Making Payment Acceptance a Driver for Financial Inclusion
By Dan Salazar, Vice President, Product Development and Innovation, Acceptance and Solutions, Mastercard
Ten years ago, 85 percent of the world’s transactions were in cash and checks, and 2.5 billion people were unbanked. Since then, we’ve all been working hard as an industry to develop technology that will give the unbanked access to the world of digital payments. Mastercard has connected more than 360 million people to formal financial services – more than half-way to our commitment of reaching 500 million people by 2020. And the company has set a goal of connecting 40 million micro and small merchants to our payments network by 2021.
While more and more people and businesses are becoming “financially included,” there are still 2 billion people today who don’t have bank accounts, and over the last 10 years we’ve only managed to reduce cash usage by 2 percent. Up to now, we’ve been operating on the assumption that if we displace cash and simultaneously provide access to electronic payments, the unbanked will come. But, at this rate, financial inclusion for those remaining 2 billion people will take 200 years.
One thing is clear: we need to broaden our focus beyond simply increasing access to financial accounts to aggressively driving adoption and usage of those services. In fact, dormancy in newly-opened accounts is low-hanging fruit that must be addressed in order to further inclusion.
At Mastercard, we believe that merchant acceptance is the key. Enabling more merchants serving low-income populations in developing countries to accept electronic payments for everyday purchases can vastly broaden financial inclusion.
We recently brought together key stakeholders for a workshop in Washington D.C., where we discussed ways to advance payment acceptance at the base of the pyramid. Narrowing the access-usage gap is a primary concern of financial inclusion practitioners – many of whom were gathered in the room – including the World Bank, IFC, USAID, BTCA, CGAP, and Accion.
These industry experts agreed with the framework developed in our recent report, which highlights solutions, business models and partnerships as key opportunities to advance acceptance. But not everyone shares the same opinion on how to address the barriers. For example, on the solution side, reducing POI (Point of Interaction) costs and using payment data in lending were identified as key topics. The discussion also highlighted the need to address consumer demand, as well as a holistic view of merchant cash flows.
New business models need to satisfy the underlying economics of acceptance. This includes making merchant acceptance more attractive through incremental revenues and reduced costs. For example, push payments offer instant and irreversible payments, resulting in fewer disputes and exception items. Another new approach is to facilitate distribution through aggregators and fast-moving consumer goods companies.
On the partnerships front, governments could play a key role in advancing acceptance as part of the broader ecosystem to support digital payments. Government intervention can help enable critical mass by providing incentives to accept payments and by removing disincentives, such as higher taxes for merchants.
Over the next 18 months, Mastercard will focus on three critical objectives:
First, implementing initiatives that test the efficacy of various approaches in advancing merchant acceptance at the base of the pyramid;
Second, developing learnings from these efforts in order to refine and bring precision to our focus;
And third, deepening our collaboration and partnerships, to advance our mutual understanding and have greater collective impact.
Collaboration with our public, private and NGO partners is critical to scaling our efforts and achieving full financial inclusion. As the African proverb says: “If you want to go fast, go alone. If you want to go far, go together.” We look forward to continuing these types of dialogues, so that we can keep moving the needle on financial inclusion, together.