The importance of digital finance for financial inclusion in South Africa

The Banking Association of South Africa defines Financial Inclusion as a development that improves the “range, quality and availability of financial services and products focusing on the unserved, under-served and financially excluded. Principles of financial inclusion include: access, affordability, appropriateness, usage, quality, consumer financial education, innovation and diversification, and simplicity.”

According to Bank SETA, 53% of the country’s adult population is unbanked. The reasons vary, including the fear of exploitation, an inability to access physical bank buildings, strict FICA requirements and the steep fees. But factors like the lack of trust in the traditional banking sector, concerns about safety and security, time, and convenience all contribute as well.

Digital finance provides solutions

South Africa has one of the highest mobile penetration rates in the world, with 87% of the population owning a cell phone. According to a report by The Guardian, “mobile phones carry huge economic potential in undeveloped parts of Africa.” The same article notes that a study conducted by the London Business School in 2005 found that the GDP rises by 0.5% for every additional 10 mobile phones per 100 people in a developing country. There is thus great potential for local and global economies to grow if enterprises are willing to tap into unbanked and under-banked markets and make digital financial solutions available to all.

Though the lower income segment may be financially challenged, my team at IMB and I have come to find that they are comfortable enough with technology, and many mobile banking solutions companies are indeed using technology to reach this market. Traditional “bricks and mortar” establishments are often hard to come by, especially for the rural-based populace. Many of these digital finance companies provide an easy and accessible way to bank, where customers have no need for travel, all the while cutting through most of the red tape.

In points below, I take a look at how companies improve the range, costs, access and availability of financial products in order to win the unbanked and under-banked sectors, making financial inclusion possible for the unserved, under-served and the financially excluded.

Range

According to the Bill & Melinda Gates Foundation, “The global revolution in mobile communications, along with rapid advances in digital payment systems, is creating opportunities to connect poor households to affordable and reliable financial tools through mobile phones, kiosks, and other digital interfaces.” Service providers can now reach this segment through mobile communications, and the poor in turn can now have access to these service providers. Today, the unbanked can make use of services that were previously out of range or not accessible to them. I’ve read about companies in Ghana, for example, that make access to life insurance cover possible for people in rural areas that are not familiar with or educated enough to know about the importance of financial products, like life and funeral cover. The process is simple: whenever an individual buys and loads airtime, they automatically get insured with limited life cover.

I’ve heard of local businessmen (fishermen, farmers) in Uganda using their mobile phones to pay bills. These individuals in these communities are in actual fact creating a micro-economy by banking money on their phones and transacting with each other through these means.

The range of connection, access and opportunity expands exponentially with digital finance.

Time and costs

Mobile transactions save time and are much more convenient. People in rural areas no longer have to walk kilometres to get to a bank. There’s also no queuing in long lines or dozens of forms to fill in – and in many cases the poor are uneducated and unable to even complete these forms. Transactions via mobile are also much cheaper. Costs that would have been incurred should cash have been handled by banks are now cut out. We also find that exceptional products and new collaboration of services come to market through digital finance for the very purpose of saving time and costs whilst still providing a much-needed service.

Access and availability
I believe it’s important to uplift South Africans with a stake in this country’s economic future. It’s time to provide state-of-the-art financial solutions tailored to a market struggling with a financial inclusion.

My team and I believe the infrastructure exists, a sentiment echoed by the World Bank. According to a World Bank report, “South Africa’s highly-developed financial infrastructure, as well as mobile technology, provide opportunities for financial inclusion.” With South Africa boasting one of the best telecommunications sectors in Africa, and with the financial infrastructure as sophisticated as it is, there are ample opportunities for massive growth – making financial inclusion for the masses possible. By making digital finance available to a greater extent, access and availability are expanded to these markets. Products of service providers are now accessible to the poor, connecting people to one another on a local and global level.