By Brad Hyett, CEO at phos
Over the past 12 months, the way we pay and get paid has changed dramatically. With the move away from cash and chip and pin to contactless payments and mobile wallets, technology continues to simplify our everyday spending. But there are billions of adults at risk of getting left behind on this journey to cashless payments – the unbanked.
The unbanked opportunity
Historically, when it comes to digital payments innovation, the focus has been on the banked eighty percent, as payment providers seek innovative ways to simplify transactions and offer new products and incentives to those that already have access to banking services.
Yet financial opportunities with the unbanked should not be forgotten, nor underestimated. With 1.7 billion adults totally unbanked globally – i.e. people that don’t use banks or banking services in any capacity – the scale of the opportunity for the payments industry is sizeable.
Furthermore, the World Bank reports that access to financial services has been demonstrated to not only support global economies, but help lift people out of poverty. From a social standpoint, it is vital that these communities are not left behind.
The power of mobile
While this market may be unbanked, they are not necessarily off grid. Two thirds of the unbanked population has a mobile phone, making mobile money the go-to solution for these groups.
In Africa, the market leader in mobile money, M-Pesa, currently processes over a billion transactions a month, providing vital access to banking services and powering local economies. For financial services providers, then, it is the mobile phone that holds the key to innovation and expanding in emerging markets.
Brad Hyett
Mobile money was developed in response to people’s desire to keep their cash safe and transfer it to others across distances. With mobile money, neither a bank account nor an ATM is required to make this possible. Instead by using a SIM card money can be stored, sent and received via a mobile phone. This means that agents, often local shopkeepers, can facilitate transactions by providing and receiving funds.
Democratising banking services
The simplicity of the system has allowed it to reach far and wide both in cities and, importantly, in rural destinations, which may be many miles from a brick-and-mortar bank.
Mobile money has revolutionised payments for many of the unbanked by providing a safe way to transfer funds between family and friends as well as pay for goods and services.
In doing so, it has democratised financial services, shifting power away from the traditional banking system and into the hands of the people who use mobile money every day.
A ‘dual promise’
The mobile money services that exist today, however, are just the tip of the iceberg. There has been limited innovation from financial services providers in response to consumer behaviour in emerging markets, such as Africa and South East Asia, where mobile banking infrastructure is more sophisticated than much of the developed world.
As detailed in a recent McKinsey report, mobile money presents a ‘dual promise’ for customers and financial institutions alike. Not only serving as a driver of financial inclusion for the unbanked, but a means for payment providers to scale and grow in emerging markets.
For companies looking to offer financial services in these regions, education must be first on their agenda. While it’s critical that services are available to those who require them, it’s ultimately awareness and understanding of what’s being offered that will drive uptake among the unbanked population.
A final point
While it’s easy to think of the unbanked opportunity in relation to the developing world, there’s also an extensive market much closer to home. In the UK alone, there are 1.3 million adults who don’t have a bank account, and many more who do but prefer to use cash for ease, privacy and concerns around fees.
As cash usage declines in light of the pandemic, it’s never been more important for the payments industry to develop products and services with the concerns of the unbanked in mind. Only then can we ensure a responsible shift to a cashless society that works for everyone.
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