Empowering people through digital paymentsThe world’s poorest people are hugely dependent on cash. This contributes to keeping them in a vulnerable position. According to the Bill & Melinda Gates Foundation, financial inclusion and digital payments are part of the solution.

S ome 2.5 billion adults, mainly from the world’s poorest countries, do not have access to ordinary financial services today. Generally speaking, cash is the basis of their

finances. But cash entails a number of risks – for example, that everything you own can be stolen – and that helps keep people who are already marginalised in a position where even keeping a small amount of savings safe and secure can be extremely difficult.

LESS ThAN oNE NoN-CASh pAyMENT pER yEAR

In its report Payment Systems Worldwide (2010)1*, The World Bank examined issues such as the number of non-cash payments made per capita in 120 coun-tries all over the world, and – unsurprisingly – the results show that for 2009, the year for which the figures were gathered, the countries with the most non-cash payments were rich countries with an advanced payment infrastructure.

Far ahead in first place was Hong Kong with as many as 613.8 non-cash payments per capita in 2009. Norway was in second place, with 380.3 payments, followed by Finland with 370.2 payments, the US with 339.9, and Sweden with 306.0.

Sub-Saharan African countries dominated the bottom end of the list. According to the report on avarage, the populations of countries such as Zambia, Zimbabwe, Rwanda, Tanzania, Malawi and Lesotho made less than one non-cash payment per person in 2009.

MoBILE pAyMENTS IN AFRICA These countries, but also many others on the

list, are thus hugely dependent on cash, and it is no wonder that text-message-based mobile payment solutions have enjoyed great success in recent years in parts of Africa, for example. Kenya’s M-Pesa (pesa means money in Swahili) was launched by Safaricom in 2007 and now has more than 17 million

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MIChAEL JuuL RugAARD, NETS

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* Please find notes for this article at p. 75

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subscribers in Kenya and 5 million in Tanzania, and has also become established in countries including South Africa, Egypt, Afghanistan and India (under the name of M-Paisa). This makes M-Pesa the world’s most popular mobile payment system right now.

In Nigeria, which had only 25 million bank accounts for a population of 167 million in 20122, creative Nigerians – even before the launch of M-Pesa in Kenya in 2007 – came up with the idea of using mobile phones for transferring money by accepting and selling on talk time.3 Since then, the Central Bank of Nigeria (CBN) has taken the initiative for an ambitious national project intended to pave the way for mobile payment solutions in Nigeria and to reduce the use of cash. The project began in 2012 with a pilot scheme in the capital, Lagos, and CBN published advertisements for the project, for example, explaining the infrastructure challenges Nigeria faces, but at the same time encouraging the country not to be deterred but to deal with the problems as they arise:

“The basic point is that our infrastructure is not perfect – but even within the constraints, we can still make significant progress. The idea is not to wait to have the perfect infrastructure – but to be creative with what we have, while we identify and work on the various things we are going to

address the current infrastructure gap… Cash-less Lagos – Let’s go!!!”4

The fact that the Central Bank of Nigeria is redoubling its efforts to reduce the use of cash is made clear in a new “Cash Policy”, which came into effect in Spring 2012, and which imposes a fee on ordinary Nigerians as well as businesses for withdrawing cash above a certain amount.5

hAS kENyA ELIMINATED CASh?A lot of very good initiatives can be cited, espe-

cially in Africa, and at times you get the impression that the success M-Pesa and similar mobile payment solutions have achieved in record time is on the verge of eliminating cash on that continent.

In summer 2011, CGAP – The Consultative Group to Assist the Poor – conducted an extensive survey in M-Pesa’s homeland, Kenya, which showed, unfortunately, that that is far from being the case – even though the new solutions are an important step for a country with a weak payment infrastructure. CGAP surveyed 3,489 urban merchants and busi-nesses as well as 773 rural merchants and businesses in Kenya, and the result was very clear: cash remains the all-pervasive form of payment:

“We discovered that, despite Kenya’s reputation for being a leader in mobile money, cash is still king. As shown in Chart 1 [SEE FIGURE 1], 99% of all retail transactions we captured were done in cash, with most of the remainder done through informal credit arrangements. In contrast, the Payment Council in the UK reports that 59% of consumer transac-tions were done in cash and accounted for less than one-third of transaction values. However, this does not mean that electronic payment is not available from some merchants. Our census data indicated that 18% of retail merchants accept mobile money, while about half will provide short-term credit for goods”.6 ▶

We discovered that, despite Kenya’s reputation for being a leader in mobile money, cash is still king.

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CGAP’s conclusion concurs with the World Bank’s figures from 2009 and confirms that sub-Saharan Africa, among other regions, remains highly dependent on cash.

gRouNDS FoR opTIMISMThat said, there is no doubt that mobile pay-

ment solutions such as M-Pesa, which enable users who do not have an ordinary bank account to pay, send and receive money, do make a difference in several African countries today. In another survey, also from 2011, conducted by Gallup on behalf of The Global Findex, backed by The World Bank and the Bill & Melinda Gates Foundation, 35,000 interviews took place in 37 sub-Saharan African countries.8

The survey showed that just 24% of adult Africans had an account with a “formal financial institution” (in Central Africa, the figure was just 11%; in South Africa, it was 51%, and in several countries the figure was less than 5%). Altogether, approximately 400 million adults in sub-Saharan Africa did not have a bank account. Although the vast majority therefore do not have access to formal services, the study found that 16% of sub-Saharan African adults had used a mobile phone to pay bills or send or receive money within the past year. In Kenya, the figure was as high as 68%:

“Many mobile money users are not otherwise included in the formal financial system. In Kenya 43% of adults who report having used mobile money in the past 12 months do not have a formal account.” 9

FINANCIAL INCLuSIoN AND DIgITAL pAyMENTS

For the millions of the world’s poorest people who currently have to base their finances exclusively on cash, a key prerequisite for making their financial situation more secure and stable is financial inclusion – i.e. cheap and easy access to basic digital financial services. At least, that is the starting point of a new initiative – The Better Than Cash Alliance – backed

by The Bill & Melinda Gates Foundation together with players including UNCDF, USAID and Visa.

In a speech at the United Nations Headquarters in New York, Bill Gates said: “One key innovation which I believe has as much potential to transform the lives of the poor as a new vaccine or yielding crop, is digital payments. Digital payments give the poor a foothold [to escape poverty] by freeing them from one of their biggest obstacles to financial security: cash.”10

The Better Than Cash Alliance has set itself the following three ambitious goals for 2017:

1. Significant commitments by governments, the development community, non-governmental organisations, and the private sector to imple-ment electronic payment solutions instead of cash.

2. Delivery of demand-driven technical assistance to governments, non-governmental organisa-tions, the development community, or members of the private sector that will dramatically increase the capacity of these stakeholders to deliver end-user-focused payment technologies.

3. Improved economic security for millions of low-income and poor people, many of whom were previously unbanked, enabling them to use bank or electronic accounts to build savings and assets via innovative payment technologies.11•

0% 20% 40% 60% 80% 100%

Cash

Cards

Mobile Money

Credit

Bank Check

Hire purchase or layaway

PAYMENTS IN KENYA

URBAN

RURAL

FIguR 1: PAyMeNts IN keNyA7

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One key innovation which I believe has as much potential to transform the lives of the poor as a new vaccine or yielding crop, is digital payments.

— BILL gATES