It’s expensive to be poor.
Sounds like an oxymoron. But it’s been said many times.
Poor people generally don’t have bank accounts. That means they do everything with cash.
And that costs a lot – in fees and in time.
Imagine, oh developed world reader, that there were no direct debits. So instead of waiting for the electricity company to take money from your account, you travel to the supplier’s office.
And you don’t have a car, so you wait for the bus. It sucks up hours of your time.
Then you want to send money to a relative. Go to an agent and pay them 10 per cent to transfer the cash.
There’s also a cultural deficit. Poor people trapped in the cash world feel they live in a shadow society, excluded from all the advantages (loans, savings, insurance, access to emergency funds) that the banked take for granted.
The cash economy costs society too. Dispersement is expensive. There’s theft. Someone needs to pay for security guards. Embezzlement is an ever-present risk.
So, the answer’s easy right? Give the unbanked bank accounts.
Easier said than done. The truth is, banks struggle to make money from customers with very modest funds. They’re not that interested.
Meanwhile, it’s a big ask to expect poor people to instantly embrace financial services even when they are made available. Turning hard-earned cash into virtual money, when you have no experience of electroning banking? It’s intimidating.
Of course, there have been breakthroughs in the past. The most obvious is mobile money. Most readers will know about Kenya’s M-Pesa, but others include Ecocash in Zimbabwe and Tigo in LatAm.
However, these services require a regulatory approval, which is not always forthcoming. They also need buy-in from all (or a majority of) mobile operators to reach a critical mass of citizens.
As a result, they haven’t proliferated as much as some of the hype suggests.
So if ’traditional’ banking is the answer, what’s the key to unlocking it?
Startup DoPay thinks it’s found it.
The reasoning is this: it’s unreasonable to expect low-paid cash workers to open and manage bank accounts with no support. But if you encourage employers to open accounts for them, and pay staff electronically, you can ease them into the banked world.
Han van Dijk, CMO of DoPay, says: “There two billion people in the world with jobs but without a bank account.
“There have been many intiatives driven by banks, governments, operators, NGOs. We applaud them all.
“But what they all have in common is that they ask the people to voluntarily open a bank account, deposit their money and start using it.
“That’s a hard sell. There’s no immediate benefit. By going in through the employer, we think we can solve that problem.”
DoPay provides a cloud-based payroll service that allows employers to calculate salaries and disperse payments.
Unbanked employees receive their salary in a dopay account, which comes with a pre-pay debit card. Consumers can manage their finances with the dopay app, which gives them real-time access to their balances. It also lets users top-up their prepaid mobile and send money instantly.
What’s in it for employers? Hugely reduced costs, for a start. Cash-based payroll departments suck up a lot of resource, with theft and embezzlement a permanent problem.
DoPay charges the equivalent of about 70c a month per employee.
So, what about the problem of banks not wanting to create accounts for the low-paid? Well, here’s the clever bit: DoPay is effectively one account. The firm does not have a banking licence itself, so remitted money is held at an escrow account in partner banks.
DoPay is currently working with the government of Egypt to bank 450,000 unbanked state workers including those employed by the ministry of agriculture.
After Egypt it will taget Ghana, the Gulf states and India.
The company recognizes that it’s set itself a big challenge. That’s why it’s encouraging employers to start with select groups and to identify opinion formers within their staff to evangelize the idea.
But it also believes there’s a hunger among the unbanked to join the world of mainstream financial services.
Van Dijk says: “In these countries, a bank card is a status symbol. It’s much easier to sell people on this than a purelty mobile money account for example.
“But education is important. For example, we’re trying to emphasise that people shouldn’t withdraw all the money in one go, and that they can use the card to pay in store just like any other card.”
The app is largely populated with icons to help those who can’t read to understand the process. It shows where the ATMs are, the current balance and how to send money.
Naturally, this is not possible with a feature phone, but van Dilk says smartphone penetration is around 50 per cent and rising in Egypt.
DoPay’s pitch to bring banking to the unbanked was compelling enough to win it a place at Barclays’ London-based fintech accelerator and just a few weeks ago, the firm received investor support.
It closed a $2 million seed round from private-equity firm ACE & Company, plus angels from banking, private-equity and hedge-fund.