Business considerations may prevent many large banks from tackling financial inclusion, but the technology supporting a successful inclusion program exists.
One company providing those services is SunTec, a leader in relationship-based pricing.
Inclusion and relationship-based systems
President Amit Dua said both commercial and consumer clients should expect products and services priced based on their relationship with their bank. The more business you do with them, the better rates you should be offered.
Through intelligent interpretation of the data those customers generate, the bank can determine what those rates are. They can also deepen that relationship by providing more personalized service bundles.
That’s the ideal situation, but practical factors may limit how much the banks can do independently, Dua cautioned. Those still using legacy technology or those who deployed early digital systems could have limited functionality.
The geographies they aim to service play roles too. It is more challenging if the population is spread across thousands of towns and villages in a vast expanse. The percentage of people with bank accounts is another factor.
Driving inclusion through strategic partnerships
If banks want to construct a holistic customer experience, they need a network of partnerships and ecosystems they can manage digitally, Dua explained.
The bank brings services while the partners have access to large customer groups that the bank needs help to acquire.
Half of the world’s unbanked and underbanked live in seven large economies, including East Asia, the Indian subcontinent, and sub-Saharan Africa, Dua said.
Some may have a bank account, but they are essentially unbanked if they are not using it because they aren’t offered useful products.
The problem is in the United States too, where 30 million are underbanked, and seven million are unbanked. Because they have little, if any, credit history, they need more service.
A second group is the immigrants coming to the U.S. who have no credit history. Even though they are often shown to be good credit risks, they get little beyond bank remittance service offers. They turn to high-interest small shops or pawn brokers as a last resort.
Next up are young customers with no banking history and (in some cases) limited financial literacy. Individuals and SMBs join them in developed markets whose thin credit histories keep banks away.
Using mobile, BaaS, and data to drive inclusion
Dua said the key to serving these groups is leveraging mobile power. In many markets, mobile penetration far exceeds the number of bank accounts.
Mobile service providers can service customers at a far lower cost. Even small account customers can be profitably served at low costs.
Dua places banking-as-a-service (BaaS) and embedded finance on the same level as mobile regarding driving inclusion.
They provide access to new products and services. As BNPL’s popularity exploded, it fuelled further demand for banking services.
Banks quickly saw they needed strong partnerships to access these groups, Dua said.
A fortunate bank has millions of customers, but a mobile provider could have close to a billion. Financial inclusion relies on the two sides coming together and sharing their strengths.
“There will be a point when banks will realize that it is not just about them reaching out to the customers directly,” Dua said. “The potential to reach out to markets they had not even imagined is tremendous via BaaS.”
If that inclusion strategy includes serving remote areas, there are two ways of doing so, Dua explained. It’s either through mobile service providers or via a network of local stores.
An excellent example of the former is BBVA’s outreach to Uber drivers in Mexico, Dua said. They provide debit and payment services. It solves the costly last mile issue and is provided at a low cost.
Once the bank has a BaaS play, they can provide services through partners instead of alone. These include microservices like insurance and, in the future mutual funds for even the smallest customers. They are delivered through their partner network.
Once partners understand their customers’ data usage patterns, the fun really begins. Done correctly, and a virtuous cycle begins, Dua said. What starts with a savings account can expand to insurance, for example.
“The data that starts getting built up is extremely important, far more important than in the regular banking world,” Dua said.
“These folks don’t have a credit history. And at the end of the day, access to credit by the majority of the citizens of any country is the most fundamental factor that contributes to that country’s economic growth.”
New markets bring challenges and rewards
The combination of effective technology, partners with last-mile access, and reams of data allows banks to explore new markets with innovative products.
Banks get new customers, their partners deliver added service, and the end users enjoy those new offerings. It’s a win-win-win.
Geographical challenges in some emerging markets have allowed banks servicing these regions to develop agility that other regions struggle to achieve.
Both the geographies and populations are enormous. Through necessity, they have become very efficient in infrastructure and transaction servicing costs to service more remote customers.
Because of the lack of existing infrastructure, those emerging markets leapfrogged generations of technology and absorbed the most effective technologies, Dua said.
Contrast that with some Western banks who automated much earlier and have higher servicing costs. Often, the only option for them is to partner with an ecosystem so they can make at least seize part of the opportunity.
“Without being able to service that community anyway, they would have made no money. In that sense, that becomes a high-volume, low-margin game for them,” Dua said.
Tony is a long-time contributor in the fintech and alt-fi spaces. A two-time LendIt Journalist of the Year nominee and winner in 2018, Tony has written more than 2,000 original articles on the blockchain, peer-to-peer lending, crowdfunding, and emerging technologies over the past seven years. He has hosted panels at LendIt, the CfPA Summit, and DECENT's Unchained, a blockchain exposition in Hong Kong. Email Tony here.