We caught up with Ian Taylor, VP of Business Development for Europe, Government and Public Sector at Mastercard, within the Finclusion UA Forum by Mastercard in Ukraine, and spoke about the role Mastercard is taking in realising global financial inclusion and how he sees the future of the payment industry.
Do you think financial inclusion will become the core of banking and the finance industry?
I think it’s a very clear objective for all of the financial institutions and governments around the world. I’m not sure they’re all considering it as their number one priority, as they have to address many different issues for their citizens and their customers, depending on whether they are the government or a commercial organisation. But I travel all around Europe and everywhere I go I hear financial inclusion is one of the most important future aspects, not only to bring excluded citizens into the formal economy, but also to assist those who already have basic facilities to use those facilities more.
Do you have any figures about the unbanked population globally?
Around two billion adults don’t have access to the formal financial system. In Europe, the figure is above 130 million, which represents somewhere between 15 to 18 percent of adults.
Which countries in Europe are mostly unbanked?
I don’t have a list of individual countries, but most unbanked people are based in CIS countries, and Eastern Europe more broadly. However, there are also large numbers in the south of Europe. Mediterranean countries have high numbers of unbanked people because there’s a large proportion of rural citizens, who find they have less access to formal financial systems.
People in Eastern Europe are well educated, and they have access to global payment systems like Visa and Mastercard. What are the reasons so many are unbanked?
There are several reasons, but in Eastern European markets sometimes it’s the question of individuals feeling they don’t have enough money. In a lot of markets, you have to have a minimum level of income to open an account, and it costs money, so family members may end up sharing one account between them.
In some cases it’s also a choice. In more developed markets, for example in the UK, there are comparatively few unbanked people, but the majority of them are unbanked by choice. They don’t want to engage in the formal financial economy – I think sometimes it’s a question of trust.
How do you create this trust and who are the stakeholders who can do it most effectively?
Very often in a banking system there is a guarantee – if the bank goes bankrupt, then the money is guaranteed up to a certain amount. But often people do not trust financial or governmental institutions. That may be something that will take time to change. No one is saying that financial inclusion will happen in one or two years. Sweden has been on the journey since 1950 and, 70 years later, they’ve achieved nearly full inclusion. If a market is at 50 percent inclusion, it could be another 20 years before we reach the same levels. So it’s always a long process, but the elements are in place at the moment, I think, in terms of education, of providing relevant products and trying to ensure that people have guarantees that their money will be safe.
Is financial inclusion mostly the question of social responsibility or it’s more about business focus? Ant Financial in China is an excellent example of the project based on social needs and it covered more than 200 million users?
I think it’s a bit of everything. Most governments put financial inclusion at the top of their priority list, because they know from the evidence of every other country in the world that it leads to an increase in GDP, an increase in the level of collected tax and a reduction in the cost of cash. So there’s a motivation, which is not only financial, but also societal and cultural.
On the commercial side, private organisations have to find and develop responsible business cases. At the same time, many have a very firm commitment to corporate social responsibility (CSR). At Mastercard, we have imbedded inclusion into our business. We are not treating it as a CSR project. We believe that this is a better way to ensure that inclusion projects get the attention and resources needed to have a substantial impact. So, both the public and the private sector have a role to play.
Which stakeholders do you think will be the most successful in realising financial inclusion, and what do you think your role is, as a global payment system?
Mastercard as a global corporation has an objective to include 500 million more people into the formal financial sector by 2020. So we see it as a business goal. It is part of our duty and strategy – to increase and encourage financial inclusion. But this is a goal that requires partnership. It is not something that one player can achieve alone. So my hope is that the global schemes will continue to play a part, in partnership with others. A very simple example is prepaid cards, which can be a great on-ramp to joining the formal economy. One can transfer salaries and social benefits onto them. Cardholders no longer have to carry their full salary in cash with them, and if the card gets lost it can be replaced and the money is still available. That is also a great security benefit. Some of the smaller players bring innovation that is excellent for creating flexibility in the market and identifying niche areas that can be suitable for those who are currently unbanked.
What technologies are the most effective in involving people in financial markets and financial services?
I think there will be moves in terms of peer-to-peer payments, community lending and microfinance, looking at specific insurance products that have a greater understanding of individual risk, rather than just relying on a computer to say yes or no. I think artificial intelligence will also help understand individual clients’ needs. Data analytics is only going to increase in terms of providing services and products that people want, but it’s going to be more individual and more specific, rather than a big global approach.
What do you think payment systems would look like in the future? Do you believe companies like Visa and Mastercard will survive in, say, twenty years time?
The obvious answer is yes. We know that over 80 percent of global transactions still take place in cash, so we have a big opportunity to move some of that onto electronic payments. There is a lot of innovation happening in this space. At Mastercard we are constantly innovating, embedding new technology in our products and solutions, whether it is biometric authentication or the development of the latest anti-fraud mechanisms.Ultimately, it is about ensuring that consumer and business have a smooth and secure payment experience.
How are you planning to develop your technology to keep up with innovation in the market?
We obviously strive to meet the needs of our financial partners, our cardholders and our retailers and other merchants accepting payments with our products. At the same time, our role is to ensure the security of those payments. All financial institutions have a huge challenge to try and combat fraud, and I think that is one of our major areas of growth – looking to support those financial partners with technology, with AI and with data analytics to understand and immediately alert those financial institutions and customers when there is fraud, and to try to ensure that the impact of that fraud is minimised. Whether it’s ID fraud, banking fraud or traditional theft by other means, Mastercard has an important role to play in increasing the level of security, so technology is always going to be a part of that speed and quality of service, and, increasingly, also security.
What do you think would be the bank for the future, in 10 or 15 years?
The future is digital. In the future, banks and other entities will have to offer the products and solutions that customers need in a world where the majority of transactions will take place in the digital space. Customers want to navigate their finances in a secure and seamless, smooth manner. So digital offerings that can be used across multiple devices in any location will be key.
Also, distributed ledger technology is coming in a big way. Blockchain and distributed ledger process will provide a very significant part of the future in terms of supply chain, tracking of payments and identification of payments.