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The 2.5 Billion Customer Opportunity for Visa and MasterCard

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According to estimates by the World Bank, 2.5 billion individuals globally do not have access to a mechanism to save money.

Stop for a minute and think about this: 2.5 billion people, more than a third of the people on the planet, do not have access to a savings account. The best solution they have is to literally stash cash under their mattresses.

This is a tragedy of the modern financial system, and it's a shortcoming that global nonprofits and corporations can work to correct. The World Bank recently set a goal to bring 100% of the world's citizens into the financial system by 2020. It's an ambitious goal by any means, but ambitious goals are a prerequisite for ambitious success.

Enter Visa and MasterCard
Back in September, the Bill and Melinda Gates Foundation released a report aimed at finding the best tactical approach to expanding the modern financial system to the poor and impoverished around the world. Its conclusion? Digital payments. 

Rodger Voorhies, Director of the Bill and Melinda Gates Foundation's Financial Services for the Poor, said, "People need affordable, efficient and secure ways to send and receive money, and this report shows how this can be achieved, especially through digital transactions that can reduce costs by up to 90 percent."

The companies most ready to deliver this technology are Visa (NYSE: V  ) and MasterCard (NYSE: MA  ) . Already the world's largest payment processing companies, these two have the resources, knowledge, infrastructure, and, it seems, willingness to tackle such a challenge.

Syrian refugees in Lebanon are using MasterCard technology to purchase monthly necessities not provided by government provided food rations. Visa is working with the government of Rwanda to bring a modern mobile payments and banking network to the estimated 77% of the population without access to modern financial services. According to data from Visa, 1.7 billion people have a mobile phone but no bank account; through its subsidiary Fundamo, Visa is now working to bring mobile financial access to the impoverished in more than 40 countries.

These services and technologies are a critical stepping stone for individuals and economies to rise up out of poverty. Mobile payments create a safe and secure means to transfer money, pay bills, and save for the future. Lending programs, modeled after those of Nobel Prize winner Mohamed Younis, can eliminate loan sharks and provide affordable access to capital to start businesses or build homes.

Gordon Gekko asks, "What's in it for the shareholder?"
Beyond the tremendous opportunity to do good for humankind, there are some serious opportunities for corporate income statements. 

First to mind is reputation and brand awareness. These 2.5 billion people are currently free of any financial brand loyalty. If MasterCard or Visa were to enter a village and truly make an impact on those people's lives, then it's very easy to see those individuals and their families becoming loyal for generations. Generations of wealth-building and generations of increasing needs for more financial services.

Second, we need to consider exactly how Visa and MasterCard make money (for a quick primer, click here and here, respectively).

It's been estimated that 85% of the world's transactions still take place with cash -- 85%! For a company to make its money processing primarily retail transactions, it stands to reason that there is a huge opportunity if the technology has only permeated 15% of the potential market.

Third, these technologies can be a strategic entry point to take some of the money transfer business away from the traditional banks. American Banker Magazine reported this week on how a few megabanks were able to derail a plan to modernize the U.S. banking system's electronic payments network. Instead of taking a minimum of one business day for your check to clear the system, modern technology can allow this to take place more or less instantly. The capability exists; the banks just won't implement it.

In typical big-bank form, the institutions voted down the plan. American Banker points to Citigroup (NYSE: C  ) as a confirmed "no" vote, and likely Wells Fargo (NYSE: WFC  )  and Bank of America (NYSE: BAC  ) , among others, as the other probable "no" votes.

For Visa and MasterCard, this is an opportunity to grab a larger piece of the pie. If the mobile technology they develop and implement in Asia, Africa, the Middle East, and other third-world regions can be deployed in more mature markets like the U.S. or Europe, the potential to grab market share would be great, simply because they would be offering a superior product. 

Do good by doing right
The World Bank's goal of complete financial inclusion by 2020 is overwhelming in its scale, scope, and speed. 2020 is just six years away.

To be successful, public and private institutions will have to move quickly, aggressively, and tactfully. Mohamed Younis proved with his Grameen Bank that serving the poor with low-dollar, reasonably priced loans can be profitable. The same will hold true for the low-dollar transactions and savings accounts being promoted by the World Bank. 

For Visa and MasterCard, the key will be creating and implementing the low-cost, convenient, and mobile technology needed to provide these services across the world (and do so profitably). If successful, Visa and MasterCard, like Younis, can do shareholders right while doing the world good.

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  • Report this Comment On November 15, 2013, at 2:31 PM, ChuckXX wrote:

    Very nice article. The bigger problem that I see is that much of the 3rd world is so poor that they don't really have much need or use for a credit/debit care. Correct me if Iam wrong. I have traveled all over the world and have seen how many of these folks live and believe you me most of them don't have a "pot to p__s in".

  • Report this Comment On November 16, 2013, at 12:36 PM, TMFJayHJenkins wrote:

    ChuckXX, Thanks for the comment. I know what you mean--its overwhelming driving through some of the impoverished neighborhoods in Mexico City, Southeast Asia, or South America. Heartbreaking really. For those living on less than a dollar or 2 per day, a bank account can appear, well, insignificant. To me, the real advantage it brings is a combination of increased financial literacy, opportunity for micro-entrepreneurship and saving (with interest), and a psychological boost (dignity, self worth, etc). If you haven't already, I'd highly recommend reading Younis' book "Banker to the World" -- I first read it a few years ago and it dramatically changed my perspective. The problem is really overwhelming, and I won't pretend to fully understand it. As a finance guy though, I think these programs and conversations are step 1 toward a better financial future. -Jay

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