How inclusive infrastructure helps the most vulnerable populations

Cash remains the world's most popular way to pay. And African countries are the most dependent on physical money. But, worldwide people are moving to digital payments.

How can people with no access to technology be included in a cashless society?

Cash is king. The quick and easy way to hand money from one person to another has proven its value for centuries. It's impossible to know exactly how much physical money exchanges hands every day, but cash remains the most popular way to pay – for now. As the world becomes better connected, and people expect to be able to trade with and pay people they may never meet in person, the trend worldwide is towards digital payments.

But, there is a problem. While 71% of people in developing countries have a financial account, many still don't have access to a full range of financial services. Worldwide, 1.4 billion people are "unbanked" – they have neither a bank account or the ability to transfer money – and 350 million of that proportion live in Africa.

Whether it's making a purchase or getting paid for services, digital finances can have the same or greater universality as cash, says Kosta Peric, deputy director of the inclusive financial services strategy team at the Bill & Melinda Gates Foundation. Digital payments can also be more secure than carrying physical money, and enable users to make payments from a distance.

Interoperable instant payment systems (IPS), sometimes also called real time payment systems (RTP), facilitate digital payments systems that have all the benefits of cash without its downsides, allowing money to be transferred seamlessly and instantly globally.

"It's what makes money moveable instantly between institutions," says Adama Diallo, head of partnerships at Google's Next Billion Users initiative in Africa. "When [IPS] come into a country, they fundamentally change how payments are made, and provide scheme owners a foundation to improve institutions' ways of working."

“When a person can access their money digitally, they have ownership over it.”

Kosta PericThe Bill & Melinda Gates Foundation

"When you say instant it really means instant. If I send you money, you instantly have it. Not in one minute, not in an hour, instantly and irrevocably," says Peric. "That is important, because it mimics cash. If I hand you cash physically, our transaction is done, you own the cash. That same concept needs to be replicated in the digital world and that is this notion of instant irrevocable push payment. When a person can access their money digitally, they have ownership over it. So many other opportunities are open to people when they are given proper access and control over their finances."

Considering the number of unbanked people in Africa, providing easier ways to access and move money could be an enormous benefit for some of the most vulnerable people in society, Peric explains.

"For a long time, banks did not serve the very poor. Now, we're witnessing digital financial service providers, telecom providers and fintech providers showing us how it is possible to be economically profitable by serving and connecting the unbanked."

Digital financial services and tools are critical to accelerating the rate at which the financially excluded population move into the formal financial system and hold on to the gains they have made in developing economies, adds Peric.

He says that building these systems can be costly, and the lack of connection between digital financial services and payment platforms can limit how quickly and efficiently they are rolled out to new regions and customers.

“We must be careful to not create a digital divide and further push people out of the circle.”

Adama DialloGoogle's Next Billion Users

Caution must be taken to not leave people behind as these systems evolve, warns Diallo. Globally, 65% of women have an account with a financial institution, compared with 72% of men, leaving women facing disproportionately affected by socioeconomic, cultural and technological barriers to financial services.

"We must be careful to not create a digital divide and further push people out of the circle," she explains. "Imagine a shopkeeper whose livelihood relies on her income. Her bank account isn't compatible with her customer's bank, and she can't afford the cost and fees that come with modern financial services, so she can only accept cash. This makes business difficult to maintain, and therefore pushes her back into a circle of people being left behind."

Started in 2017 by the Bill & Melinda Gates Foundation, Mojaloop's software is designed to help fast track the uptake of digital financial services, by enabling central banks, hub operators, financial institutions and system integrators to create a customised instant payment system that serves community needs. The Mojaloop structure does this by enabling merchants to instantly receive payments from customers paying with mobile money and digital wallets. The project became the Mojaloop Foundation, a charitable organisation that oversees the ongoing development of this work. With support from the Mojaloop Foundation, individuals and businesses are given access to affordable financial products and services, including transactions, payments, savings, credit and insurance

Simplifying transactions is key to improving access to digital financial services for unbanked populations, according to Peric.

Acting as a blueprint for how to streamline and reduce the cost of making payments, Mojaloop and its partners are working towards a shared goal of increasing accessibility for those who are at risk of being left behind. Those partners include AfricaNenda, a consultancy helping people in Africa achieve universal financial access by 2030 and supporting the development of instant digital payments systems.

“People earning less than $1 (80p) a day cannot fathom spending nearly a month's worth of money this way. This is just one of many challenges that stand in the way of achieving our goal.”

Robert OcholaAfricaNenda

Challenges remain, says CEO of AfricaNenda Robert Ochola. For example, the cost of digital technology, like mobile phones, is a high barrier for people who earn wages around the poverty threshold.

"The cost of the mobile devices, say it's $20 (£16), can serve as a huge barrier for people," he says. "People earning less than $1 (80p) a day cannot fathom spending nearly a month's worth of money this way. This is just one of many challenges that stand in the way of achieving our goal."

While Mojaloop and partners do not make mobile devices cheaper, they offer an important step towards making sure that when people do have access to a device, they are able to make payments from it to other operators within the digital payments infrastructure without fees or delays.

Affordability and longevity sit at the heart of what both the Mojaloop Foundation and its partners aim to achieve. Implementing digital infrastructure improves people's productivity and how they manage their assets, says Peric.

"With a digital history, you're able to justify loans, financial services or credit, which can enable you to be self-sufficient in growing your income or building your own business," Ochala says. "But cash doesn't allow for that, so it stops people moving up. And that is what we're working towards – giving people the opportunity to do well for themselves."

BY MOJALOOP FOUNDATION