A third of the people worldwide are unbanked, according to the Global Findex Database: a sobering 1,7 billion adults. Those unable or, for various reasons, unwilling to participate in basic financial products or services are often found in developing lands — but not all of them. In the US alone, more than 30 million households are unbanked or underbanked. Worldwide, financial inclusion is a major goal to promote economic and social well-being, and also to reduce poverty, exclusion, and discrimination.
Although many financial products focus on financial inclusion, payments specifically are recently attracting attention. In 2016, a report sponsored by the World Bank stated a goal for all individuals and businesses to have access to and use at least one transaction account, operated by a regulated payment service provider. This account should be able to handle most of their payment needs, to securely store value, and serve as a gateway to other financial services. For many, the easiest way to meet this goal is to link accounts to an online solution accessed through a mobile device — the digital wallet.
When it comes to financial inclusion, benefits to the wallet user are many. Wallets are designed to deliver an easy, intuitive user experience through a familiar mobile device. They also lower barriers to entry into an often exclusive financial system, by using economies of scale to offer a variety of previously cost-prohibitive financial services at low cost. They can be used wherever there is mobile phone penetration, bypassing the computer and associated infrastructure — useful for reaching rural and underserved areas.
The benefits also extend to communities, where the underbanked and unbanked are used to financial operations within a trusted social circle. The bandwagon effect can be strong, where if one friend or family member starts using a wallet, it serves as a strong incentive in the community for more users to open accounts. These users create an ecosystem where savers are matched to borrowers more efficiently and quickly than by bank lending officers. And when wallets are combined with card rails, interoperability with the card environment takes users outside of the wallet ecosystem to even greater financial possibilities, enabling domestic and international payments.
So financial inclusion solutions have the potential to make a huge impact on people’s lives and the economy. But why do some payment products for the underbanked and unbanked succeed, whereas others fail? For example, between 2011 and 2017, for the first time 1,2 billion adults gained access to formal financial accounts, such as mobile money accounts. But during the same period, almost no progress was made on access to savings, credit, and insurance, and a high dormancy rate was noted with these accounts. Other studies show that low-income users of digital accounts often withdraw 100% of funds immediately and do not use their account until the next time they receive funds, ignoring additional financial services that may be available.
To gain the trust of the unbanked and underbanked, it is essential that financial inclusion solution providers personalize their interaction with customers. The wallet users need to feel that the services are selected or designed uniquely with their needs in mind, and this builds trust. For example, in some regions mobile payments are more expensive, but QR payments are cheap. M-PESA works in some scenarios but not in others. Or culturally and socially, people show that they are much more attached to certain payment methods than companies realise.
This is where wallet providers need to experiment with technological flexibility. For example, OpenWay client SmartPay uses QR codes to engage hundreds of thousands of merchants and individuals in the wallet payment ecosystem. They connect both private and business customers to an entire network of banks, HR agencies and other partners through their wallet. Another OpenWay client, AzeriCard, decided to launch a remittance service now known as cash-by-code. When wallet users forgot their bankcard at home, they would just send the code to themselves. In this way, the remittance innovation turned into a cash-out innovation. Now, this feature is one of AzeriCard’s most popular services, and as a processor, they can offer cash-by-code to the clients of their 16 customer banks.
In going digital-only, banks can compete effectively with fintechs in financial inclusion initiatives if they have invested in the kind of new-generation platforms as fintechs run on, such as Way4. An example of this is Uzpromstroybank in Uzbekistan, Central Asia, the country’s largest bank. It selected Way4 in building its processing centre in-house from scratch for digital card issuing, omnichannel merchant acquiring, and 3-D Secure processing of ecommerce transactions. With this platform, the bank is able to issue digital-only cards and deliver them to unbanked users via smartphones.
As we have seen in the business cases mentioned above, both tier-1 companies and startups around the globe have selected the Way4 platform as the core of their payment solutions, including those focused on financial inclusion. Among them is a digital wallet that was launched from scratch to become a huge payment ecosystem in just three years, giving 1,7 million people and 400,000 SME merchants access to financial and non-financial services.
OpenWay’s experience shows that with a cost-saving, data-driven and innovative platform, a wallet targeting an undeveloped market can be a commercial success. By creating a new financial ecosystem, banks, fintechs and other players can generate increased revenue and benefits for individuals and merchants using the system, as well as themselves. With the financial and payment landscape shifting dramatically during the last few years, the success stories of our clients may well be repeated by those who pioneer new digital solutions, driving investment and economic growth in an ever-changing market.
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