Mastercard: Micro Businesses Can Move Financial Inclusion’s Largest Roadblocks

Promoting financial inclusion — a lofty ambition targeting two billion people around the world who currently live without the ability to securely send and receive money — is about more than taking cash away, handing those consumers an electronic payments solution and opening up bank accounts for them. Even with solutions like that in place, reliance on cash persists.

Mastercard’s Sami Lahoud, SVP Global Acceptance Strategy & Engagement, understands this reliance well.

“Me, personally, I come from a part of the world where you never entirely fill up your car with gas. You only fill it with as much money as you have in your pocket, and sometimes you go to the gas station twice a day,” he recently told PYMNTS’ Karen Webster. “Believe it or not, millions of people are the same way. They go to the grocery store two or three times a day. They’re limited by that fast-cash cycle: They get cash; they spend cash.”

“This is an important reality to understand in emerging economies,” he continued. “People cannot wait for transactions to settle in two to three days. They want instant access to funds.”

As Mastercard continues on its path to empower the underbanked and underserved, the company has come to a startling conclusion: Improving access to electronic financial services has not necessarily led to an increase in the use of these solutions.

Mastercard’s latest report on financial inclusion, “Building Electronic Payment Acceptance at the Base of the Pyramid to Advance Financial Inclusion,” noted that, according to GSMA figures, as of December 2015, only about a third of the 411 million mobile money accounts around the world were active.

“It’s not enough to give people cards,” Lahoud said. “It’s the same way many other entities around the world have tried to tackle financial inclusion, like opening bank accounts. But balances remain at zero. We tried to put cards in their hands, but the solution was not holistic and we did not see activity on the accounts.”

Unsurprisingly, ongoing reliance on cash can play a role in preventing consumers from using solutions like mobile payments.

“Cash is a very bad habit,” Sami Lahoud said. “But it is very easy. The minute it is in your hands, it’s yours and you can use it.”

One misstep in approaching the issue of financial inclusion, the executive explained, was looking at the problem from only one angle: the consumer making purchases at a small business.

“When you put cards in hands, you’re looking at the front end of the money equation in terms of consumers making small purchases with small merchants,” Lahoud noted of how Mastercard is readjusting its approach to financial inclusion. “You take cash out of the equation, but if the merchant still needs cash to pay suppliers and to pay taxes and they have to transact in cash at the back end, then what is the problem that we have solved?”

Empowering consumers with electronic payment tools like mobile payments and cards does not necessarily address the payment needs of small businesses, he said. Financial inclusion and electronic payments initiatives must look at other sides, including B2B and business-to-government transactions, too, said Lahoud, as well as person-to-merchant payments.

Indeed, in its report, Mastercard concluded that “tapping merchant payments is an essential step toward driving usage in customer accounts and creating the economic utility for consumers that will drive the creation of digital liquidity.”

Addressing micro- and small business’ (SMBs) needs could have a massive impact on financial inclusion efforts overall. According to Mastercard, there are more than 180 million SMBs across the globe. On average, each transacts with 25 customers every day. Combined, that amounts to 4.5 billion transactions every year that could be digitized if electronic payment solutions addressed the needs of both the consumer and the small business.

Coming to this realization is critical for Mastercard to begin focusing usage of these solutions, Lahoud said. Just as cash is agnostic, able to be used by consumers and businesses alike, so, too, must electronic payments technologies.

“Whether you’re a person or a business or a merchant or a government or an NGO, the minute you lay a hand on cash, it’s yours and you can use it to make payments,” said Lahoud. “Once you start thinking about that evolution and you start behaving like cash, you start winning over cash.”

One manifestation of this new focus for Mastercard is Masterpass QR, a solution that lets consumers pay at a merchant with their mobile phone without those merchants needing to invest in point-of-sale (POS) or mobile point-of-sale (MPOS) technology to be onboarded to accept mobile payments.

To address how micro- and small businesses gain access to those funds they receive electronically, Lahoud also noted the emphasis Mastercard is placing on collaboration, both with private and public sectors in markets around the globe.

“It allows us to bring these players into the ecosystem who are willing to provide installments, offer faster access to credit, provide risk analysis for new markets,” the executive explained, adding that working with governments, telcos and other key players across the globe has facilitated an ecosystem of cooperation to promote financial inclusion, an effort Lahoud said not only involved addressing proliferation of ePayments solutions, but usage of those tools and the ultimate impact of that usage.

That’s required an entire mindset overhaul within Mastercard, the executive said.

“It wasn’t easy changing the culture within Mastercard,” he said. “It took time. It was a mindset shift around the company, but now any part of the company — from Operations & Technologies, to HR, to legal — they all have financial inclusion as part of their mission.”