Financial inclusion the digital divide and other thoughts on the future of money Ajay Banga
Transcriber: Ivana Korom
Reviewer: Joanna Pietrulewicz
Whitney Pennington Rodgers: Ajay Banga,
thank you so much for being with us today.
I feel like this conversation
is especially meaningful
as we’re wading through
this pandemic, it’s late 2020,
and we’ve seen the way that inequalities
have presented themselves
throughout this year, through this crisis.
And since you’ve been
at the helm of Mastercard,
you have championed this idea
of financial inclusion.
And so, could you start
by telling us a little bit
about financial inclusion,
what is it
and why do you think this is something
that can change people’s lives?
Ajay Banga: Yes, look,
I think that the COVID-19 crisis
has actually made things
worse in some ways
and some of the advances
that were being made
over the prior decade
on fighting poverty and fighting exclusion
have probably got set back a little bit,
just by the nature of the manner
in which the virus has impacted
minorities and disadvantaged people
more than they have others,
including, by the way,
minority-owned businesses,
a number of whom have had
disproportionate impact
through the crisis.
But I guess if you pull back
from the crisis,
because financial inclusion or exclusion
is an underlying social problem
that dates back to well before this.
The real issue,
here’s the theory of the case.
Of seven billion people in the world,
close to two billion are either
underbanked or unbanked in some way.
And what I mean
by underbanked or unbanked –
unbanked is obvious,
they don’t have a relationship
with a banking institution of any type.
Of any type.
Now, underbanked is, even if they do,
they’re not getting to participate
in the financial mainstream
and do things that you and I
take for granted,
which means being able to access credit
when you need it, at a reasonable price,
being able to access insurance
of the type that’s relevant to you,
being able to do things of that nature,
save for a rainy day in the right way.
All that done in a form
that’s good for you as the consumer.
That’s underbanked.
And so, a couple of billion
people around the world,
this is World Bank statistics,
are basically unbanked or underbanked,
and most of those people
do not have a formal identity
that they had received
or got from their government
and therefore, there’s nothing
they can take and hold out
to show when they go to hire a car
or live in a hotel
or take a flight, which they don’t do,
to show that they exist in the system.
Their opinions don’t count,
they don’t get counted
in censuses very often,
they don’t get counted for their opinion
of what government should be doing,
they get left out, they’re locked out.
And the last part of that puzzle
is that this is too big an issue,
over the years,
for just a government to solve,
or for just one bank
to solve in a country.
It does require, kind of,
a bunch of shoulders at the wheel
to come together,
it requires partnerships across
the public and the private sector,
but even within the private sector,
to get to make a real
movement on this issue.
WPR: So if I’m understanding correctly,
it sounds like it’s just an opportunity
for people no matter where you are,
what your socioeconomic status is,
that you have access
to financial services,
that you are part of the system
and you have a place,
a financial identity.
AB: You have identity, you have a voice,
you have access to financial services.
So financial inclusion
has got so many facets,
but the basic facet is
be counted, be included,
be somebody, have the dignity
of your identity,
and of being included.
That’s really what financial inclusion is.
WPR: It seems like such a simple idea,
that can potentially have a big impact,
and I know that this is something
that you’ve implemented
in your work at Mastercard,
but also we see this
in many other organizations,
so talk a little bit about what does
financial inclusion look like in practice
for a range of different organizations
and a range of different spaces.
AB: First of all,
you’re absolutely correct,
there are lots of people participating
in trying to change this.
And honestly, without that,
we wouldn’t get anywhere.
We’re doing our bit,
but what we’re doing
is really in partnership with others,
because we’re not
a direct-to-consumer company.
There’s nothing I can do
to improve your life directly
in terms of being included
because I don’t open bank accounts,
I don’t give credit,
I don’t underwrite insurance
and I don’t have a way
to provide you ways to save money
in a mutual fund or anything.
For me to do anything,
I need to have banks,
I need to have fintechs,
I need to have mobile phone companies,
I need to have governments,
I probably need to have merchants
and that ecosystem
of the coalition of the willing
is kind of what you will see represented
when different companies
talk about their role
in financial inclusion.
Let me give you
a couple of tangible examples.
So if you’re a farmer
and you’ve got to go to sell
your produce when it’s harvested,
you’ve got to go two days' way
to the nearest village market,
well then, everybody knows
that on the way back you’re carrying cash
from the produce you sold.
That normally leads to bad outcomes.
Also, you’ve got to go buy fertilizer.
Or you’ve got to go
back and forth to do all this
and you’re really unproductive,
or you send your spouse to do it.
All that changes if I can connect you
with a phone
into farmers, fertilizers
and cooperatives,
give you cropping information,
rainfall information,
enable you to sell your produce
in a better marketplace, online,
receive the money into an account online,
that is a complete game changer.
Something again
that farmer’s cooperatives,
local governments,
banks and companies like ours
can help facilitate,
in Africa, we’re doing it in India,
we’re doing it in a bunch
of countries around the world.
Again, the idea here
is to take you out of the cash economy
and give you access
to an electronic economy.
Imagine that same farmer,
they now receive money for their produce,
a bank can look at how they spend money
out of their account,
and could, using the spending
and receiving of money,
underwrite you much better for a crop loan
than they could if they
didn’t know anything about you.
So the same example, another one,
is for small and microbusinesses.
Take a woman in Kenya
or in India or in Mexico in a village
who opens a small shop outside her home
when her husband and children are away.
And it runs for a few hours in a day,
and she stocks a little baby food,
and soap and toilet paper
and whatever else people buy there.
Well when the company van comes,
the Nestle van, the Unilever van,
the local Bimbo Bread van,
comes to sell produce to her
on a Monday or a Tuesday
or a Wednesday at a certain time,
she buys what she can in cash.
Typically, she’s in the cash economy,
nobody’s given her credit,
she runs out of cash
for that produce that she’s buying
before the week is over.
She’s out of stock. She loses sales.
Imagine if she could then be underwritten,
digitizing that supply chain,
what she bought, what she sold,
underwrite her in a bank
with actual transaction history,
you could lend her the 500 dollars
to enable her to be smarter
about what she buys,
educate her on how to use her credit,
that’s financial inclusion.
WPR: And so one thing
that’s really struck me
as you’re talking through
what financial inclusion looks like
and how it works,
is the dependency on technology,
on smartphones, on internet access,
and we know that this is something
that a lot of people
struggle to have access to this
in developing nations,
even in developed countries.
Talk a little bit about how this might
in some ways increase the digital divide,
and sort of, how you respond
to people who might criticize
this idea in that way.
AB: There are two topics
you just came across,
the digital divide,
which I think is a real issue.
But just to be clear,
all the examples I gave you,
they work on smartphones
and they work on old flip phones as well.
That QR code, if you have
a camera on your smartphone,
you can take it,
but there’s a numerical number there,
you could enter that number
into your finger phone
and get it across as well.
Examples like that in Egypt,
where we’ve opened
mobile wallets on phones,
they don’t have to be on a smartphone,
it could be on an old phone.
So to be clear, these financial
inclusion examples
do not depend on smartphones,
they do not depend on just
internet access in your house,
you do need a phone, a cell phone,
in a number of the examples I gave you.
But in the case of the micro
and small credit enterprises,
you don’t even need a phone.
That actually is just
the transaction history
of the produce you bought
and what you sold getting digitized
and a bank being able to underwrite.
There are other problems
of infrastructure in those
that we can talk about.
But to be specific
about the digital divide,
I think that’s another real big issue
and again, COVID-19
has actually, unfortunately,
exposed what was already
sort of an issue in society.
So whether it’s rural parts of America,
let alone an African or Indian
or Indonesian or Guatemalan example,
in America, in rural parts of America,
broadband access is a problem.
Disadvantaged children in New York City,
who may not have access
to the same bandwidth capacity
or computers that they need
to be able to participate in education,
that’s a problem.
And so, that’s a separate issue, Whitney,
from the issue of some
of the examples I gave you,
which I think can actually
be operated equally well
with old-fashioned phones.
WPR: It seems like a precursor to this
is in talking about these partnerships
with governments, perhaps,
is making sure people do have
even access to a flip phone
or some sort of way
that they can communicate
so they can participate
in these initiatives.
AB: So I think a phone is transformational
and the fact is that there are many
people in the world with a phone,
but there’s still a billion people
who do not have the right kind
of phone or internet access.
That’s a different topic.
So that said, you’ve got to find ways
to reach them too.
You can’t only do it by phone.
So the example of those micro SMEs
I was talking about,
they’ve got nothing to do with a phone.
Or for example, in South Africa,
with the social security administration
where the government gives them
a certain amount of money every year
for their being not employed,
you can actually reach them
through a biometric card,
which is what we’ve done,
with the government,
the government collects your identity,
your biometrics on a card,
and we can load the card remotely
with the amount they want to transfer,
take out the middleman in the process,
and allow that person
to then use that card to go to an ATM
to take out their cash,
or go straight to a shop to shop.
And I think that changes everything.
So we’ve done that in many countries.
And so if you go to where Syrian refugees
were coming in to Lebanon
and Greece and the like,
every aid agency there
would require them
to have an identity with them
to get access to whatever form of aid
they were dispersing.
One of the things we’re doing
is to convert that
into a very simple
biometric-enabled identity
which will be read across aid agencies,
so you or I don’t need to get
our identity verified
separately each time.
There is a statistic in the world
that 40 percent of the dollars
that governments want to spend
to reach their citizenry
for social benefit programs
never reach them.
They are called leakage.
Leakage means administrative costs
and I call it theft.
Because it’s 40 less cents on a dollar
for the person who cannot afford
even one cent less.
That’s the issue.
That’s what we’re trying to solve for.
Take out middlemen,
use technology to help,
enable a direct government
to citizenry operation,
allow banks and NGOs and foreign companies
to intervene in the right way,
as in the example of this refugee crisis.
The World Food Programme distributes food
in those very refugee camps.
And we actually help them
to take the food,
they would buy grain somewhere
and ship it across,
and lose some of it along the way,
we put the dollar value on a card,
the card can only be used by the refugee
in a shop that the World
Food Programme certifies.
So it cannot be used for anything
other than what the World
Food Programme wants it used for,
which is grain and food
and vegetables and fruit and milk.
And that enables the World Food Programme
to save money on leakage.
What I’m trying to tell you
is it’s not about technology,
it’s about using what you have
and using the technology you do possess
and applying that in a smart,
commercially sustainable way
to real world problems.
If you have good technology as well,
well let’s do it even better.
But let’s not use technology
as the excuse to not do it.
WPR: OK. It makes a lot of sense now.
It seems like underlying all of this
is this move towards a cashless society.
This move to sort of create
this way for people to exchange money
without the need for cash.
I’m curious to hear from you a little bit
about what does that actually look like,
you know, a society without cash.
What are some of the challenges
that is presents?
AB: Yeah, I think cashless, actually,
is something we are not going to get to,
and we probably shouldn’t.
Because just as we have a digital divide,
do you really want a world
where people who rely on cash
because it makes them comfortable,
I’m not talking
about illegal transactions,
I’m talking about somebody
who just wants to deal in cash,
they may be older and uncomfortable
with today’s technology.
My dad, when he was alive,
you know, he never wanted to use a card.
He always wanted to use a cash and check.
And this is my father,
when I worked in banking
and was by then the CEO of Mastercard,
and he would look at me
very indulgently and say,
“Son, now I have a Mastercard
because of you,
but could you please go away”
kind of thing.
And I understand that.
And I think you’ve got to deal
with therefore “cashless,”
in inverted commas.
Reducing cash in the economy
is to me a good objective.
Taking it to zero?
I’m not there.
Why do I say it’s a good
objective to reduce it?
Because cash actually is the friend
of the person who has something to hide.
If you want to not pay your full taxes,
or you want to do something with the cash
which is not quite kosher,
well guess what, here’s your chance.
But if you’re electronic,
you are transparent.
Electronic forms of money
benefits and transfers in utilization,
create transparency in an economy.
Poorer people,
they don’t have access to cash,
and therefore, they don’t
indulge any of this.
But even other than that,
even other than all this,
there is a cost of cash in society
which many people have computed,
central banks, universities,
somewhere between one to two
percent of GDP
is the cost of printing, securing,
distributing and using that cash.
One to two percent of GDP.
I’m certain there are efficient
uses of that GDP
that we could put into play
by reducing the role of cash
relatively in the economy.
In the process,
you take out these middlemen
who are in positions of power
when social benefits are distributed,
when refugees are met.
That’s what I’m talking about.
That to me is a good thing.
Transparent, better tax realizations,
lower money laundering,
that kind of stuff I’m all for,
and I’ve been talking
about that for years.
But zero cash, I’m not there.
WPR: And do you think there is a point
where you do get there,
or we get there as a society,
where that does feel possible?
AB: We could.
I mean, if you took countries
in the Nordics, take Sweden.
Sweden, South Korea,
these are at the cutting edge
of having reduced cash in their economies.
In Sweden, essentially everybody uses
electronic forms of payments,
either a card or app on their phone
that they can swish through
or things of that nature,
consumer payments I’m talking about.
Even public toilets
on the street in Sweden
you can pay by on your phone
entering a code,
which comes back to you,
having deducted that money
from your account.
You enter the code on a pin pad
and I call that tap and go,
you go into the public toilet
with that tap.
That’s how far it’s advanced in Sweden.
So cash is very low there.
But even they are having a regular,
continuous public conversation
about not disadvantaging
those parts of Sweden
who still want to deal in cash.
You’ve got to be careful,
because remember how does cash reach
distributed points in a country?
Through banks, through ATMs.
If those become unprofitable to run
and people start closing the ATMs down,
that’s a problem in itself.
So you have to enable
cash back in retailers in some way,
so that you could still go and get cash
from a distribution system.
Maybe not an ATM, but a retailer.
There are some ways to do this well,
but you’ve got to be conscious of it.
You know, we haven’t reached it yet,
but we could.
We haven’t reached it yet.
WPR: Of course, when you think about this,
about moving to a cashless society
or at least having that as the goal,
that creates this concern
around data and privacy
and you’ve said in the past
that there’s really an importance
behind putting consumers in control
of their own data and their own privacy.
How is that something
that we can actually achieve,
what does it look like to do that?
AB: Whitney, it’s a terrific question.
I actually believe that it’s at the core
of a lot to do with the next
10, 20 years of technology,
the internet of things, 5G, data,
this is all coming together
at warp speed, right?
If you think about the number of devices
that are going to be connected
over the next five, ten years,
and what 5G could do
to moving intelligent computing
to the edge right near you,
this is going to generate
enormous amounts of data.
From your fridge, from your car,
from you walking around,
from your connected glasses,
from your watch already, all that.
From your shoes if you’re a runner.
So you’ve got to get to a stage
where we take a responsibility
of how your data is used and interpreted.
And so, Mastercard,
we with a bunch of companies,
we have laid out a set of data principles.
The first one is exactly what you said.
It’s your data, you should control it.
Meaning you should know
what’s being collected,
you should be able to say,
“I don’t want that to be collected,”
in simple language,
not in a 12-page legal agreement
that you cannot comprehend.
And you should be able to benefit
from that data of yours that is used,
either directly, or indirectly
in some way that you comprehend.
And if I as a company
am collecting your data
to enable me to do business with you,
I should collect the minimum amount I need
to do my job with you
and I should keep
whatever I collect safe for you,
and allow it to be deducted
or removed when you want it.
These are not complicated things.
Your data, you’re in control,
you should be able
to delete it when you want,
you should know what’s being collected.
If I do anything with you,
collect the minimum, keep it safe.
Consumers will vote
with their feet on this topic.
As they get more knowledgeable,
as they get more educated,
and that’s the right thing to do,
they need to say, “I don’t want you
to use my data for the following things.
I want to know what it’s being used for.”
Putting consumer back
in control of their data
is going to be mission critical
in the data-driven economy
of the next 10, 20 years.
WPR: Thank you so much, Ajay,
this was a great conversation
and we appreciate you being with us today.
AB: Thanks a lot, see you again.
Good luck.