Financial inclusion is a popular cause.
PayPal CEO Dan Schulman has been promoting it — and PayPal’s role in enhancing it — all year long, and Bill Gates recently declared that 2016 will be the year of financial inclusion worldwide. In fact, when it comes to helping the billions worldwide who exist entirely or almost entirely outside of the boundaries of mainstream financial services, 2015 was big on shoutouts — from the IMF, WHO, MasterCard, Clinton Global Initiative, SPLC, World Bank, Bitcoin Foundation, Visa, Google and Facebook. The list could literally go on and on, but the point is pretty obvious.
The best, brightest, most inventive and the best capitalized players on the global stage do not agree on much, but all seem to be of the same mind when it comes to bringing the 2 billion or so lost sheep back into the mainstream financial fold. It is not only a good thing but a necessary goal that we all should have been on top of achieving yesterday.
So, with so much agreement and so much power behind the plan, why are there 2 billion or so people (24 million of whom live in the world’s most developed economy in the U.S.) either totally unbanked or grossly underserved by mainstream financial services?
The simple answer is that it’s complicated.
Firstly, while financial inclusion is a blanket term that consists of a host of initiatives and projects worldwide, the exact set of local needs vis-a-vis inclusion vary incredibly from place to place.
The needs of an underbanked consumer in the U.S. (or Western Europe) are very different than the needs of a consumer in a middle-class developing economy, like those in South and Central America. And those needs sets are totally different than what customers in working-class developing economies, like those in Africa or Southeast Asia, need.
Secondly, financial inclusion writ large isn’t a single goal; it’s really a series of five interrelated goals that work in tandem to bring and keep more people in the financial ecosystem:
- Money In — Access points where users can enter cash into the digital ecosystem
- Money Out — Access points where users can remove their funds as cash or can send their money to different points around the world
- Money Management — Gives users confidence by allowing them to access and control their money while it is housed in the ecosystem
- Payments — Makes it easier for users to pay bills, make digital purchases or make physical POS purchases
- Engagement — Encourages and incentivizes future interaction with the system by users
This year, PYMNTS has been tracking financial inclusion across those five broad tranches and monitoring which players are helping bridge the gap for consumers all over the world and how they’re doing it.
A Lot Of Progress (And A Long Way To Go)
With five broad areas with which to score financial inclusion, the challenge becomes how to score and rank those players. PYMNTS' framework for evaluating the movers and shakers in financial inclusion involves scoring players on how they perform in each of those areas — taking into consideration their depth of focus and the geographies they serve — and generating a score between 0 and 100.
What did the early scoring look like?
At the midway point in 2015, the highest scoring firm on PYMNTS Financial Inclusion Tracker had a score of 89 (Airtel Money); the lowest scoring firm clocked in with a mere 17 (as the only service it seems to offer is money transfer in a single location). The average score was 64, meaning that if financial inclusion were being graded without a curve, worldwide, the ecosystem is earning a solid D.
So, what do the best players have in common? While every top 10 player provides core services to bring money (including cash) into the digital ecosystem and for getting money back out of the system, the highest ranked players succeed in two other areas. One is geographic diversity.
The other is engagement — firms that not only give customers the tools for access but also a reason to want to do so.
Some Surprising Good News
There is little good to be said about the fact that, as of 2011, 15 percent of the world’s population is living in poverty, which is defined by the Pew Charitable Trust as living at or below $2 per day.
Except maybe one thing: While 15 percent is too high, it is just about half the rate it was just 10 years ago in 2001, when Pew clocked the global poverty rate at 29 percent.
But the diminution of poverty is perhaps not the best, or even most interesting, news in the latest round of Pew’s reporting. That honor should best be saved for the remarkable growth in the middle class the last decade has seen worldwide (with middle class defined as $10 to $20 a day, or roughly $14,600 to $29,200 in USD, if annualized).
In 2001, 399 million were defined as middle class; by 2011, nearly 800 million (784 million to be exact) were.
And that matters very much for the future of financial inclusion, since more consumers with more money are now in need of better opportunities to leverage that money for position within the financial mainstream.
And those opportunities need to be built — and fast.
The Marquee Players
No one ever wants to be the first to do anything, even if whatever it is is a good idea.
Which is why every ecosystem needs at least one marquee player — a big name, with big pull and power, that embraces the technology or process that emboldens others to follow them down the trail. Everyone wants to be like the cool kids, but for that to happen, there must always be a prime cool kid who sets the pace.
And when it comes to financial inclusion — especially in locales where consumers have good reason to be wary of mainstream finance — those marquee players are particularly important, as they create the motion in the ocean necessary to get a real sea change.
Case in point: Nigeria and India — two nations that both recently acted to mix digital identity and financial services with their bio-authenticated National ID cards, cards that funds can also be loaded onto. Having the government standing as a card issuer engenders trust among users who are used to cash.
It also seems to be an idea that is catching on in both Afghanistan and Swaziland.
The moral of the story: Merely offering a service to consumers isn’t enough if the service isn't backed by a trusted provider.
The Liquid Money Challenge
The biggest problem that cash-based consumers have is trusting that putting their money into the digital financial system is a reversible process, i.e., that they will be able to cash out easily.
Making liquid money accessible and easy to spend for the unbanked is what financial inclusion sets out to do, but the challenges associated with actualizing that can be massive, even for established organizations.
Arjuna Costa, investment partner at Omidyar Network (one of those established players), notes that the key to success is a lot of team work.
“Our goal is to invest in things that digitize the retail front of payments and help gather a global momentum around certain ideas that support that,” Costa noted in an interview with MPD CEO Karen Webster.
“For example, we work with the GSMA’s [Groupe Speciale Mobile Association] Mobile Money for the Unbanked initiative, which has a clear agenda — it is to help telecom operators to get mobile money moving and the regulation around that. It’s a tricky undertaking. Central banks don’t want to hear from the outside experts. But as much as digitizing the retail front of payments is a technology challenge, it’s also a last-mile distribution challenge.”