Increasing access
Despite the fact that it behoves banks, from a business and strategic aspect alone, to provide customers with access to personal finance, debt and savings instruments, many individuals around the world remain outside the formal banking system. According to EY’s report, The Future of Banking in Emerging Markets, almost two billion people globally have never held a banking account. With a projected 15 million new accounts expected to be opened in Nigeria alone during the next decade, realising the potential of the unbanked demand presents a valuable first-mover opportunity for banks.
While South Africa has made gains in providing previously unbanked individuals with access to accounts, considered the most basic measure of financial inclusion, the country remains largely a cash society. Low-income consumers are wary of fees and distrust financial service providers, the Boston Consulting Group’s Improving Financial Inclusion in South Africa report found. However, the report does note an improved uptake in recent years, which one could surmise is linked to improved electronic access to social grants.
Digital innovation
The reduced cost models offered by advances in fintech innovation, digital banking, blockchain and cryptocurrencies are fast becoming the new norm across developed and emerging economies alike. These advances provide opportunities to broaden the reach of financial services to those who remain outside formal channels, either through new digitally- focused start-ups or established players with the agility to adapt.
In many developing regions where more people have cellphones than bank accounts, banks have partnered with mobile network providers to deliver products and services. This has been seen with the widespread adoption and success of mobile money platforms in the likes of Kenya and Bangladesh.
In Digital Financial Services: Challenges and Opportunities for Emerging Market Banks, the International Finance Corporate explains how Kenya’s M-Pesa mobile payment system boosted development with reliable and affordable payment methods, fostering economic growth by lowering transaction costs. Launched in 2007 by Safaricom, mobile transactions now account for 67% of payments tracked by the National Payments System in that country.
Safaricom’s partnership with the Commercial Bank of Africa (CBA) over the period resulted in 12 million new accounts being opened with the bank between 2012 and 2015. “While M-Pesa provided the pipes for CBA’s growth, the capture of value-add in financial services appeared to shift back to the banking sector,” the report noted.
Amid increasingly agile fintech offerings, where do the opportunities lie for banks and does the current system need to undergo a dramatic reinvention in order to retain its relevance, especially in emerging markets?
Gradient approached four prominent thinkers for their views on the subject:
“There’s no point in having a debate on whether fintech is disintermediating banks – it’s happening already.”
Cas Coovadia, MD: Banking Association of South Africa (BASA)
Is it the role of banks to encourage economic growth?
It’s always said that banks are the grease of the engine that’s the economy. However, they don’t create growth in themselves, but can certainly accelerate growth when the environment is there. In emerging markets, governments that are investor-friendly and provide markets that are open for investment mean banks can go in, offer credit to investors and provide a range of products and services in order to protect investor money.
Has the financial services sector done enough to promote access to its products and services among the unbanked?
According to the November 2017 FinScope report, the portion of the population that utilises the services of banks has increased to 77% from 60% over the past 10 years. While this is an achievement, even in comparison with our peer group, the transactional usage of accounts is very low. New accounts haven’t resulted in people using financial services to grow assets or improve their livelihoods, which should be a critical measurement. While some of the reasons for this are socio-economic, as many of the new account- holders are grant recipients, we need to ask whether we’re offering the correct products at the appropriate price. Broader access to financial services is good for the long-term growth of both the market and the banking industry.
Fintech, cryptocurrencies and the reinvention of banking
48 An Absa Investment publication
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