By Solana Cozzo
Accion’s work in Latin America began in the barrios of Venezuela in the early ’60s. Although during those early days we focused on community development projects — paving roads, building homes — we soon identified a common element stifling the economic growth of the people we served: access to financial services.
So we created microfinance programs, lending to the poor at affordable rates so that they could build businesses and carve out a better life. The programs spread throughout the region, and, eventually around the world. That was the start of financial inclusion for us, and it’s a mission we’ve been pursuing ever since.
We’re not alone. Today, many actors — from NGOs to commercial banks, to governments, to academics, to technology companies — are playing a role in bringing financial services to the world’s two billion adults who remain shut out of the global financial system.
A tipping point
The collective work of all these actors has resulted in an important moment for financial inclusion in Latin America. See how these trends are reshaping the landscape in the region:
Governments are interested in financial inclusion, especially when facilitated by technology. Cash is expensive: it costs governments 0.5 to 1.5 percent of their GDP to print and deliver it. For Mexico, one percent equals about $ 10 billion. Cash is also inefficient – enabling corruption, illegal activity, and leakage. Governments are making strides to move toward electronic payments, with new legislation being considered that will establish e-money regulations that can help recoup some of that lost money.
Mobile phone penetration is greater than 100 percent in Latin America. You read that correctly – greater than 100 percent because some people have more than one cell phone. Most importantly, perhaps, is the fact that by 2016 half of all the cell phones in use will be smartphones.
New technology startups are the driving force behind smarter and cheaper solutions to accessible financial services. Plus, key players from issuers, to telcos, to retailers, to mobile network operators, are beginning to pay close attention to the underserved segment and don’t want to be left behind.
Building a strategy
Solana Cozzo of MasterCard
These regional trends are the building blocks for one actor’s financial inclusion agenda: MasterCard Worldwide. Solana Cozzo, the woman leading MasterCard’s financial inclusion efforts in Latin America and the Caribbean shares her strategy for bringing financial services to those who need them:
Know your clients well. This common marketing rule is paramount. But you need to get deep beneath the surface. Saying your target market is “the base of the pyramid,” is not enough. You need to look at this group more narrowly (e.g. primary sources of income, urban vs. rural, women vs. men). Then, you must identify what Solana calls their “pain points.” Watch this video for an example of one such pain point. MasterCard has identified eight of them.
Design the right solutions. We know from the numerous failures in our industry that off-the-rack products just don’t work. Only bespoke solutions are effective for advancing meaningful inclusion. Once you know your audience well, you’re a step closer to building the right solutions and ecosystem to support them. Usage, Solana says, is MasterCard’s ultimate measure of impact. Besides the numerous pilots its running in Latin America, MasterCard has received $11 million from the Bill & Melinda Gates Foundation to reach 100 million clients with new products and services. The innovations are in development at the MasterCard Labs in Kenya and will soon go global.
Build partnerships. We can’t do this alone, says Solana. To effectively roll out these solutions, we must create public and private partnerships. Everyone in this space has a role to play. Why? Because, the public sector represents the single largest flow of money to the financially excluded. The public sector will also help with regulations, with “Know Your Customer” compliance processes, and with a good business climate. And the private sector is paramount because it brings distribution, innovation, efficiencies, and execution. As an example, MasterCard is partnering with TIM, one of Brazil’s largest mobile operators, and Caixa, the country’s government-owned bank, to enable millions of unbanked customers to receive social benefits, electronically transfer money and top up phones using their cell phones and make purchases at POS with a MasterCard prepaid card, linked to their mobile number.
Making financial inclusion a reality is a massive undertaking. But we’re on the right path — both in Latin America and worldwide.