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How can financial inclusion unlock sustainable growth?

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Tough economic conditions may well force financial institutions into a type of survival mode where the priority and focus are on retaining and growing market share, which is crucial, of course, but purpose-driven banking is not only possible in difficult times, but it should also form the core of a financial institution’s values and purpose.

There is simply no reason banks and payment providers cannot enable economic growth by driving meaningful financial inclusion. In addition to this, all efforts to make the payment process simpler and faster for small businesses and entrepreneurs will have a material impact on bringing more cash-based ventures into the mainstream economy.

Genesis Analytics has found that more than 50% of the total value of all consumer transactions in South Africa are conducted in cash. Meanwhile, according to the Oxford Business Group, almost a quarter of South Africans are unbanked creating a scenario where R12-billion in cash is potentially held outside of banks. When read against the context of the economy just barely avoiding a technical recession at the end of last year, it is evident that bringing the informal economy into the mainstream will have a marked impact on not only the broader economy, but also on thousands of small and micro businesses that are the engine room of the country.

Banks rely on legacy systems and need to be more agile when transferring money. Of course, they are aware of this and are becoming more invested in Fintech solutions to try to close the gap and make becoming banked more attractive for small companies.

Fintechs play an important role in building the bridge for the informal sector to operate in the formal economy by enabling payment acceptance at every payment interaction – wherever merchants’ customers are. Certainly, from our perspective, it is crucial to enable as many payment channels as possible, including online payment and transfer systems for mid-tier companies, switching, and payment or reconciliation.

For instance, when mid-tier merchants can benefit from the same enterprise-grade payment solutions as large companies, as well as accept non-bank-based payment methods such as wallets and vouchers, they can unlock previously elusive growth. This is especially true across the rest of Africa which has a far lower banked population.

A European standard called PSD2, which regulates electronic payment services, is helping drive financial inclusion in Africa too, as it provides a framework for fintechs to grow and easily integrate solutions into banking systems through APIs, which leads to rapid innovation and the accessibility of banking services for far more people.

A look at financial inclusion: Sustainability in payments

Perhaps the best way to demonstrate how driving sustainability in payments is possible, is by showcasing existing success stories. Ecentric will participate in the Eastern Cape Tertiary Taxi Cooperative’s Wealth on Wheels (WOW) project. The project was set up to digitise payments in taxis by introducing a cashless payment solution for commuters. This will naturally boost safety for customers, but it has an important impact on taxi owners too.

Through this digitisation, they will be able to develop new income streams such as selling airtime digitally from within the vehicles, and then track revenue which in turn enables them to start developing a financial footprint and associated credit worthiness. This, in turn, enables them to participate in the formal lending market – both personally and for their businesses. Access to credit can fundamentally change the growth prospects of a business that has previously relied exclusively on cash.

Ecentric’s pivotal role in the project – aimed at driving a paradigm shift – started with system design, the integration of the platform with the legacy banking system, rollout, configuration and 24/7 monitoring. This demonstrates how fintech can build meaningful bridges for cash-based economies to join the formal economy, with the knock-on effect being meaningful growth in various upstream and downstream players in the new ecosystems.

The WOW initiative is just one example of how sustainability is becoming increasingly important to the payments industry. It is crucial to enable seamless and secure payments at the core of South Africa’s economy to promote economic growth and enable more individuals and businesses to participate in the formal economy.

The goal of bridging the informal sector into the formal economy is achieved by empowering large and mid-market merchants across the country to access enterprise-grade payment, reconciliation and switching solutions in order to better serve customers, even those who prefer to use non-conventional payment methods such as wallets, as well as by supporting merchants of all sizes along their journeys toward digitization.

Rory Bosman, Executive for Sales & Marketing at Ecentric
Rory Bosman, Executive for Sales & Marketing at Ecentric

By Rory Bosman, Executive for Sales & Marketing at Ecentric

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