Financial inclusion, particularly in the developing world, has emerged as a significant policy objective over the last decade. There is considerable will among policymakers, the development community and private sector to bring the world’s two billion unbanked people into the formal financial system. So much so, seven out of the 17 UN sustainable development goals mention financial inclusion as an enabler.
What are the founding or design principles of an inclusive payment system?
The most important ones are accessibility, relevance and efficiency. Financial inclusion projects typically operate on low margins. They are investment-sensitive, so they have to be as efficient as possible to deliver the service as cost-effectively as possible.
When thinking about how to address the issue of the unbanked in developing countries, what are the barriers and challenges to overcome? And how would you prioritise them?
The key is to not to make the one-size-fits-all mistake. This comes back to my point above about relevance. The culture of payments, expectations and historical background is different country to country. A successful project in one particular country or region does not guarantee that you can replicate this model elsewhere.
It is important to really understand the needs on the ground. It’s not just a matter of wanting to get more people into the system — that’s an overarching goal. You need to understand what would motivate people to participate. There should be some particular aspect where you can add value, whether this is transacting, access or delivering a particular service.
Each business case is different and has to be specifically defined according to the need on the ground from the end-user perspective. Next, work out how you will deliver on your business case. Think about whether you are going to use an agent network, bank branches or government institutions. You will most likely be operating a low-margin business, dependent on volume. Consider your costs carefully and how you attract sufficient market penetration to be self-sustainable, and even profitable.
Sometimes the needs of some groups go unmet due to difficulties around making the business case for all participants. What experience do you have in helping to build the ‘business case’ for providers to extend financial services to various groups?
We have worked with retail banks specifically focusing on the unbanked, financially excluded segment in East Africa. We have also worked quite extensively with central banks and government institutions. They approach it from a slightly different angle.
If it’s a bank, financial institution or business, they are looking to make a profit. Financial inclusion is more an added value. They are just addressing a market segment that was previously neglected.
Central banks, associations of commercial banks and government-mandated institutions act more like financial enablers — guardians of the financial infrastructure. They have a more altruistic, non-profit motive. Their interest is to invest to create the financial services infrastructure, which in turn could be used by everyone. New businesses, banks, start-ups can then create products and services for all market segments, including the previously unbanked.
How can technology facilitate further innovation in helping to address the problem of the unbanked?
Technology is a tool used to achieve a result. Technology can be leveraged and used to build that infrastructure. If these financial rails are made open and accessible, they can be used by local players on the ground — banks, start-ups and other financial institutions — who know the local market needs best. You would be surprised by the ideas that grow out of that local knowledge.
Central banks and national switches can open up AIPs and enable participants in their country to access infrastructure to create new products and services for previously-neglected segments. That is where the innovation would happen. Those would be the people who would innovate best on the infrastructure provided to them.
How Tieto can help
Tieto has worked with central and retail banks, banking associations and service providers in several countries on payment systems to drive financial inclusion. For client references or to find out more, please contact me Raivis Joksts, Lead offering manager, Tieto.