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Banking the Unbanked

With almost two billion people across the globe being unbanked, 60 percent of whom live in Africa, what are some of the solutions that are helping bring people into the formal economy? A panel of experts discussed what has been learnt in banking the unbanked at the World Economic Forum (WEF) on Africa in Cape Town on Friday.

A major recent driver in banking those who are unbanked has been digital technology, through mobile banking.

President, Mastercard Center for Inclusive Growth, Shamina Singh, said the story of financial inclusion is one of opportunity and growth. A few years ago, 2.5 billion people were unbanked, a number that has dropped to 1.7 billion now, she said.

However, if two billion people are unbanked, that means that four billion are probably outside the formal economy.

Natalie Payida Jabangwe, Chief Executive Officer of EcoCash, said that telecommunications have a lot of contribute, especially in Africa. She pointed out that there are 870 million mobile money accounts in the world, and almost half of these are in sub-Saharan Africa.

Most of the success stories in banking the unbanked have come from mobile operators, yet, the sector is fragmented and is dominated by person-to-person transfers.

Yet, there is a lot to be done, said Jabangwe. She explained that most of the people who need the opportunity to be part of the formal economy are in Africa.

Eraj Shirvani, Vice Chairman of Emerging Markets at Credit Suisse, said the question is how we get people to start using services and technology in a more sophisticated way, going beyond person-to-person transfers, as this is when financial inclusion becomes a reality.

Who regulates?

However, as technology presents new opportunities, the regulatory landscape has, and must, change. The question becomes who should regulate, and how can this be done uniformly? We believe we should be regulated based on activity, not on corporate makeup.

But that will require a lot of governments to figure out how they want to connect with each other.

Jabangwe noted that EcoBank is only one of two mobile companies globally that owns a bank, and regulation in this environment is much stricter. However, EcoCash sees this as an ecosystem play. She said there is a need for more integrated payment systems that allow us to build new age disruptive technologies in an institutionalised way that takes care of banking requirements as well.

Jabangwe added she sees integrated payments as key to the future of banking.

Singh explained that people need to have the ability to transact no matter who you are or where you are. She said the concept of integrated payments is the idea that there is a system that allows everybody to talk with everybody else. She said it is about making it easier and simpler for beneficiaries.

However, none of this can happen in isolation, said Singh. Companies need to figure out how to work together and put competition aside for the benefit of all, she added.

Shirvani cautioned, however, that all of this requires regulatory framework, such as central credit bureaus, digital IDs, market infrastructure, and simplified and fast processes for smaller companies. “All of those things need to happen… there’s a lot of work to be done.”

Yet, said Singh, companies don’t have to wait for regulators to tell them what is right and what is wrong. It is possible to build products and solutions for what is coming, not what is here right now. “We embrace our role as a global network.”

Jabangwe said when people in Zimbabwe lost trust in banks, they went back to putting money under a mattress, until the introduction of mobile money. The introduction of mobile money in Zimbabwe helped build a deposit base for the country, she said.

Digitisation and electronic money processing has saved Zimbabwe from another incident of hyperinflation, Jabangwe said. “There is a real case here for Africa,” because much of the value of inter-Africa trade is still dollar denominated, she said. “This is digital financing 2.0.”