Op-Ed: How Zambia can enable financial inclusion using digital payments

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Over the years, Zambia has made significant ground when it comes to financial inclusion. According to the World Bank, levels of formal financial inclusion gradually increased from 23% of Zambian adults in 2009 to 38% in 2015.

Zambian government figures from 2019 show a further increase to around 60%. While such growth is impressive, there’s still ground to be made up.

The best way to do so is by focusing on digital merchant payments, which are key to financial inclusion.  Digital payments pave the way for consumers to make payments more conveniently and for merchants to receive payments, reduce cash, and enjoy the benefits of digital transparency with their banker.

That’s important, because it extends financial inclusion beyond the consumption economy into the productive one, so that small businesses are able to grow and create wealth.

The Zambian situation 

That’s particularly important in Zambia, where 54% of the population lives below the poverty line and 88% of people work in the informal sector.

Most of those jobs are driven by informal traders, artisans and producers who rely on cash. That’s understandable. Cash is trusted, easy to understand and is so culturally entrenched that it doesn’t require learning new behaviours.

But it’s also an impediment to growth and financial inclusion. That’s because it does not provide the digital transparency needed for an acquiring bank to understand a business and deepen a formal banking relationship.

That, in turn, prevents small business and those operating in the informal sector from having a more inclusionary role in the formal economy.

Mobile money is not enough 

Most of the efforts to replace cash in Zambia and other African economies have focused on mobile money. And, to a degree, there’s been success on that front.

According to the Bank of Zambia, mobile money payments in the country grew from K2.07 billion in 2015 to K49.45 billion in 2019. At the time, there were some 14-million mobile wallets in the country, about 4.9-million of which were active.

But mobile money has many of the same weaknesses as cash. Owing to the peer-to-peer nature of most mobile money payments, they cannot be associated with an acquiring bank and cannot be tracked. Bank charges and mobile network operator (MNO) fees are also a significant inhibitor.

Additionally, they’re unpredictable and cannot be used to deepen a financial relationship in the way a bank can with a merchant payment that is provided by one particular bank.

Often referred to as an acquiring bank, this bank processes payments on behalf of a merchant and is assured of the payment being remitted to the merchant’s account in the bank.

The power of digital payments

Digital payments need to bring strong positive externalities that far exceed the cash replacement benefit to be able to push back cash culture. It’s here that digital merchant payments truly come into their own.

They provide several benefits to the merchants who embrace them, but critically they enable the acquiring bank to extend financial inclusion beyond consumer ‘push’ payments into the productive economy, with digital transparency and a reliable inbound payment.

This helps by de-risking the business for the bank so that small businesses can be extended a wider range of financial services that are crucial to grow a business and create jobs and wealth. A merchant ‘pull’ payment is much more valuable than a simple cash replacement payment.

By having a formal relationship with an acquiring bank, small businesses open themselves up to financial services such as cash flow protection facilities, insurance, structured savings  and other merchant services like customer loyalty and voucher services that are meaningful and valuable to the merchant, adding tremendous value over and above low friction, low-cost payment acceptance.

The merchant isn’t the only party which benefits. Digital merchant payments on the account rails also offer financial institutions transparency that can actually increase the size of their addressable market.

Technology additionally reduces the transaction costs by disintermediating legacy costs and creates a data-rich relationship that turns a thin file client into a client business that is really bankable.

A more inclusive Zambia

Digital merchant payments are a gateway to more comprehensive and conclusive finance to support and stimulate the productive economy. That’s true for most economies but is especially so for Zambia.

By embracing digital merchant payments, Zambia can make further ground on the work it’s already done when it comes to financial inclusion. That in turn, will empower people, grow small business and bring the informal economy into formal finance to help lift millions of people out of poverty, and build a more prosperous country.

While some of those things may eventually happen on their own, digital payments are key to accelerating their development.

The writer is MD for Bluecode Africa

The Independent Observer

John Sakala is a Journalist yearning for independent journalism

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