MasterCard’s new study on Financial Inclusion

MasterCard released a new study today on Financial Inclusion that provide valuable insights and validation of discussions around “graduation strategies.”

While it takes a global perspective, it points out some strategies that could be relevant to your opportunities. For example, in a developed market like the U.S., every household pays around 15 bills per month or over 20 billion bills per year. Bill paying services is identified in the study as the second step in the financial inclusion hierarchy. The study suggests Bill Payment services has the potential to “Drive Electronification of Other Payment Categories.”

Here are some brief excerpts of the study:

“Instead of defining financial inclusion in terms of full access to financial products and services to serve one’s payments, investments/savings, borrowing and insurance needs, MasterCard examined whether financial inclusion could be considered a progression as part of an overall hierarchy of financial needs. This progression is one that would start with the most basic/foundational need of non-cash methods of bill payment and moving to more complex needs like non-cash methods for other purchases, borrowing, investments/savings and insurance.”

Alternative Definition of Financial Inclusion

A common definition of financial inclusion is having access to and leveraging financial products and services to serve one’s payments (beyond cash), investments /savings, borrowing and insurance needs.

· However, there are two challenges to this definition. The first is that it seems to imply that financial inclusion is a binary state that is achieved when all financial needs are met.

· While it is important to address all needs, this definition does not offer any flexibility in recognizing progress in financial inclusion as partial needs are met. The second challenge is that this definition does not provide any guidance as to the right path to financial inclusion.

· Therefore, this study thinks of financial inclusion as a progression and defines a hierarchy of needs, with higher levels of financial inclusion achieved as more needs are fulfilled. Illustration attached depicts this hierarchy, beginning with the most basic/foundational needs, such as a secure account for holding payment transaction funds and bill payment, and moving to more complex needs like borrowing and insurance.

Here’s a link to the study: http://insights.mastercard.com/wp-content/uploads/2012/09/a_new_perspective_on_bill_payment_a_demand-based_path_to_financial_inclusion.pdf