February 01, 2014
The Promise of Digital Payment Systems for the Globally Unbanked
by Natalia Yenatska
The direct selling industry has always provided a means for ambitious individuals to gain career independence and achieve higher financial goals. Direct selling organizations have enabled individuals from all walks of life to simultaneously change their income levels, work lifestyle and profession. For these reasons, millions of people choose to embark on a career within this promising community, and as such the industry continues to grow year after year.
However, there is still a group within our worldwide community that has traditionally not been able to gain access to the opportunities that the direct selling industry provides. These individuals are the globally unbanked, and according to the World Bank’s Global Findex 2012 database, they account for over half of the world’s adult population, representing nearly 2.5 billion people.
The majority of unbanked individuals report that they do not have a bank account due to the lack of financial infrastructure within their respective countries. However, financial exclusion is not limited to the developing world. High banking fees, lack of steady income, and availability of alternative services, such as check cashing and walk-in bill pay also create this dynamic in more developed countries. For many, the lack of financial structure or costly banking represents an inefficient reality.
Historically, it has been nearly impossible for anyone to participate in global business without having a bank account. In fact, most global companies, including direct sales organizations, require sales representatives to have a personal bank account as a prerequisite for employment. This is not only a challenge for the unbanked, but it is also a missed opportunity for direct selling organizations. Given its entrepreneurial spirit and increasingly global scope, the direct selling industry could benefit from tapping into ambitious unbanked resources. The key to unleashing this economic potential can be found in digital payment systems.
Digital payment systems are forever changing the way global commerce is conducted, and direct selling companies are benefiting from this advanced form of transacting.
A big challenge for the unbanked is their limited ability to transact. Unbanked individuals are often unable to easily purchase products within the global market, as they rely solely on cash transactions. Digital payment systems remove the need for a bank account while providing individuals with flexibility in how they withdraw or use their funds. The best systems will also provide additional options for depositing and retrieving funds. Digital payment systems that provide both options to an organization and its members are called closed loop systems. These systems allow direct selling organizations to safely and efficiently transact with their members while giving these individuals the flexibility to use their funds as and when they wish.
Conversely, direct selling companies need a secure way to accept and pay out funds to unbanked members globally and in multiple currencies. Providing payroll and commissions to unbanked individuals can cost an organization millions in transaction and transfer fees alone. Closed loop digital payment systems give organizations of any size the ability to tightly control and manage pay-in and payout transactions, while providing members flexibility and consistency in the way they manage their funds. In our experience at i-payout™, our clients often find that by utilizing our closed loop digital payment system, they are able to safely expand their global member base into previously untapped markets.
i-payout™ has seen a sharp rise in the rate at which direct selling companies have increased membership among the unbanked and especially in developing countries where banking infrastructure is limited.
Given that 91.5 million people worldwide are members of the $160 billion direct selling industry, the introduction of digital payment systems could prove to be a powerful catalyst for increasing their prosperity and general standard of living. The trajectory of technology is moving toward a more economically independent global population that is no longer bound by distance, banking inefficiencies or a lack of financial infrastructure, and digital payment systems are paving the way.
Natalia Yenatska is the Chief Financial Officer of i-payout™, a provider of global payment solutions. She has experience in overseeing all aspects of business operations and speaks English, Russian and Ukrainian.