> Posted by Sonja E. Kelly, Fellow, CFI
When we talk about “on-ramps” to financial inclusion, we are engaging with the idea that there are “entrance points” to the road that will take us to global inclusion, just as there are ways to access a highway to get people closer to their final destinations. We’ve already blogged about a number of different on-ramps: payroll loans, post office service points, savings groups, and mobile money, to name a few.
MasterCard’s Amit Jain and Gidget Hall explore another on-ramp: electronic bill payment.
I would venture to say that most people do not find bill pay exciting. In my house, the prospect of paying bills is a subject that tends to trigger groaning and deferral.
However, Jain and Hall observe that bill payment is a financial management exercise that is common among most people, including those with no existing banking relationships. They argue that of any potential on-ramp to financial inclusion, bill pay is the most common across the world. In addition, they note that bill payment is a regularly recurring process, which, if approached as an on-ramp to financial inclusion, could contribute to a habit of efficient and effective financial management.
From a supply-side perspective, electronic bill payment has the potential to benefit a range of players including retailers, banks, billers, and aggregators. Working together, under this logic, would benefit all of the parties. For example, billers could lower their costs associated with accepting payments at their physical offices, banks could engage and acquire customers, and the government could reduce the black economy and make transactions easier to track.
On the demand side, the authors observe that paying bills electronically could benefit people who would not have to travel as far, or work in cash only, and would therefore attract clients to formal financial services. An added benefit could be the development of good financial habits. This move toward the formal financial system would initiate an engagement with other products, including other electronic payments, borrowing, investment, savings, and insurance.
Perhaps most compelling is the authors’ point that bill payment has the potential to drive lending. When bill payment is electronic, lending institutions have more data on which to base their decisions. The authors offer that in fact, in Bhuvaneswar, India, people are already applying for loans and using their bill pay records to prove their dependability and creditworthiness. Even in the absence of formal credit bureaus, such proof of responsible financial decisions could provide critical information.
For more information and to read the whole paper, visit MasterCard here.
Image credit: The Bill & Melinda Gates Foundation
Have you read?
Facebook
Twitter
2 comments
Comments feed for this article
March 3, 2013 at 12:39 pm
Ron Sample
In order to use electronic bill pay systems, don’t you need to already have an account with a financial institution? I wasn’t aware that you could use automatic bill pay systems without an account. I agree that electronic bill pay can give a user a payment track record which could then be used to apply for loans, etc. It just seems like a chicken and egg dilemma Any insight you can provide would be appreciated!
March 6, 2013 at 8:02 am
John Gitau
Sonja, your post is powerful and Jain and Hall’s thoughts stereo. Ideally, nothing should stop bills payments playing an important role as an on-ramp gateway. All parties to bill paying have huge advantages in cost cutting, time saving and convenience as you have rightly indicated. What would affect it as an important entry point to financial inclusion? Or, what should be done to maximize its advantages? I have a few comments:
1. In kindergarten catechism, we used to be told that the road to heaven was narrow and that leading to hell was wide. The financial inclusion heaven seems to have a narrow road leading to it. That is true as long as having an account with a formal financial institution remains the ticket to financial inclusion. As Jain and Hall say, there are those who pay bills without having a
banking relationship. Do we have to get them to open bank accounts first before delivering to them goodies coming out of the ramp? We need to widen the road a bit to accommodate more people. Owning a mobile phone and having an electronic bill account should be incorporated as financial inclusion parameters.
2. Sonja, I think bills payment is painful because in most cases, bills are timed to correspond with payday, or month end. A single pay lumpsum coming to meet so many bills, all urgent can’t create any other feeling but pain. But this can be changed by service providers reading this challenge and creatively devising structured payments systems that can bring relief to their customers. To start with, rebaits can be given to customers who would pay bills across the months in small bits(chunking). This would encourage customers to associate bills payments with ease. This will also improve service providers cash flows across the month. In addition, customers get to mop monies that would have gone to wasteful spending chanelling them to bills payments to enjoy rebaits and discounts. This is better money management.
3. Shhhh! Sonja, don’t hint too loudly about bill payment history as a credit leverage as that favors the supply side. We need to protect customers from over indebtedness associated with ease of credit. In fact, we should be talking of how customers should cut costs, save and invest for extra income to ease their bills pressure. With your hint, financial institutions will get a revelation and soon you will see adverts of loans against electricity bill or against car loan repayment. Banks that will support effective financial inclusion are those which will use a saving history as a basis of credit and not pure expenditure based on a single income source.
4, Since bills are read and studied carefully, they can be good vehicles for financial literacy messages including statements of the advantages of opening bank accounts.
One reading this post will realize that if financial inclusion were to fail, it will not blame it on absence of gateways as they are many and more are coming.