Financial inclusion, the digital divide and other thoughts on the future of money | Ajay Banga

Transcriber: Ivana Korom Reviewer: Joanna Pietrulewicz Whitney Pennington Rodgers: Ajay Banga, thank you so much for being with us today. I feel like this conversation is especially meaningful as we're wading through this pandemic, it's late 2020, and we've seen the way that inequalities have presented themselves throughout this year, through this crisis. And since you've been at the helm of Mastercard, you have championed this idea of financial inclusion.

And so, could you start by telling us a little bit about financial inclusion, what is it and why do you think this is something that can change people's lives? Ajay Banga: Yes, look, I think that the COVID-19 crisis has actually made things worse in some ways and some of the advances that were being made over the prior decade on fighting poverty and fighting exclusion have probably got set back a little bit, just by the nature of the manner in which the virus has impacted minorities and disadvantaged people more than they have others, including, by the way, minority-owned businesses, a number of whom have had disproportionate impact through the crisis. But I guess if you pull back from the crisis, because financial inclusion or exclusion is an underlying social problem that dates back to well before this. The real issue, here's the theory of the case. Of seven billion people in the world, close to two billion are either underbanked or unbanked in some way. And what I mean by underbanked or unbanked -- unbanked is obvious, they don't have a relationship with a banking institution of any type. Now, underbanked is, even if they do, they're not getting to participate in the financial mainstream and do things that you and I take for granted, which means being able to access credit when you need it, at a reasonable price, being able to access insurance of the type that's relevant to you, being able to do things of that nature, save for a rainy day in the right way. All that done in a form that's good for you as the consumer. That's underbanked. And so, a couple of billion people around the world, this is World Bank statistics, are basically unbanked or underbanked, and most of those people do not have a formal identity that they had received or got from their government and therefore, there's nothing they can take and hold out to show when they go to hire a car or live in a hotel or take a flight, which they don't do, to show that they exist in the system. Their opinions don't count, they don't get counted in censuses very often, they don't get counted for their opinion of what government should be doing, they get left out, they're locked out. And the last part of that puzzle is that this is too big an issue, over the years, for just a government to solve, or for just one bank to solve in a country. It does require, kind of, a bunch of shoulders at the wheel to come together, it requires partnerships across the public and the private sector, but even within the private sector, to get to make a real movement on this issue. WPR: So if I'm understanding correctly, it sounds like it's just an opportunity for people no matter where you are, what your socioeconomic status is, that you have access to financial services, that you are part of the system and you have a place, a financial identity. AB: You have identity, you have a voice, you have access to financial services. So financial inclusion has got so many facets, but the basic facet is be counted, be included, be somebody, have the dignity of your identity, and of being included. That's really what financial inclusion is. WPR: It seems like such a simple idea, that can potentially have a big impact, and I know that this is something that you've implemented in your work at Mastercard, but also we see this in many other organizations, so talk a little bit about what does financial inclusion look like in practice

for a range of different organizations and a range of different spaces. AB: First of all, you're absolutely correct, there are lots of people participating in trying to change this. And honestly, without that, we wouldn't get anywhere. We're doing our bit, but what we're doing is really in partnership with others, because we're not a direct-to-consumer company. There's nothing I can do to improve your life directly in terms of being included because I don't open bank accounts, I don't give credit, I don't underwrite insurance and I don't have a way to provide you ways to save money in a mutual fund or anything. For me to do anything, I need to have banks, I need to have fintechs, I need to have mobile phone companies, I need to have governments, I probably need to have merchants and that ecosystem of the coalition of the willing is kind of what you will see represented when different companies talk about their role in financial inclusion. Let me give you a couple of tangible examples. So if you're a farmer and you've got to go to sell your produce when it's harvested, you've got to go two days' way to the nearest village market, well then, everybody knows that on the way back you're carrying cash from the produce you sold. That normally leads to bad outcomes. Also, you've got to go buy fertilizer. Or you've got to go back and forth to do all this and you're really unproductive, or you send your spouse to do it. All that changes if I can connect you with a phone into farmers, fertilizers and cooperatives, give you cropping information, rainfall information, enable you to sell your produce in a better marketplace, online, receive the money into an account online, that is a complete game changer. Something again that farmer's cooperatives, local governments, banks and companies like ours can help facilitate, in Africa, we're doing it in India, we're doing it in a bunch of countries around the world. Again, the idea here is to take you out of the cash economy and give you access to an electronic economy. Imagine that same farmer, they now receive money for their produce, a bank can look at how they spend money out of their account, and could, using the spending and receiving of money, underwrite you much better for a crop loan than they could if they didn't know anything about you. So the same example, another one, is for small and microbusinesses. Take a woman in Kenya or in India or in Mexico in a village who opens a small shop outside her home when her husband and children are away. And it runs for a few hours in a day, and she stocks a little baby food, and soap and toilet paper and whatever else people buy there. Well when the company van comes, the Nestle van, the Unilever van, the local Bimbo Bread van, comes to sell produce to her on a Monday or a Tuesday or a Wednesday at a certain time, she buys what she can in cash. Typically, she's in the cash economy, nobody’s given her credit, she runs out of cash for that produce that she's buying before the week is over. She's out of stock. She loses sales. Imagine if she could then be underwritten, digitizing that supply chain, what she bought, what she sold, underwrite her in a bank with actual transaction history, you could lend her the 500 dollars to enable her to be smarter about what she buys, educate her on how to use her credit, that's financial inclusion. WPR: And so one thing that's really struck me as you're talking through what financial inclusion looks like and how it works, is the dependency on technology, on smartphones, on internet access, and we know that this is something that a lot of people struggle to have access to this in developing nations, even in developed countries. Talk a little bit about how this might in some ways increase the digital divide

and sort of, how you respond to people who might criticize this idea in that way. AB: There are two topics you just came across, the digital divide, which I think is a real issue. But just to be clear, all the examples I gave you, they work on smartphones and they work on old flip phones as well. That QR code, if you have a camera on your smartphone, you can take it, but there's a numerical number there, you could enter that number into your finger phone and get it across as well. Examples like that in Egypt, where we've opened mobile wallets on phones, they don't have to be on a smartphone, it could be on an old phone. So to be clear, these financial inclusion examples do not depend on smartphones, they do not depend on just internet access in your house, you do need a phone, a cell phone, in a number of the examples I gave you. But in the case of the micro and small credit enterprises, you don't even need a phone. That actually is just the transaction history of the produce you bought and what you sold getting digitized and a bank being able to underwrite. There are other problems of infrastructure in those that we can talk about. But to be specific about the digital divide, I think that's another real big issue and again, COVID-19 has actually, unfortunately, exposed what was already sort of an issue in society. So whether it's rural parts of America, let alone an African or Indian or Indonesian or Guatemalan example, in America, in rural parts of America, broadband access is a problem. Disadvantaged children in New York City, who may not have access to the same bandwidth capacity or computers that they need to be able to participate in education, that's a problem. And so, that's a separate issue, Whitney, from the issue of some of the examples I gave you, which I think can actually be operated equally well with old-fashioned phones. WPR: It seems like a precursor to this is in talking about these partnerships with governments, perhaps, is making sure people do have even access to a flip phone or some sort of way that they can communicate so they can participate in these initiatives. AB: So I think a phone is transformational and the fact is that there are many people in the world with a phone, but there's still a billion people who do not have the right kind of phone or internet access. That's a different topic. So that said, you've got to find ways to reach them too. You can't only do it by phone. So the example of those micro SMEs I was talking about, they've got nothing to do with a phone. Or for example, in South Africa, with the social security administration where the government gives them a certain amount of money every year for their being not employed, you can actually reach them through a biometric card, which is what we've done, with the government, the government collects your identity, your biometrics on a card, and we can load the card remotely with the amount they want to transfer, take out the middleman in the process, and allow that person to then use that card to go to an ATM to take out their cash, or go straight to a shop to shop. And I think that changes everything. So we've done that in many countries. And so if you go to where Syrian refugees were coming in to Lebanon and Greece and the like, every aid agency there would require them to have an identity with them to get access to whatever form of aid they were dispersing. One of the things we're doing is to convert that into a very simple biometric-enabled identity which will be read across aid agencies, so you or I don't need to get our identity verified separately each time. There is a statistic in the world that 40 percent of the dollars that governments want to spend to reach their citizenry for social benefit programs never reach them. They are called leakage. Leakage means administrative costs and I call it theft. Because it's 40 less cents on a dollar for the person who cannot afford even one cent less. That's the issue. That's what we're trying to solve for. Take out middlemen, use technology to help, enable a direct government to citizenry operation, allow banks and NGOs and foreign companies to intervene in the right way, as in the example of this refugee crisis. The World Food Programme distributes food in those very refugee camps. And we actually help them to take the food, they would buy grain somewhere and ship it across, and lose some of it along the way, we put the dollar value on a card, the card can only be used by the refugee in a shop that the World Food Programme certifies. So it cannot be used for anything other than what the World Food Programme wants it used for, which is grain and food and vegetables and fruit and milk. And that enables the World Food Programme to save money on leakage. What I'm trying to tell you is it's not about technology, it's about using what you have and using the technology you do possess and applying that in a smart, commercially sustainable way to real world problems. If you have good technology as well, well let's do it even better. But let's not use technology as the excuse to not do it. WPR: OK. It makes a lot of sense now. It seems like underlying all of this is this move towards a cashless society. This move to sort of create this way for people to exchange money without the need for cash. I'm curious to hear from you a little bit about what does that actually look like, you know, a society without cash. What are some of the challenges that is presents? AB: Yeah, I think cashless, actually, is something we are not going to get to, and we probably shouldn't. Because just as we have a digital divide, do you really want a world where people who rely on cash because it makes them comfortable, I'm not talking about illegal transactions, I'm talking about somebody who just wants to deal in cash, they may be older and uncomfortable with today's technology. My dad, when he was alive, you know, he never wanted to use a card. He always wanted to use a cash and check. And this is my father, when I worked in banking and was by then the CEO of Mastercard, and he would look at me very indulgently and say, "Son, now I have a Mastercard because of you, but could you please go away" kind of thing. And I understand that. And I think you've got to deal with therefore "cashless," in inverted commas. Reducing cash in the economy is to me a good objective. Taking it to zero? I'm not there. Why do I say it's a good objective to reduce it? Because cash actually is the friend of the person who has something to hide. If you want to not pay your full taxes, or you want to do something with the cash which is not quite kosher, well guess what, here's your chance. But if you're electronic, you are transparent. Electronic forms of money benefits and transfers in utilization, create transparency in an economy. Poorer people, they don't have access to cash, and therefore, they don't indulge any of this. But even other than that, even other than all this, there is a cost of cash in society which many people have computed, central banks, universities, somewhere between one to two percent of GDP is the cost of printing, securing, distributing and using that cash. One to two percent of GDP. I'm certain there are efficient uses of that GDP that we could put into play by reducing the role of cash relatively in the economy. In the process, you take out these middlemen who are in positions of power when social benefits are distributed, when refugees are met. That's what I'm talking about. That to me is a good thing. Transparent, better tax realizations, lower money laundering, that kind of stuff I'm all for, and I've been talking about that for years. But zero cash, I'm not there. WPR: And do you think there is a point where you do get there, or we get there as a society, where that does feel possible? AB: We could. I mean, if you took countries in the Nordics, take Sweden. Sweden, South Korea, these are at the cutting edge of having reduced cash in their economies. In Sweden, essentially everybody uses electronic forms of payments, either a card or app on their phone that they can swish through or things of that nature, consumer payments I'm talking about. Even public toilets on the street in Sweden you can pay by on your phone entering a code, which comes back to you, having deducted that money from your account. You enter the code on a pin pad and I call that tap and go, you go into the public toilet with that tap. That's how far it's advanced in Sweden. So cash is very low there. But even they are having a regular, continuous public conversation about not disadvantaging those parts of Sweden who still want to deal in cash. You've got to be careful, because remember how does cash reach distributed points in a country? Through banks, through ATMs. If those become unprofitable to run and people start closing the ATMs down, that's a problem in itself. So you have to enable cash back in retailers in some way, so that you could still go and get cash from a distribution system. Maybe not an ATM, but a retailer. There are some ways to do this well, but you've got to be conscious of it. You know, we haven't reached it yet, but we could. We haven't reached it yet. WPR: Of course, when you think about this, about moving to a cashless society or at least having that as the goal, that creates this concern around data and privacy and you've said in the past that there's really an importance behind putting consumers in control of their own data and their own privacy. How is that something that we can actually achieve, what does it look like to do that? AB: Whitney, it's a terrific question. I actually believe that it's at the core of a lot to do with the next 10, 20 years of technology, the internet of things, 5G, data, this is all coming together at warp speed, right? If you think about the number of devices that are going to be connected over the next five, ten years, and what 5G could do to moving intelligent computing to the edge right near you, this is going to generate enormous amounts of data. From your fridge, from your car, from you walking around, from your connected glasses, from your watch already, all that. From your shoes if you're a runner. So you've got to get to a stage where we take a responsibility of how your data is used and interpreted. And so, Mastercard, we with a bunch of companies, we have laid out a set of data principles. The first one is exactly what you said. It's your data, you should control it. Meaning you should know what's being collected, you should be able to say, "I don't want that to be collected," in simple language, not in a 12-page legal agreement that you cannot comprehend. And you should be able to benefit from that data of yours that is used, either directly, or indirectly in some way that you comprehend. And if I as a company am collecting your data to enable me to do business with you, I should collect the minimum amount I need to do my job with you and I should keep whatever I collect safe for you, and allow it to be deducted or removed when you want it. These are not complicated things. Your data, you're in control, you should be able to delete it when you want, you should know what's being collected. If I do anything with you, collect the minimum, keep it safe. Consumers will vote with their feet on this topic. As they get more knowledgeable, as they get more educated, and that's the right thing to do, they need to say, "I don't want you to use my data for the following things. I want to know what it's being used for." Putting consumer back in control of their data is going to be mission critical in the data-driven economy of the next 10, 20 years. WPR: Thank you so much, Ajay, this was a great conversation and we appreciate you being with us today. AB: Thanks a lot, see you again. Good luck.