More than 90% of people living in Bangladesh do not have bank accounts. But 75% have something that could be just as good: mobile phones that have the capacity to make digital payments.
Using a digital payment platform called bKash, Bangladeshis can send money easily and inexpensively from one mobile wallet to another and receive cash payments at any one of 100,000 agents — mostly mom-and-pop stores — distributed throughout the country. The service allows them to support relatives around the country and pay merchants in their own neighborhoods. The platform has already achieved widespread success, launching 13 million accounts in its first three years and processing more than 1.5 million financial transactions per day.
In Kenya, a similar platform boasts 17 million users. And in Somaliland, where users average over 30 digital transactions per month, people put cash into the system four times as often as they take it out. In other words, instead of a mobile-enabled system of deposits and withdrawals, Somaliland has a system where cash is going digital — and staying that way.
How did the developing world become the hotbed of financial innovation? It's a simple matter of supply and demand. The need for new and different financial services in the developing world is driving fresh ideas. And when innovations hit the market, adoption and usage are through the roof.
Banks have a historic opportunity to get involved in this rapidly advancing market. They stand to gain millions of new customers and, in the process, help those customers graduate from a cash-only existence and all the risks that entails. Both philanthropists and financial leaders should recognize and seize this moment together.
There are many reasons that the world's poorest people have not been considered attractive banking customers. It's hard for banks to achieve sufficient margins of equity by processing smaller transactions, and prohibitively expensive to do so when those transactions are made almost entirely in cash.
Digital payments jump right over these barriers. Poor households typically have high transaction volumes — an attractive proposition for mobile carriers. And customers can build equity and experience with formal banking by using cash-in cash-out systems operated by networks of agents. Moreover, digital payment products are the ideal medium to reach a large customer base across a wide territory. Thanks to scale, digital products can be both cheap and profitable.
This is quite simply an idea whose time has come. As Bill Gates said at the Sibos banking conference in early October, "There's no place that digital technology can change more than making payment systems, making digital transactions very inexpensive, and also very easy, as the mobile phone has become pervasive."
The U.S. and other countries have a critical role to play in establishing the right regulatory environment for digital payments. Meanwhile, American companies would do well to pay close attention to product innovation in the developing world and apply those lessons to their own efforts in the digital payments space. There's a lot of information to be gleaned: "This is not a case where we're waiting for trickle-down, like we do with many advanced technologies," as Gates said at Sibos.
Despite the success of bKash and other platforms, the need for financial inclusion is indeed great. Cash is still the only option for most people in the developing world. If easy and affordable digital payment options were available to these populations, all precedents suggest they would be fully and enthusiastically embraced.
Financial leaders are in prime position to deliver those options and lead the way in bringing secure, reliable and convenient financial services to the people who need them most.
Rodger Voorhies is director of the Financial Services for the Poor initiative at the Bill & Melinda Gates Foundation.