Bridging the Gap: Convergence-Led Digital and Financial InclusionConnectsAfrica to a New Economy
By Mark Elliott, Division President of Mastercard, Sub-Saharan Africa
The 2021 Global Findex survey outlined nearly 17% of adults in Sub-Saharan Africa (SSA) are underbanked or financially excluded. As a result, many individuals donot have access to useful financial products that meet their needs. Financial inclusionis a key enabler inreducing extreme poverty and boosting shared prosperity. Digital adoption through mobile phone usage and the mobile money revolution have been contributing to financial inclusion in the region. The 2021 Global Findex survey further states, the average rate of bank account ownership in developing economies increased from 63% to 71%, and this was largely due to the adoption of mobile money. Today, SSA has a 45% mobile phone penetration rate. This reality is a key driver for the growing convergence of mobile, payments, and financial service providers, and creates a unique opportunity to deploy innovative models that will further drive financial inclusion in the region.
A key outcome of this convergence is largely due to the emergence of digital and branchless banks, sometimes referred to as Neobanks. These banks leverage digital platforms to provide a seamless experience to both banked and previously unbanked citizens. Neobanks’ ability to potentially acquire, onboard, activate, and manage customers via a mobile phone makes them important partners in connecting people to the digital economy. Depending on a specific Neobank’s business model, they also have the option to offer smartphone solutions as well as analogue (i.e. SMS Menu) options.
Beyond the various digital-first features, aspects of the core business model of leading Neobanks further support financial inclusion. Common elements include:
- Freemium service: No fees for the basic service, but customers might pay fees for the premium features
- Efficient account opening:The process typically takes less than five minutes
Another innovative concept which supports the convergence of digital and financial services is Open Banking. This solution enables third-party providers, such as fintech companies, to connect to banks through application programing interfaces (APIs). This provides a secure and easy way for consumers’ financial data to be retrieved, or for payments to be processedacross multiple institutions, providing for an improved customer experience and new revenue streams for operators. Simply put, Open Banking is empowering consumers to access, use, and benefit from their financial data.
Open Banking is a potential game changer for financial services in Africa as many of those who are financially unbanked or underserved have an existing relationship with a telco, fintech or microfinance company and so there is an opportunity for banks to benefit from “open data” or “open telco.” A move towards such openness – from banks as well as other parties –remains fundamental if we are to unleash the true potential of financial services and give both consumers and businesses greater choice and control.
Mastercard is playing a leadership role in facilitating and encouraging a safe and successful move to Open Banking, which will increasingly underpin the workings of new digital economies. We recognise the importance of maintaining consumer trust in this new ecosystem which will require cross-industry coordination, including regulators, and potentially, investment.
As a technology company, Mastercard is innovating for impact in financial and digital inclusion. In 2020, we doubled down on our financial inclusion commitment to connectinga total of 1 billion individuals and 50 million micro and small merchants to the digital economy by 2025.
For example, the Mastercard Digital First program provides a complete digital experience in the world of payment methods. For many Africans who have never had a brick-and-mortar bank account, leapfrogging legacy banking to Digital First banking services is an easy transition, which is why it is even more important for institutions in the financial payment space to adopt these platforms. Digital First provides the customer with a 100% digital product characterised by no paperwork, branch visits or snail mail. Customers can open a bank account immediately by uploading identification, applying for a card, activating the card, and using it for all their payment needs–all done from their mobile devices. A physical visit to a branch then becomes an optional extra.Customers can access all banking features and benefits through the mobile banking app with support delivered via chat –seamless, secure, fast, and efficient.
So, what other services can be developed to leverage the convergence of digital and financial services? The options are endless, but the key is to understand user needs and behaviorsthrough research and in-market assessment. Once we know the “why” and “what” of consumers’ pain points, we can identify the solutions, consider the partners with the required expertise, and activate the innovation.
It is this convergence-led innovation and collaboration that will contribute to achievingSSA’s financial inclusion goals, connecting millions of people that are still excluded from the formal economy to a vibrant and thriving digital economy.
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