The untapped market: the unbanked shopper

By,James Booth, VP, Head of Payment Partnerships EMEA at PPRO

Many of us assume that everyone has a bank account of some sort. But according to the latest report from World Bank Group, around 1.7 billion adults remain unbanked globally. That’s roughly one-fourth of the global population.

As most people would expect, the report shows that the majority of unbanked adults live in the developing world, in areas of Bangladesh, China, India, Mexico, Nigeria and Pakistan. However, less predictably, the main factor for large portions of people remaining unbanked in these countries isn’t necessarily their income level.

Only half of unbanked adults come from the poorest 40% of households within their economy. A lack of education and unemployment are only part of the picture; the cost of accounts and distance to the nearest bank are also contributing factors.

When it comes to Europe, countries such as Denmark, Finland, Netherlands, Norway and Sweden have a 100% banked population. But, like any aspect of culture, the population of banked consumers can vary significantly from country to country, and they do in Europe. Take Hungary, for example, with a 75% banked population and the Czech Republic at 81%.

How the unbanked shop online

In 2020, commerce is customer-centric. At a time when any device can become a point of sale, consumers expect a seamless, integrated shopping experience. The shopping habits of consumers – including the unbanked ones – must be taken into account when optimising their experience. A big part of that is consumers’ preferred methods of payment. Take the UK, for example. The number of contactless payments made in the UK surged by 31% in a year to reach 7.4bn in 2018, highlighting that the UK remains one of the highest users of debit and credit-based payment methods. However, this is not the case for the rest of the world.

Local payment methods such as bank transfers, e-wallets, cash-based payments, and local cards have been previously called alternative payment methods. But they are no longer the alternative; they are the norm for most of the world. According to a Worldpay report, 75% of all e-commerce purchases will be paid for via local payment methods by 2021.

Oxxo, for example, is a cash-based payment method widely used in Mexico to purchase goods online. The shopper gets a transaction voucher from the merchant and then goes to an Oxxo convenience store with their voucher to pay the balance in cash. Then the merchant releases the goods for delivery. Cash-based payment methods are a low-tech solution for the unbanked who shop online. At the opposite end of the spectrum are high-tech payment methods, which continue to grow in popularity alongside increasing rates of internet and smartphone penetration.

57% (4.388 billion) of the world now has access to the internet and a further 67% (5.112 billion) have access to mobile devices, up 100 million (2%) in the past year, according to the latest Global Digital 2019 reports. In Africa alone, there are 444 million mobile users, which enables people, even in the most remote locations, to shop online via e-wallets. These e-wallets are linked to the user’s mobile phone account, which they can top up with cash and use to buy goods and services online.

Expanding the customer base

Anyone who wants to grow their business and tap into a new market should be aware of the varying payment cultures and needs the world’s consumers, and enthusiastic about accommodating them. But, of course, that can be complicated. Building a good experience for consumers creates a lot of complexity for merchants. Offering hundreds of different local payment methods to consumers – in Europe alone – can be overwhelming. But it doesn’t have to be.

Merchants and payment service providers can partner with third-party payments experts and aggregators who provide regional knowledge, technical and financial connections on a global scale.

The reality of the global population becoming fully banked is still some way off, and we can expect the payments market to become increasingly fragmented. While unbanked consumers are a small minority, the gap between the banked and unbanked population is broadening. And many businesses fail to cater to this market, which leaves significant opportunities for businesses who will.