According to estimates by the United States Census Bureau, we now have a world population of over 6.7 billion, each of whom requiring access to basic services. While there is disparity between those that have access to basic services and those that do not; the relative statistics on those who have access to banking services are even more disparate.
Depending on which report you read, the numbers do not differ too vastly, as there are several billion people on the planet who still do not have access to basic banking services. Unsurprisingly, it is not a high priority for some, considering that they still do not have access to clean drinking water or shelter. However, take a moment to think what that would mean for you - to not have a banking relationship, would you be able to have a car loan or a house loan, for example?
This presents a pretty clear opportunity for laterally minded banks, governments and even non-banking institutions, to look at offering banking services to this vast segment of the population. So why has nobody spotted this opportunity? The truth is that everybody has. But the question is how do you offer banking services to a market segment that does not typically have a sustained income of value?
You need to offer banking services in a new way, and on platforms and systems that is not only economically viable, but profitable. This is where the mobile phone comes into play - a ready made payment instrument, typically containing 'stored' funds, purchased by the customer, which can be the customer's access device to your bank.
When you look at the penetration of mobile phones, the statistics are encouraging. Almost everybody owns one these days. Even in the poorest nations, mobile phone penetration tends to be significant. While adding millions of low value clients to a core banking network does not seem to excite many bankers, however, if you could implement a low cost 'micro' bank that does not require huge investments, this market immediately becomes attractive to the bankers.
Millions of small value service fees from payments, transfers, etc, can quickly add up to a large amount of revenue, especially if both the processing and start-up costs are small compared with traditional banking platforms. Central banks and governments have struggled for years in finding ways to include everyone in what is typically being coined 'Financial Inclusion'.
While there are some banks that are interested in 'doing good' for the people on the planet, the bottom line is that unless the initiative at best breaks even, or can be considered a charity write off, not many banks are willing to venture forth. Banks are in fact missing a huge market opportunity here that could present a whole new revenue stream. Now has come the time for them to revisit the market in terms of penetration and technology.
The vast majority of our unbanked population carry a phone, and have money (albeit not that much, nonetheless it is still 'bankable' money). A typical prepaid phone customer has an electronic device (the phone), who can communicate with his/her bank in a variety of ways (via SMS, voice, etc). Hence, your cost as a bank to service this customer using this channel - fully automated - is very low. Even if he or she only has the equivalent of USD10 per week income, it is still USD40 a month that he or she can deposit into their 'micro bank account', then link the phone to this account and manage all transactions from the mobile device.
Though small values, it is money after all. Electronic money in a micro bank account that can be used to pay for goods and services (phone-to-phone, P2P payment), transfer money to relatives (domestic and international remittance), etc. You may not get too excited about someone spending USD40 a month at this point, but if you have one million customers - customers that typically pay higher service fees than high net worth customers anyway - then the numbers stack up nicely.
Customers that today do not belong to any bank, suddenly become part of the banking system. After all, access to banking services should be the right of anyone with an income, regardless of income level. Of course the real question is; what does it cost you as a bank to service this customer? The reality is very little. Customers have paid for the access device (the phone) and are paying for the SMS (the delivery). All you (the Bank) have to do is supply them with an account.
Naturally, we are not talking about adding millions of accounts to your current core banking infrastructure, but more about embracing new technology that allows for these micro accounts without much cost to the bank. With a low cost of servicing, a small transaction fee does add up to a nice profit, especially if you are able to get millions of users easily. Of course, there are costs associated with marketing, acquisition etc, but these are scaled in parallel to the banks' budgets.
By any means, this is not a new idea as there are a number of banks (and third parties) that have already realised the business case for banking the unbanked. Africa has been leading the way, and we are now seeing similar deployments in Asia and India. The typical banks in this space are either a large government owned bank, or conversely the small independent banks. What better ways to grow your footprint in a country by launching a micro bank? This is surely a more economical option than setting up a branch in every city. AbacusConsulting is the authorised reseller of Sybase in Pakistan.
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