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by Ferdinand Dragtstra
This is the first in a series of blogs, where we look at challenges with pay and payments in developing and emerging markets.
In the developed world, traditional banking is so commonplace that we often take it for granted. And this means that the barriers to smooth personal finances that face the unbanked are regularly overlooked.
Particularly in developing and emerging markets, where 52% of working adults report being very concerned about covering essential expenses such as health care, struggles with pay can affect employee satisfaction as well as productivity. Employees who are unbanked, or even just underbanked, find it even harder to maintain financial wellness, while the unbanked also present practical challenges for employers wanting to pay all their staff in a timely and accurate manner.
In this blog, we’ll explore what it means to be unbanked (or underbanked), how it can be challenging for employees and employers alike, and what your payroll and HR operations can do to help.
The unbanked and the underbanked
Firstly, it’s important to draw the distinction between the unbanked and the underbanked, because they are often confused and conflated. Unbanked employees are those who have no bank accounts at all, or any relationships with established financial institutions. Underbanked employees, on the other hand, tend to have basic bank accounts and rudimentary access to other financial services, but still have to make use of functions like check cashing to conduct their financial affairs.
There are several reasons why employees might find themselves in either of these two categories. For example, they might not be eligible for a bank account, they may have been turned down by banking providers, or they simply don’t trust banking systems or the finance industry. Alternatively, if they are of relatively low-income, then it may be that they don’t meet the earnings threshold for opening an account or accessing particular services.
In developing and emerging markets in particular, many workers in rural locations struggle to access banks. And even when working in urban centers, many run into problems when trying to send money to their families back home. Due to this lack of infrastructure, legacy financial systems simply aren’t fit to serve many underbanked workers, and so alternative ways of paying these employees must be explored and invested in.
The effects on employers and employees
The impact of having unbanked and/or underbanked employees within your workforce runs much wider than you might think. Firstly, they deserve the same regularity and timeliness of pay as everyone else, which comes with an extra administrative burden for payroll and HR teams who have to adjust their payment services to process pay in different ways. It can also make it trickier to keep consistent data and records for audit and compliance across the whole workforce.
But the effects it can have on the employees themselves can be even more profound. The alternative banking services that unbanked and underbanked employees are forced to use, such as check-cashing and payday loans, tend to come with substantial fees that put even more pressure on their finances. Being unbanked also makes it extremely difficult, if not impossible, to establish a credit rating and access funds in the event of an emergency, such as an urgent car repair or medical treatment.
All this can make unbanked employees even less well–off, more stressed, less happy in their jobs and therefore less productive.
How to support the unbanked and underbanked
The growth of payment systems means it’s now much easier for employers like you to support the unbanked and the underbanked than it has been in the past. There are a range of financial products available that can help you improve access to formal banking services for all employees, helping them circumvent difficult debt traps:
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Online money apps: these apps allow you to pay employees directly into a digital account on their mobile phone, from which they can conduct their personal financial transactions. A number of these mobile money accounts are free to use, which takes away the cost burden of being unbanked or underbanked, to the point that they can actually represent a real-term pay rise. This adoption of mobile money is a very good option as long as employees live in areas with good phone signal and widespread acceptance of mobile payments.
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Digital payroll cards: these work in exactly the same way as a debit card from bank branches, but are issued directly by you as the employer instead. Wages can be remitted to the card on the scheduled payday, giving the employee full capability to make digital payments, make money transfers, and pay bills.
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Treasury services: both of the above can be supported by treasury services deployed within payroll and HR teams. These can integrate with traditional payroll functions to make it fast and easy to pay every employee accurately and on time, whether through traditional payments to bank accounts, through pay-to-card facilities, or into online money apps and mobile wallets.
In summary
Going above and beyond to support unbanked and underbanked employees is very much worth the effort. Their feelings, efforts, and satisfaction are just as important as any other employee’s, and supporting them with their financial experience is a key part of building a truly inclusive organization through financial inclusion. What’s more, doing so can generate greater productivity, and enable better talent retention and acquisition, both of which can help improve your bottom line in the long term.
CloudPay has a range of tools that can help you support your unbanked and underbanked employees with ease. Take a closer look at how you can deliver excellent pay experiences with the help of our treasury services here.
