A World beyond Cash is a World of Financial Inclusion
In a world where 85% of all consumer transactions are still being conducted in cash and cheques, there is an opportunity to harness electronic payments and move to a ‘world beyond cash’ to promote economic growth, innovation and financial inclusion.
There is a growing consensus around the world that cash is inefficient when compared to electronic payments. The evidence is backed by various studies and demonstrates the range of the cost of cash between 0.6% and 1.5% of a country’s GDP. One such study by Moody Analytics1, which looked at 56 countries representing over 90% of world’s GDP, showed that greater use of electronic payments added an aggregate $983 billion in real GDP growth; contributed to a rise in consumption by an average of 0.7%; and contributed to an average incremental growth in GDP of 0.17% per year.
Electronic payments also provide an opportunity to expand financial inclusion. Governments around the world, backed by the G20, recognise the importance of financial inclusion as key to economic growth, financial stability and integrity. Financial access has been highlighted as a ‘key accelerator’ to meet the Millennium Development Goals and the key to achieving these goals is financial education.
According to the World Bank’s Global Findex database, 2.5 billion adults globally do not have adequate access to financial services. They have no access to safe and affordable ways to borrow, save, invest or transfer funds, and therefore, no way to improve their quality of life.
Low levels of financial inclusion create a vicious circle where the lack of financial access promotes high cash, which in turn affects the level of financial intermediation and eventually GDP growth.
Financial inclusion encompasses improved access for the unbanked, availability of better products and solutions, and ultimately, better usage by consumers. The advent of new technologies combined with diversification of products and services has increased the choice and quality of financial products. However, greater quality and choice has not automatically triggered effective usage by customers. The path from access to usage is determined by how knowledgeable customers are about what is available to them. They need to know about product features, fee structures and rewards and incentives associated with the products.
Inclusive Growth Requires Focusing on the Last Mile
We believe that it takes an ecosystem approach to address both the financial access and account usage challenges. There is no single stakeholder in the value chain that can drive financial inclusion alone, deliver a full suite of solutions, and provide consumers with adequate financial education materials. The payments industry can work together with policymakers to establish safe and efficient payment ecosystems combined with practical programmes for financial education that help build trust and confidence in the system, and drive adoption and usage.
In this respect, MasterCard plays an important role of a market organiser connecting various stakeholders in the value chain, bringing an understanding of the necessary components that comprise the payments ecosystem, as well as our assets and technology, to partner on end-to-end solutions.
MasterCard is putting these words into action by leveraging its payments technology and partnering with other businesses, governments and NGOs around the world. Examples include:
Since 2006, MasterCard has worked with a number of municipalities in Russia to implement the Social Card programme which combines pension payments with subsidies for healthcare and transit on a single card. MasterCard’s m-chip technology has allowed for multiple benefits to be included on one card, helping governments reduce administration costs as well as fraud.
In the USA, MasterCard has worked with US Treasury to replace paper cheques for social security benefits with Direct Express Cards to over 4 million unbanked recipients. The programme not only reduced the costs for the US government but also fared well in terms of customer satisfaction due to targeted consumer education campaigns.
The South African Social Security Agency (SASSA) programme manages the disbursement of 15 million grants per month, and the majority of grant recipients lack access to banking products. To drive adoption and usage, MasterCard developed educational materials and also worked with a non-traditional partner to drive acceptance at small merchants in South Africa making the product more usable for the recipients.
MasterCard also delivers financial education through various programmes and tools, such as, MasterCard’s Smart Consumer, Are You Credit Wise?, and Community Financial Outreach Programme, and partners with organisations such as Pro Mujer, Network for Teaching Entrepreneurship, UN Women and INSEAD to provide low income youth and adults with the training and resources they need to build and preserve assets.
1 The Impact of Electronic Payments on Economic Growth, Moody’s Analytic, February 2013