Most consumers and small businesses today don’t participate in what is referred to as the formal financial system. To promote increased financial inclusion, mobile payments and their providers are looking to change that.
Nearly 2 Billion Worldwide Are Still Unbanked
Financial inclusion is the ability for individuals and businesses to have access to financial products that are affordable, suitable, and delivered in a way that is sustainable. According to a report by The World Bank, close to a third of adults were still categorized as unbanked in 2017. That’s based off roughly 128,000 adults in 123 economies. Approximately half of the unbanked were women from poor households in rural areas or out of the workforce.
It has been cited that exclusion from the financial system is one of the biggest hurdles to tackling the issue of poverty on a worldwide scale. In numerous developing countries, well over half of households don’t have an account with a financial institution. What’s more, small companies mentioned that easy access to affordable financing has also impeded their ability to grow.
Mobile payments, however, could revolutionize financial inclusion by providing affordable and efficient transactions, creating a platform for business growth, and enhancing security.
Mobile Banking: Anytime, Anywhere
Mobile banking has gained significant traction in the last few years. But there’s still a lot of opportunity for growth. According to the Consultative Group to Assist the Poor (CGAP), more than one billion of the world’s population owns a cell phone but doesn’t have a bank account.
With mobile banking, users can access their bank account anywhere, anytime, no longer needing to visit their local bank branch, that could potentially be many miles away, or simply non-existent.
Additionally, mobile banking makes it possible to avoid the high fees charged by traditional banks as well as significant account minimums, making it impossible for lower-income consumers and small businesses to participate. By offering these banking services at only a fraction of the cost of traditional banking services, more consumers can take advantage of these services.
Security is another consideration. Mobile payment systems use sophisticated security and encryption to protect customers, re-establishing trust in the financial system.
Biggest Challenges to Adoption
Mobile payments have gained popularity worldwide for the benefits mentioned, however, there are still some obstacles that need to be addressed in order to reach higher rates of adoption.
Fraud is a significant hurdle. Mobile payments are more vulnerable to fraud than other payment methods. Unlike credit cards, mobile payments do not have a physical card to steal, or a physical signature to verify, increasing its susceptibility for fraud.
Technology can also be intimidating to most consumers in developing countries, and therefore education and training would be key to increase adoption.
Finally, mobile payments need the necessary infrastructure such as mobile networks and payment terminals to ensure users in rural areas can take advantage of this technology.
As mobile payments continue to open the doors to financial inclusion, much needs to be done to ensure that providers and regulatory bodies ensure the protection of their customers’ sensitive information.
“Mobile access also highlights the value of prepaid programs, starting from prepaid mobile access all the way through payments,” said Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research. “Underbanked and underserved communities are given opportunity to participate through these tools, which also helps create new and more sustainable markets as payments shift into digital spaces.”