Connecting the unbanked

This post discusses the unbanked, mobile money, and challenges that exist in the Caribbean, which might be widening the Digital Divide.

Many of us who are able to conduct financial transactions online or electronically often take for granted the convenience, ease, flexibility and control that these options offer:

• you are not limited to pay with cash;
• you can conduct business virtually anywhere in the world; and generally,
• your financial institution backs your transactions, and actually facilitates the payments.

While many of us are able to avail ourselves of credit cards, debit cards, mobile and Internet banking, etc., a considerable numbers of our fellow citizens do not have access to those facilities. Without access to those conveniences, persons will become increasingly marginalised, especially since electronic and online transactions are becoming the norm in today’s society. This post discusses the “unbanked”, highlights key options that address their e-transaction needs, and suggests some of the challenges that has limited introduction of mobile money in the Caribbean.

Who are the unbanked?

According to the GSM Association (GSMA), the “unbanked” refers to persons who do not have bank accounts, or transaction accounts, at formal financial institutions. The unbanked are usually the very poor, or at the bottom of the socio-economic pyramid. Typically, they operate primarily in cash; have little or no savings; and may not satisfy all of the banking requirements to open an account

Figure 1, which shows the percentage of persons who access financial services in the Caribbean, suggests that on average, approximately 60% of a country’s population might not be using banks and similar institutions. Without access to transaction accounts, persons are excluded from using the broad range of online and electronic services that are currently available, and which many of us enjoy.

Furthermore, there has been a growing trend among financial institutions to encourage their customers to use electronic and online facilities, and deter (and seemingly penalise) in-person transactions. Hence those without transaction accounts, persons generally experience higher fees and charges for the few banking services they might be able to access, e.g. cashing a cheque.

eTransaction options for the unbanked

With the proliferation of low-cost mobile/cellular phones and services world wide, a number of systems have been developed over the last few years that allow the unbanked to use their mobile phones to pay for goods and services.

Many of the more popular options exclude traditional financial institutions (banks, credit card companies, etc.), and are delivered by mobile network operators, service providers, and even phone manufacturers. According to Wikipedia, four mobile payment systems models exist, which include direct mobile banking, mobile web payments, and contactless near field communication, but the most widely used for unbanked populations tends to be SMS/USSD-based transactional payment system.

The Short Messaging Service (SMS)/Unstructured Supplementary Service Data (USSD)-based transactional payment model is usually a premium service that allows a customer to send a payment to a seller via SMS text or USSD (or a short code), and the seller releases the goods or services once payment is confirmed The amounts paid, either are reflected on the subscriber’s phone bill, or in the case of pre-paid customers, are immediately deducted from their calling credit.

One of the distinct benefits of this model, is its simplicity. Internet access and a smartphone are not required. Transactions are conducted via SMS text message or using short codes, and can be employed for a variety of transactions and contexts.

Mobile money challenges in the Caribbean

In the Caribbean, mobile/cellular phone subscriber penetration frequently far exceeds that for persons with transaction accounts and accessing financial/banking services (Figure 2). Hence the use of mobile/cellular phones for financial transactions could, to an appreciable degree, provide a viable option for connecting the unbanked in the region.

However, there appears to be little effort to address the needs of the unbanked and provide options for electronic transactions. With the exception of Haiti and the Dominican Republic, no other country in Figure 2 has introduced mobile money facilities that cater to the unbanked. Possible reasons for this could be, among other things, a general underestimation of the number of unbanked persons there are in a particular country, along with the relatively sophisticated banking systems that typically exist int he region, which might cause the needs and circumstances of the unbanked to be largely overlooked.

Additionally, there are still governments within the region that are not confortable with electronic payments systems, and save and except payroll, rarely pay suppliers and contractors electronically. However, in any country, Government is the largest procurer of goods and services, and the recipient of revenue from a number sources (e.g. taxes, fees and charges), so the local business community is frequently guided by the systems its adopt. Hence if governments are themselves reluctant to accept credit cards, debit cards, and other e-payment methods, there might be little impetus or political will to broaden the options available to the unbanked.

Finally, there might be policy/legislative constraints that govern financial transactions and services that directly affect the ease with which mobile money systems can be implemented.  Many of the systems that govern financial services in the Caribbean have stringent rules to protect consumers, manage risk and deter money laundering. As a result, the types of institutions that are permitted to offer financial services, along with the safeguards that must be implemented and maintained, tend to be rigorously regulated.

Parting notes…

Nevertheless, it is important that Caribbean Governments explore options to facilitate the inclusion of persons who cannot conduct business electronically. Without it, they remain marginalised and the Digital Divide widens.

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