They’ve been called necessary evils. But a credit card, when used appropriately, can be an invaluable financial tool.
Not only are they convenient when making purchases, they are a great way to track your financial activities and help with building your credit history for borrowing needs and larger purchases down the road.
Of course when it comes to emergencies or unexpected expenses, it’s hard to argue the value of credit cards – since they’re usually the most important monetary lifelines in times of desperation.
Speaking from personal experience, I can’t even begin to tell you how many times a credit card came to my rescue.
Without a doubt, the little pieces of plastic we keep in our wallets are some of the greatest inventions of all time.
And yet, it remains a luxury that we often take for granted.
You see today, a staggering 2.5 billion people in the world still don’t have access to basic financial amenities like bank accounts or any secure means to hold personal savings.
And credit cards? They’re practically nonexistent.
In other words, over one third of the global population either keep what little they have physically hidden somewhere in their homes — or they borrow it through illicit or unsecured means such as a loan sharks. (Obviously, regularly borrowing money from loan sharks is not a good (or safe) idea.)
In September, an eye-opening report from the Bill and Melinda Gates Foundation was published to open up the discussion on the plight of the poor and underprivileged people who don’t have access to modern financial amenities.
It highlighted the challenges and dangers that people face when they can’t obtain adequate or legitimate financial services to purchase basic necessities such as food, clean water and medicine.
Often times, their only options are through questionable loan schemes that end up being far more costly than first imagined.
The report then concludes that a potential solution for the growing problem could be… digital payments.
According to Rodger Voorhies, Director of the Bill and Melinda Gates Foundation’s Financial Services for the Poor, “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.”
Of course, to launch such a strategy for 2.5 billion people that are off the grid, it would take years to implement and require massive investments into large-scale infrastructure on a global scale.
And that’s where Visa (V:NYSE) and Mastercard (MA:NYSE) come in.
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Visa and MasterCard are largest payment processing companies in the world. As such, these financial institutions are two of only a handful of companies in the world who are financially and technologically capable of taking on such a monumental task.
In fact, they’ve already found promising success with new experimental programs that have been implemented over the last few years.
For example, Visa entered into cooperation with the Government of Rwanda under a 2011 Charter of Collaboration to implement programs to help develop the country’s e-payment infrastructure.
As a landlocked, resource-poor country with nearly 12 million citizens, nearly 45% of Rwanda’s population lives below the poverty line.
Some essential goals of the program included:
- Giving Rwanda’s ATM network global connectivity by accessing Visa’s vast financial network
- Localizing settlement services
- Expanding Rwanda’s merchant network to accept digital payments
- Encouraging Rwanda tourism through Visa marketing programs and campaigns
- Developing Rwandan exports through e-commerce
- Increasing digital payment options to all levels of business
- Streamlining government payments and increasing transparency in the process
Needless to say, the pilot project was a resounding success.
Because the cashless payment network set up in Rwanda did so well in helping spur economic growth and pulling people out of poverty, the partnership was recently extended for another 3 years.
“The extension of the partnership is a sign of what close and cooperative efforts can achieve and gives Visa an opportunity to continue its efforts to increase access for Rwandans to financial services and electronic banking thereby stimulating the economy,” concluded Elizabeth Buse, Visa’s Group President for Asia Pacific, Central Europe, Middle East and Africa.
Mastercard meanwhile, is currently working on a program of its own with the United Nations’ World Food Program (WFP) to distribute pre-paid cards to Syrian refugees in Lebanon to help them buy essential products and food.
Each card will be credited with approximately US$27 per month that people can swipe at select shops near the Syrian border. The cards will allow the refugees to eat foodstuffs that are not normally included in food rations.
By the end of the year, some 800,000 refugees will be using these electronic cards.
And besides Lebanon, the WFP will be introducing a similar e-card program for Syrian refugees in Jordan, again with MasterCard’s support, in a phased rollout for an initial 300,000 refugees by the end of 2013 that will continue into next year.
According to Elisabeth Rasmusson, WFP’s Assistant Executive Director for Partnership and Governance Services, “We are grateful for MasterCard’s assistance in setting up the e-voucher system in Lebanon and Jordan, the two countries hosting the largest number of refugees. It’s just one example of how our combined efforts can offer powerful and innovative ways to fight hunger.”
This collaboration is part of a larger, multi-year partnership between the WFP and MasterCard, which launched in September 2012.
And as for future projects, the technology is quickly advancing towards mobile.
It’s been estimated that there are 1.7 billion people in this world who own a mobile phone but still don’t have a bank account.
As such, mobile technology is an incredible platform to help bring even more people into the modern financial system — by leveraging an everyday tool that’s already proven to be the next phase in digital commerce.
Many of us who own smartphones probably have some sort of financial app that we use to do our daily banking or make online purchases. So the idea of people living in developing countries doing the same things with their phones really isn’t that far-fetched.
For investors, penetrating such a massive market offers Visa and Mastercard significant upside for years to come.
What’s even more enticing is that the market is literally untapped.
Almost all of these potential new customers likely have never been exposed to these brands; let alone know what services they offer.
Yet if these companies can become the bridge that successfully and efficiently connects people into the modern financial world… that equates to 2.5 billion people in untapped potential.
Though their impressive stock rallies in the past few years suggest that they may be due for a slowdown, over a long enough time horizon, their strategic positions should easily allow them to grow for many years to come.