Can we win 2 billion new bank customers in under three years?
Access to credit and financial services helps lift people out of extreme poverty.
Access to credit and financial services helps lift people out of extreme poverty. We know the microfinance business model works and we have the technology, so it’s time financial service providers got involved, writes Kalin Radev.
In spite of the growth of mobile phone ownership and mobile banking in the developing world, the World Bank reports that two billion people still don’t have access to a basic bank account. The upshot for those who suffer from financial exclusion is to make it far harder for them and their families to climb out of poverty, plan for the future, start businesses, insure their crops, save money safely, or borrow affordably.
The World Bank believes access to credit can help reduce extreme poverty and boost shared prosperity. With other public and private financial institutions, it has pledged to achieve Universal Financial Access by 2020. Ten years beyond that, Bill Gates and Muhammad Yunus, one of the pioneers of microfinance, hope poverty will be history. They plan to open a Museum of Poverty in 2030, lest anyone forgets what it was like.
At first sight, universal financial inclusion seems a tough goal: how do you give 2bn people access to banking services in just under three years? Yet I believe that goal is achievable. We have the technology, the distribution channel via mobile phones, and a viable business model created by the microfinance sector. Today, banking should be within the reach of your hand. If you have a mobile, you should have access to financial services.
For the developing world, this is a huge opportunity. GSMA, the international mobile industry body, predicts that by 2020, 64 percent of North Africa and the Middle East will have smart phones, 55 percent of sub-Saharan Africa, and 63 percent of Asia Pacific. This is critical. In its report The Global Economy 2017, GSMA says: “The spread of mobile and digital technologies offers a transformative opportunity to achieve development aims and improve access to a range of life-enhancing services.”
But ownership of smartphones isn’t enough. Banks and other financial institutions need digital strategies to reach the two billion people with no access to banking services.
This might require recruiting third-party agents, training mobile staff to travel far and wide, offering kiosks, providing full-service automatic teller machines that allow customers to pay bills, transfer money and apply for loans – even open accounts using the in-built cameras and scanners.
But that’s not all. The services on offer have got to be good. Many potential customers worldwide already have digital lives and expect a Facebook level of service – easy, seamless, anywhere, any time. When the service provider gets it right, there are lots of opportunities.
Note that I refer to the service provider, not a bank. New regulation in Europe – notably PSD2 – will open up access to bank data to third parties, making it easier for alternative providers to enter the market. In addition, data from mobile-phone transactions might enable these third parties to develop highly accurate credit scores – providing a critical service in parts of the world where credit-risk ratings are non-existent or poorly understood.
Providers will be able to use these scores to offer the most appropriate products and services at the most appropriate times. More accurate credit scores will cut risk and transaction costs, so charges should be lower. The whole process will be fairer, more efficient, more affordable, and should deliver the best possible customer experience.
No one knows exactly what the financial sector will look like in five years’ time, but my best guess is that the most successful players will have invested in self-service, flexible adaptable solutions – with automatic credit approval, for example – to offer appropriate products to customers. The cost savings alone speak for themselves.
Operating costs at European banks typically account for 60 to 65 percent of the total; for those offering self-service banking that can fall to 29 to 30 percent, while transactions volumes rise. One Software Group customer – SMEP Microfinance Bank – saw transactions more than double within six months of its go-live. Besides lower charges for customers, additional benefits included better fraud management and faster disbursement.
Banks need to take note. It’s time for them to develop comprehensive digital strategies to help the World Bank meet its goal of Universal Financial Access by 2020. And if we can do this together, I think we’ll be well on the way to opening the Museum of Poverty.
Kalin Radev is Software Group’s CEO