20 mar. 2018
Bringing the bank to the unbanked
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For those living far from banking networks, the key to accessing vital financial services can now rest in the palm of their hands.
As of 2015, there were two billion individuals on earth with no access to any form of bank account or financial services. Nearly a quarter of the world’s population.
Further, in emerging economies worldwide there are more than 200 million small and medium-sized businesses without access to financial services to help them grow.
It’s a major stumbling block on the road to economic development.
In response, the drive for global financial inclusion has never been greater, spearheaded by the World Bank’s Universal Financial Access 2020 initiative.
“To create a thriving economy, you need a thriving financial system for both individuals and businesses,” Steve Round, a director of FinComEco explains.
“Creating financial inclusivity is key to this, at both government and local levels, enabling transactions to take place.”
Enter the financial technology that is offering digital financial services, mobile banking and remittance solutions. As Ed Glass, Principal in the Technology Practice at Odgers Berndtson, explains: “these technologies are increasingly driving the rapid digitalisation of the daily life of those who, until recently, have had no access to credit or banks, and provides the ‘unbanked’ with access to finance that can help solve poverty and drive growth around the world.”
Bridging the gap
Africa, according to Leon Ayo, CEO of Odgers Berndtson Sub-Saharan Africa, has “more than 300 such businesses, with start-ups having secured more than US$92.5m in investments since 2015.
“A mistrust of the formal banking sector in Africa makes the rise of financial technology unsurprising,” he adds. “Such solutions are placing banking in the hands of the consumer, bridging the trust gap and bringing financial services to the unbanked.”
Mobile and smartphone growth
With so many living in remote conditions, it’s no surprise that mobile and smartphone technology is a key platform.
“India is home to more than 1.3 billion people, with 250 million adults lacking access to a bank account,” explains Laurent Le Moal, CEO of PayU.
“And yet 220 million have a smartphone. Innovative companies are recognising the wealth of data that these smartphones can reveal.”
This data enables companies like PayU, which provides services for local and cross-border merchants, POS credit and alternative payment methods, to provide improved financial access to unbanked individuals.
“Recognising local behaviours and preferences allows us to identify opportunities,” says Laurent. “We focus on working with what people already have and use that to overcome legacy challenges and give access to financial services.
“For the unbanked, the main issue is access to credit,” he adds. “Individuals are subject to legacy structures and traditional processes. The challenge is to overcome this using alternative means. We believe the only way to do so is through innovative technology.”
Power against poverty
In Africa, rapid mobile adoption is enabling digital finance solutions to reach unbanked individuals. Sub-Saharan Africa, for example, recorded only 34% of adults having a bank account in 2014, yet the region accounts for close to 10% of worldwide mobile subscribers.
“Studies show that mobile money can help alleviate poverty,” says Ishbel Matheson of WorldRemit, a digital money-transfer operator specialising in remittances.
“With mobile money accounts, recipients need neither a bank account nor access to a traditional financial institution to access funds.
“The phones that enable mobile money don’t need to be smartphones either, a simple handset is sufficient. The spread of cheap data-enabled mobiles means the scope for building wider, more complex services through a handset has just begun.
“Mobile money can be used to pay for education fees, healthcare costs, groceries and more. One study has even shown how mobile money is empowering women seeking financial independence in a male-headed household.”
WorldRemit’s service, which is entirely cashless on the send side and is completed via an app or online, allows migrants to send money home to families and communities. “Our founder, Ismail Ahmed, has seen first-hand the transformative effect that remittances could have on families and communities, enabling people to pay for education and household groceries, build houses and better themselves in general,” Ishbel adds.
It’s not just individuals who are benefiting. In Africa, subsistence farmers are now using technology to trade, pay and receive money and thus grow their businesses.
For these farmers, says Steve Round, a director of FinComEco, “what is needed is the ability to not only access the financial system but also to generate more income. SMEs require support not only in moving from pure cash to accepting card/mobile payments but also in accessing low-cost loans.
“Bringing a farmer, warehousing and exchanges together make perfect sense. Individuals can access low-cost loans to buy better inputs, gain access to local warehousing through local partners and also have access to exchanges, all on one platform,” says Round. And it works: a pilot project in Malawi has already produced an increase in income for farmers of more than 30%.
“For me, the two key issues of the unbanked go hand in hand,” says PayU’s Le Moal. “It’s important to achieve access to credit for the individual, but also a way for merchants to connect with their consumers. Removing challenges for consumers and merchants has a positive impact on small businesses and on local economies too.”
For the developers of new FinTech technologies, working in in less-developed parts of the world has its advantages.
“Africa is a ripe market for such companies because they’re not being very disruptive to large existing systems in the West,” says Round. “They operate on a clean canvas, meaning they can set up quickly and with less investment.”
“Like any disruptive organisation, start-ups like WorldRemit don’t start with legacy issues,” Matheson adds. “Legacy operators have to turn around their business to keep pace with the new technology that began away from the high-street, cash-based operator.”
The world of the unbanked offers a unique opportunity for new technology to deliver benefits that go far beyond the commercial.
Unlocking the potential of a banking network that can reach even the remotest settlement puts one of the keys to economic development in the hands of vast numbers of currently- excluded individuals, communities and whole regions.
This article by Matt High is from the latest edition of the Odgers Berndtson magazine, OBSERVE.