How mobile payments are driving financial inclusion among unbanked emerging market populations

Access to financial services is vital for the world’s lowest income groups. With digital payments technologies on the rise, emerging market populations are accelerating towards new levels of financial inclusion – provided they can afford the mobile devices that make digital payments possible. 

The surprising prevalence of unbanked people 

According to the most recent Findex Report, 1.7 billion adults are unbanked. This means that approximately one-third of the world’s population is unable to access basic financial services like bank accounts. 

Low-income families across the world are impacted by this lack of financial resources. Women in developing countries – who often run household budgets – are especially vulnerable to a loss of control over their financial futures [World Bank].  

The scale of this problem is reflected in the commitments from a number of international bodies, organisations, and governments to promote financial inclusion. The G20 Global Partnership for Financial Inclusion has previously published a series of principles designed to reduce the number of unbanked people globally.

For the Partnership, this can be achieved through the adoption of digital approaches, digital literacy, and the IT infrastructure that allows for a strong digital services ecosystem. 

A brave new world of mobile payment solutions

Fortunately, recent years have seen a slew of innovation and enthusiastic adoption when it comes to exactly the kind of digital services recommended by the G20. 

The speed of this widespread digital transformation is – at least in part – the result of the COVID-19 pandemic, which incentivised a shift away from cash-based transactions and towards digital payment technologies. 

Cash handling is less appealing in the context of a highly contagious virus. A likely explanation from Worldpay’s report that cash transactions saw a global reduction of around 33 per cent between 2019 and 2020.

Moreover, though there may be ongoing security concerns around contactless payments in emerging markets, e-wallets are mitigating these risks.In fact, Worldpay’s report notes that India and China led the world in daily real-time payments in 2021 through digital tools like e-wallets. 

Reports like this demonstrate that, perhaps counter-intuitively, emerging countries – areas where 75 per cent of the financially excluded reside – have started to overtake Western payment markets by adapting rapidly to the age of digital financial services.  

Mobile wallets are often the “first cashless instrument” that many people in emerging markets will use [S&P Global Market Intelligence]. For the unbanked population, a smartphone with an internet connection can accelerate their financial inclusion, taking them from no bank account at all to the cutting edge of payments technology.  

Equally, smartphone access can provide consumers with other forms of financial inclusion, making transactions with QR codes and via apps like Yape that don’t require bank accounts in the first place.  

Why have emerging markets embraced new technologies? 

On closer inspection, this shift towards digital payments isn’t as counterintuitive as it may appear for emerging market countries. 

If nothing else, the relative youth of emerging populations has a big part to play in the embrace of technologies like mobile wallets. 

According to PwC, approximately 90 per cent of all under-30s live in emerging market countries. For PwC, this means that “population trends favour the growth of online transactions,” as young populations are more likely to adopt digital payment solutions. Many young people in emerging markets live in communities with limited electricity and network coverage, so their relationship to connected technologies won’t be instinctive. However, as PwC suggests, younger populations are more likely to embrace moves towards digital transactions – if they can access affordable devices. 

On top of this in-built amenability to digital payments, PwC has also pointed out that many emerging market governments are encouraging financial inclusion. They are incentivising a “rapid growth in electronic payment” that allows “banks to reach the unbanked.” 

It’s vital to ensure that the mobile devices needed to achieve this form of financial inclusion are affordable for the unbanked. If this can be achieved, there’s a clear willingness – from young populations and governments – to embrace digital banking services and the benefits that follow. 

The difference financial inclusion makes

These benefits are many and varied. 

EY’s “Innovation in financial inclusion: Revenue growth through innovative inclusion” report suggests that providing financial services to the unbanked protects individuals and families in the event of disasters. At the same time, bank accounts can help people to save for significant life events. In addition, a bank account can provide a more robust credit history. This, in turn, will make previously unbanked people eligible for credit and financing allowing them to create opportunities for economic prosperity. 

In fact, these advantages complement the broader business opportunities that connected smartphones represent.  Smartphones can be used to accelerate and promote businesses, improving the prospects of emerging market entrepreneurs. 

Above all, the United Nations Sustainable Development Goals report points out that digital finance is a great equaliser. Such services provide access to digital payments, credit, and micro-insurance, allowing households to manage the costs associated with health, education, and utilities. 

Taken together, these benefits represent a potent way to reduce poverty and provide security to millions of low-income people. 

Unbanked without a credit score: a Catch-22 

The problem of financial exclusion can be met with the solution of digital inclusion. Returning to EY’s report, it’s quickly established that mobile adoption and e-payments drive financial inclusion and help to economically lift up unbanked people. 

However, the report also implies that many unbanked people aren’t in a position to obtain an expensive handset. Financial exclusion is, for EY, caused by a lack of credit history and financial products that are simply too expensive. 

This can make it difficult for mobile operators and retailers to securely offer device financing options. With no customer information to work with, it can be tough to work out how much credit to extend.  

In our own research, for example, 20 per cent of our South African respondents reported credit history as the reason they were rejected for a mobile contract. This limiting factor can prevent those with low incomes from obtaining the affordable smartphones they need in order to benefit from financial services. 

How Trustonic can help

Trustonic’s smartphone risk management platform resolves this problem by significantly reducing the risks associated with financing plans. We provide carriers and other smartphone retailers with automated nudges and device-locking technology that incentivises full and timely payments while keeping mobile handsets affordable. 

Through the use of our platform, mobile operators have reduced delinquency from 35% to 11% by remotely and automatically locking devices in the event of non-payment. 

We’ve found that this solution not only reduces delinquency, but also the costs of running call centres to chase customers for payment – by as much as 50%. 

As such, our Telecom Platform allows smartphone retailers to offer affordable devices to the people who will benefit most from digital and financial inclusion. We help unbanked individuals to secure digital financial services that would otherwise remain beyond their reach. 

At the same time, carriers, retailers and financiers can rest easy with the knowledge that our device locking platform will encourage prompt and timely repayments for any financing plans – no matter how much credit information is available.