Banking has existed in one form or another for over 6,000 years. A grain merchant in ancient Babylonia could entrust his gold to priests at the temple for the cost of one sixtieth of the total deposited, and access his funds as the ebb and flow of the Mesopotamian economy required. The same farmer could receive seed loans during the planting season to sell to farmers across the region, before re-paying the priests with interest at the time of the harvest.
If we skim forward through history, we can track the evolution of banking and the monumental impact it’s had on world history, from the institutionalising of banks under the Roman Empire, to the fuelling of imperialism through government-backed financial institutions, to the birth of free-market capitalism and retail banking.
From then to now, the fundamentals of depositing, storing, withdrawing, lending and borrowing money have been, on the whole, unchanging. Our Babylonian grain merchant can be substituted for a nation state, an army, a multi-national corporation, or a traffic warden from Bognor Regis: the basic functions of banking remain the same.
Who are the unbanked?
Bank accounts – and the power and freedom gifted to individuals through them – have become so ubiquitous among the global population that many would argue that access to banking is now a human right. Yet with only 69% of the world currently owning a bank account there is still lots of space for banking platforms to develop their accessibility and reach.
Many of the countries where a majority does not own a bank account are across northern Africa, the Middle East and central Asia. Turkmenistan and Niger are bottom of the list in terms of banked population, each with less than 5% of nationals having accounts.
There are several factors contributing to an unbanked population, including a lack of banking infrastructure, mistrust in government-run financial institutions, extreme poverty, civil war, rural ways of life, and prejudices limiting the financial freedom of specific segments of society.
But the proportion of people around the world with bank accounts is growing, with a 7% rise between 2014 and 2018.
This increase in global access to banking can be attributed to financial institutions re-defining what a bank is, and transforming how consumers access their money.
How is the situation changing?
M-Pesa was launched in Kenya and Tanzania in 2007, initially as a way for institutions to issue and collect loan payments using mobile devices. After initial trials proved that the service could be used for a wider range of additional payment services, the potential for a mobile phone-based money repository and transfer solution was spotted and explored. Over 33 million people across ten countries now use their mobile phones to store and send their money digitally. In Kenya, over a quarter of the country’s GDP is processed through the service.
This is just one of a huge number of e-wallets and mobile apps around the world which let people set up accounts with just a mobile phone. And given that two-thirds of the global population now have mobile devices, it presents a simple way for the unbanked of the world to achieve financial security.
Traditional banks no longer sit proudly and independently at the top of the banking food chain; fintech start-ups are finding increasingly innovative ways to undermine banks’ grip on people’s finances and bring mobile financial freedom to the previously unbanked.
Whether it’s Alipay in China, BIM in Peru, or Monzo in the UK, the new wave of mobile banking solutions provide a secure and simple way to store and transfer money for consumers in developing countries, meanwhile providing a number of extra services to entice those with existing accounts with traditional banks, such as cryptocurrency transfers, borderless debit cards and instant, app-based transaction tracking.
What does the future hold?
The up-coming launch of Facebook’s own cryptocurrency, Libra, has as one of its projected aims the financial liberation of the global unbanked population through the issuing of its own digital wallet, where users can store and spend Libra. The targeted good deeds of the project have, however, been questioned by commentators, who point out that although nearly half of unbanked people live in Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan, only one institution from these countries is currently represented among the 28 founding members of the Libra Association.
Libra may not be the instant hit in developing countries that it aims to be, but it’s certain that Big Tech companies – and not only fintech start-ups – are beginning to recognise the business potential of developing banking solutions in less economically developed areas of the world.
M-Pesa has set an example of the drastic societal change that mobile banking solutions can induce within a population, and other companies are rushing to replicate its success – hence the abundance of mobile banking apps today, and the relative rarity of them just five years ago.
Away from the global economy, there are additional important commercial ramifications brought about by the continual rise in e-wallets and mobile banking apps, as they continue to re-shape the way that consumers pay in an increasingly cashless world.
How can merchants leverage the emerging technology?
As well as providing the technological infrastructure to store and send money user-to-user, cards linked to mobile bank accounts and e-wallets have the functionality to make payments directly to businesses for their goods and services.
To make sure that merchants are well-prepared for all types of customer from all corners of the globe, they need to make sure they have adequate payment systems in place that allow them to accept as many types of payment as possible. Whether this is cards linked directly to app-based bank accounts like Monzo and N26, e-wallets such as Alipay and Paypal, or bank transfer methods like Sofort and Trustly, merchants need to find a payments provider with future-proof flexibility.
TRU//ST Payments partner with local payment method provider PPRO to offer merchants the choice of a wide range of e-wallets and bank transfer methods. We aim to provide the customer with a payment platform that they trust and know. Wherever your target customers are, TRU//ST will work with you to develop the ideal payment strategy to build your business and boost sales.
To find out about how we can help your business to accept localised, alternative payment methods, get in touch with one of our team of vertical-specific experts today.