Perhaps it’s an insensitive question, but for businesses hoping to be profitable it’s an essential one: why should companies continue to invest in developing technologies in emerging markets, when total payment volumes are relatively miniscule? Thabiso Moerane, Mobile Commerce Ecosystem Leader at Alcatel-Lucent, lodged the very same question last week.
I brought that question with me to MasterCard’s global headquarters last week, where PYMNTS.com was invited to listen in on the company’s Cashless Conversation, part of a quarterly event for all MasterCard employees. An expert panel helped lead the discussion, as author David Wolman and the Fletcher School’s Ben Mazzotta were joined by two of MasterCard’s highest-ranking executives: Ann Cairns, President of International Markets; and Gary Flood, President of Global Products and Solutions.
The gist of each panelist’s response was rooted in one likely obvious theme: investments in emerging markets are very much a long-term play. In fact, Flood said that MasterCard’s strategic view on serving underbanked consumers in emerging regions goes out beyond past two decades, perhaps as far as 25 years into the future.
At the same time, there are two key truths about the global economy in the here-and-now that show why what may appear to be a small-scale opportunity could very rapidly grow into a major business engine.
It was Ms. Cairns who offered those two compelling facts: one, that 85 percent of the world’s transactions are completed in cash; and two, that 95 percent of small and medium-sized businesses (SMBs) across the world do not track payments electronically.
MasterCard’s incentive for getting consumers to use less cash is obvious; once payments move electronic, the processors and facilitators that settle those payments are due to get a cut. But the opportunity behind the fact that 19 out of 20 SMBs maintain their financial records on paper is more nuanced.
When SMBs are unable to provide concrete evidence of regular cash flows, it makes it difficult for banks to lend to those enterprises effectively. That’s not to say there isn’t lending in developing countries; of course there’s lending. But better records could reduce bank risk, enabling a more free flow of capital, thereby helping SMBs grow more rapidly.
(Also worth mentioning: Just last week, the International Finance Corp. and the MasterCard Foundation committed $37.4 million to increasing access to financial services for 5.3 million people in Sub-Saharan Africa.)
These comments get at a distinction made by Karen Webster in her takeaways from CTIA. Because consumers in developed markets are already so used to having access to mobile banking, we’re often quick to categorize any of the innovations enabled in other countries as mobile payments, because that’s the shiny coin here in the U.S.
But what emerging markets need right now, beyond a way to transfer their money, is a reliable means for storing and managing those funds. So the need goes beyond just payments solutions, into global commerce solutions. It speaks volumes that some of the highest-ranking leaders at MasterCard are fully aware of this important distinction, and appear to have incorporated it deeply into the company’s long-term business vision.