Scaling financial inclusion with interoperability
Financial vulnerability is a concern for developing countries and developed nations alike. Globally, 1.7 billion adults remain unbanked. Two-thirds of them own a mobile phone, which could equip them with access to financial security. While there are multiple efforts underway to achieve financial inclusion, without the ubiquitous connectivity and interoperability required to provide adequate services, however, progress will be slow. What can be improved to reach sustainable interoperability for financial inclusion?
and its impact
Financial access, usage, and security have become a global priority. Organizations like the World Bank and the G20 are committed to achieving universal financial access for people worldwide, and many corporations have joined them in their pursuit. However, there remain many barriers and challenges that need to be addressed. Sustainable and useful financial services could help stabilize and support the world’s population.
Adults are unbanked globally.
The number of Americans who remain financially vulnerable.
Senior Vice President, Digital Future at Mastercard
“If there is no connectivity, there are no services to enable financial inclusion.”
Barriers and early stage solutions
Regulators tend to approach data connectivity with caution. It requires complex work and political agreements to encourage interconnectivity between companies, NPOs, and governments.
Many of the unbanked believe they do not need a bank account. Cultural norms and a habitual cash economy are other reasons for financial exclusion.
Access to underserved
The estimated opportunity to harness in products and services
for the underserved.
There is an estimated $2T opportunity* to harness: 1.7 billion adults are still unbanked. That means 30 percent of the global population do not have access to financial services, such as savings, credit, insurance or easy money transfer.
Buyers don’t trust sellers to deliver goods or services after payments are made.
Need to bridge the rural connectivity gap and provide 4G networks in remote areas. MEA internet penetration is at 25%*.
Making interoperability a reality
To achieve interoperability, a combination of factors must be considered.
With a more complex ecosystem, cost to detangle and make room for new increases, especially when existing infrastructure is in the way of new systems, as with financial services.
Provide incentives to share innovations or use of proprietary systems that are compatible with a central infrastructure.
Encourage governments not only to focus on their own system to avoid reliance on global systems.
Address regulatory concerns around data sharing practices.
Mastercard and USAID
To address gaps in gender inequality that limit women-owned businesses’ ability to launch, grow, and thrive, Mastercard and the United States Agency for International Development (USAID) partnered under the Women’s Global Development and Prosperity Initiative (W-GDP) to launch Project Kirana.
Project Kirana works to increase revenue streams, expand financial inclusion and digital payments adoption of kirana (need to briefly define) shops that are owned or operated by women. The two-year program will be implemented by DAI and ACCESS Development Services in select cities of Uttar Pradesh, including Lucknow, Kanpur, and Varanasi. The program focuses on:
Financial inclusion is the effort to provide everyone—regardless of wealth—with access to financial services and security.
Building financial and digital literacy skills on topics such as banking, digital payments, saving, credit and insurance.
Improving basic business management skills including inventory management, accounting, budget management and customer loyalty.
Addressing cultural and other barriers to women becoming successful kirana entrepreneurs; including outreach to men, family members, and the community.
Three categories of drivers prevent the excluded from entering the digital economy.
Several factors affect access, including insufficient access to the internet and mobile networks, limited banking options, lack of incentives for banks to target lower-income segments, and lack of credentials to apply for financial services.
Cash and culture
Deploying a base station in the village, or a service that works on USSD, given the lack of data infrastructure, and offering mobile accounts and blockchain-based services to enable payments even to the unbanked. Addressing the needs of those who aren’t yet included in the financial system is imperative.
A clear financial inclusion agenda, understanding the benefits and advantages of the digitally engaged citizenry will motivate them to educate and support the engagement with banks, fintech, as well as non-profits, increasing regulatory oversight and reduce corruption or tax evasion.
Campaigns and non-profits like USAID are dedicated to educating individuals and entrepreneurs about banking and how it can increase their financial security. These efforts help to build a more self-reliant, resilient, and prosperous society.
Creating incentives for consumers to access loans, insurance or financial information requires interconnectivity and interoperability. Interoperability has the potential to increase efficiency, usage, save costs through shared infrastructure, economies of scale, and innovation. This involves bringing together multiple technology ecosystems, going beyond the entities in finance and payments.
Interoperability will enable wide-reaching financial inclusion. However, establishing interoperability is accompanied by its own set of obstacles. To scale financial inclusion, a multitude of factors need to be addressed. This includes the inability or motivation of new providers to connect with existing legacy systems, nor remain open to new services still to come. This is not limited to technology but permeates across startups, banks, governments, and geopolitical regulations.
Short-term objectives of dominant players deter from the long-term benefits of growing the overall market. Motivate organizations to move to long-term focus and grow sustainably.
simplifying tECH systems
DATA SHARING & USAGE
Industry & Government Collaboration
The development of rules and risk mitigation is as essential as data privacy. A neutral party is best suited to ensure interests are balanced and intervene in disputes. Economic motivation is paramount to success, and experts suggest having an industry or government champion as a visionary and persistent leader.
Private companies need to be motivated with commercial incentives and follow a strategic direction they all align on, growing the customer base, diversify outside of their core business and identify new sources of revenue.
Interoperability increases productivity, cost and time savings, exchange of data, and customer satisfaction. The worldwide web, healthcare systems, and public safety systems are interoperable. Interoperability relies on negotiation, creativity, and driving motivation from all players. This includes motivation from consumers, as well as the collaboration of governance, infrastructure, and business.
Project Kirana is an extension of Mastercard’s commitment to empower and enable entrepreneurs through a suite of commercial products, partnerships and philanthropic giving.
Low credit penetration due to a lack of data to inform lending for consumers and small and medium enterprises (SMEs).
Low penetration of smartphones affecting digital commerce growth.
The top 5 most expensive markets for Internet access are all in MEA.
Regulatory environment not supportive of digital commerce to take off (e.g. transparent data rights framework, clear taxation framework etc.).
Cost of growing their consumer base (e.g. providing data for decision making, reduction in customer acquisition cost, mitigate risks etc.).
Bank infrastructure cost
Enable local merchants to sell goods/services through e-commerce channels. E-Commerce accounts for 16% of global retail but is as low as 1% in some emerging economies.* (e.g. China and LATAM have ~61% internet penetration but vastly different e-commerce activity with 36+% of retail transactions going through digital rails in China vs 4.2% in LATAM).
Support merchants with partners that can facilitate last mile delivery/ logistics.
Supply Chain & Logistics
Supporting financially vulnerable populations with MoCaFi
MoCaFi and Mastercard share a commitment to supporting financially vulnerable populations by bringing them into the digital economy. MoCaFi, is a Black-founded fintech company, that rolled out a suite of affordable digital financial tools for minority communities in the U.S. Mocafi help to democratize access to safe, secure digital payments via their new mobile platform. Traditionally, the cost of these services can be as much as 50 percent more for Black people than white.
MoCaFi has updated banking services and introduced the MoCaFi Mobility Debit Mastercard® to benefit the financial needs of Americans facing unemployment or other challenges following the coronavirus pandemic.
Mastercard is committed to financial inclusion
1 in 3 adults globally have no access to banking services.
First, we need data connectivity to create interoperability and develop accessible solutions for segments that are not connected. We also need a technology architecture for support, operations with a single point of accountability.
Barriers to overcome
Solutions might include
Across three areas, steps to conquer these challenges are:
Interoperability as a means
to financial inclusion
Creating a more
Interoperability has the potential to change 1.7 billion people’s lives for the better. Interoperability promotes competition, reduces fixed costs, allows for economies of scale, and optimizes the user experience. Products and services that result from these benefits allow societies to thrive as they provide convenient access to products that are right for them and increase financial security. But only if everyone, including government, industry, and infrastructure, collaborates, financial inclusion can become a reality.