Ajay Banga, President and CEO of MasterCard Worldwide presents MasterCard’s perspective on the FI2020 Global Forum

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A transition from a cash-based to digitized monetary system

We came into the space of financial inclusion through the perspective that cash is way too large in the world’s economy. 85% of the world’s retail transactions are still in cash. Cash is expensive. The popular dialogue around cash treats cash as free and electronic commerce as expensive and I think that’s really inverted, it’s backwards. Cash costs between 0.5-1.5% GDP to print, secure, and distribute. It facilitates tax evasion and illegal activity. There are studies out there discussing all of this.

So MasterCard came in from that perspective. Then we looked at where the cash is coming from; about 30% of the money that goes to the 2.5 billion financially excluded people comes from governments, social security payments, and such like; 60% comes from companies and part-time work; 10% from remittances – it’s different by country, but that’s the overall view.

Addressing financial exclusion through a new payments network

When you consider all of that, that’s when you start to find a way into this space. The best way to access the financially excluded is to create the payments network for the money coming into them. Once the money coming into them is digitized, made electronic, or put onto some plastic or fingerprint form, then you have a chance to educate the financially excluded and involve them in using that payment method without needing to take out cash again.

Now once you’ve done that, that card – that account in the sky – is a savings instrument. All of the sudden you’ve gone from payments to savings. Now comes the question of how do you lend?

Digitized money: How do you lend?

Accion has a great 5-step model, which involves credit reporting and how it takes a village to build that whole credit-reporting network; this is key for lending. But I don’t think lending is what you start with; you’ve got to start with the basic highway of cash in and cash out, and a savings method. That’s why MasterCard is here today.

Purpose of FI2020 Global Forum: Bringing together like-minded people

What Accion is doing right now is bringing together like-minded people, who, in the space of what is loosely called financial inclusion, are brought together to try to understand what they are doing. The fact is that there are a lot of people who are participating in this space already, but they just don’t know that they are. So people developing mobile payments like BKash are participating in financial inclusion already; they may not have called it that, but that’s what they’re doing.

The need for constructive open dialogue

And so if you bring like-minded people together and you start having a constructive open dialogue this makes people, first of all; understand the definition of financial inclusion, and secondly; understand what public-private partnerships need to be made in order to make that work. If you put those people together, you have a chance of actually doing something about it.

Next post: Reaching financial inclusion by 2020 – Challenges & next steps

To see what others are saying and posting about the Global Forum, visit the Financial Inclusion 2020 website and follow #FI2020 on Twitter.