Market Opportunity
According to the United States Census Bureau, the world’s population currently exceeds 6.6 billion people. Yet of this total, over four billion people earn less than the purchasing parity equivalent of two dollars per day. In general, these people either have no bank account (are un-banked) or have very limited access to banking services (are under-banked).
This situation arises when banking fees are too high relative to income, a bank account provides little meaningful benefit or there is insufficient infrastructure to provide banking services economically in the individual’s geographical market. These individuals generally receive wages, welfare benefits or loans in the form of cash and conduct commercial transactions, including buying food and clothing, in cash.
The use of cash presents significant problems:
- Individuals have no secure means of protecting their cash other than by converting it immediately into goods, carrying it with them or hiding it.
- When individuals do have access to bank accounts, the typical deposit, withdrawal and account fees meaningfully reduce income available to meet basic needs.
- For government agencies and employers that use cash to pay welfare benefits and wages there is a significant expense incurred by the logistics of obtaining that cash, moving it to distribution points and protecting it from theft.
An individual’s use of cash or lack of access to a bank account can dramatically increase the cost of engaging in basic financial transactions and in some cases completely prevents it. These basic transactions include the routine payment of insurance premiums, the transfer of money to relatives and the use of credit. It is difficult for an individual to obtain a loan on attractive terms without a bank account since there is no credit history and the individual usually cannot present a reliable means of repayment to the lender.
In addition to the high cost of maintaining a bank account relative to income level, customers must generally have basic literacy, administrative and record-keeping abilities and a minimum income level. Also, having a bank account does not eliminate the need for significant quantities of cash in many instances since customers are compelled to withdraw large sums at once to avoid incremental transaction fees.
For governments, assistance programs reliant on the use of cash face considerable challenges. In addition to the costs and difficulties associated with using cash, corruption becomes an even bigger problem since there is no clear audit trail. The absence of an electronic system for the distribution of goods such as food, medicine and welfare benefits presents a major obstacle to ensuring the fair and reliable implementation of government policy or deployment of foreign aid.
Traditional payment systems offered by the major banking institutions do not address the key requirements of un-banked and under-banked populations, as these banks operate through online transaction settlement systems that are often unavailable or too costly to implement in undeveloped areas.