Financial Times, March 6, 2013
Guest column: In mobile banking, emerging markets show the way
By Sanjay Poonen
For the world’s unbanked, those without access to even the basic savings account, it is hard to save, impossible to build credit, and all too easy to succumb to predatory lending.
Without a bank account, one cannot buy things online, or make purchases that require a credit card. The unbanked consumer is effectively cut off from many affordable financial services, depending instead on check cashers, loan sharks and pawnbrokers.
Lack of access to financial services has long limited people’s personal options. It is well known that financial exclusion perpetuates poverty and slows down economies. And it is not a small problem.
According to the World Bank, half the people in the world fifteen years of age and older – about 2.5bn people – do not have bank accounts.
From a bank’s perspective, however, bringing basic financial services to the world’s unbanked is a huge market opportunity – and a philanthropic one, too. The opportunity isn’t new, of course. In recent years, however, mobile technologies have matured to the point that they provide a cost-effective delivery channel, which has put the opportunity within reach. In fact, a new mobile banking report from Juniper Research predicts that more than 1bn people will use their mobile devices for banking by the end of 2017.
Dutch Bangla-Bank Limited (DBBL) is among the pioneers in mobile banking for the unbanked. In early 2012, the Bangladesh-based bank launched a suite of mobile banking services targeting the unbanked and underbanked. In only ten months, it garnered more than 1m new customers. Since then, an average of 100,000 customers have been signing up for services each month, and these customers have deposited more than $7.75m using the mobile banking platform.
Mobile operators are experiencing similar success among the unbanked. Safaricom, part of the Vodafone group, launched M-PESA branchless banking services to Kenyans via cell phones in 2007. As of March 2012, the operator listed more than 14.6m active users. Several other operators, including Cellcom Malaysia (AirCash), Globe Telecom (G-Cash), Mobicom Africa (MobiKash), MTN Uganda (Mobile Money), Orange (Orange Money) and Smart (SMART Money), offer similar mobile banking services to the unbanked.
The services are especially popular in emerging markets such as Mexico, Peru, South Africa and India where bank branches are few and far between, roads are poor or non-existent and transportation options are slow and/or unreliable. Mobile technology bridges these gaps.
The rural poor in developing economies make up the majority of the world’s unbanked population, but they are not alone An official US report released in September last year found that 8.2 per cent of households in America are unbanked. That amounts to nearly 10m households, or 17m adults. An additional 20.4 per cent — or 24m households (51m adults) — are underbanked. Together these figures add up to more than a quarter of the US population.
The percentage of both the unbanked and the underbanked has increased slightly since the last survey in 2009. Americans are also using alternative financial services more, including payday loans, check cashing, money orders, pawn shops, and so on. Both increases are probably due to the economic recession and resulting high unemployment rates.
Given that the current recession is global, it stands to reason that the numbers from other developed nations are probably similar. In fact, the World Bank’s latest numbers show that 11 per cent of the unbanked live in high-income economies.
Since mobile financial services in emerging markets are successful, why not apply the same models in established markets and provide clear pathway into more formal banking?
Lack of access is obviously not the main issue in most of the developed world. In the US survey, respondents cited insufficient funds, and the fact that they don’t need or want an account. The issues are different, but the results are similar.
For example, consider prepaid debit cards and payroll cards. They are both relatively new products that are increasingly popular, especially among the unbanked and underbanked. Consumers must “load” prepaid debit cards with an amount of money before they use them at points of sale. Payroll cards are similar, but can receive payroll funds directly from employers.
Pioneering banks are offering these cards now, using a business model similar to the one that has worked in emerging markets: a simple account accepted by a wide range of merchants. More important, almost half of unbanked US households that have used a prepaid card say they are likely to open a bank account in the future. Again, they represent a pathway into the formal banking system.
Some prepaid cards are stymied by fees, and do not build a credit history like a secured credit card, both of which are drawbacks. They do, however, help create financial literacy and a familiarity with credit that can be a step in the right direction.
Another example is Standard Bank’s AccessAccount in South Africa. These “starter” accounts can be opened using a mobile phone at a local sales agent and have no minimum balance and a low fee structure. Mobile origination is not only far more accessible for customers; it is also 80 per cent cheaper.
Launched in March of 2012,the bank is currently opening up to 7,000 of these accounts every day using SMS (text messaging) technology. In a country where only 54 per cent of the population has an account at a formal financial institution (World Bank, 2011), Standard Bank has found a way to tap into a very big market.
Approaching the unbanked population requires a new game plan. For banks looking to expand their base of customers, existing deployments in developing countries offer many lessons. So do alternative financial services in developed markets. For example, check cashers are conveniently located and open during extended hours. They provide a range of services under one roof. Fees are high, but they are clearly posted and easy to understand.
As worldwide economies move away from cash and toward mobile payments, it is important to consider that those without bank accounts will get left even farther behind unless mobile services are available that meet their unique needs – in both developing and developed economies.
The numbers are large enough to create a real opportunity and mobile technology provides a cost-effective delivery channel, as evidenced by DBBL’s successful mobile banking deployment. There is still plenty of room for more. The emerging markets have created a successful model for the unbanked that developed economies could follow.
Sanjay Poonen is president of Technology and Innovation Products, SAP