Last year, the World Bank highlighted that two billion people globally still lacked a bank account or access to a financial institution via electronic devices. Across the developing world in particular, access to traditional financial institutions is limited by factors such as geography or political instability. In Kenya, for example, half of the population must travel for more than 30 minutes to get to the nearest bank.
Not only this, but more than 20% of unbanked adults continue to receive wages or government transfers in cash, and many are paying bills and school fees this way. Without a bank account or some mechanism to deposit money, these citizens are dependent on physical cash to make financial transactions. Unfortunately, this dependency weakens national economies, is at high-risk of corrupt practice, and ultimately, limits the extent citizens can transact with each other, and businesses.
But how is physical cash limiting the finances of consumers? Sums of loose cash can be lost or stolen, and without a bank account, changes to the economy impact the saver rather than the bank, and no interest can be accrued. The impact of cash dependence is felt most heavily by developing nations, where, without access to credit, individuals cannot invest or reach their full business potential. As a result, it becomes very difficult for communities and families to lift themselves out of poverty.
But what can be done to rectify this, and how can businesses use technology to help advance financial inclusion in nations globally?
Mobile money minimising cash
In recent years, emerging technologies such as mobile money have been helping countries on every continent reform their financial infrastructure, and move towards a cashless model. From Sweden’s mobile payments network, where just 1% of all national transactions are now via cash; to China and its dependence on social channels and QR codes, to the point that even the homeless ask for donations via digital wallets – cash is facing stiff competition.
Perhaps surprisingly to some, the developing world’s lack of traditional financial services means it is now leading the way in replacing cash. Mobile money has been embraced across Africa, and enables users to pay for items via text. For example, mobile money operators such as Eco Cash in Zimbabwe, and M-Pesa in Kenya, both recognised that mobile devices are more accessible than bank branches, and are letting their users pay for education fees, groceries and utility bills, as well as make transactions to family and friends. Their service works on most mobiles, new or old, and is helping enhance financial inclusion. In fact, Kenya’s mobile money network has surpassed any other in the world, reaching Ksh692 bn (over £5bn) in transactions in the second quarter of 2017 alone.
The collaborative efforts of financial institutions and mobile money providers is steadily improving financial inclusion – between 2011 and 2014, 700 million adults gained bank accounts – while mobile money has provided alternatives for those struggling to access physical banks.
Collaboration paving the way for new technologies
Collaboration is also helping improve financial inclusion – remittance providers are partnering with banks and fintechs to empower migrants to send money home to their loved ones. The impact of remittances for some countries cannot be overstated – in the Philippines alone, up to 10% of its GDP now comes from overseas workers. This is in part thanks to the country’s Pre-Departure Orientation Programmes, which help prepare migrants in their transitions into destination countries, and empower them to take full advantage of employment abroad.
Acknowledging the importance of remittances, initiatives across the world are working to increase the availability of such services in developing nations. The 35th G8 Summit in 2009 adopted the “5×5” objective – an initiative to reduce the global remittance cost from 10 per cent to 5 per cent in five years. Following this objective, the global average costs of sending remittances has reduced to 7.09% in the last couple of years. However, countries in Africa, where the cost of remittances is still very high (9.27%), are still a long way to go in terms of bringing the cost down, as desired by G8.
Not only this, but the future looks bright for mobile money – according to the GSMA, registered mobile money accounts grew from 411 million in December 2015, to 690 million worldwide in 2017. In fact, the start-up Digitally has made it even easier for users in poorly connected areas to transfer money. They have created devices that are inserted into phones which then authenticate mobile money transactions when the phone isn’t connected to the network. Users swap codes that are generated by each other’s devices, and once users get connectivity, the transactions are then uploaded onto the mobile money system.
It’s thanks to these technological innovations that the importance of collaboration in the financial space is now being recognised. PwC’s Global Fintech Report 2017 revealed that 82% of financial services plan to increase their partnerships with fintechs over the coming few years. Although, cash will continue to be the preferred method of payment for years, these partnerships will continue to foster innovations which improve financial inclusion the world-over. In turn, this will support national GDPs, improve living standards and create a strong environment for businesses, both national and global, to invest. Ultimately, by improving the flow of money throughout a country, technology holds the key to reducing cash dependency, and improving financial inclusion.
Sudhesh Giriyan is the Chief Operating Officer, Xpress Money. He explores how technology is helping remove the barriers to financial inclusion.