Financial Inclusion – Learning Lessons from Emerging Markets
June 8, 2017
Esther Pigg I Senior Vice President, Product Strategy FIS Payments Division
How is your business practicing financial inclusion?
Much of the innovation to address financial inclusion – particularly in emerging countries – is coming from non-traditional players, such as telecommunications and fintech companies. Their secret is providing consumers convenient solutions that simplify sign-up, ease money transfers and payments, allow users to save for specific goals and use credit to start businesses.
Harnessing innovative technology and developing imaginative partnerships that reach new customer demographics doesn’t have to be the name of the game in other markets. Here are some lessons we in developed banking markets can take to encourage our growth.
The State of Play
With mobile phone penetration in emerging economies at a much higher rate than bank accounts, telecommunications companies have offered phone-based payment services ideally suited to the needs of their customers. In Africa, M-Pesa is a long-established mobile phone-based money transfer and microfinancing service. Beginning in Kenya and Tanzania a decade ago, M-Pesa now has services in Afghanistan, India, Romania and many other locations. Its popularity comes from its ease of use – users don’t need a smartphone or a bank account. A basic mobile phone allows money to be transferred and bills to be paid digitally, and customers can deposit money to a phone’s account from a wide network of agents, without ever touching a bank.
Similar services, such as Iko Pesa and PesaLink, are led by banks and require bank accounts, although they also offer benefits, including real-time funds availability and interest on cash balances. In Bangladesh, where 87 percent of people have no bank account but most have basic cell phones, customers of a mobile-banking program benefit from interest-bearing savings accounts. Meanwhile, they also build a financial record to show creditworthiness.
What ties all of these services together is ease of use. Instead of requiring account numbers, which may be unknown or hard to remember, email addresses or phone numbers are common for money transfers.
In Our Backyard
While the underbanked population is certainly smaller in the United States than in emerging economies, these consumers still have potential to be valuable customers in the future. That’s why retailers like Walmart are working to become money centers for the underbanked, and why prepaid instruments – particularly the general purpose reloadable (GPR) card – are so promising.
Ultimately, they provide a path to financial growth via a lower-cost structure. Meanwhile, many Millennials and members of Generation Z are adopting smartphone-only payment services, often from fintech providers. To engage these underbanked consumers, financial institutions must deliver a broader range of products and services that are based on genuine requirements.
The Evidence is Here
Much like how mobile payments have revolutionized financial services in less developed areas, there are exciting initiatives already underway in the United States. These efforts are driving millions of dollars of investment into new technologies, products, and delivery methods; and they are already reaching the underserved. For example:• Hope Credit Union opened new branches in the Mississippi Delta and nearly tripled the number of checking/savings accounts and consumer loans in one year. Hundreds of individuals have purchased automobiles to get to work, pay off payday loans and otherwise build assets and establish a credit history. Nearly 40% of HOPE’s members were unbanked prior to joining the credit union • FICO is rolling out Score XD, enabling lenders to expand underwriting and increase access to credit to underserved for the first time. And now, over 180 million U.S. consumers can access their FICO® Score and credit education materials for free through more than 100 participating financial institutions. Credit transparency empowers consumers to take control of their financial health. • Coca-Cola has contributed $1 million to Operation HOPE, which supports financial literacy, career training, and entrepreneurship programs for over 30,000 women and girls across the United States. It will educate 192,000 people through classroom and digital programs by 2019.
These successes resulted from strong partnerships among governments, the private sector – including a range of financial institutions and other businesses – and nonprofits. Combining the commerce ecosystems across these key players extends the reach to underserved demographics and fosters simpler customer acquisition, engagement, and support. But there is still much more work to be done.
Banking on the Future
Emerging payment solutions can bring great benefits to financial institutions looking to build inclusion; there is a large demographic out there avoiding traditional banking services or being ignored altogether. Rather than have the underbanked gain services from external parties, bring them in and help them build their credit histories from day one.
The good news is that mobile technology, coupled with innovative new business models, makes it possible to deliver such financial services at scale and affordably. Driving marketplace innovation, while ensuring financial services remain both safe and relevant, will bring financial security to the lives of these members of our communities.