Cash: the enemy of financial inclusion

Cash: the enemy of financial inclusion

Cash: the enemy of financial inclusion

Micro merchants and SMEs are the backbones of the world economy. They are the world’s largest employers and process trillions of dollars a year in payments. However, even in markets where most consumers have cards, they are largely cash-dependent. This is impractical, inefficient, and comes at a high societal cost. Luckily it might be about to change…

The current pandemic has accelerated the world’s progress towards a fully digital economy. But while all goods and services that are bought and sold online are paid for using digital payment methods, a vast majority of transactions in the physical world are still cash-based.

Transaction in cash occurs either because the payer does not have a card or digital payment method, or because the vendor does not have the means to accept such payments, or both.

Payments: supply and demand

Assuming that any consumer who has cards or digital payment options prefers using these over cash, and assuming all merchants in that market accept cards, we would expect the majority of card transactions in that market to be correlated to the number of people that have cards. So far so good.

Now let us use the number of cards per capita in a market as a proxy for the number of people who have card payment as an option, and use this is as the “demand” side for paying by card. On the “supply” side we have the number of merchants able to accept digital/card payments. If we subsequently look at the percentage of transactions in cash, we can see how well the supply side is able to meet the demand.

In Sweden for example, the number of cards per capita is 2.21. Meaning that the average meatball-loving Swede has two cards or more digital payment options available at any given time. As you would expect the transaction in Sweden are mostly card-based (over 87% card to under 13% cash)

In Afghanistan by contrast, the number of cards per capita is 0.01, meaning only one in one hundred adults have a card. As a consequence, virtually 100% of transactions are in cash.

Cards per capita in Afghanistan

Although these two countries represent polar opposites on the supply/demand card-payment spectrum, both markets have demand/supply equilibrium. In Sweden a high demand for card payments = low cash transactions, and in Afghanistan a low demand for card payments = high cash transactions. Surprisingly, this is rare.

Most markets have a supply/demand gap. Croatia for example is a country where the average citizen has more cards payment options than the Swedes (2,6 cards per capita), 73% of transactions are in cash, and only 17% of transactions are digital or by card!

In fact, cash is still a more common form of payment than a card in most European countries, although card issuance rates are high, and the unbanked population is virtually 0.

In South Africa, (where the government has mandated that all salary payments be made via bank transfer in a laudable effort to increase financial inclusion) the supply-demand gap is even bigger. Despite the average citizen having 4 (FOUR!!!) cards payment options available, 96% of transactions are in cash..!

So why (mid-pandemic) are we still so cash-dependent? Because many vendors still don’t accept cards.

Why vendors still don’t accept card payments

To accept card payments, a merchant must apply to enroll in a scheme, go through a vetting process, fill in forms, and wait anywhere from 3 days to 2 weeks to get their card reader sent to them. The device requires set-up, integration, and maintenance. Not to mention that a new entry-level card reader costs in excess of 30 Euro per device, and often come with leasing/down-payment plans that make them even more expensive.

By contrast, accepting cash only requires a till and someone trustworthy to look after it. Cash is just easier.

The big retailers, chains, and conglomerates will take any form of payment: McDonalds, Carrefour, and the other major players will be happy to accept your bank card whether you are in Norway or Uruguay. For the big players, the small burden of getting card readers is easily outweighed by the benefit of higher revenue.

But for the local hair salon, kebab-shop or café, it is another story. Micro businesses are cost-sensitive, liquidity-focused, and operate on short cost/revenue cycles.

Sustaining the expenditure on hardware, overcoming the obstacles and technical complexities to enroll, and having to wait several days for a transaction to be available on their account, are barriers to entry. These are simply too high for many micro-merchants to overcome. This makes them more likely to just operate in cash, and less likely to have bank records or data necessary for access to credit.

This is a massive issue. SMEs and micro-merchants make up the backbone of the world economy. According to the World Trade Organization, small-and medium-sized enterprises (SMEs) represent over 90 percent of the business population, 60-70% of employment, and 55% of GDP in developed economies. Despite being such a big part of the economy, this segment is struggling to grow. According to the world bank, access to finance is the main constraint.

Small businesses are less likely to be able to obtain bank loans than large firms. As a consequence, they have to rely on internal funds. The International Finance Corporation (IFC) estimates that 65 million firms, or 40% of formal micro, small and medium enterprises in developing countries, have an unmet financing need of $5.2 trillion every year!

IFC research

It is imperative to improve SMEs’ access to finance and find innovative solutions to unlock sources of capital, not only to support these small businesses, but because this situation disproportionally affects the developing world, and women. Women-owned SMEs are hugely valuable contributors the society, not only do they foster increased gender equality, they also grow overall wealth in the economy. However, female entrepreneurs face a range of financial and non-financial challenges in realizing their growth potential, and are more likely than their male counterparts to cite access to finance as a major or severe constraint on their business operations. One of the biggest barriers for increased access to finance for women-owned enterprises is the lack of reliable data disaggregated by gender. The credit gap for formal women-owned SMEs across all regions is roughly $2872 billion, which is 30 percent of the total credit gap for SMEs.

I have previously written about e-wallets and the importance of credit access and financial inclusion, on an individual level, but this is equally important on a small-business level.

Access to financial services enables the poorest and most vulnerable in society to step out of poverty and reduces the inequality in society.

Small businesses and micro-merchants that operate in cash, will have difficulty getting access to credit, they will more likely remain liquidity squeezed, and they are less likely to succeed or scale.

Again, this is a serious concern for women-owned SMEs, where most of the financial and non-financial barriers affecting occur at the startup stage of the business life cycle.


How merchants will go digital

That is where we come in, having developed a solution that allows any merchant to accept contactless cards or any digital payments (Google Pay, Samsung Pay, and Apple pay, etc.) Instead of relying on hardware, we have a software-based point of sales system (SoftPOS), that transforms ordinary smartphones into a contactless payment point. The low cost and high worldwide penetration of smartphones mean any merchant with a phone can now download our app and have a card reader. This gives merchants a quick, barrier-free ability to accept card payments directly on their phones, without the cost or logistical challenges of hardware. Reducing their reliance on cash, increasing their revenue, and removing the operational hassles and risks associated with cash operations. It also simplifies credit agencies’ and banks’ ability to evaluate their creditworthiness and facilitates their access to loans!


SoftPOS is an awesome technology. For mature western markets, it gives merchants an opportunity to take payments more easily, to scale faster, and to reduce reliance on cash and invoicing, as they can accept payments on the go (electricians, plumbers, delivery drivers, etc.)

But for the emerging markets and the developing world, SoftPOS technology is a powerful enabler and gateway to increased financial inclusion and access to capital.

MeaPay is proud to deliver SoftPOS and work hard to push for the democratization of payments and increased financial inclusion.

Bring on the future, and let cash rest in peace.

Christoffer MeaPay

Learn more about us or join the team.

How to Disrupt the Financial Industry and Win the Fintech War

Fintalk episode #1. How to Disrupt the Financial Industry and Win the Fintech War

Are you part of the Fintech world?

Fintalk is a place where those in the financial technology industry can go to learn about the latest innovation, as well as how those in the alternative finance industry can become a leader in their field.


This show covers many topics that is of interest to fintech professionals. Topics covered include digital payments, future of banking, human resources, leadership skills, risk assessments, etc.

For more information on how to disrupt the financial industry, continue reading or watch the video.

Our guest is Jan E Ali Nabi, Senior Product Manager at SadaPay.

How to Disrupt the Financial Industry and Win the Fintech War


Welcome to Fintalk! Today is our very first episode of this webinar series about fintech, where we discuss business, product management, development, marketing, people management and generally the future of the fintech industry.

Today I am delighted to have, as our guest, our first guest ever – Jan E Ali Nabi. Welcome to the show Ali. 



Hey, Chris. Thanks for having me. It’s always a pleasure speaking to you. 



I’m delighted to see you again. Just in terms of introduction, Ali is currently the senior product manager at SadaPay and before that you were product manager in Careem, in the fintech division of Careem Pay. Is that right?



That is correct, I was in Careem as you mention, now I’m trying to revolutionize how money works in Pakistan with SadaPay



Tell us a little bit what are the SadaPay for the viewers and listeners who might not be fully familiar with SadaPay.  What is the product or value proposition you have to users?  



Sure, I’m thinking. I hope the listeners are all aware. I’m sure they are. There has been an explosion of fintech companies around the world. SadaPay one of them, but I think we’re leading the race in Pakistan. Basically what SadaPay does, we are a mobile wallet on our way to becoming a full-fledged financial institution. We are regulated by the State Bank of Pakistan. So we are well on their back. Right now what we are offer to our customers is a Fully functional account which you can use to make bank transfers and we also issue amazingly beautiful MasterCard . debit cards that you can use anywhere in the world. 



Amazing and beautiful. I like that! 

Basically you guys are helping to leapfrog digital payments in the Indian subcontinent where bank penetration has been relatively low and card penetration has been, been relatively low, right. So, is your target audience the already banked segments of the population or are you looking for people that have smartphones but not yet, into the fold of the banking industry.



So I think if you look at the demographics and some of the figures coming out of Pakistan,Pakistan has one of the highest cell phone penetration rate in the world. So, even people who aren’t traditionally illiterate. They have access to cell phones, they have access to internet.


Traditionally, the problem with banking in Pakistan has been that it’s been limited to branch reach the branch in your city in your region in your area, then you’re able to get a bank account. And these branches then require multiple documents that you’re required to submit. They that they’re required to be verified. So with SadaPay all you need to do is submit a picture of your ID card, and boom, you, you have an account, we don’t make you do all that extra work. So we make it convenient, and the idea is that yes, they will be able to increase the number of people per bank per people in Pakistan. 



So if we take that into a bit more general terms because SadaPay is a very specific business and the Pakistani market has its own peculiarities, but I think there’s some commonalities here that can be picked apart for for for all fintechs which is, you’re coming to the market with a new product, and I’d like to hear, sort of, because this is supposed to be a product talk since you’re a product guy on on where you put sort of first to market versus best to market, right? you guys are coming here into the market with a product that I’m assuming is not unique, other people might have something similar on the sort of importance of speed, launching fast with something that is quite possibly suboptimal, versus waiting until you have something better, and then trying to wrestle away that market share that those that came before you got. Where do you stand on speed versus, versus quality?



Yeah so there is one of my favourite quotes from, from a movie that you should either be first, you should either be the smartest, or you should cheat, if you want to win. Right. So obviously we’re not the first. And, obviously, because we’re a regulated institution, and because our morals don’t allow it, we don’t cheat.


So the key for us to win is to be the smartest and how we’re going to go about being smartest, is that, obviously, Of course the global debate between MVP and MLP a minimum viable product versus minimum lovable product.


I think where we fall is more on the minimum lovable product side. So we don’t want to give your customers something that’s necessarily functional but you know, doesn’t provide them anything that they can love. So what we want to do is pick up, use cases we want. We want to be really closely connected to our users find out what makes them tick and what makes them switch from traditional big banks that have full feature offering to a niche bank that can initially only cover a few, but we want to do it better than anybody out there, and that’s what we’re trying to do so if you look at our, our debit cards, I think the, the ones I mentioned being amazingly beautiful. That’s, that’s just one piece of us trying to do it better than everybody out there.



As the old saying goes, don’t make a product that 10,000 People will think is okay make a product or 100 people will love right?






But exactly something interesting there about cheating because the minimum viable product of the minimum lovable product, and yet the minimal compliant product. And then in FinTech it can be tempting sometimes to not take compliance.


Compliance can be a lot of things right, you can be bulletproof from a compliance if you’re sort of post IPO company where that’s massively important, or you can be a cowboy startup where you can take risks, and then sort of pay the price if and when you get get caught in terms of the importance of compliance it’s tempting to always of course compliance is is 100% Is the bedrock but if I ask you, honestly how important to put compliance in your sort of product roadmap and development.


Could you tell me a little bit about your thinking on prioritisation of compliance?



Well, weirdly enough, I think the first analogy that comes to my head about the relationship with compliance is sort of like your wife, because she has to know everything. In this situation, I mean, you are required to reveal everything that you do, especially in our case another base case, we’re required to reveal everything we do and report everything we do to the state bank. 


So that’s one. I mean, this is not about cheating, but I think you and I share a background in ride hailing and we saw how Uber came up and we saw  how we did it that cream right, it’s not always about being some band but it’s also about proving to the regulator that there is a market out there that needs a certain product or service or service in a certain way, and that you can make it work. Without the traditional way of doing it so I think, regulators, details are also aware that they also need to change. We’re lucky in that sense that in Pakistan, we have a very, very sort of helping regulator in the form of state bank so they’re actually willing to change a lot of these rules, and they’re helping us. And I think that’s the case in. Yeah.



That is an interesting sort of analogy and for the viewers and listeners that might know us personally. Yeah, we both Ali and I came up through Careem and subsequently Uber post acquisition and in the ride hailing industry, Uber and Careem both separately pursued the sort of easier to get the forgiveness than permission in entering new market strategy and were quite willing to go heads on with regulators and challenging, even to the point of quite bitter legal fights, but you see very little of that I feel in the FinTech industry compared to in some other tech industries where compliance and regulatory approvals, is something you don’t really mess with that much. Wait, what do you think that is?



Of course, I think the nature of the two industries is a little bit different. Of course the understand that transportation, moving things and people is a little bit different to moving money, the regulators are a lot more sensitive about this, this industry,


 and of course this industry has a longer history of being closely regulated, this industry, unfortunately also has a long history of financial institutions not doing their best to be compliant. 


Of course everybody remembers what happened in 2009. We’ve all seen the movie. So, of course, regulators are, are always a little bit overly cautious about, especially about FinTech because I think there was even recently there was this wild card case right. So, there are examples now that regulators can always point to. I think the best way to deal with this is to build a relationship of trust with the regulator. And, of course, this is a very localised thing. Regulators are different, the situation is different. But I think one of the most important roles in FinTech organisations is the guy who deals with the regulator. And this is all, like I said this is all about building that trust. 


Also, exhibiting to the regulator that you are serious, is not just that you are a few guys who turned up in sweatshirts, you know, trying to tell them how to run the industry. So it’s about earning that trust is about keeping that trust, and it’s also about proving to them that your methods are actually better than the traditional ways. So you need to give them a reason for them to change.



Do you think this could also have something to do with the sort of the industry that is challenging right if we go back to the Uber comparison. Uber was challenging, you know, taxi companies, traditional transportation models and public transport, which had fairly sort of weak defences against technology coming in, whereas the banking industry and the financial industry. It’s quite well protected. The high barriers of entry are quite defensive. Do you think that’s part of the reason why the regulation is so strict and what compliance has become almost like a defence system from, from Tech for these more traditional institutions.



But I think the key again like I said, I think the key lies in showing to the regulators that there is a better way, I think, one example that I can at least quote from Pakistan. I know it also stands true for a lot of other countries around the world, but a very common example is that automation or technology for banks usually mean that the form that they distribute in the branches in the banks, they just upload it online and you can download it as a PDF printed and take it to the branch, there’s not really tech and there’s not really automation. Right?


So I think one easy way of taking the same example to show the regulator’s that there is a better way is to have this process completely online have this data flowing directly into the central bank system, I think this is very closely related to what we’re doing here with with other parties  instead of the central bank having to wait for data to come in from these banks. Whenever somebody signs up on our side. This data is available, where the state bank has requested it and they can order it at any time, so it’s actually a better way for compliance. Also, take doesn’t necessarily have to be at loggerheads with the regulator, actually we can help. Compliance is so much easier, and ultimately so much more convenient for the, for the customers.



Fair enough, you have done the transition from, from working in, in, in product, in transportation in Uber and then into the financial arm of Careem pay, and now in sort of pure fintech. Do you see any sort of skill sets or mindsets that are different or if you’re recruiting for, for FinTech something you should be aware of or look for in terms of skill sets or mentality that, that might not be as important in product development in general outside of FinTech, like what are the major differences in in skill set the mentality you need to be a good product person in FinTech compared to other industries?



I think there are a lot of shared skills. There are also some things that we try to avoid, it’s a fine balance so it’s I can’t really give you a formula straight up, but I can tell you the kinds of skills that we look for at least that way. And this can vary from, from organisation to organisation Market to Market. But I think what we try to look for, especially in product managers, is I think the most important quality is for product managers to be curious, to ask the right questions. So if things have been always done in a certain way, a product manager shouldn’t necessarily accept it as the as the way it will be done



Well that’s different in other industries right because there’s a lot more doing things as they’ve always been done in FinTech.



Exactly, especially so I think a lot of times, we get. I mean, at SadaPay  We get a lot of applications from people who work for a long time at banks. I think we’re a little bit wary of that time.



I want to stop it just put a pin in that for a minute because we sort of have the same thing as well when, when we’re hiring for product people, we go through the CVS and we can be very qualified but if they come from traditional industries or traditional components within the industry, especially if they come from large banks or if they come from, from, from big telcos, that kind of, we see it as a minus. Now, why, why is it that, that you are sort of saying the same thing here, why is it that we see. Having experience in the large players in this industry like telcos and banks is, is a minus?



I guess it’s hard to be a pacifist, when you have been at war for the thing that is the same kind of principle, right?  If you’ve been part of that certain way of doing things for a certain system, then you’re then your brain is trained to think in that way right. Do you expect certain things or ask questions, near exactly you’re in the indoctrinated in that way of doing things and if you’re trying to disrupt, as, as a lot of fintechs are, then that’s not necessarily the best mindset for disrupting something, if you’re too entrenched in that way of thinking. So you want people who have a fresh mind that, who don’t take no for an answer, who are curious, who want to ask the right questions, who want to find better ways, and who are able to make logical arguments against traditional way of doing things, I think that’s what we try to look for.


I, I didn’t mean to sound like, you know, we reject everybody who’s ever worked at a bank is just that we look for certain attitudes, and if, even if you’ve been in a vault in a bank or, or a telco for 20 years, but you, I mean of course, some of our more senior people have sort of done that, but it’s also about exhibiting the attitude that I mentioned that so if, if you have the right attitude, your past experience doesn’t matter so much. But of course, it does make a little bit.



So to summarise what you’re saying is that original thinking from people in proposition is even more important in FinTech than perhaps in other industries, because the sort of modus operandi is so  established that you really need to question why things are done in a certain way why they’ve been done in a certain way, more so than than elsewhere because it’s so, so structured and so fundamental, already.



Yeah, just to just to bring it back to the Uber example right, the Uber example. At Careem you’re trying to disrupt an industry that’s been there for  decades. But you don’t have the additional compliance burden in FinTech, you’re doing the same you’re fighting against players with much more money so the taxi industry that we were fighting at Careem and over wasn’t organised in a way that the banks are, they didn’t have the kind of money to fight you, that these banks have. 



And now that sort of in the street, right. 



Exactly. So I think the owners and the pressure is much greater in FinTech, which is why I think the bar has to be even higher.



So the FinTech sort of ecosystem is quite large right and you can divide into sort of alternative finance, blockchain, and Bitcoin, and digital identity verification, insure tech registration, tech digital banks, and software providers that remittance, and payments, personal FinTech and robo advisors. These are the sort of main buckets. Where do you see, and I know that SadaPay and all of these so so don’t say SadaPay but which of these buckets, do you see has the brightest future or the highest opportunity for growth in the next couple of years and where do you think it is going to take some time before it evolves?



I think, I think this is just a prediction for the future of course, we don’t know how actually it will evolve but I think my prediction is the same way it has gone for for Careem and a lot of these companies like Grab, and Gojek in Southeast Asia, I think they’re once you start winning in a particular segment of FinTech you naturally want to bend it and extend it to other parts right. So somebody that’s working on a mobile wallet today might be working on a payment gateway tomorrow also. If somebody is working on a payment gateway, then they might want to get into loan then and financing and all of that ultimately



Pay later and credit is very much in the wind right that’s where the margins are and it seems a lot of people are getting into that space.



Exactly said somebody is winning in the, in the financing part, then they want to be some of the, you know, Robo advising code of action as well as we’re doing well in the mobile world space then we want to have full bank account licence issued loans, all of that. 


So I think is just about first of all right now because everybody’s starting in their own individual niches, you will want to first of all when in your particular niche. Once you won there then you want to start competing with other players who won in their own nation, so I think we’re only getting started, this, this is going to be a really interesting decade for, for fintechs. 


I think there will be a lot of acquisitions and mergers as well. So I think this is a really exciting time to be in this, in this industry, but I do think in the future, there will be a lot of competition between a lot of companies that are necessarily competing right now.



I think you’re right. So, the market right now is, is so new that there’s a lot of Greenfield and people can go out there and expand without the meeting their competitors and I think it’s likely to be a bit away for a while before it gets fiercely competitive and the market starts getting saturated but it looks like good days ahead. Al we thank you for leaving it on that positive note, I’d like to thank you again for joining us as our very first guest on, on the Fintalk


Fintalk is proudly sponsored and produced by MeaPay, the mobile phone app that turns your mobile phone into a card reader. No more clunky and expensive POS readers necessary, no more dongles, just download MeaPay and start accepting card payments directly on your phone. With MeaPay you save on hardware, all your employees can have the POS directly in their pocket, and you can easily accept card payments on the go, whether you’re a coffee shop, Taxi operator, a delivery service, or any other consumer facing business – download MeaPay today and be part of the digital payment revolution. 


Thank you very much, Ali, it’s been an absolute pleasure. And I look forward to seeing you again and have a great day.



Thanks, Chris, always, always a pleasure talking to you and thanks for having me. 



Cheers. Bye