Financial inclusion -:Finclusion:- Need or Opportunity

Abstract – Financial inclusion in a simple language can be defined as “Ensuring access to basic banking services (Provided by any bank’s banking services or MNO’s mobile money services)”. The subject of Financial Inclusion is so huge that it can take billions of pages to get defined and picturise but still would not be enough. Idea for this post is to give very small, brief and crisp information of subject. I intend to highlight few key pointers, some perceptions and problems. Rest whole of Internet it self is not enough to absorb the subject Financial inclusion. Financial inclusion is a key enabler in reducing poverty & boosting prosperity and to get delivery of financial services at affordable costs to sections of low-income segments of society, in contrast to financial exclusion where those services are not available or affordable. Getting payment products to “understand” each other, or to be “interoperable,” is a big challenge to solve under financial inclusion model.

Main objective of financial inclusion or “Finclusion” is/was to serve but not to make i.e serve the needy and bring them up not to make money from that segment and push them further down or push them to stay away from the program. In short it’s a public service not a business service. People living in poverty often lack access to safe, reliable ways to manage the little money they have. As a result, they face exclusion from the financial system. There are around 2 billion people who don’t use formal financial services and more than 50% of adults in the poorest households are unbanked. Almost 50% of ATMs and POS networks in low-income countries are interoperable compared to 86% of ATMs and 80% of POS networks in developed countries [Source World Bank Portal]. Now the question is why this interesting scenario exists; where it should have been other way round or should not be there in place at all.

Introduction – We will find some responses in main story section of this post though. An estimated 2-billion working-age adults globally have no access to any type of formal financial services delivered by regulated financial institutions. For example, in Sub-Saharan Africa only 24% of adults have a bank account even though Africa’s formal financial sector has grown in recent years. Who is the real hero here banking services for financial needs driven through MNO’s Mobile Money Service or banking services driven through banks traditional and century old mind set under very heavy procedural, regulations and controlled framework. In my last post I tried creating small but crisp image of separation on Banking and Bank “What is needed Banking or Banks”. It is argued that as banking services are in the nature of public good; the availability of banking and payment services to the entire population without discrimination is the prime objective of financial inclusion. Financial inclusion gained importance around year 2000.

The United Nations defines the goals of financial inclusion as follows:

• Access at a reasonable cost for all households to a full range of financial services, including savings or deposit services, payment and transfer services, credit and insurance
• Safe & secured institutions governed by clear regulation and industry performance standards
• Financial and institutional sustainability, to ensure continuity and certainty of investment
• Competition to ensure choice and affordability for clients.

Main Story – India took little long to understand and acknowledged the need and importance of “Finclusion” i.e. financial inclusion. It came to light or was used first time April 2005 in the annual policy statement presented by Sir. Y. Reddy (was then governor of Reserve Bank of India). Since then this concept gained some ground and attention and got spread all over in India. While recognizing the concerns in regard to the banking practices from across the globe that tend to exclude rather than attract cosmic sections of population, banks were urged to review their policies & practices to align them with the objective of financial inclusion. Sadly. All the banks shouted together “Change is possible and we believe financial exclusion is a solvable problem” and shown great interest in Finclusion concept but sadly large number of banks backed out of Financial Inclusion. They set great example & proved hundred percent correct a very old but simple english statement “Who wants change” – Every one; “Who wants to change” – No one.

Mobile network operator’s piggy banked (Backed) on their existing networks to offer financial services, which were not originally in their strategic plans when they were formed. This was an opportunity that presented itself and found the mobile operators ready to grab it. In African continent Kenyan MNO came out and lived through the dream. The opportunities through innovative ideas to change the way we deliver financial services is changing. Most of the innovations in financial services are coming through leaders who are very new to the industry or come from out side the industry. Saas (Software as a Service), IaaS (Infrastructure as a Service) and PaaS (Platform as a Service) might give birth to industry specific services and platform in future such as BaaP (Banking as a Platform). Several survey (Done by many different organisations in different countries) reports shows a result of findings about financial exclusion and its direct correlation to poverty. To get rid of known fact “Basic financial services are out of reach for one in four individuals on Earth” it is very important to get BaaP in to play sooner with no brainer and barrier.

Financial inclusion is not just providing basic banking services but to complete the definition it is also expected from Finclusion Service Provider to ensure 1. Consumers have a legal right of access to a basic bank/wallet account, 2. Comply with minimum performance standards relating to fair treatment of customers, functionality and charges and 3. Keep greater transparency on compliance with requirements. Mobile Payments are kind of value added services on top of basic services, which is supported by mobile wallet at the backend. The Key Takeaways from Finclusion are as follows

• Crystal clear and basic understanding of Mobile Money, Financial Inclusion & Mobile Payments
• Business ethics & social responsibilities segregation out of MFS systems & services
• Service classification and basic business and technical architecture.

In India, RBI has initiated several measures to achieve greater financial inclusion, such as facilitating basic and small deposits & credit accounts. But it’s going to take lots of people working together, raising awareness, and investing in initiatives that help to create better, more affordable financial solutions for everyone.” There are many excellent posts written on this subject and flying all over internet on “What is Financial Inclusion!”  To speed the elimination of poverty by coordinating a global community that builds, supports, and uses best in class technologies which can be free and open source that enables financial service providers to more effectively and efficiently deliver responsible financial services to the world’s 2 billion poor and unbanked. The correlation between income and access to formal financial services is still very strong; however, this landscape is now changing with incumbents and mobile/internet innovators now integrating with the main-stream banking system & support through central banks relaxed regulatory frameworks i.e self regulation upto an extend by FinTech service providers. Baap is coming soon.

While self-regulation and voluntary initiatives can be effective in certain markets, but blind folded assumption are not to believe that is sufficient to ensure that the most vulnerable consumers have access to a basic bank account. With help of “Ministry of innovation & ideas” (Its purely my fanatical & philosophical term) many central banks introduced regulations requiring member b to ensure consumers have access to a basic bank account. Simply ensuring that all consumers have access to basic banking services or operativewallet/account will give a huge success for Finclusion to start with but second part as defined in definition will take to long way. This basic requirement needs to be supported by minimum standards. In order to measure the fair treatment given or not given to basic banking services account holder; criteria like functions and features available, charges taken out of basic account/wallet consumer, time taken to process applications, barriers to account opening and how the consumer is treated afterwards.

Having said enough about banks not doing, I would like to acknowledge the fact that few banks are trying though. There’s a notable exception by one Kenya based bank. They’ve not only responded well to the new order, but have gone on to counter the disruption. This was accomplished through their thin sim & MVNO product. It had 1m signups within the first week of launch. A big indicator of how threatened the disruptor felt was pursuing court action & losing. Another innovator bank is also making interesting moves & news. But sadly rest of banks in Africa seems to be laggards begging to be disrupted. Biggest disappointed news, which came recently, in which one of the largest, capable and very well funded bank whom I just simply love to use for my personal banking needs; they declared their plan to move out of African continent is a real set back.  The bottom line is that no one has figured out a sustainable business model because the cost of delivering services is high and the end client’s needs are not simple, they are varying and complex, just often more “micro” sized. In many countries world wide, and even in those with less burdensome regulatory and other resource costs, traditional banks have just not figured out how to make this work for them. You need to either force it through regulation and subsidy or have specialised “micro” institutions.

I remember very vividly making some presentation in Indonesia and in some African countries to banks about Financial inclusion and mobile financial services trying to convince them (then) to convert 100 year old mind of traditional banking or transactional banking to bank of today, bank of today’s need & bank of every consumer & their needs but unfortunately most of them kept sleeping through out the presentation and I am sure some other guys in corridors over heard and took forwards. Both can coexist of course, but just waiting for the business case to make sense for large and very complex often-multinational banks doesn’t work. But we should also be constantly asking ourselves, does the “solution” we pose offer a better alternative to what already exists? Vulnerable consumers should not face unreasonable or unfair charges. All these ground rules should apply to consumers trying to open an account and to the on-going operation of the account. A quantum leap in the dependence of mobile phones is expected in the next decade. This is based on historical data, present user adoption and the pace at which more people use the smartphone than the PC. How many of got to know what e-mail was in 1992 or 1993? If you are a banker or financial institution, your answer to the above questions will take care of your doubts as to what the future holds for your industry. The idea of the riddle is to get attention and noise of financial inclusion.

Conclusion – If we look back at how technology has moved on in the last five years, and how collaboration between banks, MNO’s and Fintech; surely the smart choice. Better data collection and analytics inform more accurate customer segmentation and human-centered product design, such as clearer user interfaces or targeted alerts and notices to consumers. Fact or truth is its very difficult to find an ideal emissary for the financial inclusion message in the first place. Analysts and investors of big bank brands had long been critical of decisions to be taken or not be taken to go down-market, fearing that it would dilute the specific company’s affluent-focused brand. Once true believers of Financial inclusion are gone, the writing may already have been on the wall but hopefully this setback won’t deter other major players from embracing the challenges and potential of the low-income market indeed.

But don’t be surprised if it makes some (Banks) to proceed with more caution when translating their good intentions into actual products. There is no need of rocket since to figure out what is needed to survive as it’s a no brainer technology. Long long ago there used to be a postage stamp that one use to buy to post the envelope which contained a “hand written” letter. The price of the stamp varied with the distance that the letter had to travel to its destination. This postal service was so solid and pretty reliable and was a key element of any country’s socio-economic system. But things changed and always change as change is the only constant factor in our life and they changed very fast. Enter electronic mail time and communication was never the same again. No one is looking for letter box any more.