Banking the Other Half

According to estimates:
• 2.5 billion people have no access to financial services.
• The number of mobile connections worldwide stands at over 5 billion.
• Usage of mobile banking will double in less than 3 years to touch 400 million.

These facts tell the story of a new banking, which is intent on spreading financial inclusion through the use of low-cost high-technology channels.

With urban markets saturating fast, going after underserved pockets is as much an economic necessity for banks as a social agenda for governments. But historically, problems of infrastructure, logistics and cost of servicing have hampered the viability of financial inclusion. Until now.

The mobile phone channel has provided last mile connectivity to financial service institutions at a scale that could never be matched by the combined might of kiosks, rural branches and field agents, at a fraction of the cost. Acceptance was never going to be a problem, because people already knew how to work the device; nor was there any great need for literacy – a stumbling block in the way of ATM/kiosk usage. Kenya is the current poster boy of financial inclusion, with over 10 million of its citizens using their mobile phone to transfer money.

The proliferation of online channels is also helping banks – in an early-bird-catches-the worm-fashion – reach out to their future customers among the Y Generation, who, given their need for independence, ubiquitous access and immediate fulfilment are unlikely to ever walk into a branch. Social media channels will play a vital role in building a bridge to this audience.

Besides the rural and low income urban populace, other segments defined by ethnicity, belief or other dimension also need to be brought into the financial net. The provision of customised money transfer services for the Hispanic population in the U.S. and the emergence of faith-based are noteworthy examples.

Now, for the other side of the story. At a recent meeting, one CEO said plainly that the unbanked were so for a very good reason, which is that they simply did not have the resources to be bankable. The cost and feasibility of complying with KYC regulations for rural or poor customers, is another hurdle. Is inclusivity such an attractive proposition after all? Would you rather put those resources into milking the urban market, or are you a banking brave heart?