How technology can drive financial inclusion
In Africa, the majority of the population remains unbanked and true financial inclusion remains elusive because of its complexity. However, emerging markets are embracing new technologies and businesses are having to tailor existing offerings to achieve profitable financial inclusion.
True financial inclusion is about much more than simply access to credit, and it often proves difficult to achieve precisely because it is such a multidimensional concept. On-boarding South Africans that have never had access to banks or credit has also been a challenge. In fact, it is even defined in this manner by the Centre for Financial Inclusion (CFI), which describes it as a means to provide access to a full suite of quality financial services to everyone who can use them.
It is multidimensional because true inclusion is about more than just the banks or access to credit – it is also about ensuring the previously marginalised have access to a well-functioning financial infrastructure that allows them to actively engage in the economy. Thus, financial inclusion remains a critical player in the drive to reduce inequality, improve the welfare of societies and increase economic development. Effective financial inclusion will likely require a bricks-and-clicks distribution model, including physical presence in some form to build trust and confidence.
According to Johan Gellatly, Group Executive of Altron Bytes Secure Transaction Solutions, this is particularly true for many previously marginalised entrepreneurs and small business owners, as they may have both innovative ideas and considerable energy, but they still need services, markets and capital to thrive.
“The challenges facing the unbanked in Africa are numerous, and stretch far beyond the simple matter of not having access to those products and services that are generally made available by financial service providers. Even when they do gain access, usually the high costs associated with such services make them prohibitive. This is particularly true for small businesses that cannot afford the bank fees related to point of sale (POS) devices,” he says.
“However, increasing competition in the financial sector has led to a growing number of attempts to address these cost issues in order to create greater inclusion. Some of these, like the successful Mpesa initiative in East Africa, do not always translate well to our local environment, due to South Africa’s more stringent compliance rules, but that does not mean there are no concepts designed to encourage inclusion that will work in South Africa.”
One good example, states Gellatly, is a loan management system (LMS) that is designed to assist unsecured lenders in the country. This provides these entities with an administration system that enables the easy on-boarding of customers, offers affordability calculations and credit checks and essentially eliminates much of the administrative overhead, effort and paperwork related to this arena, essentially promoting compliance through technology.
“Once someone has obtained credit from one of these players, there is also a solution to enable the money to be disbursed in multiple ways. This can be done via electronic funds transfer (EFT) to a bank account in the form of cash or through a PIN-based debit card that is also fully compliant with the banking framework in South Africa. Of further benefit to users is the fact that one cannot incur debt on this or even offer this account as security for additional credit. In addition, it also reduces the threat of theft, since cash is no longer part of the transaction.”
He continues by pointing out there are now also mobile POS devices (mPOS) available, having been designed to enable small vendors to use these to accept payments from cards, rather than only taking cash. These devices are robust and strong and are ideally suited to those small businesses – such as food delivery people, plumbers and electricians – who travel to the client to provide their service, and then require some form of payment. Online application processes and e-commerce platforms/payment gateways have also bridged the gap, enabling people to not only gain access to funds, but reduce cash handling risks at hand.
“There can be little doubt that technology offers the best possible manner in which to bring the greater majority of unbanked people into the formal economy. Implementing it does, of course, require solutions that can meet the relevant regulatory requirements, as well as the demands for reduced costs, ease of use and security. As more technologies and solutions begin to adhere to these multiple requirements, so we will see an increasing number of the previously unbanked gaining access to the kind of services that truly represent financial inclusion,” concludes Gellatly.