> Posted by Solana Cozzo, LAC Prepaid Head, Senior Business Leader, MasterCard Worldwide

The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

Promoting the delivery of solutions that boost the financial inclusion agenda, especially in Latin America and the Caribbean (LAC), is a shared goal that I am truly passionate about. Thankfully, advancing financial inclusion is a key driver at MasterCard, and through my affiliation with organizations such as Accion and the FI2020 movement, I am a firsthand witness to many effective programs that are moving our region, and our world, closer to being financially inclusive.

Notable work has been done recently in the government-to-person (G2P) payments space in LAC. Through efforts in this region, as well as elsewhere, there is now little doubt that in countries where financial payments infrastructure is underdeveloped the introduction of government electronic disbursement schemes via public-private partnerships helps spark the growth of broader payments and financial services ecosystems that benefit many.

In Brazil, for example, switching to electronic benefits cards helped reduce the administrative costs of Bolsa Familia (Brazil’s social welfare program) nearly seven-fold, from 14.7 percent to 2.6 percent of grant value disbursed. Overall, CGAP estimated that switching from cash to electronic delivery via agent networks generates roughly 40 percent in savings per transaction – cost savings that can be used to serve the poor.

In Argentina, the integration of electronic disbursements not only facilitates greater scope and convenience, but also provides a sense of dignity and security. The percentage of social benefits recipients who said they paid a bribe to local officials to access their benefit dropped from about 4 percent to less than 0.5 percent after the Ministry of Social Development moved to an electronic benefits card. An estimated additional US$11 million now gets into the hands of intended recipients.

Another notable electronic social payments initiative in LAC, which demonstrates the integral role of industry players alongside government, is from Davivienda, a local bank in Colombia. Davivienda is integrating their Daviplata mobile banking service into social benefits disbursements. The use of mobile money in social benefits programs has gained significant popularity in Colombia. In fact, about a third of all disbursements of Familias en Accion, the biggest conditional cash transfer program in Colombia, are now utilizing mobile technology.

Prepaid electronic payments solutions are undoubtedly on the rise in the LAC region, reflecting a worldwide trend. Research commissioned by MasterCard indicates that on a global level, by 2017 social benefits payments alone paid through prepaid solutions will surpass US$194 billion. This is an increase of more than 300 percent when compared to figures for 2010.  

Customer using their SASSA card

In LAC, this can be partially attributed to leadership from several countries that are finding the right innovative payment solutions, and adopting them with a clear sense of urgency. Peru is an example. Peru is among the handful of countries that are members of the Better Than Cash Alliance, launched last fall. In joining the initiative to catalyze the conversion of G2P and development organizations’ social benefits payment programs from cash to electronic, Peru committed to digitizing their disbursement programs. Peru has also made a commitment under the Maya Declaration process, an initiative of the Alliance for Financial Inclusion (AFI) through which country governments make measurable strides to increase financial inclusion. Included in Peru’s tangible actions are the enactment of regulation for electronic payments and the expansion of the country’s mobile banking sector.

Although LAC governments are gaining traction, they are relatively early in the journey and can gain valuable insights from similar movements in other parts of the world.

Two examples driven by MasterCard colleagues in Africa are worth mentioning. MasterCard and the South African government introduced a new biometric grant payment disbursement system that commenced in March 2012. Between March 2012 and July 2012, the SASSA Debit MasterCard card was cited as the main contributing factor to the 4 percent growth in the country’s banked population from 63 percent in 2011 to 67 percent in 2012, according to the FinScope South Africa 2012 survey. With their registration in the government program, individuals receive a bank account with no monthly fees through which they are able to deposit and withdraw funds. At July 2012 only 2.5 million SASSA MasterCard cards had been issued to grant recipients. Since then that number has grown to 10 million active SASSA Debit MasterCard cards, which should further increase financial inclusion in South Africa.

In Nigeria, the government launched a pilot for 13 million cards that serve the double function of a national identity card and a re-loadable prepaid product. The cards incorporate smart chip and pin functionality, as well as photo and biometric identity-verification technology. As with the SASSA debit cards, Nigerian ID cardholders can receive electronic social benefits payments and carry out other basic banking services. The project aims to roll-out more than 100 million cards to Nigeria’s population of 167 million.

So, it is clear that there are many best practices to learn for those governments that look to migrate their payments to smarter technologies and more efficient methods. And through the infrastructure from G2P electronic payments, there is plenty of opportunity to work together to promote basic access to financial services in innovative ways for the lower-income segment that has traditionally been excluded from these services. Governments will certainly need help in overcoming their major pain-points in this field including high costs, inefficiency, corruption, leakage, and fraud, among others. However, I am confident that, as we continue to work together and join key industry players, we will see more Latin America and the Caribbean government programs implemented soon.

For more information on Financial Inclusion 2020, sign up for project updates.

Image credit: Supermarket.co.za

Have you read?

Are E-Payments a Boost or Bane to FI2020?

A Response to “Are E-Payments a Boost or Bane to FI2020″

Forty Countries (and Counting) Committed to the Maya Declaration