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How Fintech Helps eCommerce Companies Target the Unbanked

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According to the 2015 Global Findex report, there are 2 billion unbanked adults worldwide, with the majority citizens of developing economies.  In high income economies, 89% of adults have an account at a formal financial institution, while only 41% of adults in developing economies can claim the same. The stark difference in percentage is significant and has the ability to affect the quality of life for those in developing countries.

Developing regions, such as Southeast Asia and Sub-Saharan Africa, enjoy high rates of mobile phone penetration which outpace financial inclusion.  Fintech developments in digital currencies, mobile money, P2P transactions, and ecommerce have enabled higher rates of financial inclusion, by utilizing the network of mobile phones found in underserved populations.

In fact, mobile money accounts, and their related applications, enjoy a higher penetration rate than global rates. In Sub-Saharan Africa, 12% of the population have mobile money accounts, of which 45% claim that this is their sole account.  Also, Africa accounts for 64% of all active mobile money accounts from the 411 million global money users. In a developing nation such as the Philippines, payment gateway providers are becoming popular

Fintech Drives Financial Inclusion

Fintech applications and technologies offer secure alternatives to bank accounts for billions of unbanked, powering financial inclusion in developing regions.  These technologies enable payment remittance, or money transfers between users, as well as mobile payments via uploaded cash or increasingly popular digital currencies.  

Below are a few of these technologies, which have been instrumental in the digital money revolution within the unbanked population.

1. Peer-to-Peer (P2P) Remittances

P2P payments have enabled family members to transfer funds to other family members, even in remote locations.  Financial institutions are often scarce in the rural regions of developing countries, and the cost of getting to these locations, as well as paying the fees involved in traditional international money transfers, is quite high.  

Africans pay the highest transaction fees in the world, at 12-20% compared to the global average of 8.6%.  Orange Money offers a P2P service for real-time cash transfer via mobile technology.  Fees are significantly lower, averaging 2% of the transaction value, if the receiver does not choose to “cash out”.  

Remit, an additional P2P player, charges just under 5% for transfers.  With one in seven Africans receiving money transfers from family abroad, P2P remittances are a highly secure method for efficient cross-border transfers, with lower associated costs, leaving more money in the hands of the underprivileged.

2) Mobile Payments

Mobile payment methods give merchants the freedom to charge their customers on-the-go and grants populations such as the unbanked access to “portable” money they can pay for goods and services anywhere and everywhere they go.

There are three main types of mobile payments:

  • mPOS. Merchants accept credit card payments via a card reader that attaches to a mobile device
  • Mobile wallet. Consumers can store their credit card details in their electronic wallets
  • Mobile money. Consumers can load mobile money accounts with cash without having a credit card or bank account

Developing regions, such as Sub-Saharan Africa, have a network of mobile money agents that enable people to deposit cash into their mobile money accounts. Alternatively, the agents serve as a medium for cashing out.  As such, the user’s mobile phone becomes the equivalent to an electronic wallet.  

Mobile payments, like those done via NFC-enabled registers at stores, mPOS, QR codes and P2P transfers, can be made using the accrued balance in the user’s mobile money account or mobile wallet.  Whether at the point of sale or electronically, mobile payments can also be used for nearly every type of purchase or payment including to pay utilities, school tuition, taxis, groceries, electronics, clothes, etc. without the extra costs of commuting to make these payments.

DumaPay, for instance, is a PCI DSS level 1 compliant mobile payment app that enables all types of mobile payment methods including QR codes, mobile wallets, email pay, and Mobile Point of Sale (mPOS). The app also has its own wallet called Duma Wallet.  The DumaPay app from Direct Pay Online, allows merchants to accept credit card and mobile money payments safely and securely anytime and anywhere. Apps like this have the ability to transform how mobile payments work in developing regions, such as Africa, by providing users a single app that supports all modes of payments.

3) Digital Currencies

Bitcoin is accepted by over 1,000 merchants in South Africa alone.  Protected on the highly secure Blockchain public ledger, digital currencies are virtually impossible to counterfeit.  These currencies are independent of government interference, and enjoy more stable exchange rates, compared to local currencies of developing countries.  Mobile money account holders can use these currencies as they do mobile money for digital payment or P2P transfers.  A host of fintech companies offer apps which support digital currency use, such as Luno, which helps people buy Bitcoin. With Luno, users can sign up for a free Bitcoin wallet by downloading their application, transferring money through the app, and converting their money to Bitcoin. The app will then store the newly purchased Bitcoins to be used for online shopping, sending payments to friends, or simply to save for investment. Chain is another fintech company, and they develop blockchain technologies for secure virtual asset management.

Fintech Powers eCommerce Solutions for the Unbanked

According to the 2015 Global Findex report, over 65% of mobile account users in developing countries, use their accounts at least three times a month.  As rural regions suffer from limited access to retail goods, ecommerce literally brings a world of opportunities and products to mobile money users, thereby improving their standard of living.  

Fintech technologies that enable consumers to receive and manage their funds can be used for eCommerce purchases. In fact, they are already widely adopted in Sub-Saharan Africa, with the majority of internet users in Nigeria, South Africa and Kenya choosing to shop online.

Leading African eCommerce sites, such as Jumia, Konga, BidorBuy and Takealot, which recently closed a $69 million round, offer thousands of products to customers across the continent, as retailers, or as a platform for buying and selling goods.  As these and international players gain market share, ecommerce sales in Africa are projected to reach $75 billion in 2025, up from just $8 billion in 2014.   

The above mobile payment technologies are increasingly integrated, not only in P2P and point of sale transactions, but they are also fueling increasing ecommerce adoption in developing regions.  Leading international and local eCommerce companies have integrated mobile payment technologies on their websites, such as Expedia, Overstock and Shopify.  Additional players, such as MallforAfrica, specifically target Africa’s huge market, accepting a variety of digital payment methods.

Today’s fintech advancements are enabling eCommerce companies to service the unbanked by giving the latter access to resources they could only dream of in the past. With peer-to-peer remittances, mobile payments, and digital currencies, family members can now transfer money to each other seamlessly, bills can get paid without extra hassle, and the world of online shopping is opening up to people in developing countries on a larger scale than ever before. ECommerce businesses and individual users in developing nations can also utilize leading payment gateways to transact with the outside world and enhance their financial power. 

By Jenny Chang

Senior writer at FinancesOnline who writes about a wide range of SaaS and B2B products, including trends and issues on e-commerce, accounting and customer service software. She’s also covered a wide range of topics in business, science, and technology for websites in the U.S., Australia and Singapore, keeping tabs on edge tech like 3D printed health monitoring tattoos and SpaceX’s exploration plans.

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