An account of the unbanked: From mobile payments to more financial inclusion
In India, at least half of the population is unbanked: Remarkably, these people lack access to the convenience of electronic payments so common in the west. Yet while India is home to the world’s largest unbanked populace, mobile phone adoption is on the rise. The jump adds up to about 200 million mobile subscribers, with 5 million more added monthly.
India’s smartphone circumstance gives reason for hope. With more than one-third of the world’s population unbanked—yet more people with access to mobile phones than ever—an outstanding opportunity awaits. At last, mobile payment technology can gather the financially omitted into the economic majority, while microfinance institutions can offer more competitive loan rates to users who take advantage of lower costs due to dealing in cash.
Mobile payment technology removes the need for direct access to a bank or credit union and costs much less than other money transfer options. The option to tap the power of mobile payments readily exists on the majority of the devices people own.
Compared to traditional deposit-taking financial services organizations that merely act as banking agents, mobile network operators and payment platforms have profound implications for the global banking world’s connecting to the unbanked. In Kenya and Tanzania, for example, more 25 million people use the M-Pesa mobile payments platform with money sent via text message.
As FinTech firms continue to disrupt traditional banking organizations, uncertainty reigns as to how the banking industry will look in by the end of the decade. Does mobile money pose a threat to the banking industry? Accenture estimates “that bringing unbanked adults and businesses into the banking sector could generate about $380 billion in new revenue for banks.” There’s no doubt that mobile money presents an exciting symbiotic platform for the global banking community. The reality is that the unbanked community represents the most natural place for banks to look for their next 100 million customers.
Mobile money provides a democratic gateway to banking that doesn’t care where you live or the amount of money you have:
- It is a great marketing tool for the banks to uncover people who use money services but are unknown to the banks.
- Banks can leverage their regulatory experience, infrastructure and consumer trust to capture the unbanked mobile money market.
- Mobile money platforms feed cash into banks and act as a virtual branch network without the costs of an actual brick and mortar facility.
Governments love mobile money as well: It allows them to track and tax the commerce and makes for an ideal anti-laundering tool because all transactions can be traced. Around the world, ruling bodies see mobile money as a way to distribute subsidies and collect taxes without corruption and loss of funds to graft and pilferage. Yet governments and regulatory authorities also need to work together to ensure that mobile money transactions are safe and secure.
Meanwhile, women throughout India often find themselves excluded from the formal banking world. But the global revolution in mobile communications and digital payment systems has created opportunities for women in poor households to gain a livelihood. For example, the Kalighat Society for Development Facilitation in India has trained 75,000 women on the use of mobile payments services, so that they can take this knowledge back to their villages and resell mobile top-up and other services to make money.
Today mobile networks reach more than 90 percent of the population in developing nations. Ensuring that this population has access to mobile banking requires an organized, multi-party investment in the overall digital payment infrastructure. To achieve scale, mobile money requires the coordinated participation of governments, the banking community, mobile network operators, the private sector and FinTech upstarts all working together.
The Gates Foundation believes that “the combined effect of these interventions will accelerate the rate at which people can transition out of poverty and build their financial security.” Digital payment systems can address the needs of individual low-income households by offering a one-stop solution to enable the collection of customer payments, buy goods and pay for housing, healthcare, utility bills as well as a way to send money to family, friends and business associates.
And as people benefit—personally, professionally and financially—the ripples promise to extend into the broader community—and impact the financial services world positively, as well as the world itself.