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.”

As an avid advocate of financial inclusion, I am deeply saddened by the fact that several hundred years after the first bank opened, 50 percent of the global adult population still lacks access to formal financial services.

The good news is that this may not be the case any longer. So I eagerly read the recent paper from Elisabeth Rhyne and Sonja Kelly from the Center for Financial Inclusion at Accion that talks about how growing incomes could lead to growing inclusion. I am glad that the authors have brought this phenomenon to the forefront.

I agree that rising incomes could be a key catalyst for elevating financial inclusion globally. I have experienced firsthand the tectonic shift in the income profiles and demand for financial services in India reflected in data from the United Nations Statistics Division. It shows that the percent of the population below the poverty line in India has dropped from 45 percent in 1994 to less than 30 percent in 2010.

Source: United Nations Statistics Division, 2013.

Alongside poverty decreasing in India, on average, everyone is sharing in India’s successful economic rise. Those at the bottom of the pyramid—the first and second quintiles—have doubled their GDP per capita between 2000 and 2010, and we expect to see a similar twofold increase over this decade.

Source: World Economic Outlook, 2012; Kelly and Rhyne, 2013; UN-WIDER global income inequality database, as visualized on the Mapping the Invisible Market website.

To illustrate that point, today every second person in India has a cell phone, while in the mid-1990s only a few people had access to phones at all (landlines). And while getting a job out of college in the mid-1990s was primarily a privilege of the graduates from top-tier engineering and management schools, now it is common to see graduates with multiple job offers from a broad spectrum of educational fields and institutions. This trend is also reshaping the demand for financial services. The stakes are getting too high for the Indian people to depend on informal financial services, and they now need the security of formal services. And the dream of every Indian today is to send their kids to school and participate in the county’s prosperity; they are trying to do their share by earning more, they just need help from financial institutions and regulators to create the right products for them.

Rising income is definitely a catalyst for elevating financial inclusion globally. However, as Elisabeth and Sonja point out, a proactive focus and a systematic approach from regulators, financial institutions, and other key stakeholders will be required.

One such approach is using basic electronic payments, like bill payment, as an on-ramp to financial inclusion that I outline in my paper A New Perspective on Bill Payment – A Demand-Based Path to Financial Inclusion. There can be no doubt that action needs to be taken and the Financial Inclusion 2020 initiative being led by the Center for Financial Inclusion at Accion and sponsored by several global companies including MasterCard is a great step in the right direction.

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

Amit Jain is part of the Global Payments Strategy Knowledge Center in MasterCard Advisors. The Payments Strategy team works with MasterCard clients around the world to develop and implement successful strategies across their payments businesses. Mr. Jain is a seasoned professional with nearly 15 years experience in the industry including financial services, management consulting, venture capital and technology. A key focus of Mr. Jain’s career has been to work with senior executives on key strategic issues affecting their business.

Have you read?

FI2020/MasterCard Webcast: Growing Income, Growing Inclusion

Mapping Financial Inclusion in India

Matching Client Needs With Products: Observations from India

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?

Savings Groups and the MDGs

Are E-Payments a Boost or Bane to FI2020?

Mobile Money as a (Payment) Planning Tool