Payments serve as the base on which all other financial services can grow for unbanked consumers in low-income countries, says Elisabeth Rhyne, managing director of the non-profit Center for Financial Inclusion at Boston-based Accion.
As such, electronic and mobile payments will become even more important as incomes increase in those countries, Rhyne and other financial inclusion experts said during a June 11 "Cashless Conversations" webinar hosted by MasterCard.
The discussion highlighted research from the Center for Financial Inclusion's "Mapping the Invisible Market" project, which illustrates how rising income among the very poor will cultivate financial inclusion. MasterCard became a partner in the project to create the Mapping the Invisible Market website last February.
"These people are entering what is called the 'vulnerable class' because they are getting more money, but have never had to store that money in the past," says Tara Nathan, executive director of public private partnerships for MasterCard. "We have to create the tools and infrastructure to handle that money and allow those consumers to make [non-cash] payments."
Financial inclusion remains a critical mission because 2.5 billion consumers around the world are considered unserved or unbanked.
"More than half of the world is excluded from financial services," Nathan says. The sub-Saharan region of Africa represents the region with the highest percentage of those financially excluded at 362 million, or 80% of the population, as compared to 68 million or 23% in North America.
The Center for Financial Inclusion's research provides "much encouragement" for the potential of financial inclusion because the poorest consumers have seen income growth from $3.1 trillion to $5.8 trillion in the past 10 years, says Sonja Kelly, fellow at the center.
The consumer groups at lower than $4 to $10 per capita, per day are moving up into the vulnerable class, Kelly says.
"Their previous methods of storing money won't work now, because they will have too much money to keep at home," Rhyne says. "Going from very poor to not-quite-so-poor calls for a dramatic step up in demand for financial services."
Still, getting those consumers to understand and trust banks, as well as making and receiving electronic or mobile payments, remains a challenge, Rhyne says. "Some of these people use banks in very different ways."
For many of these consumers, a bank account is established only for a payroll payment or a government payment such as disaster relief, she adds.
The "on-ramps" for financial inclusion include exposing consumers to electronic bill payments, government payments, mobile money transfers and bank accounts with no frills beyond ATM access, Rhyne says.
Those payment on-ramps can bring more consumers to full financial inclusion, which goes beyond making and receiving payments to establishing credit and obtaining insurance, Rhyne adds.
MasterCard's recent partnership with Nigeria to establish a national identity card that also serves as a payment card provides a perfect example of executing an "on ramp" to financial inclusion, Nathan says.
"In Nigeria, 13 million national identity cards were issued through the government that also provided greater security for financial services," Nathan says. The card operates with fingerprint scans and digital signatures when used to pay.
MasterCard has also promoted the use of prepaid cards in cash-only markets as a way to facilitate financial inclusion.
Building consumer trust in financial services remains a key hurdle for financial inclusion partners, Nathan says.
"When the consumer makes a deposit in the bank, it is important for them to see that 100% of the deposit made it into the bank, and that the system works," Nathan says.
"We can't question how much security is enough, because their $10 is as important as $1,000 to someone else," she adds.
Rhyne agrees trust is critical.
"A lot of these people need a little hand-holding to get through this, and that can be as simple as some assistance when first using an ATM," Rhyne says. "You build that trust for one customer, then they will tell others."