09 October 2017
The Unbanked Citizens
Financial exclusion is one of the biggest challenges facing the world today.
Some 2.5 billion people, mainly – but not exclusively – in developing countries, still have no access to bank accounts or products, figures from Mastercard show.
The company’s Executive Vice President of ACH Systems and Integration, Eddie Grobler, said: “Despite advances made in the last five years, hundreds of millions of adults still don’t have a bank account.
“Trapped in a cash economy, they lack the financial services to guard against risk, invest in their future and build better lives.”
The one thing more than half of these “unbanked” people do not lack, however, is a mobile phone.
Mobile money services now operate across more than 90 countries, covering 85% of the world’s poorest territories; places where bank accounts are a luxury.
So for many of the “unbanked”, digital payments made via their mobiles are the key to an easier and more financial stable life.
Financial exclusion around the world
Financial exclusion is not just a problem for the developing world.
Even in rich, Western economies, millions of people have no access to savings accounts or overdraft facilities.
In the UK, for example, Financial Inclusion Commission figures show that 1.5 million adults have no access to banking services whatsoever, while recent research from the Federal Deposit Insurance Corporation reveal the same is true of 9 million households in the US.
The people in this situation often live precariously from month to month, with no access to credit or savings they could use as a cushion against financial shocks.
They cannot take on jobs with employers who wish to pay their salaries into a bank account.
Nor can they take advantage of online deals and discounts that could cut their monthly outgoings.
In emerging economies, meanwhile, the hardships endured due to dealing solely in cash include having to walk miles to pay a bill or being forced to turn to unscrupulous moneylenders when life events threaten to push them to breaking point.
Roger Voorhies of the Bill & Melinda Gates Foundation, which works to end financial exclusion in developing countries, said: “Having to use cash can mean missing work to travel half a day and then wait in line for hours at a government or vendor office,”.
Digital payments as a solution
Despite the disadvantages outlined above, Mastercard’s research shows that 85% of all payments are still made in cash.
Times are changing, though. In India and Thailand, for example, hundreds of millions of people are now sending, saving and receiving money – all without opening a bank account.
But what is driving the take-up of digital payments in preference to traditional banking services?
The tremendous popularity of mobile phones is undoubtedly one factor, while the low cost and convenience of these services are also big incentives.
Take Vocalink’s immediate payments solution in Thailand, PromptPay, which processes payments via mobile, online and ATM channels. Traditionally, many Thai citizens avoided sending and receiving money via bank accounts as they would be charged a transaction fee, which for many was not affordable on a regular basis. Via PromptPay, transfers are free below a threshold of 5,000 baht, with larger transaction costs capped at 10 baht – a massive saving on the 25-baht to 120-baht interbank levies previously charged by the banks.
According to the Thai Bankers Association, the service is also enabling millions of people to receive benefits from the government via instant transfer.
Crucially, increased take up of digital payments around the world is helping to drive economic growth too – even in war-torn areas.
In Lebanon, for example, Mastercard and the United Nations World Food Programme’s electronic voucher programme provides a way for hundreds of thousands of Syrian refugees to eat, while boosting the local economy.
“Ultimately, financial inclusion is the foundation of economic growth that’s more inclusive and sustainable,” Grobler said. “Our commitment is to connect 500 million people by 2020, including bringing 40 million micro and small merchants into the system.”