Source: The Guardian
World Bank report says mobile money and electronic transfers could bring financial services to 2.5 billion marginalised people

Expanding the use of digital payments such as mobile money and electronic transfers in developing countries could spur economic growth and ease income inequality, while advancing towards the G20's goal to bring financial services to an estimated 2.5 billion adults who are excluded from the formal banking sector.

Building on a telecoms revolution that has connected many of the world's poor people to mobile banking services, a report published on Thursday argues that governments in the G20 should target digital payments as a way to help people access basic banking facilities, which it says will encourage saving while reducing theft and corruption.

The report – The Opportunities of Digitising Payments (pdf) – by the World Bank's development research group, the Better Than Cash Alliance and the Bill and Melinda Gates Foundation, says: "Rapid development and extension of digital platforms and digital payments can provide the speed, security, transparency and cost efficiency needed to increase financial inclusion at the scale required to achieve G20 goals."

Digital payment services such as Kenya's M-Pesa mobile money, prepaid debit cards for Syrian refugees in Turkey, and electronic bank transfers are helping people save money securely in formal banks, said Ruth Goodwin-Groen, managing director of the Better Than Cash Alliance.

"When we're looking at the large emerging economies in the G20 – the Indonesias, the Brazils, the Mexicos – there are huge opportunities in those economies to transition their cash payments to electronic payments," she said. "But what works in each context is what is appropriate – it depends on the country you're looking at."

Some are concerned that digital payments are vulnerable to electronic theft and can be intercepted. Last year, Barclays attempted to close the accounts of remittance company Dahabshiil, which operates in Somalia, for fear that funds sent electronically could be intercepted by Islamist group al-Shabaab.

The G20 announced its target to boost financial inclusion across the developing world at a 2010 summit in Seoul, where it launched the global partnership for financial inclusion (GPFI). At the time, the bloc said it "recognises that access to finance for individuals and enterprises is one of the main pillars of the global development agenda of achieving strong, sustainable and balanced growth".

Many poor people rely heavily on remittance transfers, which add up to about $514bn a year, leaving them exposed to high fees and slow transfer speeds, according to the report. "Governments, consumers and financial providers in sub-Saharan Africa are still bearing the high cost of cash payments – costs associated with manual acceptance, record keeping, counting, storage, security and transportation," the report says.

Citing research in countries including Brazil, India, Kenya, Niger, the Philippines and South Africa, the study says digital payment services can reduce the cost of sending money both domestically and across borders, as well as transfer funds more quickly.

Leora Klapper, economist with the development research group, said: "We interviewed people in 150 countries on how they save, borrow, make payments, manage risk. The data shows really strikingly the very low use even of simple ownership of accounts in developing countries, particularly among women, particularly in rural areas.

"However, people who might have been shut out of the formal financial system make payments – whether it's to pay bills or for school, utilities, to send money to family and friends – and that's where there is really this opportunity.

"There's rigorous evidence that digital payments reduce the cost of sending and receiving. It increases security, and it also really helps towards the goal of broader financial inclusion by not only increasing the ownership of accounts but also usage because they're receiving regular payments."

 

The GPFI's financial inclusion plan (pdf), published when the group was launched, identifies nine areas of focus that are needed to bring about greater access to banking services: leadership, diversity, innovation, protection, empowerment, cooperation, knowledge, proportionality and framework.

In November, G20 delegates will gather in Australia to debate the future of the global economy. The report urges world leaders to "discuss how they can embrace a broad-based digital financial system as a path to growth, greater participation of women in the economy, and greater access to payments, including remittances".