T. Raval, CEO of IDMERIT: Financial Inclusion Through Mobile Money Services

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Feb 2019
Global, February, 07 2019 - Financial inclusion is described as a phenomenon where people or businesses have access to useful and affordable financial services or products. These services or products must meet customer needs and provide them with value. Financial inclusion states that individuals or businesses cannot be discriminated against based on their net worth or size.

Having access to financial services helps drive economic development. People can escape poverty in developing nations with financial services that help them invest in their health, education and businesses. Financial services are also important for people who need to work through emergencies (such as sudden illness) that can push them into financial ruin. Moving people away from relying on cash and switching to digital financial technology (fintech) solutions can have many positive effects on society. I believe this will lead more people toward financial inclusion. In poorer economies where financial innovation is enabling access to previously unattainable banking services, this is especially true.

Who Remains Unbanked?

While financial inclusion is increasing around the world, there are still many adults who remain unbanked. Globally, around 1.7 billion adults do not have access to financial services through a bank or mobile money provider. Mobile money providers generally offer ways to store and manage money in an account linked to a mobile phone. These accounts are usually provided by local telecom operators.

Many of the unbanked come from developing economies. They perform transactions exclusively in cash and do not have a way to save or invest their money safely. Most of the time, these individuals rely on unofficial lenders or personal connections for credit.

The reasons these people remain unbanked vary. According to data from World Bank, some have too little money to use a financial account. Others say cost and distance prevent them from getting a financial account. Others claim they do not need one because another family member already has one. Plus, some say they do not have enough identity documentation to gain access.

These people can benefit from fintech solutions, often available to anyone with a smartphone, that provide access to financial services outside of traditional banks. Mobile money accounts are one of these solutions.

The Mobile Fintech Revolution

Financial inclusion is being driven to global economies through access to financial services on mobile devices. According to Statista, there were over 4.43 billion mobile phone users worldwide in 2017. This number is expected to rise to 4.78 billion by 2020. For unbanked populations, their access to mobile phones is increasing as well. In 2014 it was reported that only 55% of adults had a bank account but over 80% had a mobile phone.

This phenomenon is leading to new types of financial services. Dubbed mobile money solutions, they give the unbanked or underbanked populations in developing nations an avenue to access financial services through their mobile devices. In many cases, mobile operators provide these types of accounts to their subscribers. In Kenya, for example, there is M-Pesa, which today allows 30 million users to text small payments between one another. According to data from the World Bank, from 2014 to 2017, 515 million adults worldwide gained access to financial services previously unavailable. This is especially true in Sub-Saharan Africa, where the number of adults with mobile money accounts now exceeds 20%. That stat rings true for specific countries as well, including Bangladesh, Iran and Paraguay.

The Benefits Of Financial Inclusion

In developing nations, people are gaining access to a variety of financial services, including mobile money services, payment cards and fintech solutions. People with access to these financial services use them in a variety of ways. The most common include:

• To receive government-sanctioned payments.

• To receive payments for work from the private sector.

• To receive remittance payments.

• To make person-to-person payments.

• To pay bills, such as airtime top-ups.

Access to these services has helped people remain more financially stable over time. They are helping to bridge the wage gap between the rich and the poor and increase the quality of life in developing nations. For example, in Kenya, fintech solutions are helping women-headed households increase their savings by 20%. Women have also been able to invest in their businesses at a higher rate thanks to fintech. Plus, fintech solutions also lower the cost of receiving payments, which is much more difficult in a cash economy.

Fintech is not only transforming individuals lives, but it is also having a profound effect on whole societies. In India, pension payments were previously handed out to recipients in cash. When this was switched to the biometric smart card Aadhaar, leakage of funds to bogus pensioners dropped by 47%. This showcases how fintech is helping decrease government corruption in developing nations.

A Big Opportunity For Fintech Companies

Financial inclusion has begun in developing nations, although it has not been fully addressed. For many, their financial needs have only been partially met by mobile payment providers. This means there is a huge opportunity for fintech companies to further address the needs of underbanked populations.

Fintech companies can benefit greatly from mobile money. It is a gateway into huge and largely untouched markets. They have the potential to reach over 1.7 billion new unbanked customers and help increase their quality of life through the distribution of useful and accessible financial services. The key is for these companies to help underserved populations not only gain access to payment services but also be able to save and use other financial services as well. McKinsey Global Institute (via the World Economic Forum) estimates that if these services are created, developing economies could generate an additional $3.7 trillion in their GDP by 2025.

Financial companies looking to enter this space will need to shift their mindset to succeed. Instead of entering markets in the same way they have always done, such as through incremental action, they will need to think outside of the box. Long-term investments in this space are vital to its success. They will also have to work closely with regulators to ensure that success is achieved in order to create safer, more affordable and transparent financial systems that everyone can benefit from.



Source : Forbes
 

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