Financial Inclusion:

A customer experience story

DAVID BANNISTER

EDITOR BANKING TECHNOLOGY

David Bannister is the editor of Banking Technology, one of the leading fintech publications in the industry. He has been covering technology issues for 35 years and specializing in financial technology for the past 24 years, contributing to a range of titles including Dealing with Technology, Waters magazine, Financial Markets IT, Financial News, the Financial Times, and The Times.

He is a well-known panellist and speaker on the conference circuit and has taken part in many international conferences, including Swift’s Sibos, the International Payments Summit, EBAday and the ISITC Vendor Forum.

Smartphones and social media have completely changed the way people interact with each other. We are now in a world where contact can be made instantaneously and this has woken up businesses to the reality of customer relations. The financial services industry still has to break down barriers keeping the unbanked away and the underbanked from benefiting from basic banking services. Last year, the World Bank estimated that about 1 in 3 people worldwide or 2.5 billion adults fall under the unbanked/ underbanked category. This represents a massive untapped opportunity for banks across frontier, emerging and developed markets, and if addressed effectively, would provide a major boost to economic growth and stability everywhere.

Until recently, established banks had few rivals vying for their customers. Today, we see the rise of micro-lenders in the form of payday loan providers such as Wonga and Satsuma, which offer access to services for the unbanked population. These operators, who seemingly heLp out people in need of credit, are directly challenging established banks by offering a less troublesome registration process. Banks and regulators are acutely aware of the challenges posed by old and new service providers within the payday loans market.

Analysis of the impact of fees shows an egregious impact on the less fortunate. The less money you have, the more it costs to manage it and move it around. In the US, a money order can cost five percent for $100 and people without bank accounts have to pay from two percent to ten percent to cash a cheque. In the U.S., underbanked customers can end up paying over $40,000 in fees over their lifetime simply for cheque cashing and short term loans. Stepping into the fray, the telecom industry has made a strong start on engaging with the unbanked. Mobile enabled payments, which has its origins in East Asia in the early 2000s, is significantly impacting the reach of banking services in Sub-Saharan Africa today.

Kenya’s M-Pesa, which was created by telecom giants Vodafone and Safaricom in 2007, offers mobile-phone based payment services replacing the need for ATMs for hard to reach customers-for example, there is only one ATM per 18000 people in Kenya. A large population underserved by traditional banks, can be reached using mobile phones to offer a simple approach to banking for Kenyans. Today, more than 86 percent of Kenyans use mobile money, transferring approximately $35 million daily. Additional benefits have been substantial such as reduction in theft and fraud. Even government tax reporting and receipts have been improved.

The tie-ups between the telecom and banking firms complement one another.

Banks have the knowhow and telecoms provide the network coverage, making it an ideal match for financial inclusion.

Collaborating across industries can of course be a challenge but the business case for such collaboration is undeniable.

To highlight the work which needs to be done by banks to engage with customers over their lifetime, data from World Bank 2014 report shows that, of six million new accounts opened in South Africa last year, 2.5 million became inactive in the same year.

When customer relationships can be destroyed with a few clicks of a mouse, banks do not yet seem to react quickly enough. However, if customers are more effectively made aware of the benefits of banking services they can be incentivized to take actions more aligned to their financial health.

This is where gamification comes in, the concept of applying game mechanics and game design techniques to engage and motivate people to achieve their goals.

The concept grew from observing addictive mobile games such as Candy Crush and Fruit Ninja, and seeing the relevance to the financial services industry through behavioral finance research.

Inspiring individual customers and bank agents to play the game

The innovation of internet banking and mobile payments unleashed the democratization of banking services. There still remain barriers for the unbanked population such as lack of financial and technical Literacy. Gamification only works if the customer understands what’s in it for them. Banks and telecoms businesses can use the addictive elements of gaming as a tactic to consistently give feedback to customers over a long period of time. A useful display would be to demonstrate how well one customer is doing on savings compared with her group of friends.

Banks who want to acquire customers from the unbanked population can turn each customer goal to a customizable journey, broken down by stages and be able to show exactly where a customer is in relation to the goal. Axis Bank in India and Simple Bank in the USA has excelled at goal orientated services for customers in their respective markets. Whether ahead or behind on progress, customers know where they are and are motivated to consistently engage.

In the past, bank agents were commissioned by banks to travel to remote parts of a country and acquire customers. Today, a more connected world means emerging market customers can access financial services at affordable prices. Agents need to be incentivized differently while being kept in line with regulatory standards. Successful agents are partners to the business, and corporate success brings personal rewards for them. Aside from using agents as affiliates, banks can also use their current customers’ influence within the rest of the unbanked population.

Winning over the unbanked population

The challenge for established banks is pretty clear when it comes to acquiring and optimizing relationships with the unbanked world. However with the current stance in applying extractive high fees, they risk being resented as a high cost option by credit-strapped customers, allowing banks with a more reasonable pricing structure an opportunity.

Banks are still the only institution capable of providing a lifelong relationship to customers designed to advance comprehensively their financial health because they could hold the lifelong view and data.

Digital innovation provides a unique opportunity to address this long standing gap to under and unbanked people in developed and emerging markets.

As new technology has advanced, so too has the maturity of emerging markets with regards to banking. From an estimated population of 1.2 billion, Bank of India estimates 41 percent of population is unbanked, rising to 61 percent in rural areas. However, this will change. The World Bank (2014) believes financial inclusion is important for development and poverty reduction. The poor benefit enormously from basic payments, savings, and insurance services. The true dilemma for banks is whether to become a commoditized back office processor, or to play a transformational role in the lives of all members of society, rich and poor alike.

The unbanked & the underbanked