Fighting Poverty Profitably: Transforming the economics of payments to build sustainable, inclusive financial systems., (.pdf) prepared by the Gates Foundation and McKinsey & Company, provides an extensive analysis of the economics of payment systems around the world and concludes that costs associated with operating these systems could be slashed by as much as 90% simply by going digital. Plus, these systems can be made more efficient, sustainable and accessible to the poor, while also boosting revenues for financial services providers, the report states.
There are 2.5 billion people in the world who live on less than $2.50 a month; and only 16% of these people have access to formal bank accounts.
"Poor families have incredibly complex financial lives, but the tools available to them to manage their finances don't match up," said Roger Voorhies, Director of the Foundation's Financial Services for the Poor program. "People need affordable, efficient and secure ways to send and receive money, and this report shows how this can be achieved, especially through digital transactions that can reduce costs by up to 90%."
The report draws on lessons learned in developed countries (like the U.S.) that highlight how digital payments are cheaper, more efficient and ultimately more sustainable, and they create potential new revenue opportunities for banks and other financial services providers.
Here are some key findings highlighted in Fighting Poverty Profitably: Transforming the economics of payments to build sustainable, inclusive financial systems:
- Digital payment systems offer the highest potential for financial inclusion. The are more efficient and can reduce transaction costs by up to 90%, plus offer more opportunities for revenues from additional products and services.
- There are no perfect systems - payment systems in all countries have the potential to lower costs and broaden access.
- Models where fees are based on customer activity are best suited for sustainable access.
- Innovations hold increasing potential for improving payment systems as new technologies, revenue sources and models emerge.
- The highest levels of financial inclusion are in countries where access to digital payments is widespread. In those countries where at least 70% of people pay digitally, financial inclusion exceeds 85%.
- To foster financial inclusion, regulation should focus more on systemic issues and less on individual financial institutions.