Card Companies Bet Big on Financial Inclusion

In the developing world, financial services companies see growth opportunities, both for themselves, and for burgeoning economies

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In 2014, the last year for which data is available, nearly a third of adults around the world lacked access to a bank account. For these two million adults and their families, lack of access to formal banking means not only greater risk of loss and theft, but also greater difficulty building credit and acquiring loans that could be used in the event of emergencies or to grow small businesses. Money stored under a mattress is also money unavailable to be loaned out to grow other businesses.

The vast majority of the unbanked reside in low-income countries, clustered primarily in sub-Saharan Africa and Central Asia. In Turkmenistan, just 1.8 percent of the population holds an account.

Mounting evidence suggests this lack of access to formal banking is holding developing countries back. A 2009 working paper from the Development Research Group at the World Bank found that the simultaneous opening in 2002 of 800 new branches of Banco Azteca in Mexico led to a 7.6 percent increase in the number of informal business owners, a 1.4 percent increase in employment, and a nearly 7 percent increase in income.

A 2015 paper by Nathaniel Young, now a principal economist at the European Bank for Reconstruction and Development, similarly concluded that between 2002 and 2012 in India “each additional private bank branch led to a 0.36 percent increase in local GDP.” Suresh Sundaresan, the Chase Manhattan Bank Foundation Professor of Financial Institutions and faculty director of the Columbia Business School’s India Business Initiative, points out the recent of rise of digital and mobile payments may have an even more profound effect, commenting “these advances may be more efficient at reaching those at the bottom of the wealth pyramid than the brick-and-mortar branches studied by Young.”

The World Bank has committed to universal financial services access in 25 focus countries, representing 73 percent of the world’s unbanked. They’ve been joined in that pledge by a number of global financial services providers, including Mastercard which has set a goal of reaching 500 million people previously excluded from financial services by 2020.

For companies like Mastercard, financial inclusion in the developing world represents not just a significant market opportunity, but a chance to contribute positively to economic growth. Martina Hund-Mejean, Mastercard’s chief financial officer, commenting on the company’s commitment, asserted “what we’ve found is that if we can use our technology as well as our products to be able to be financially included in someway… they actually become really productive, and that can move people and markets from poverty to wealth.”

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