n 2021, Mastercard CEO Ajay Banga was interviewed by TED about financial inclusion and how innovative public-private partnerships can help bring everyone into the digital economy. The COVID-19 pandemic was still a major worry at the time, as it exacerbated global inequalities.
This interview is a deep dive into the challenges faced by the unbanked and underbanked populations worldwide. It also discusses how innovative partnerships and technology can help integrate them into the digital economy. And some very interesting comments on the complexities of a utopian, or maybe dystopian, cashless society and the importance of data privacy in an increasingly connected world.
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Financial inclusion in practice
Many organisations are working together to improve financial inclusion. While some companies, like Mastercard, don't directly provide banking services, they partner with banks, fintech companies, mobile phone providers, governments, and merchants to create an ecosystem that supports inclusion. Here are a couple of examples:
Farmers: In many parts of the world, farmers travel long distances to sell their produce for cash, which can be risky. By connecting them with mobile phones, they can access information about crops and rainfall, sell produce online, and receive payments directly into an account. This shift from a cash economy to an electronic one allows banks to better assess their financial history and offer services like crop loans.
Small and micro-businesses: Consider a woman running a small shop in a village. She often deals in cash and might run out of stock because she can't buy enough produce. By digitising her transaction history (what she buys and sells), banks can underwrite her for small loans, helping her manage her inventory better and grow her business.
The digital divide and technology
One common concern is that financial inclusion initiatives rely heavily on technology, potentially worsening the digital divide. However, many of these solutions are designed to work on basic flip phones, not just smartphones, and don't always require home internet access. For instance, mobile wallets can operate on older phone models.
In some cases, technology isn't even necessary. For micro and small credit enterprises, digitising transaction history alone can enable banks to provide services. Other solutions, like biometric cards used for social security payments in South Africa, allow direct transfers to individuals, bypassing middlemen and reducing 'leakage' (money lost through administrative costs or theft).
It's important to remember that technology is a tool, not an excuse. The goal is to use available technology smartly to solve real-world problems. For example, the World Food Programme uses cards loaded with monetary value for refugees, which can only be used at certified shops for essential goods, ensuring aid reaches those who need it most and reducing waste.
The future of cash
The idea of a 'cashless society' often comes up in discussions about financial inclusion. However, a completely cashless society is unlikely and probably undesirable. While reducing cash in the economy has benefits, eliminating it entirely could disadvantage those who prefer or rely on cash, such as older individuals or those uncomfortable with technology.
Reducing cash is a good objective because:
Cash can facilitate hidden or illegal transactions, whereas electronic payments offer transparency.
Electronic money can lead to better tax collection and less money laundering.
There's a significant cost associated with printing, securing, and distributing cash (estimated at 1-2% of GDP).
Countries like Sweden and South Korea have made significant progress in reducing cash use, with electronic payments being widely adopted. However, even they acknowledge the need to ensure that those who still wish to use cash are not disadvantaged. The challenge lies in maintaining access to cash distribution points, such as ATMs or retailers, as cash usage declines.
Data and privacy
As society moves towards more digital transactions, concerns about data and privacy become more prominent. It's essential that consumers have control over their own data. This means:
Knowing what data is being collected.
Having the ability to opt out of data collection.
Understanding how their data is being used and potentially benefiting from it.
Companies should collect only the minimum data required, keep it safe, and allow consumers to delete it when they wish.
As technology advances and more devices become connected, vast amounts of data will be generated. Putting consumers in control of their data will be crucial for the data-driven economy of the future. Consumers will increasingly choose to engage with companies that respect their data privacy and transparency.
