More than 2 billion people globally lack access to traditional financial services. PYMNTS collaborated with Mozido to create the PYMNTS Financial Inclusion Tracker, which dives deeply into the root causes of this problem and the methodology that can solve it.
On a recent podcast, MPD CEO Karen Webster and David Luther, Executive Vice President and Chief Business Officer at Mozido, discussed their findings in creating the report: the regions most affected by financial exclusion, and what’s being done – and what needs to be done – in terms of regulatory change. Central to the issue is the opportunity that mobile creates to bring banking and a host of other financial services to the areas most in need of access.
KW: We’re here to talk about financial inclusion. We partnered on a research initiative specifically addressing who is really trying to solve the problem of financial inclusion for the more than 2 billion people globally that don’t have access to the traditional financial services sector.
So, let’s start by talking about something that may be entirely obvious but I’d love to get your impressions – as I know you travel the world looking at places and people and trying to solve this problem. Mobile is obviously a lifeline, and a real access channel to financial services for those who need it. Is mobile really the big game-changer in financial inclusion?
DL: Yes. I really think it’s actually what’s causing financial services to leapfrog traditional methods.
The people we’re talking about – that are unbanked or underbanked – don’t have credit cards, they don’t have a bank even nearby; most of them probably are 30 or 40 miles from a bank and they don’t have transportation to get there. What they do all have is mobile phones. That device provides them with a lifeline to a number of services, and our particular interest is in how we can make them financially included.
KW: I know that this is a big problem around the world, not just in developing economies. As we’ve looked at the landscape and where a lot of the activity seems to be focused on the part of solutions providers, we see a lot of it in Africa and certainly in Asia.
Why do you think that is? Is that where the need is most acute?
DL: Yes; I think Africa and Asia – India, of course, included in that – have a lot of rural populations that are right in the sweet spot of this category we’re talking about. They don’t have access to formal financial services, but they have mobile phones. And they have a real need – there’s no way in practice today to send money from the city to a relative living in a rural community.
Those markets really have an acute need for those kind of services, and they also have regulatory environments that are increasingly receptive to them.
KW: That’s a good point, that the regulatory climate in these areas is a little bit more conducive, now, to these kinds of alternatives. What are you hearing and seeing on the ground – and I know it varies country to country, so perhaps a general observation – about this regulatory relaxation?
DL: Several of the governments have initiatives around financial inclusion. They recognize that mobile is a path to that, and they’ve put some regulations in motion to allow it.
For example, in India, they started issuing national IDs a few years ago – because the first problem is nobody knows who the people are and there’s no way to authenticate them. If you’re going to allow people to send and receive money, you have to make sure it’s getting to the right place. So in that country, they’ve issued – I believe – about 700 million ID cards that are authenticated with a fingerprint and a picture. That’s a starting point for knowing your customer.
More recently, they’ve followed with an initiative to create a new type of bank – called a payments bank – that would allow non-banks to get into the banking space in a limited fashion. For instance, a payments bank could start to use merchant locations for cash-in/cash-out, as if they were bank branches. They couldn’t do everything a full bank can do, such as lending, but it’s a great start to reach out to the rural communities through merchant locations and allow them to start to become banks.
KW: That’s another great point you make, that so many of these individuals are miles and miles away from a traditional bank and have no way to get to it – so having these alternatives is really important, especially in places like India.
Let’s talk a little bit about the alternative players that are trying to satisfy this need. Facebook is one of them, certainly an interesting player in the area of financial inclusion. P2P payments is something they’ve recently introduced through Messenger, initially here in the U.S. Perhaps there are lots of other opportunities for them to expand that set of capabilities.
Could Facebook be a game-changer, as well, with respect to the unbanked and financial inclusion?
DL: I think the challenge that any global player faces is that there are, as we’ve been discussing, local regulations for this.
For instance, today in India – I’ll use that as an example again – until that payments bank is formed, you can’t get cash out at a merchant location. If you were to do person-to-person payments with Facebook, there’d be no way for the recipient to get cash out today.
That varies by region; we’re working in the UAE, in Zimbabwe, and Africa. In each case, we have to work locally with someone that knows the regulations and knows how consumers and the unbanked do business in the region. There’s not, I don’t think, a silver bullet that says – just because, from a technology standpoint, two Facebook accounts could transfer funds – doing so would be either legal or practical.
KW: A lot of people do forget that just because mobile is a transformative tool in allowing access, that doesn’t mean it’s the only tool needed. Cash is a very important attribute that individuals in these countries need, and having cash-out is a critical part of serving that market.
One of the things we observed in looking at the profiles of the companies in the report that we produced is that there aren’t a lot of providers that actually enable a savings feature in their services. Why is that?
DL: I think that’s coming. They first have to get adoption and usage on the base service. After that, additional things like savings will come.
We are seeing some initiatives for that. Even in the U.S., where the government and Treasury are handling a lot of the disbursements – in terms of a prepaid card – they are actually setting up a special type of Treasury bond that encourages people with prepaid cards to put part of it into the savings vehicle that they’ve created. As a matter of fact, I first heard about that at your great conference in Boston (the PYMNTS Innovation Project).
India’s doing the same thing. The government there is creating a special savings vehicle for the unbanked and underbanked, so it is guaranteed and underwritten by the government to make sure that it’s secure. As part of it, they’re starting to encourage – especially through the new payments bank mechanism – savings.
But adoption of the big services has to come first. Then additional services – like savings, perhaps insurance, and the very important marketing and advertising of those things – can go out to the population that you’re not reaching today.
To listen to the full podcast, click here.
To download the PYMNTS Financial Inclusion Tracker, click here.
David Luther, Executive Vice President and Chief Business Officer, Mozido
David Luther is a proven entrepreneur and business leader with over 30 years of experience driving business development for Fortune 500 and startup companies including management leadership roles in successfully taking Internet banking pioneers S1 and Brokat public on the U.S. NASDAQ and German Neuer markets, respectively. Mr. Luther has global responsibility for building new market, investment, M&A and revenue opportunities for Mozido’s mobile commerce solutions. Prior to joining Mozido in 2012, Mr. Luther served as North American general manager at payments software provider Distra, where he started the U.S. operations and quickly grew the business, resulting in a successful acquisition by ACI Worldwide. Previously, he was vice president of global financial solution management for Unisys. In this worldwide leadership role, Mr. Luther managed the company’s software and services offerings to the financial and payments industry, driving over $2B in Unisys annual revenue. Prior to Unisys, he held product management and business development VP positions at companies in the mobile commerce and financial services spaces, including Fidelity Information Systems, Brokat, S1, and GTE.