Over the next 15 years, digital banking will give over 2 billion people an unprecedented level of control over their financial assets, according to the Gates Foundation. The key to this access will be mobile phones.
In its annual letter published Thursday, the Bill and Melinda Gates Foundation outlined its goals for the next 15 years, one of which is to help the poor transform their lives by giving them access to mobile banking.
The letter states that roughly 25 billion adults in the world do not currently have a bank account, which prevents them from effectively using what little assets they have.
The lack of access to efficient financial services means many poor people often waste valuable time and money delivering cash to family members by hand or paying high interest rates to unregulated moneylenders. Instead of storing their assets in banks, they hide their cash under the mattress where it only loses value over time.
The Gates Foundation predicts that by 2030, the 2 billion people who don’t have a bank account will be making payments and purchases with their phones. They will also use their phones to store money with mobile money providers that will provide them with a full range of financial services — from loans to interest-bearing savings accounts.
It doesn’t make financial sense to build a bank branch in a remote village because the poor only save and borrow in small amounts. But as the letter points out, the marginal cost of producing a digital transaction is near zero, and over 70% of adults in developing countries own mobile phones — this means mobile banking companies would receive small commissions of millions of transactions at a negligible cost to them. In this way, mobile banking companies would profit from providing their services to even the poorest individuals.
The letter cites a Bangladeshi mobile money provider called bKash, which processes roughly 2 million transactions per day adding up to a value of nearly $US1 billion each month. Access to bKash is still unequal, however: 76% of men in Bangladesh have a phone versus only 46% of women.
This problem of disproportionate access is only one challenge facing the mobile banking industry. Others include government regulation, which in many countries limits digital banking, and a lack of locations where people can turn their digital money into cash and vice versa. Still, the Gates Foundation remains optimistic about the number of entrepreneurs worldwide who are devoting themselves to digital financial innovation.
The letter also outlined the Foundation’s other goals for 2030, which included totally eradicating diseases such as Polio and Guinea worm and drastically reducing the rate of child mortality worldwide.