There are only a few things that most people can agree on these days, notes Mastercard. One of them is that too many people in the world are denied access to banking and financial services of any kind. The second? That this lack of financial inclusion excludes them from participating in most of the payments and commerce activities that most of those reading this take for granted.
Paying bills, buying groceries, sending funds to a friend or relative in need—what is a few minutes and a tap on a screen for most of us can quickly turn into a very time consuming and expensive process for those excluded from the financial sphere. Imagine what it would be like to have to take a day off of work every month to walk 10 miles round trip to pay a utility bill—because all you had was cash and there was no other way to make the payment.
But—as Karen Webster noted in a recent conversation with Shamina Singh, president of the Mastercard Center for Inclusive Growth— the financial inclusion puzzle has been awfully hard to solve, and not for lack of trying.
For instance, as shown by an inventory of 200 or mobile money innovators jointly done by Market Platform Dynamics and the Gates Foundation a few years ago, there have been all kinds of efforts—mostly geared toward emulating the success of mPesa in Kenya—with little success to show for it.
The problem mobile banking innovators run into over and over, the study showed, was the classic trouble with trying to solve a big problem. Mobile payments innovators, over-run by the complexity of the issue, rapidly find themselves trying to “boil the ocean,” instead of drilling-down on a specific area where a cornerstone can go in, thus allowing them to begin addressing complexity and to start tackling the regulatory realities of these efforts.
Singh agreed, noting, “it is a long process,” though—and that this is the good news, and one that has been gaining a lot of traction over the last half decade.
“The concept of financial inclusion has gained a lot of visibility and lot of acceptance – this whole idea of a cashless or cash-lite economy really sprang up a few years ago as collaboration between [Tuft’s business school] Fletcher and Mastercard figuring out what the costs of cash are.”
Spoiler alert? They’re high.
So high, in fact, that the Mastercard Center for Inclusive Growth was born to answer the all-important question: that is, how to make the world a more digital and inclusive place for payments.
The High Cost of Cash
Though cash is often boasted as the “easy” or “free” way to use money, Mastercard’s actually data on the subject actually indicated something other.
“Cash is really costing economies gigantic sums of money in terms of corruption, time spent and crime,” Singh noted, which is how financial inclusion related to moving from a cash-based to a cash-lite society ultimately became a “rallying cry”— not just for Mastercard, but for the entire payments industry
“We feel a lot of momentum and energy in the space – and now we are starting to see the results. It feels like once it started building and the private sector started engaging you started to see a framework where private and public orgs could come together converse and set a plan for how it actually might work,” Singh noted.
A framework that has – and will – take time – but one that can be realistically approached going forward.
What It Takes
There are no easy answers, Singh noted, and sometimes it’s not even easy asking the right questions.
“Part of the reason we have been so involved, there are things like identity that going in people didn’t get the fragmentation in—and how important it is to get right.”
In the West, and other parts of the developed world, identity isn’t an issue. But Singh noted, for consumers like her mother, who was born in an Indian village without a birth certificate—figuring out how to make things like KYC rules work in an environment where IDs are few and far between is actually a big issue.
“Once people realized that, we started realizing that you have to solve for very basic functions that people in the Western world may have taken for granted.”
Interoperability is another issue— one that has opposed in with mPesa, which has been brilliantly successful in Kenya – but has had a hard time growing.
“The scale issue really came in with the telos—I get that the government said we wanted to innovate before we regulate—and that made sense. But it created a monopolistic environment and made it hard to scale beyond one phone company. We’ve really learned what we need is interoperability and competitiveness working n close concert with regulation—because these are vulnerable populations.”
But, Singh noted, it can happen—and what is unfolding in India right now with the demonetization and embrace of QR is living proof.
“It will be very interesting to see how it unfolds,” Singh said. “When you do get a government involved in that way—you can really pick up the pace. India said ‘we’re doing this,’—and here we are.”
The issue now is finding the right access point. Which means, in some sense, the banks and the telcos need to stop competing for the hearts and minds of the developing economy consumer by trying to block out and cut each other off.
The bigger lesson, though, is coming forward offering developing economy consumers and merchants all of what they need— instead of an interesting alternative. mPesa is a digital network for payments run on feature phones—but, Webster noted—one of its core strength is the network of physical locations that mPesa users can easily cash out their accounts. QR in India— on the other hand—is cutting out the cash, but doing so with a big governmental assist.
And that, Singh notes, is really the point— instead of building a solution, Mastercard is building lots of them.
“That is what the center is really about. Trying to find solutions that connect people to the networks that drive the modern economy. If people aren’t connected they are trapped. Anyway we can figure out to unlock and unleash that potential that is what inclusive growth is about.”