One of the most life-altering and important drives in the developed world is the drive towards financial inclusion.
While this drive may be derived from the incentive for banks to increase their customer base, it is to the advantage of the newly banked population, who previously had limited exposure to even simple banking services. Suddenly, through this drive, this population is able to perform debit card sales, earn interest on their funds, gain access to credit, and become economically active.
Increased access to the Internet, especially as a result of the growth of mobile devices, means the financial services and banking industry has benefited from the growing communications infrastructure in developing countries. That being said, the way forward for this industry is heavily dependent on the continued healthy relationship between banks and network service providers.
A large driver of this is the push from many countries to increase the number of people moving from the unbanked population into the formal economy. This becomes a challenge in rural areas where there is a lack of physical infrastructure and people are not able to conveniently access a bank. This is where branchless and mobile banking solutions play a vital role in facilitating for the creation of a higher banked population in emerging markets.
“Branchless banking initiatives within emerging markets are at an all-time high,” says Mark McCallum, director and head of global services Africa for Orange Business Services. “This includes initiatives such as microfinance and mobile wallet solutions, and the emergence of mobile plugin devices and applications for banking such as Payment pebble and Snapscan.
“We have seen pockets of strong uptake in Africa, such as in Kenya, for example. The strength in this competitive market is through collaboration with the right outside partners, such as telcos, who can provide the banks with the necessary, reliable technology and infrastructure.”
However, despite the increasing adoption of technology, financial inclusion is still met with a number of challenges in Africa. These include the variability of access to infrastructure across areas, dispersed populations, people living in terrain that poses challenges to connectivity, a lack of education and trust in the banking system, and unreliable and inconsistent network providers.
Fortunately, owing to the value that can be unlocked by a greater number of clients entering into the banking system, banks are eager to partner with telcos, owing to the knowledge that telco infrastructure establishment and uptake tends to precede that of banking.
“Telcos are able to provide banks with established networks, the necessary digital infrastructure and communication channels, as well as an established consumer base,” says McCallum. “If approached in the right manner, these partnerships result in a win-win situation for all involved.
“We have also seen a drive from other players outside the telco and banking space who are interested to enter the fray. As customers become accustomed to low-cost, flexible solutions and realise the benefits, they begin to trust the system, which leads to the creation of more opportunities,” he adds.
“The popularity of cashless transactions is increasing exponentially, shaping the latest industry innovations. It is also important to note that there has been a definite uptake in online purchasing and transactions, which are key factors not only in the banking industry but also in corresponding industries such as retail. The cost of smart devices is consistently becoming cheaper, along with that of mobile and data. The barriers to entry are slowly depleting, especially in high-growth markets where employment is steadily rising. In this sense, government has an important role to play in the prosperity of its people.”
In the future, banking will come to the people. Much like small spaza shops that we currently see in some underprivileged areas in Africa that cater for all cellular needs, smaller banks will pop up in places never before thought possible, offering a full suite of services in a safe, cashless environment.
The ability of payments processed over mobile phones has changed the retail space for good. It has not only allowed consumers the ability to purchase goods without cash, it has allowed retail outlets to appear in places where there may not have been enough economically active individuals to support a business previously.
Emerging markets also have an advantage over their established peers, as they do not suffer from the same legacy systems constraint. This enables banking systems in new markets to be adaptable and pliable to the particular needs of consumers within that particular market and area.
While the current growth in banking in developing nations is cause for optimism, numerous challenges remain and it will remain the responsibility of important partnerships between banks, telcos and other partners to provide bespoke solutions to ensure continued growth and prosperity.