E-wallets: Banking The Unbanked

Making money is often not an end to itself but a means to a good life, for one or both parties involved. The emotions governing remittances, very well hinge on this philosophy.

Amidst the many challenges posed by the pandemic, cross-border payments have emerged as a vital tool for expats to ensure security for their families. Payment providers and governments across the world have taken due note of this, as is being witnessed by the various innovations that would otherwise have taken years to enter public imagination.

The unbanked and the underserved though, have not had it easy. The idea of financial inclusion rests on enabling easier access to financial services and sound financial health for everyone; including the world’s two billion unbanked people, of which nearly a billion are women.

Considering that women are responsible for nearly half of the global remittance volumes, the prolonged impact of the pandemic has brought to light the loss of economic opportunities and financial wellbeing that not just them, but other vulnerable and unbanked sections of society have to live with.

Digital wallets or e-wallets have gained prominence in this regard. In 2020 alone, total spend via digital wallets topped US$5.5 trillion, and this is expected to cross $10 trillion by 2024. It has been a boon for working women in several low-income countries, with reports revealing that 85% of women in East Africa receive their income on such e-wallets and related digital payment systems.

The technology has been around for long. But what worked wonders for e-wallets globally in 2020 was the growing demand for remote, digitally operable solutions to service peer-to-peer (P2P) payments.

The UAE’s e-wallet market, although nascent, is expected to grow at 24% year-on-year. During much of 2020 and even now, its advantage as a simple and reliable P2P money transfer tool has been a boon for the many online entrepreneurs in the country. It helps that several e-wallet providers have entered the space in recent months.

The start has been good, but e-wallets can do so much more, especially when it comes to serving the financially underserved.

Consider this. The MENA region, especially the UAE, is a melting pot of expatriates; a considerable share of whom are women. People working in households and other low-income jobs do not have a bank account. Since they do not come under the ambit of a registered company, they cannot be enrolled under the country’s Wage Protection Scheme either. In short, they have little to no means to send money home through present organized payment channels, in the event of restricted outdoor movement.

Operating bank accounts for low-income populations may not seem economically feasible for financial institutions such as banks, but like in all other things, usage follows value creation. Discounting the losses to the economy, not bringing this working population under the ambit of a formal banking channel, makes us lose hold of the possibilities of product and service innovations that arise when companies build for all tiers of society.

Countries like China and India are prime examples of how getting low-income populations into formal banking systems can reap rich dividends for the overall wellbeing of society.

E-wallets in this regard may well be the ticket that accelerates the UAE’s pursuit of holistic financial inclusion. Traditionally, e-wallets are known to maintain customer stickiness by offerings rewards, incentives, and promotions. Beyond this, as a financial instrument, e-wallets are also easier to onboard customers and get them spending. Most importantly, they allow banking & non-banking financial institutions, including exchange houses, a starting point of communication with various businesses and potential consumers.

Getting the unbanked one step closer to the formal financial ecosystem has other advantages. It incentivizes localized spending among low-wage consumers, encouraging them to engage with local businesses more instead of remitting the bulk of their salaries. This will be rewarding for the local economy, and will eventually create a new set of consumers, hitherto dormant.

Several fintech startups have made use of the UAE’s digital ecosystem to cater to this untapped consumer base. While companies go about solving for this demographic, the final solution should also consider the behavior of the oft-neglected yet equally important, primary end of the user spectrum: the employer.

Employers, especially those hiring domestic workers and in other informal work sectors, do not fall under rigid corporate structures. Naturally, cash is preferred to conduct transactions, which in this case are monthly wages. For a fintech to enter this very personal space and enable effective peer-to-peer money transfer between the employer and employee, trust and not technology, will be the biggest challenge. Like all things new, value-led product positioning will be the key here as well.

The employer may be a reluctant and late adopter, but once the value in the equation is clear, they will more likely dictate the pace of e-wallet adoption among the unbanked workforce.

After all, in informal job sectors, the employer is ‘The Bank’ for the employee. And digitizing the employer first will be an ideal trigger towards establishing a financially inclusive ecosystem.

(as written for Gulf News, dated 8th March 2021)