Small businesses and AI: Accelerating innovation and inclusion

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A series of papers by Mastercard’s Global Prepaid team highlights various pathways for building robust, commercially viable approaches to digital financial inclusion.&nbsp;Private-sector companies, with their vast networks, innovation capabilities and reach, are well-positioned to help bring millions of unbanked or underserved consumers into the digital economy."Our goal is to develop and deepen digital liquidity throughout the payments ecosystem. [This] means making it easier for people to access a digital account, use it to transact and keep or grow their balance over time.”Establishing a critical mass for digital paymentsThe potential for digital growth is largely untapped, particularly in sub-Saharan Africa and South Asia. Globally, 37 percent of person-to-merchant payments are digital. In sub-Saharan Africa and South Asia, this percentage drops to 14 to 16 percent. Addressing these opportunities can unlock the spending potential of financially underserved populations, who collectively spend&nbsp;more than $5 trillion&nbsp;per year.

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As we show in a recent white paper, the potential for digital growth lies with connecting suppliers and merchants who touch consumers, employees and entrepreneurs who are under or unbanked on a daily basis.At Mastercard, our goal is to develop and deepen digital liquidity throughout the payments ecosystem. Building digital liquidity means making it easier for people to access a digital account, use it to transact and keep or grow their balance over time. But this development and deepening often doesn’t come effortlessly or all at once. To build digital liquidity in a balanced and inclusive way, we need to develop a full 360-degree view of how consumers receive and make payments.From our perspective, there are three areas of focus for driving digital liquidity:<ul><li>Payment Inflows.&nbsp;How consumers and businesses receive money—either in the form of wages or social subsidies from the government, or payments from customers.</li><li>Payment Outflows.&nbsp;How consumers and businesses spend money—at retailers, on transport and basic services, and in payments to suppliers and employees.&nbsp;&nbsp;</li><li>Value Chain Payments.&nbsp;How consumers and businesses participate in value chains.</li></ul>New opportunities in different sectorsThese opportunities offer benefits for society, but also for business. In a&nbsp;<a href="https://www.mastercardcenter.org/content/dam/public/mc-cig/uploads/Role-for-Last-Mile-Partners-in-BOP-Payments-final.pdf" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">recent report</a>&nbsp;on the role of last mile partners, we highlight various sectors where these opportunities are largely untapped and where global companies can leverage their networks to help bring consumers into the digital economy.

Many merchants and suppliers are already realizing the value of digital transactions: Payments are easier and real-time data makes for better business decisions. Moving away from cash yields greater efficiencies and enables expansion to new markets.Contract manufacturing.&nbsp;Digitizing payrolls for garment industry workers has shown great promise in reducing inefficiencies. In Bangladesh, for example, 90 percent of salaries paid by businesses are still distributed in cash. But garment factories that shift to digital payroll experience a 53 percent savings in staff time for the teams that count and disburse wages, according to data collected by the Business for Social Responsibility (BSR) HERfinance programs. And moving to digital payments increases access to savings accounts for factory workers from 28 percent to 43 percent. That’s why Mastercard and BSR&nbsp;<a href="https://www.mastercardcenter.org/insights/helping-garment-workers-get-paid-more-reliably-and-safely" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">are now partnering</a>&nbsp;with several major global brands, including&nbsp;<a href="https://www.mastercardcenter.org/press-releases/mastercard-partners-with-levis-strauss-co" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">Levi’s, VF Corporation and Marks &amp; Spencer</a>&nbsp;to help improve garment workers’ financial empowerment and accelerate the transition to digital wages in Bangladesh.Mass transit.&nbsp;&nbsp;As urbanization intensifies around the world, mass transportation systems are struggling to accommodate the ticketing needs of a growing number of commuters. In Bogota, Colombia, millions of people rely on the city’s public transportation system to travel throughout the city every day.&nbsp;In 2015, Mastercard collaborated with the city of Bogota to&nbsp;<a href="https://urldefense.proofpoint.com/v2/url?u=https-3A__www.mastercard.us_content_dam_mccom_en-2Dus_documents_DualPurposeSITPBogotaCaseStudy.pdf&amp;d=DwMF-g&amp;c=uc5ZRXl8dGLM1RMQwf7xTCjRqXF0jmCF6SP0bDlmMmY&amp;r=-50kz9vEr_-mQiMDOCXyy7dGXOMneqQXYndsUh8mwl0&amp;m=VHUDQTzS8okzh50rTMg6g3jPHAMflJg-QNO5h0733q8&amp;s=la0YRf8VKD-3O1k4mK04kEdziwZVRI-iMJgTI9Dh-0I&amp;e=" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">develop a hybrid payment card</a>&nbsp;that could be used in the transit system as well as any other point-of-sale. The card simplified ticket purchasing and dramatically decreased commuter wait times. Following its success, a number of other Colombian cities have adopted the solution. Today, some 3.5 million transit transactions occur monthly with the hybrid payment card. In Colombia, nearly 45% of people do not have access to a bank account or any financial product, excluding them from participating in the digital economy. The hybrid card has the added advantage of providing some unbanked Colombians with their first formal financial tool, which can help unlock economic opportunities.<iframe class="ql-video" frameborder="0" allowfullscreen="true" src="https://www.youtube-nocookie.com/embed/v8yF3-IWbJY?si=7KUUmCqByeYz4u6v" height="315" width="560"></iframe>Fast-moving consumer goods.&nbsp;&nbsp;<a href="https://newsroom.mastercard.com/documents/report-building-electronic-payment-acceptance-at-the-base-of-the-pyramid-to-advance-financial-inclusion/" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">Digital payments</a>&nbsp;also provide access to new markets and new revenue sources for merchants. The Jaza Duka partnership&nbsp;<a href="https://www.mastercardcenter.org/insights/mastercard-unilever-ceos-can-help-microbusinesses-grow" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">between Mastercard and Unilever</a>&nbsp;is one great example. By digitizing information from suppliers and local distributors, we can analyze merchants’ purchase history, and transform it into a proxy for credit. Together with Unilever, we created a safe digital platform for merchants to access and use low-risk micro-credit, which is underwritten by a local bank. Participating merchants saw sales grow&nbsp;<a href="https://www.betterthancash.org/tools-research/reports/the-future-of-supply-chains-why-companies-are-digitizing-payments" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">20 percent</a>&nbsp;on average in the first six months after gaining access to the loans. Furthermore, Mastercard has developed the&nbsp;<a href="https://newsroom.mastercard.com/press-releases/mastercard-launches-kionect-for-nairobis-smallest-shopkeepers/" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">Kionect solution</a>&nbsp;- a digital ordering system that empowers small kiosk owners to order and pay for products from wholesalers via SMS - to broaden its efforts with fast-moving consumer goods.Energy access.&nbsp;&nbsp;The revolution we are witnessing in energy access, especially with the introduction of pay-as-you-go (PAYG) providers, will not be possible to scale without the incorporation of digital payments. The combination of solar technology, the internet of things (IoT) and digital payments has produced a new business model capable of reaching millions of new consumers who were previously off the grid. Mastercard formed a&nbsp;<a href="https://newsroom.mastercard.com/press-releases/mastercard-m-kopa-solar-partner-light-homes-businesses-africa/" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">partnership with M-KOPA</a>, a PAYG provider operating in East Africa, to provide an open and interoperable solution that allows customers to make payments through the use of QR codes and their mobile phones. Furthermore, we believe that&nbsp;<a href="https://newsroom.mastercard.com/2018/05/22/extending-access-to-necessities-with-pay-as-you-go/" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">energy access is only the beginning</a>&nbsp;of applications for the PAYG business model, which has the potential to bring valuable products and services to entirely new markets, leveraging the data captured through consistent digital transactions.Agriculture.&nbsp;&nbsp;Finally, food and beverage companies that source agricultural products are another high-opportunity sector. Digital payments make doing business for the smallholder-farmer safer and more efficient. The farmer no longer has to hold large amounts of cash during harvest, for example. And doing business digitally means fewer farmers must travel long distances to markets. For agribusinesses, having more digital payments means more real-time data on transactions up and down the chain, which can inform better business decisions. Digitizing transactions between the agribusiness and a farmer also creates a “data footprint” that allows greater supply chain visibility. Mastercard is working directly with agricultural firms such as&nbsp;<a href="https://preview.mastercard.com/content/mccom/en-us/about-mastercard/corp-responsibility/financial-inclusion/micro-business.html" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">Neumann Kaffee Gruppe</a>&nbsp;to digitize supply chains.&nbsp;Through our&nbsp;<a href="https://www.mastercard.us/en-us/about-mastercard/corp-responsibility/social-sustainability/the-mastercard-labs-for-financial-inclusion.html" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">Mastercard Farmer Network</a>&nbsp;we work with other partners, such as&nbsp;<a href="https://newsroom.mastercard.com/press-releases/mastercard-and-rabobank-join-to-bring-financial-inclusion-tools-to-1-million-farmers-2/" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">Rabobank</a>&nbsp;and the&nbsp;<a href="https://newsroom.mastercard.com/mea/press-releases/mastercard-partners-with-usadf-and-ciat-to-open-up-new-opportunities-for-smallholder-farmers-across-africa/" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">Center for Tropical Agriculture</a>, to improve farmer’s access to markets, increase price transparency and digitize payments.&nbsp;&nbsp;A win-win for allWhile these industries have not traditionally been considered drivers of financial inclusion, they have a vested interest in and stand to benefit from greater financial inclusion and digitization of payment ecosystems. It is abundantly clear: we cannot make progress toward sustainable change without collaboration with “last mile” partners who also believe in the power of financial inclusion and digitization to lift people out of poverty. Furthermore, “last mile” stakeholders who join this effort will reap benefits to their business while also helping more people benefit from being a part of the financial mainstream.By engaging with a broad and diverse group of strategic “last mile” partners as described here we can tackle the challenge of viable financial inclusion. These partnerships have brought us closer to our commitment to bringing 500 million people into the financial system by the end of 2020. Now on the cusp on that goal, the company has set its sights beyond. Attention has turned to re-imagining what it means to achieve inclusive growth for people, communities and economies around the world.<a href="https://preview.mastercard.com/content/mccom/en-us/about-mastercard/corp-responsibility/financial-inclusion/micro-business.html" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">Learn more</a>&nbsp;about Mastercard initiatives to support underserved microbusinesses.This article has been updated since it was originally published.

How five key industries can help advance digital financial inclusion of consumers, employees and entrepreneurs in developing economies.

Over the last decade, the world has made tremendous progress in expanding access to financial products and services for underserved communities. The 2017 Global Findex database shows that 1.2 billion adults have obtained a bank account since 2011, including 515 million since 2014. Access alone, however, is not enough to achieve meaningful financial health. One-fourth of financial accounts opened in developing countries are dormant. Some account holders, as a recent study in Mexico showed, simply convert the digital payment to cash. Clearly more work is needed to ensure that the base of the pyramid (BOP) users can join, participate and benefit from growing <a href="https://newsroom.mastercard.com/wp-content/uploads/2019/02/The-Next-Frontier-in-Financial-Inclusion_Access-to-Usage-Final.pdf" target="_blank">digital economies</a>.

Reaching the digital economy's last mile