Why Are Payments Services Essential For Financial Inclusion?

The path to financial inclusion begins with payments. Financial inclusion has long been recognized as a means to help people escape poverty as it helps them better manage their finances. In addition to being able to send and receive payments, it provides access to other financial products, such as credit, savings, and insurance.

Banking and payments services play an important role in strategies by facilitating access to and use of ERPs. Enterprise resource planning (ERP) allows companies to manage and integrate financial, supply chain, manufacturing, operations, distribution, and human resource activities. Therefore, platforms and systems for e-money have grown in some cases.

Unfortunately, there are about 2 billion adults worldwide who lack access to transaction accounts offered by regulated and/or authorized financial institutions. But due to the increased involvement of non-banks in financial services, particularly in the payments area, many previously excluded people are now able to take advantage of them.

The Importance Of Payment Services

Financial inclusion simply means that all individuals and businesses have access to and be able to use a regulated payment service provider’s transaction account for the following purposes:

  • Commitment

In recent years, public and private sector organizations have shown a strong and sustained commitment to promoting financial inclusion. This commitment to the use of payment services has facilitated non-bank users to experience financial inclusion.

  • Legal and Regulatory Framework

In order to ensure financial inclusion, the legal and regulatory framework should address all relevant risks, protect consumers, while fostering innovation and competition at the same time. Enhancing consumer protection standards, easing access barriers to nontraditional financial service providers, and improving financial literacy promotes financial inclusion. Legal frameworks could be set up to allow agents to provide a wide range of financial services, such as cash deposits, cash withdrawals, bill payment, transfers, and so on, to those in need.

  • Financial and ICT Infrastructures

The lack of access to financial and information technology infrastructure, especially for new or non-traditional service providers, tends to constrain the supply of payment services. When incumbents hold a dominant position in an infrastructure, they often create barriers to entry for new entrants. Therefore, providing transaction accounts services, as well as supporting a broader range of financial services, require financial and ICT infrastructures that are robust, safe, efficient, and widely accessible.

  • Transaction Account And Payment Product Design

With transaction accounts and payment products, the target population will be able to meet a variety of transaction needs at little to no cost.

  • Readily Available Access Points

A variety of interoperable access channels and a broad network of access points add to the value of transaction accounts.

  • Financial Literacy

Through financial literacy, individuals learn how to use transaction accounts effectively for payment and value-storage purposes, as well as how to access other financial services.

  • Large-Volume, Recurrent Payment Streams

Financial inclusion objectives are further advanced by tapping into recurrent payment streams, such as remittances, to increase transaction accounts and spur frequent usage.

From a payments perspective, financial inclusion initiatives should aim to achieve a number of objectives. The ideal situation would be for all individuals and businesses to have at least one transaction account maintained by a regulated payment provider to enable them to manage most of their payments, store some value, and serve as a gateway to other financial services. This is why payments services are simply essential for financial inclusion.

To Conclude

Enabling worldwide access to and use of transaction accounts by developing guiding principles and key actions that will enable them to meet most of the payment needs and safely store some value. The improvement and addition of newer methods of payment services has propelled forward financial inclusion ensuring increasing payment streams and financial literacy all around.

It is critical to track the implementation of financial inclusion efforts in order to determine whether the actions taken are helping to achieve the underlying goals. Recently, there has been growing consensus across the financial inclusion community about the importance of developing robust measurement methodologies.

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