MasterCard Inc. aims to benefit the payments industry by converting cash-only consumers around the world to plastic cards and electronic payments.
The card network's global financial inclusion initiative should, in turn, trim costs for banks hard-pressed to serve cash-only communities, says Daniel Monehin, division president of Sub-Sahara Africa for MasterCard.
"We have seen the banks' costs to serve these consumers, who are at the lower end of the payments pyramid, drop tremendously because they need fewer branches to serve them when they are making payments or receiving funds electronically," Monehin says.
Key market areas such as Nigeria and Kenya, Africa illustrate how regulators are motivated to align the financial services sector and make it visible so consumers can see the efficiencies of paying bills with a prepaid card, Monehin says.
Convincing a consumer to pay bills with a prepaid card could lead that consumer to use the card for other necessities, such as groceries. Banks could then cross-sell services such as loans, using the consumer's electronic payment habits to determine creditworthiness.
"If that consumer continued to pay only in cash, the bank would have no record of sales or payments history," Monehin says.
Educating consumers in poor regions represents a "long road" for MasterCard and its acquiring banks, but the large populations in Africa represent significant opportunity, Monehin adds.
"If we can get only 30% of the people to understand the benefits, that's a larger population than all of Canada," he says.
Financial inclusion is a global initiative, Monehin says, and MasterCard will target the U.S. and Latin America, as well as other countries, with the message.
"You can see it at work in the U.S. with the Treasury Department turning to electronic payments and prepaid cards for those receiving benefits," Monehin says. "It saves the government millions of dollars and brings financial inclusion into new sectors where the plastic card becomes an account to use at the point of sale and also to receive your salary."
Financial inclusion is a significant challenge because "there are so many moving parts," says industry analyst Russ Schoper of Atlanta, Ga.-based Business Development International Inc. "But it is a worthwhile one because the numbers (of cash-only consumers) are huge and the potential is enormous."
Merchants in India have used acceptance of micro payments through their mobile phones to grow their business and, in turn, become eligible for "micro loans" from their banks when funds are needed to grow the business, Schoper says.
The cell phone represents the "trump card" in converting cash-only consumers to electronic payments, Schoper says. "Even in the unbanked world, most everyone has a cell phone, so the introduction of mobile payments helps," he says.
Discussions about a cashless society have taken place for years, Schoper says. "We are not there yet, but electronics is allowing a slow migration away from cash," he adds.
Financial inclusion in Africa received a boost when the countries converted to EMV chip-based smartcard technology, eliminating mag-stripe payment cards, Monehin says.
"Many consumers got gun-shy and pulled back when fraud was hitting the electronic payments sector," he says. But after EMV led to a sharp drop in fraud, "consumer confidence went through the roof," he says.
MasterCard needs acquiring and issuing bank partners, such as Equity Bank in Nigeria, to convince more consumers and merchants of the benefits of financial inclusion, Monehin says.
"In a poor region, millions of people need financial services, and banks need five or six locations to serve them," Monehin adds. "Generating power to those banks and staffing them is very costly, especially if some of the customers carry account balances of just $2 or $3. With electronic payments, the need for the branches is diminished."