Making financial inclusion part of the business model

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WASHINGTON — Roughly 2 billion people around the world do not have bank accounts, and Mastercard CEO Ajay Banga acknowledges that there are not enough philanthropic dollars to bring all those households into the financial mainstream.

But, Banga said, financial firms like Mastercard can step in and be part of the solution — even if it means taking a bit of a financial loss.

“You can make it part of your business model and make it part of what you do. You can bring your skills, your technology, your expertise — it’s not an unnatural act,” Banga said at seminar on financial inclusion Washington this week hosted by Banco Santander and Georgetown University. “You also have to have a good business for the rest of your business that covers some of the costs and expenses of doing this.”

Mastercard has helped bring financial access through its many programs to an estimated 360 million people across the world, Banga said. He promised several years ago to reach half a billion financially excluded people by 2020.

He spoke, for example, about efforts to help digitize sales for small businesses using QR codes, which can in turn make it easier for those businesses to obtain loans. Armed with more information, banks are better able to take a chance on those entrepreneurs.

“At end the of day, we need practical programs and practical methods to make a difference on a very large problem,” he said.

This notion of combining business success with a broader mission is what Ana Botin, the executive chairman of Santander Group, calls “profit with purpose.”

Speaking at the same conference, Botin said the bank has been active, for example, in developing microlending programs to help entrepreneurs better access capital to grow their businesses. Botin discussed the rapid growth of Prospera, the bank’s program in Brazil.

“If we just relied on data or digital, we would never give the loans — it’s about the knowledge of microcredit that we have seen for years,” she said Wednesday.

She added that the initiative has been a success because it combines local intelligence and word of mouth with the use of handheld technology like iPads to facilitate fast loans.

“For me, the answer is providing an on-the-ground physical presence in a different way, with people who are from the community, with digital tools, so you can actually exponentially grow this,” she said.

Still, conference participants underscored that there’s a lot of work left to be done both in the U.S. and abroad — and plenty of room for banks to help. Drew Propson, a project lead for financial inclusion at the World Economic Forum, pointed out that roughly 20% of U.S. households still used financial products outside of the banking system, even if they had a savings or checking account. That rate hasn’t changed over the last two surveys conducted by the Federal Deposit Insurance Corp.

"What is really astounding here is that there was no change in the underbanked rate from 2013 to 2015. I would just say that that's really unacceptable for where we are today,” she said at the event. “There's a lot of really smart brains in this room and there's no reason that we have to stagnant in statistics like this."

Yet despite those statistics, many banks say they are redoubling their efforts to serve disadvantaged populations.

Just this week, JPMorgan Chase Chairman and CEO Jamie Dimon said that his bank, has committed to increasing its mortgage lending to low- and moderate-income families by 25% over five years.

In his annual letter to shareholders, Dimon said that banks should also consider employing people with troubled backgrounds. As one of the nation’s largest companies, JPMorgan Chase, he said, has an obligation to recruit and train workers who have previously spent time in jail.

“Reducing recidivism is not only important to returning citizens and their families — it can also have profound implications for public safety,” Dimon wrote.

Executives at the conference also emphasized that bringing more people into the financial system is hardly the only challenge facing both the public and private sectors. Policymakers need to do more to develop standards for online businesses, including how consumer data is protected, they said.

The issue was clearly top of mind in the wake of recent Facebook’s troubles over the improper sharing of user data.

“In the physical world, people drive their cars on a certain side of the road,” said Banga. “On the internet, there are no rules of the road. He or she who gets there first, gets the prize. That cannot be the right way for the world’s most powerful enabling technology to dictate our society.”

Botin said that laws surrounding the sharing of personal information should be better standardized across industries. While banks have stricter rules regarding what they can do with customer data, online startups don’t necessarily face the same restrictions.

“We need privacy laws where if you’re managing customer data, you’re managing customer data, it doesn’t matter if you’re a bank or a tech company or who you are,” she said. “If you have millions of data [points] or millions of people, you have to make sure your data is safe.”

She said her children have long cheered online companies that offer free services in exchange for their data — not necessarily realizing the full implications of the trade.

“They give you everything for free — that’s what my sons tell me — I’m happy they that they take everything, all my information, because they give me all this great service for free,” she said. “Well, you know what, it ain’t for free.”

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