Financial Inclusion and Rural Economic Mobility
Last week, we looked at one of the drivers that will be instrumental in accelerating the growth of electronic payments in emerging markets. Let’s take a look at another of these drivers – financial inclusion and rural economic mobility.
On the other side of the coin, the less financially well-off are being brought into the equation to help balance the distribution of wealth in developing countries. Financial inclusion is a prerequisite to sustained economic progress and electronic payments growth in the Asian Pacific region and other emerging markets. Many rural areas still do not have banking systems, while those that do are slowly moving from a cash-based society to electronic payments.
In highly underbanked countries, governments are making a tremendous push to encourage citizens to bank. In countries like the Philippines and Indonesia which have thousands of islands, opening branches and deploying the required infrastructure is challenging at best – which is why establishing electronic banking services in emerging markets is becoming a high priority.
When economies grow it is extremely important for the average man and woman to have access to credit. Making small scale credit available to citizens turns out to be a big deal. Small scale credit can be as low as 100 U.S. dollars, enough to start a small business. However, if the delivery model costs five dollars, than this is not feasible. Market entrants that can provide credit with a delivery mechanism costing less than 50 cents will be successful. E-payments can help accomplish this.
Unbanked and rural markets are huge unserved populations looking for a solution – and lower income does not mean that electronic payments are out of reach. In fact, over the years many successful initatives targeting lower-income segments have been established, such as micro payments and micro finance. One example is the M-Pesa mobile money transfer and payments service launched by Vodafone India and ICICI Bank.
Governments are increasingly taking some initiative in facilitating the adoption of electronic payments – for example, in distributing government annuity payments. In some scenarios, a bank account is not even necessary to receive benefits. The government in India has introduced prepaid health cards for citizens below the poverty line and migrant workers so that they may effectively receive medical care. This is one of the largest mass health insurance programs in the world and it is entirely cashless. Furthermore, the Reserve Bank of India has mandated that banks provide basic savings accounts without minimum balances to support financial inclusion.
Consumers who are accustomed to living in cash-only societies are increasingly finding that they have access to the electronic payments system. This is an important development, since access to cash is elusive in remote areas of Asia where there sometimes exist few, if any, banks. Unlike the developed world where banks are prevalent and ATMs are one every corner, many parts of the emerging world are completely unbanked. Assisted by new technologies and government support, in many countries business correspondence networks are popping up, whereby a simple point-of-sale (POS) terminal in a store can fulfill basic payment needs. For example, in Brazil, a consumer can walk into a ‘mom-and-pop’ store and conduct all his or her electronic payment transactions.
Next week, we’ll look at a third driver of electronic payment growth in emerging markets.