- Samir Vidhate
Creating a global financial system that is inclusive to all
Mastercard’s Borderless Payments Report uncovered that 40% of people believe the only way they survived the pandemic is by receiving money transfers from friends and family abroad. One quarter of people globally sent more than half of their income to families abroad. The need for simple, seamless and predictable cross-border payments has never been more critical to enable people and business owners to both thrive and, in some cases, survive.
The future of payments may be built around ground-breaking technologies – innovations such as crypto and technology underpinned by AI – but what is clear to me is that to boost financial inclusion among both people and businesses we must get the basics right first.
I’ve been reflecting on a recent paper jointly published for the attention of the G20 by the IMF, the World Bank, the BIS Innovation Hub and the Committee on Payments and Market Infrastructures. This consortium identified 19 areas for global economies to focus on for innovation improvement and development. 17 of the 19 centred on basic personal and commercial financial services, with just two of the areas focusing on technologies such as bitcoin and CBDCs.
While these technologies have a place, It’s vital that the financial system continues to focus on providing a fully functioning system accessible to all, without excluding the millions around the globe underserved by the current system. Real inclusion means ensuring the system in place now, and used by billions, is overhauled and people benefit from faster and cheaper remittance options.
Putting the basics first – improving cross-border payments
In many parts of the world, the pandemic only increased reliance on remittances and across the globe. In fact, one billion people rely on remittances for support. Fortunately, increased collaboration during the pandemic ensured the needs of senders and recipients were met by payments providers. But more needs to be done to drive cross-border payments forwards, even in more complex markets.
What drives greater financial inclusion within markets often highlights the inefficiencies and barriers that persist in cross-border payments. As domestic systems improve, expectations increase among both consumers and businesses for seamless, simple, predictable solutions to their international payment requirements.
Where it’s most critical to continually improve cross-border payments is among the global small business community. Ecommerce and the gig economy are driving the growth of lower value tickets but sending low value remittances overseas can be a challenging experience, for merchants in particular. The system lacks the predictability and certainty that the merchant and their customer needs and wants.
Cross-border payments are currently glued together by complex friction points, ripe for disruption and solution. They’re not cheap, they’re not simple, and they’re not universally accessible. Added to that the FX complexities and the implicated risk of transacting between two (or more) currencies.
We have recently completed the acquisition of HomeSend and Transfast, driving us closer to our strategic goal of bringing more consistent cross-border services to developed and developing markets. But the job is far from complete. The Covid-19 pandemic has changed the face of commerce for good. Consumer preferences to buy online have escalated, exponentially, the need to create better cross-border payments that breed equally powerful financial inclusion both for consumers and the businesses that need economical, frictionless B2B payment flows to grow their trade.
Championing the progress in domestic payments markets
The lion’s share of fintech innovation we’re seeing is being driven domestically.
This is partly due to just how much needs to be done to improve the financial services of billions of people around the world, along with one set of regulations, rules and laws. This means domestic payment systems in developing markets are often ahead of the game with real-time systems innovation.
Take Promptpay in Thailand, for example. Promptpay, is a real time clearing and settling infrastructure using mobile phone numbers, email or citizen ID. Launched with 21 national Thai banks in 2017, by mid-2020, it was being used 14.5 million times a day and had amassed a user base of 55 million people across Thailand, the majority of whom were 21 to 37 years old. The speed of Promptpay’s adoption remains unrivalled.
What makes it work? It’s quick, it’s easy, it’s cheap. But it’s also inclusive.
In a country whose population nears 70 million, Promptpay has engaged the people of Thailand en masse, including people for whom prior personal financial services hadn’t expanded beyond cash transactions and current accounts. With this though comes an expectation that cross-border payments should be just as seamless.
Get the best from our rubrics
So while cryptocurrencies and AI are a core part of our future technology strategy, we are also laser focused on how we get the basics right and bring cross-border payments in line with domestic payments.
How do we move payments out of one closed loop environment and into another in a seamless way? In the spirit of the BIS and IMF report to the G20, more attention is required to create better harmonisation and efficiency in the rubrics underpinning the way we pay, receive and trade. The global priority needs to be getting these basics right to ensure true inclusion.