Does A Rise In Income Equal A Rise In Inclusion?

Financial inclusion involves more than just setting up a bank account for a person living in a developing country.

This was the message MasterCard Worldwide and The Center for Financial Inclusion at Accion delivered during a live webcast on Tuesday. The webcast, titled “Cashless Conversation on the Financial Inclusion 2020 Project,” discussed ways to achieve financial inclusion around the world. Audience members from all over the globe listened about the ways the payments industry can empower emerging markets and their consumers.

The webcast particularly focused on the topic of rising incomes amongst the poor and the subsequent implications this rise has on their level of financial inclusion.

Sonya Kelly, a fellow for the Center of Financial Inclusion at Accion, shared new research with the audience to paint a clear picture. She told listeners that global GDP has been on the rise steadily since 1980. Since then, there has been a 2.5 percent growth each year in established markets.

Kelly presented a graph that outlined GDP growth around the world, and explained the corresponding tremendous increase in consumer spending power as a result.

Kelly pointed to the middle to lower class market results, which represented 40 percent of the world’s population. In 2010, this group reported $3.1 trillion in annual income. By 2020, this number is expected to almost double with an increase to about $5.8 trillion.

Over a 10-year period, it is estimated that middle to lower class markets will have a $15.8 trillion total increase in spending power.

This growth suggests a huge market opportunity, but Kelly insisted the big question now revolves around what consumers will do with all this money.

Tara Nathan, executive director of Public Private Partnerships at MasterCard Worldwide, took the stage to explain what the increase in income meant for financial inclusion.

Nathan warned that a rise in income was essentially good news, but said there were some cautionary implications as well.

Consumers from developing countries who are granted higher spending power will presumably have more disposable income.

For example, Egypt was listed as one of the countries that will need to adapt to increased spending power. However, Egypt’s savings groups and financial institutions may not have the tools and infrastructure needed to accommodate these new transitions.

The inability to manage new consumer trends implies there will be a higher demand for financial services.

It is up to the government and financial organizations to ensure that these new consumers, who the World Bank dubbed as members of “the vulnerable class,” have the necessary tools to grow further inclusion.

Another interesting point made during the presentation involved the level of activity in regards to consumer banking.

More than 80 percent of consumers in richer countries have a bank account, and about 64 percent of them actively use these accounts on a regular basis. This means they are constantly using services such as ATMs, online banking and mobile banking.

Consumers in the middle and low classes are drastically different in terms of account activity. About 43.3 percent of middle class people have bank accounts, with only 7.4 percent using them, and 22.8 percent of low income people have a bank account, with only 3.8 percent serving as active users.

If a member of the middle or lower class has a bank account, chances are it is only because he or she needs it to receive benefits or income deposits from the government. The low percentage of activity generally means that the country’s payment infrastructure is not strong enough for the consumer to keep using financial tools.

Nathan stated that step one to improving financial inclusion has already been addressed. The initiative to start getting other countries and underbanked consumers involved is key and underway.

The goal is to provide underbanked consumers with all services, not just a bank account. This will include all payment services, credit, insurance and savings programs.

Nathan noted Nigeria’s recent 13 million-card roll out for the new MasterCard identity program as a good example of integrating payment services.

Daniel Monehin, the division president for MasterCard in Sub-Saharan Africa and led the Nigerian ID roll out, told Nathan that the pilot was good, however slow coming.

Nathan reassured listeners that this was not an indication of a failed attempt, but rather good news, or at least expected.

People living in emerging countries are unlike other consumers around the world who are generally more familiar and comfortable with formal banking services. Underbanked consumers are more vulnerable and the process becomes more fragile.

Nathan stated they were consumers who were previously excluded from such financial services, but proudly announced this was no longer true due to changing global trends and inclusion projects.

“The anonymous consumer has become known,” Nathan concluded.