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Matsvimbo Dida : Financial  Inclusion Matters

Yes and No! Promotion of plastic money to the unbanked is like inviting a toothless granny to eat bones! Promotion of use of plastic money only helps financial inclusion if the strategies involved results in new accounts being opened. Otherwise the promotion only helps bring convenience to those already with bank accounts. Internationally, the payment systems infrastructure is receiving a lot of attention, with Zimbabwe now blowing the trumpets of “plastic” money more than ever.Plastic money refers to the use of an ATM card, Mastercard, In-store card, credit card, or other cards for making payments for goods and services rather than using physical cash.

The advantages of using plastic money are quiet apparent, there would be no need for a customer to first go to the bank to queue for cash and then go queue for buying groceries etc. There would also be no need for one to move around with large sums of cash. That is provided there is an enabling infrastructure of POS (Point-Of-Sale) terminals on which to use cards.

The increase in use of plastic money and other forms of payments will redefine banking in Zimbabwe. Banking is a more complex developmental industry rather than being viewed as more of cash dispensers and enabling platforms should be established.

Ever since the cash challenges being experienced in the country, the banking sector has reportedly registered growth in new accounts. This implies that companies which were paying employees in cash are now finding it difficult as they are also receiving payments through plastic money and transfers.

In turn, employees who receive their salaries through transfers are turning to making purchases through swiping at POS machines. Such employees are now involuntarily “financially included”.

Regrettably, Zimbabwe has a high unemployment rate and such employees constitute a small fraction of the unbanked. When a country looks at the broad picture of financial inclusion, emphasis is on the unbanked majority who include unbanked SMEs in the informal sector who largely fail to open bank accounts due to lack of documentation among other issues.

Experts have always recommended that a drive for plastic money be coupled by a drive for adequate infrastructure so as to improve usage of the electronic cards. However, unless there are new accounts being opened, increased use of electronic cards does not translate to financial inclusion in as much as it does to mere customer convenience to the already banked public.

POS infrastructure sharing

In Zimbabwe, POS machines have normally been found in shops, mainly large retailers. This has always made usage of cash transactions very attractive because the other smaller shops, boutiques where fashion trends are always upto date accept only cash payments.

On the other hand, the banking sector has similar problems to those faced by mobile network operators when it comes to some issues of infrastructure sharing and interoperability. There is no economic reason why banks should crowd a small till operating space with POS machines instead of just having one. International experts have recommended that ideally the owner of such POS infrastructure should not be a bank, but just a switch company.

A switch company would allow customers from any bank to use the switch company’s POS machine while transactions are then sent to respective banks where customers’ accounts are held. However, in light of the competitive nature of the industry, this may call for a legal mandate or legislature.

An efficient and effective payment infrastructure constitutes the rails for efficient and cost-effective provision of financial services. Where a Government cannot run these systems, they can at least nurture them and set the general rules of operations or put legal mandates.

While the financial sector is promoting plastic money, use of electronic cards in particular, the industry must not lose sight of technological advancements which they may run after tomorrow if not today. Other countries have gone “cardless”. They are a step ahead and use such technology like NFC (Near-Field-Communication) which uses cellphone magnetic field technology.

No need to carry a plastic card. Considering that almost everyone always carries a cellphone, usage of cellphones in place of an ATM card is becoming the modern thing in other countries. This brings convenience as customers do not have to fill up their wallets with different sorts of cards.

Legal mandates and

financial inclusion

Strategies to promote use of plastic money may include legal mandates. The mandate entail the authorities stipulating what should be done. In South Africa and Germany, the mere threat of a legal mandate prohibiting commercial banks from refusing any customer the opportunity to open a bank account was sufficient to lead the banking industry, on its own accord, to offer basic accounts to everybody.

Some countries use quantitative financial inclusion targets or specific product offerings mandated by law as tools to promote the provision of financial services to underserved populations or geographic areas.

These financial inclusion mandates can be seen as a complement to other financial regulations and incentives. In countries which are building up payments infrastructure like Zimbabwe, international experts have recommended legal mandates coupled by incentives given to the industry players.

Basic or “no frills” bank accounts, designed for low-income clients with low or no fees, are another example of financial inclusion mandates;in some countries (including Belgium and France in the European Union, Indonesia, and Mexico) banks are required by law to offer basic accounts. In Zimbabwe, the use of such basic accounts coupled with a massive agent network is long overdue as it helps attract the unbanked. This would increase the use of plastic money.

While legal mandates may have their downside, they help in the exploring new markets and countering the complacency of financial institutions.

Researches have shown that where mandates are imposed, (if applied to all so that no individual provider’s competitive position is compromised),financial institutions will do their best to comply with the targets at the lowest cost and eventually may even be able to cover their costs. The ultimate decision whether to mandate financial inclusion in law depends on the specific context of a country

Please note that this article was written in private capacity of the writer and the views have nothing to do with any institution which the writer may be associated with. The writer is contactable on [email protected]