Financial and Monetary Systems

How technology can help unbanked access e-commerce

Isha Hassan Abdinur uses biometric fingerprint to sign for her online shopping from the World Food Program (WFP) in Daynile district of Mogadishu, Somalia October 26, 2020. Picture taken October 26, 2020.

Biometric authentication, via fingerprints, could be a solution to verify people without bank accounts. Image: REUTERS/Feisal Omar.

Kirill Evstratov
Chief Executive Officer, Unlimint
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Financial and Monetary Systems

  • The COVID-19 pandemic has accelerated the global trend away from cash towards digital payments.
  • Worldwide, 1.7 billion adults do not have access to a bank account – placing them at a disadvantage as economies become largely cashless.
  • Pioneering fintech solutions are helping this unbanked population to access e-commerce and not be left behind.

Are the days of cash numbered? Cash it seems may not be king for much longer.

Across the world, economies are embracing digital payments – for both on and offline transactions – at breakneck speed.

Globally, non-cash transactions surged nearly 14% from 2018-2019 to reach 709 billion transactions, according to the Capgemini World Payments Report 2020, with Asia-Pacific leapfrogging Europe and North America to become the non-cash transactions volume leader.

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Retailers, utilities, transport providers and even buskers are all now moving to digital payments. In many cities, some bricks and mortar shops now refuse to accept cash.

How has the pandemic impacted digital payment adoption?

The pandemic has accelerated things further, as people have turned to e-commerce to fulfil their everyday needs.

According to data from IBM’s US Retail Index, the pandemic has accelerated the shift away from physical stores to digital shopping by roughly five years.

The UN said in October that COVID-19 “has forever changed online shopping behaviours” in emerging and developed economies.

On the African continent, fears over cash being a conduit to the spread of coronavirus led governments in Kenya and Ghana to waive fees on mobile transactions to encourage greater take-up of digital payments.

And a global survey from Standard Chartered in September 2020 found that almost two-thirds (64%) of people worldwide now expect their country to go fully cashless, with almost half (44%) expecting this to happen by 2030.

Who might lose out in the switch to cashless economies?

According to the World Bank, 1.7 billion adults globally have no access to a bank account with a financial institution or through a mobile money provider. Almost half of them live in just seven nations: Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan.

Even if they own a mobile phone, most fall back to cash in their daily lives. As the world begins to turn its back on cash and shift to an e-commerce first mentality, it is these groups that risk being left financially marginalised.

Most are from lower socio-economic backgrounds, working in low-paid, informal jobs or out of the labour force. Women, in particular, are more likely to be unbanked.

Many fear that these people will become disconnected from mainstream commercial life by their dependence on traditional forms of currency. They will be trapped in a second-tier cash economy, unable to pay bills online, or to access essential goods and services at the best price, or even at all.

Similarly, some of the world’s poorest street vendors who cannot afford card readers, and struggle to operate mobile payments may lose out. This simply cannot happen.

It is unfair that millions could be excluded from the benefits of digital payments and e-commerce. But it is also in the interest of merchants and governments to find ways to include them.

How might fintech help?

One way fintechs are trying to help is by making the process of getting a bank account more accessible.

Many of the world’s unbanked lack the documents necessary for traditional know your customer (KYC) identity vetting. So fintechs are finding ways to use new technologies like biometric authentication, including via fingerprints and irises, to overcome these barriers and verify digital identities.

Another, more pragmatic approach is to help unbanked users to digitise their cash. Mexico provides one example of how this can happen. Only 37% of adults have bank accounts in Mexico and people working in informal sectors get their salaries in cash. Consequently, they cannot use cashless payment options to pay for day-to-day purchases.

A lack of financial literacy and rural lifestyles has resulted in poor access to banking institutions and challenged global companies expanding in Mexico. Even Mexicans who have bank accounts and prefer to pay with their credit or debit cards experience problems, since most cards cannot be used to process e-commerce transactions.

Merchants in Mexico are adopting a hybrid model that allows customers to buy online but pay in cash. This works by allowing people to choose a product or service online, and then at the checkout to choose an option to pay via cash payment. After confirming their personal information (full name and email) on the payment page, they are issued with a voucher to print it out and present at a local convenience store, such as a 7-Eleven, and then pay in cash. The transaction is completed within 24 hours and when payment is successfully processed, the status of an order will change to paid and users will receive their product.

This hybrid system is working well. In fact, cash payment vouchers are the third most popular way to handle online purchases in Mexico. This inclusive approach is helping fuel an e-commerce boom in the country: it is now the fastest-growing and one of the largest e-commerce markets in Latin America second only to Brazil.

Payment methods used in online shopping in Mexico (2018) [Statista]
Payment methods used in online shopping in Mexico (2018) Image: Statista

Innovation and ingenuity are needed

Many experts predict Sweden will become the world’s first cashless society by 2023. But it seems inevitable that societies across the world will continue their steady march towards digital payments.

There are many good reasons for this momentum: digital payments offer consumers convenience; governments see them as a more efficient way to collect tax; for retailers, they remove the costs and risk associated with handling cash.

But how we manage the transitional period will require ingenuity to ensure no one is left behind.

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Financial and Monetary SystemsEquity, Diversity and InclusionEconomic Growth
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