I spent some time recently chatting with Joanne Dewar, Chief Executive Officer, Global Processing Services (GPS). I spotted GPS a while ago, and blogged about how they worked with Monzo, Starling, Revolut and more last October. Anywho, Joanne wrote a brilliant piece on the Nasdaq website the other day, which she kindly has given me permission to share here. So, here it is
The Impact of the COVID-19 Pandemic on Financial Inclusion by Joanne Dewar, Chief Executive Officer, Global Processing Services
The dawn of the new decade has seen the world gripped by an unprecedented health crisis, with a pandemic never experienced before in our lifetimes affecting countless individuals, families and communities. To date, almost 2.8 million people have been affected by the coronavirus (COVID-19), with 2.7 billion of the global workforce facing full or partial closures of their workplaces and governments rushing to provide stimulus packages to soften the economic blow from the outbreak.
These restrictions have affected banks as well, with widespread branch closures and opening hours shortened in an effort to curb the spread of the virus. Customers are increasingly being encouraged to use online and mobile banking as customer service phone lines are inundated with a huge volume of calls. With greater restrictions in movement being introduced, access to one’s finances – at least digitally – becomes crucial.
So how does the COVID-19 pandemic pave the way for greater financial inclusion?
No one-size-fits-all solution for financial exclusion
The World Bank describes financial inclusion as “access to useful and affordable financial products and services” including “transactions, payments, savings, credit and insurance delivered in a responsible and sustainable way.” This accessibility to financial services, so often taken for granted in developed nations, supports us in our day-to-day living and allows for the planning of longer term goals, which leads to an improvement in our quality of life.
However, there is still progress to be made on the financial inclusion front: 1.7 billion adults remain unbanked globally, with a huge proportion of that number coming from the Asia-Pacific (APAC) region. For example, 74% of Myanmarese and 66% of Indonesians do not have access to financial services, which equates to a startling 218.1 million people – or almost a third of the population of Europe. This presents an incredible opportunity for digital disruptors to leverage technology and provide suitable financial solutions in order to bridge that gap.
Countries around the world have nevertheless made significant progress in achieving financial inclusion by delivering policies at scale, allowing access to mobile financial services (more than 50% of the 282 mobile money services available are in Sub-Saharan Africa, for example) and, more importantly during this pandemic, using government payments as a vehicle for extending inclusion and providing aid for the hardest hit in our society.
Could government-to-person payments be the gateway to financial inclusion?
COVID-19 is the force majeure that has swept across continents at lightning speed, leaving in its devastating wake a financial contagion like no other, with the global economy said to have contracted by 12% in Q1 alone and the downturn described as the worst since the Great Depression of the 1930s. With unemployment figures expected to surge and the pandemic affecting numerous households, borrowing from the informal support network of family and friends is less likely to be possible. As a result, more people are expected to turn to loans with high interest rates and take on an inordinate amount of risk to keep themselves and their businesses afloat, with little to no income to make the repayments, which is incredibly worrying.
With households and businesses severely impacted by the economic disruption caused by COVID-19, governments have announced stimulus measures which include providing cash payouts to help the most vulnerable in society as quickly as possible, among other measures. Singapore’s latest stimulus boost brings the total value of its stimulus package to a whopping S$60 billion ($42 billion) – or 12% of its GDP – while the Japanese have been more fiscally aggressive and have pledged 180 trillion yen ($1.67 trillion) – or a fifth of their GDP. However, governmental stimulus becomes redundant to individuals and families if there is no mechanism in which to receive that help. This is especially the case in lower-income countries where a large proportion of the population remain unbanked.
This is why government-to-person (G2P) payments are often seen as an on-ramp to financial inclusion. Traditionally, G2P payments were made in cash, but the advent of technology has seen more transfers being made electronically. While this is fantastic and effectively creates a formal relationship between a low-income individual and a financial services provider, it presupposes that that same individual has an account in the first place.
We often talk about the digitization of payments (and virtually every other industry) but forget that more than half of developing countries still settle G2P payments in cash or checks. If anything, this pandemic will help push governments to forge ahead with the development of their digital payments infrastructure, in order to enable G2P payments.
According to the World Bank Research Observer, besides financial aid being delivered almost instantaneously, G2P payments helps lower disbursement costs, both for governments and recipients; counters the fungibility and transactional anonymity of cash by ensuring the traceability of payments; is more secure; and increases financial inclusion by expanding account ownership among those who are unbanked. The World Health Organisation (WHO) has also urged the public to avoid using cash, with the Association of Banks in Singapore even going as far as to offer S$500,000 ($349,700) to small businesses using PayNow, its peer-to-peer fund transfer service, in order to encourage the use of digital payments and to avoid the spread of COVID-19.
More than 80% of people in India, the second-most populous country in the world with 1.3 billion people, are banked. That is an incredible achievement in a country where so many are still marginalized, and it is largely due to the introduction of an instant, real-time payments system developed by the National Payments Corporation of India (NPCI) called the United Payments Interface (UPI). UPI’s interoperable system merges multiple bank accounts into a single mobile application, allowing for immediate money transfers through a mobile device. A Virtual Payment Address (VPA) enables the recipient to share a link with the sender, with the unique identifier being their mobile phone number and encrypted banking ID. The result is a seamless transfer of funds as there is no settlement process or intermediary, and the benefits of this ease-of-access are clear: from 2017 until 2019, the market share of UPI as a payment method grew from 1% to 13%, with transaction volumes tripling by 187% – or a whopping 10.8 billion transactions – in 2019 alone. In February, messaging service WhatsApp received the green light from NPCI to pilot its UPI services to 10 million users (WhatsApp has more than 400 million users in India).
This is the exemplary result of a visionary government adequately supporting and regulating innovative players and legacy institutions in the market, and providing a frictionless way for its citizens to access financial services. UPI enables small-scale banks to provide payment options for communities in lower-income, rural areas simply by using basic smartphones, a landmark move by the Indian government to utilize a mobile phone interface where investment-heavy infrastructure is lacking. There will no doubt be an uptake in the use of UPI while social distancing measures are in place and cashless transactions are being encouraged.
It would, of course, be erroneous to assume that digital payments are financial inclusion’s panacea because there is no one-size-fits-all solution, but in light of the current pandemic, every small win is worth celebrating – and this small win comes in the form of financial empowerment for some of the most vulnerable people in the world.
Forging ahead with the financial inclusion agenda
In this regard, it is fair to say that financial inclusion is facing the biggest test it’s ever had in recent memory. While governments and hospitals around the world implement strict measures to contain the spread of the virus, scientists and researchers are working tirelessly to create a vaccine. Technology has been a saving grace and allowed us new ways to connect, notably through video calls and virtual group meetups, and provided us with app-based payment capabilities.
However, fintech cannot solve the problems of inclusion on its own and we risk oversimplifying the problem of financial exclusion by viewing the issue as an inclusion/exclusion dichotomy. Many excluded communities are difficult to reach and not economically viable – more so during this pandemic – and it is therefore imperative that fintech companies work hand-in-hand with governments and regulators so the former can focus on driving economic growth while the latter provide an environment which fosters innovation and protects consumers.
Interestingly, the Chinese word for ‘crisis’ is made up of two characters: the first representing danger and the second, opportunity. Whether a crisis is viewed as a crisis or an opportunity depends on whether the focus is on what is lost or what can be gained. The question surrounding this pandemic becomes whether we can keep the challenges in perspective and focus on the potential benefits. The impact of this will no doubt be far-reaching and affect every aspect of our lives moving forward, but every cloud has a silver lining and this could perhaps act as the catalyst to accelerate financial inclusion in a way that it has never been accelerated before – and the world, by and large (at least from the financial inclusion perspective), would be better for it.
Joanne Dewar is Chief Executive Officer of Global Processing Services (GPS), the trusted and proven go-to payments processing partner for today’s leading challenger brands, including Revolut, Starling Bank and Xinja.
Founded in 2007, GPS’s highly flexible and configurable platform places the control firmly in the hands of global fintechs, digital banks and e-wallets, enabling them to deliver rich functionality to the cardholder.
GPS is certified by Mastercard and Visa to process and manage any credit, debit or prepaid card transaction globally, with offices in London, Newcastle, Singapore and Sydney. It is equipped to meet the stringent standards required by Tier 1 banks and has integrated with more than 40 issuing banks and operates programmes for 150+ clients in 60 countries, using over 150 currencies.