
Regardless of income level or geography, electronic payments simply won’t be used unless they are useful. Many earlier attempts at transactional accounts such as prepaid cards have remained fragmented with low acceptance among businesses, which in turn results in low usage among customers.
In countries where Mobile Money has flourished, a broad ecosystem exists for customers to make transactions beyond just peer-to-peer payments, such as paying utility bills and school fees, or receiving salary payments directly via their account.
Frequent usage of transactional accounts in turn justifies investment in modernisation of national payment systems to channel more electronic payments, which in turn results in a “virtuous circle” enabling greater access to and usage of transactional accounts.
( Alix Murphy is Senior Mobile Analyst at WorldRemit).