Receiving a salary and paying bills are just two types of transactions that people the world over take for granted. Yet for many in developing countries, who don’t have access to basic financial infrastructure, these things aren’t possible. Many are still relying on cash, and being cut off from financial services deprives them of other opportunities. Great strides are being made with financial inclusion, however, and some of the technologies that are being used in emerging economies are also being applied to developed markets.
Financial inclusion can aid economic growth, overcome poverty and create a more equal society. As individuals become better connected to the financial services ecosystem, so do the opportunities for the companies serving them. Researchers at MIT and Georgetown University estimate that M-Pesa in Kenya – the oft-cited case of a successful mobile money programme – was able to lift 2% of households out of poverty.
And Wharton management professor Valentina Assenova notes that mobile money has also been a dominant force in sub-Saharan Africa, Latin America and South Asia and addresses “institutional voids” that have traditionally excluded many from accessing credit or the financial infrastructure.
Harish Natarajan, Practice Manager, Finance, Competitiveness and Innovation, World Bank comments that the drivers of financial inclusion are lowering the cost to provide financial services, lowering the cost to access financial services, and creating a demand for and fostering trust and confidence in financial services. “These are positively impacted by various supply side and demand side interventions and backed by strong support from public authorities, and public-private collaboration,” says Natarajan.
By improving the infrastructure, everyone can benefit from financial inclusion and some of the interventions that can advance financial inclusion include opening up the market to new players, and digitising large volume frequent payment flows, such as social benefit transfers, salary payments and remittances, for example.
Current state
Mobile money adoption continues to grow around the world, and GSMA, an association for the mobile network operators, has tracked this progress in its ‘State of the Industry Report on Mobile Money 2024’. Sub-Saharan Africa has the highest levels of global mobile money adoption, which was estimated to have increased gross domestic product in the region by more than US$150bn or 3.7% between 2013 and 2022. “Beyond contributing to financial and digital inclusion, increasing mobile money use has led to higher GDP – particularly among countries in East and West Africa,” the GSMA report states. In 2023, registered accounts grew to 1.75 billion, which was a 12% year on year increase.
The report found that international remittances and merchant payments were among the fastest-growing mobile money use cases in 2023. Transaction values for international remittances grew to almost US$29bn, a one-third increase compared to 2022. Also, many individuals are now using mobile money to pay for goods and services: in 2019, in every US$10 of mobile money, one dollar was spent this way. By 2023, this figure had doubled to two dollars in every US$10.
Technology as a driver
Leora Klapper, Lead Economist, Development Research Group, World Bank tells Treasury Today Group: “Technological innovation is without doubt key to enabling inclusion. Some of the biggest impacts to date have come from widespread and foundational technical capabilities.” She gives a number of examples, such as the rapid adoption of mobile money in sub-Saharan Africa. “Across the region, mobile money contributed to a near-doubling of account ownership rates between 2011 and 2022. Its exact role varies across the continent, depending on the country. It has played an additive role in some countries – such as South Africa, which had higher-than-average bank account ownership rates to begin with – and an enabler of first-time inclusion in places that began the last decade with low account ownership,” says Klapper.
Another example is the government payment digitalisation in Brazil. This initiative saw lower-income households have increased account ownership when Brazil digitised government-to-person payments through its Bolsa Familia Program (BFP), which merged multiple pre-existing conditional cash transfer (CCT) programmes into one electronic benefit card (EBC), which was linked to bank accounts at Brazil’s state-owned bank, explains Klapper. “Correlating with that effort, between 2011 and 2021, account ownership increased by 30 percentage points to reach 84% of all adults. That proved a massive benefit for the country during Covid-19, when the central bank launched the Pix payment platform and used it to deliver direct payments into people’s accounts,” explains Klapper.
“A reliable, convenient and nationally-available digital solution or service created the foundation for many unbanked adults to acquire accounts. Those solutions were able to take hold because the government launched programmes to motivate the use of digital solutions,” Klapper adds.
There are other technologies, which have also been adopted in developed markets by various institutions, that are driving financial inclusion. Natajaran highlights the role that real-time payments have had in lowering costs and access to financial services. When used with QR codes, for example, these instant payment systems create new ways to initiate and process payments. Natarajan also points to the potential of open finance, which enables various organisations to have access to data so that it can be harnessed to better appraise risks, compare products and services and automate routine financial decisions.
Adoption of QR codes
Mobile money has driven financial inclusion in many markets, and there is still much work to be done. Aminata Kane, Head of Mobile Money for Africa and the Middle East, Orange writes in a blog post that many emerging markets are still heavily dependent on cash. To address this, QR codes have been introduced, and mobile operator Orange has tested this technology in Senegal and Ivory Coast so that customers pay just by scanning their QR codes, which links to the merchant’s phone number and then directly transfers the funds directly into their mobile wallet. This avoids the need for cash and also helps build up the mobile money history for the merchants so they can qualify for small loans.
Expanding internet access, mobile network coverage, and banking infrastructure in rural and remote areas facilitates greater access to financial services.
Hakima El Alami, Director, Bank Al-Maghrib
Orange has also launched microloans in several African countries and has 1.3 million microloan customers in Côte d’Ivoire alone. No formal credit history is required to get a loan and they can get the credit immediately in their mobile wallet (in the region of US$100 and US$2,000) and can pay it back within 30 days.
This is the kind of scenario that is held up as the success story for mobile money programmes, such as M-Pesa in Kenya. Sitoyo Lopokoiyit, M-Pesa Africa’s Managing Director, gives a typical example of how financial inclusion can change lives. He gives the case of Mama Lenna, who took US$10 of credit because she wanted to start a restaurant. Every morning she would wake up at 4am go to the market to buy ingredients so she could make breakfast for workers at a construction site. Her business grew, she recruited four other women, and now they have a combined credit of US$1,000 and are able to support 23 dependents. “When we lend out US$14m a day, these are the stories that empower the society we operate in, that empower SMEs, that empower micro-SMEs,” Lopokoiyit said in a McKinsey podcast.
Driving further adoption
While much progress has been made with financial inclusion, there is still more that can be done. Hakima El Alami, a Director at Morocco’s central bank, Bank Al-Maghrib, tells Treasury Today Group that a number of elements are necessary: “When combined, these create an ecosystem that supports greater financial inclusion, helping to reduce poverty and promote economic growth,” she says.
Some of the factors that are necessary include access to digital financial services, which improve access in remote or underserved areas. Resilient payment and digital infrastructure is also necessary. “Expanding internet access, mobile network coverage, and banking infrastructure in rural and remote areas facilitates greater access to financial services,” says El Alami. Innovative financial products that meet the needs of underserved populations, such as mobile wallets, microloans and microinsurance also drive and foster financial inclusion. Another pillar is financial literacy and digital education.
Financial inclusion is also underpinned by government policies and regulations, notes El Alami, which includes simplified know your customer (KYC) requirements.
Public-private partnerships between governments, financial institutions and technology companies can create scalable and sustainable financial inclusion initiatives. El Alami notes, trust and security is important to encourage more people to participate in the formal financial system.
Klapper notes a number of ingredients are necessary to drive financial inclusion, which all depend on each other. She explains: “It is very challenging, if not impossible, to own an account if you don’t have an ID or other documentation needed to open one. You can’t use a mobile money account without reliable connectivity, and it is difficult to regularly use a bank account if you don’t live near your bank or have another way of accessing it, such as through a mobile app or the internet. There is also the issue of trust in the system, which is hard to build in places where there is no consumer protection in place.”
This is a point that is highlighted in the World Bank’s Global Findex database, which tracks metrics for financial inclusion. This database “consistently shows a correlation between not having a bank account and not having a government-issued ID and/or not having your own mobile phone.
In fact, lacking ID is consistently cited by unbanked adults among the primary reasons why they do not have an account – more so for women than for men. Also, about one in four adults say they don’t have an account because they don’t trust institutions, and part of that trust has to do with feeling like there is recourse in the event that something goes wrong, a process that requires effective and enforced consumer protection,” Klapper explains.
Adoption in developed markets
While it could be assumed that institutions in developed markets have access to the most sophisticated financial technology, there are plenty of examples of applications that have been used in emerging markets that are now being applied to more developed economies. For companies that keep an eye on the latest payments technology, it makes sense to keep an eye on the innovations that come with greater financial inclusion.
When it comes to the adoption in developed markets, Natarajan says, “There have already been instances of innovations flowing bi-directionally between developed and developing economies and amongst developing and developed economies.” These include prepaid cards and accounts in advanced economies that pre-dated developing of mobile money in the Philippines and then Kenya and East Africa. “Mobile banking in developed markets led to third-party mobile apps used for payments in China and then eventually development of super-apps in China which several other developed and developing economies adopted.” There are other examples of technologies being adopted in developed markets, such as QR codes. With technologies such as these, not only has access to financial services been improved, organisations in developed markets have also built on the latest payments technologies.
