The number of people worldwide who have a bank account jumped by 20 percent between 2011 and 2014. In Africa in particular, it is new technologies, such as mobile phone ‘wallets’ and digitized payments that have made it easier for people in developing countries to connect to the formal economy. Globally, 62 percent of adults now have a bank account, up from 51 percent just three years back.
As impressive as these gains are, they are not evenly spread across the world. Big opportunities remain to further expand financial inclusion, especially among women and poor people, particularly in the least developed countries. When people get into the financial system, they are better placed to manage their own finances, being able to start or expand businesses or invest in their children’s education.
Moving from a cash-based economy to one where digital payments are widespread has many potential benefits for governments, companies and the development community. It can increase the speed of payments, lower the costs and reduce the travel distance between those sending and disbursing payments and those receiving them. Digital payments enhance security and reduce the incidence of crime. Digitization of payments also increases transparency and thus reduces the temptation and the likelihood of corruption. The ability to pay in an instant – almost anywhere – is leading to new “pay as you go” services for low income and rural areas, including water, electricity and even school fees. Shifting to digital payments also provides an important first entry point into the formal financial system, a pathway to a savings account, insurance policy and even a loan.
In the context of the new post-2015 global development agenda, the digitization of payments can result not only in greater efficiency, significant cost savings and enhanced transparency, but also help free domestic resources to be utilized for priority investments. For example, in Mexico, the government is saving $1.3 billion annually — or 3.3% of its total expenditures on wages, pensions, and social transfers — by making payments electronically.
What Do We Do?
Digital payments are increasingly part of UNCDF’s work, particularly the Mobile Money for the Poor, the Pacific Financial Inclusion Programmes and MicroLead.
However, no agency can drive the transition to digital payments alone – it requires a collaborative effort by all stakeholders. That’s why the Better Than Cash Alliance was founded in 2012.
UNCDF hosts the Better Than Cash Alliance (BTCA), a partnership of governments, companies, and international organizations that accelerates the transition from cash to digital payments in order to help people lift themselves out of poverty and drive inclusive growth. Based at the UN, the Better Than Cash Alliance is uniquely positioned to capture and share insights and evidence, and bring together a wide range of stakeholders in order to tackle policy, political and competitive barriers to this vital transition.
With over 40 members, the Alliance serves as an implementing partner for the G20 Global Partnership for Financial Inclusion and is supported by the Bill & Melinda Gates Foundation, Ford Foundation, Citi, Omidyar Network, MasterCard, Visa Inc., and the United States Agency for International Development (USAID).
BTCA supports governments, companies and international organizations that are the key drivers behind the transition to make digital payments widely available by:
- Advocating for the transition from cash to digital payments in a way that advances financial inclusion and promotes responsible digital finance.
- Conducting research and sharing the experiences of its members to inform strategies for making the transition.
- Catalyzing the development of inclusive digital payments ecosystems in member countries to reduce costs, increase transparency, advance financial inclusion-- particularly for women-- and drive inclusive growth.
Mobile Money for the Poor (MM4P) was designed to specifically address the challenges of digital finance in least developed countries, which have more challenging digital finance markets: they tend to have smaller populations and smaller transaction volumes, and are more rural than many other countries. Physical infrastructure, such as roads, electricity and mobile signal coverage, is often limited, making it costly to maintain financial service infrastructure. As a result, mobile network operators and financial services providers tend to invest less, seeing less mass market potential.
MM4P is a global initiative to demonstrate how the correct mix of financial, technical and policy support can build a robust branchless and mobile financial services ecosystem in the world’s poorest countries. Implemented in Liberia, Lao People’s Democratic Republic, Malawi, Nepal and Uganda, MM4P expanded in 2014 to Benin, Senegal, and Zambia thanks to the support of the Swedish International Development Cooperation Agency, the Australian Department of Foreign Affairs and Trade, the Bill & Melinda Gates Foundation and The MasterCard Foundation. With their support, UNCDF is working to increase mobile-enabled delivery channels for financial services to serve 11 million new digital finance customers by 2019.
Also with support of The MasterCard Foundation, MicroLead Expansion (MLE) is breaking ground with formal financial service providers, which incorporate new strategies to reach unbanked rural populations with deposit services. In ten countries in sub-Saharan Africa, MLE partners are employing alternative delivery channels, many of which include a digital component, to reach the ‘last mile’ via agent networks/branchless banking to reduce the cost and distance faced by low-income customers, particularly women, to access financial services.
Digitizing Payments to Ebola Response Workers
As the world looked on at the Ebola crisis in Sierra Leone, Guinea and Liberia, there was growing consensus that the national Ebola Response Workers (ERWs) were the cornerstone upon which the response rested. These workers have been at the frontlines, transporting the sick, caring for the infected, tracing and monitoring the exposed, attending to the deceased, and providing security and coordination at all levels. It was clear that without their work the response could not be successful, and without adequate compensation and pay, these workers could not work.
In 2014, UNCDF provided technical expertise to the United Nations Development Programme (UNDP) to design and implement the Programme for Payments for Ebola Response Workers which was responsible for coordinating all payments to ebola response workers across Guinea, Liberia and Sierra Leone. UNCDF’s technical inputs were provided through three programmes: Better Than Cash Alliance, Mobile Money for the Poor, and Pacific Financial Inclusion Programme. There were many moving parts to consider: payment cycles measured in weeks rather than months; the swelling ranks of ERWs each pay cycle; a 20 percent turnover rate; and the lateral movements of workers to different health centres.
The programme addressed the key bottleneck of delivery of payments to the ‘last mile,’ by reinforcing existing payment systems – building on national capacities in payroll, the commercial banking sector, mobile network operators, emergency employment schemes, NGOs, and volunteers.
At the peak of the crisis, across the three countries, over 95 percent of registered Ebola workers, approximately 60,000 people, were linked to some form of payment mechanism and were being paid on time. In Sierra Leone, 100 percent of the workers are paid via e-payments, transitioning from 100% cash in November 2014 to 100% mobile money one payment cycle later, now with customer choice resulting in a mix of approximately 50 percent through banks and 50 percent through mobile phones.