Payments for good – promoting financial inclusion
Vijay Oddiraju, CEO of Volante Technologies, looks at ways the payments industry can provide the rails for inclusiveness.
Technological change is essential if inclusiveness is to become a reality. Market trends such as digitisation, ecosystems, and cryptocurrencies can undoubtedly act as enablers but delivering the technical infrastructure to support the underbanked is key if financial institutions are to play their part in providing access to capital.
Digitisation for inclusiveness
Trends that accelerated during Covid play well into the need for new technology not just in itself, but also as a means to better promote inclusion. Indeed, according to Insider Intelligence, Covid accelerated digitisation within the payments industry by two to three years. Insider Intelligence predicts that in 2023, worldwide retail e-commerce sales will total $6.169 trillion and make up a 22.3% share of total retail sales, up from $3.351 trillion and 13.8% in 2019. So it is clear we are seeing a fundamental change towards digital payments for consumers and businesses alike.
However financial institutions must have the technology to support digitization and the changes it brings in order to promote inclusiveness. To make sure that everyone – businesses and individuals alike – can access payments, industry-wide change is needed. Banks, financial institutions, and service providers alike need to make sure they provide the technology infrastructure to underpin a system that is available to all and thus inclusive.
This is undoubtedly a technology problem as much as a political or social problem and fintechs, in particular, have a key role to play in making sure that banks have access to the right technology to provide an inclusive service to their customers.
For example, open banking is inclusive because fintechs and other services providers can access an ecosystem and use it to provide more choice to end consumers. It facilitates the democratisation of capital because using APIs to enable system communication opens up access to bank accounts and promotes competition.
Instant/real-time payments, meanwhile, allow people to receive funds faster, helped by schemes and mechanisms for cross-border activity. Real-time payments have the capability to rely on mobile devices rather than cards linked to bank accounts, which helps the underbanked – instrumental in countries such as India or Mexico, for example. Real-time payments allow liquidity to be captured on a real-time / day-to-day basis rather than at month-end, helping to avoid cash flow issues and enabling a business to be more nimble.
Cloud and Payments-as-a-Service (PaaS) processing models can improve productivity, reduce costs, ensure resiliency, and deliver 24×7 access to banking services – all benefits and savings that can be passed on to customers.
Central bank digital currencies (CBDCs) have been examined with great interest by various central government authorities and can help to democratise funds without the downside speculative risks associated with cryptocurrencies.
ISO 20022 allows supplemental data to be provided with payments, making it a lingua franca communication across national boundaries.
But overall, to facilitate inclusiveness, financial institutions need to be aware that they need the right tech to support all customers and emerging trends.
Collaboration to achieve the end goal
Part of making inclusiveness more of a reality is thinking beyond banks as the only providers of banking services. Fintechs and payment service providers (PSPs) have a big part to play here, even where they do not have banking licences. Ultimately, the collaboration between banks and their fintech partners can accelerate the broadening of access and the reduction in ranks of the unbanked.
Vendors can help banks manage change, innovation, and ever-changing regulation. Assisting banks to modernize their payments systems also inevitably involves the cloud. It is a fundamental change in the way banks can operate and the industry needs to focus on cloud-native technology for payments and PaaS to support the technical requirements of the broader industry trends and the need for inclusivity.
Another key element of modernisation is the adoption of low-code/no-code platforms and technologies for the development of new payments services. With the right platforms, banks can drastically reduce the time and effort required to deploy new services, and to onboard customers. They can also make it easier for third parties and fintechs to contribute to their roadmaps, thus creating more inclusive ecosystems.
The payments industry has a fundamental role in ensuring funds get moved to the right place at the right time, with the right data around them. The technology choices that we as an industry make, and the spirit in which fintechs and financial institutions collaborate, will expand financial inclusion and be a force for good.