Blurred Lines in Banking - The Changing Definition of “Bank” at the BoP
Global, March, 29 2014 -
Regulators in a number of African countries, concerned with widespread financial exclusion, have allowed mobile network operators and banks to enter into similar partnerships, and both sides seem have an increasing awareness of the value in doing so.
When was the last time you actually went to a bank? If you’re like most Americans, it has been a while. A report from Bankrate released this week showed that half of Americans haven’t entered a bank branch in the past 30 days, and three in 10 haven’t visited one in at least six months.
Online banking largely accounts for these numbers in the U.S., and the Internet’s influence is pushing the industry toward a new concept of the bank branch. As Bank of America executive Rob Aulebach describes it, next-generation branches could include “smaller physical spaces with greater use and integration of technology,” and branch/ATM hybrids, with tellers available through video teleconferencing. He says Bank of America has even equipped tellers with tablets in more than 1,200 banking centers, “unfettering them from their desks so they can assist customers from anywhere in the store.”
Though it won’t necessarily involve iPads, something similar is happening at the BoP, where different customer needs are leading banks to bypass the branch model altogether.
For instance, this week in Ghana, Fidelity Bank became the first in the country to launch an agent banking model, allowing it to use shops and supermarkets as bank agents. These agents are able to help individuals open an account almost instantly with a valid photo identity and a minimum of GH 10¢, half of which goes toward their opening balance. Account holders immediately receive an ATM card and a PIN.
“The vision of Fidelity Bank in this innovative strategy is to promote financial inclusion by ensuring that anyone who is bankable can receive a full bank account, in spite of any limitations they may have that previously excluded them from accessing banking services,” Fidelity’s deputy managing director, Jim Baiden, told GhanaWeb. In a country where about 70 percent of the adult population is unbanked, empowering non-bank entities to deliver accessible financial products to people makes sense.
But for many in the developing world, even banking at the local supermarket seems inconvenient compared to mobile alternatives. Mobile money products like Vodaphone’s M-Pesa are making branch banking obsolete in Kenya, and the company hopes to do the same in India. This week, the company started offering mobile banking in Tamil Nadu and Chennai, in partnership with ICICI Bank. The announcement marks the latest step in the two companies’ efforts to make mobile money available across India. Though it’s not a stand-alone bank account, M-Pesa lets customers deposit and withdraw cash, transfer money to any mobile phone, remit cash to any bank account, and make payments to utility bills, Vodafone said. The company plans to take the product nationwide in the next couple of months.
The so-far harmonious collaboration between Vodaphone and ICICI Bank hasn’t always been typical of bank-telco relations, as mobile money products have encroached on (and sometimes replaced) traditional banking services at the BoP. But recent developments suggest that things may be changing. Earlier this month, South African telco MTN and pan-African bank Ecobank announced a partnership that will expand mobile money services to MTN Mobile Money users who are also Ecobank customers in 12 African countries. Customers will be able to transfer and receive money between their MTN mobile money and Ecobank accounts, and to withdraw money from Ecobank's ATMs.
Regulators in a number of African countries, concerned with widespread financial exclusion, have allowed mobile network operators and banks to enter into similar partnerships, and both sides seem have an increasing awareness of the value in doing so. As Edith Mwale, a telecom analyst at Africa Center for ICT Development said in PC Advisor, "African banks are beginning to innovate and partnering with telecom operators for them to remain relevant - otherwise they were almost becoming irrelevant and a preserve of only the rich."
Unfortunately, not all recent developments on the financial inclusion/regulation scene are positive. This week also saw discouraging reports out of India that could mean trouble for the implementation of the Mor Committee report on financial inclusion. As we’ve discussed in recent posts, the report contained a variety of innovative ideas aimed at an ambitious goal: universal financial inclusion in India by 2016. Now, as reported this week in Live Mint, government officials are expressing increased skepticism about the feasibility of this goal and the plan for achieving it. “(There are) many loose ends that need tying up. Problem (is) compounded by some simplistic assumptions too,” financial services secretary Rajiv Takru was quoted as saying about the report, when asked if its recommendations were workable.
Takru, who will take over as revenue secretary at the end of the month, didn’t elaborate. But others have expressed more specific doubts, including the possibility that the Aadhaar national ID registration project – a core element in Mor’s plan to offer bank accounts to the unbanked – might falter due to tenuous support for the project in India’s government and Supreme Court. “The direction of [Mor’s] recommendation is good but the roadmap for implementation is unclear. In the absence of an adequate implementation framework, the report will become only a statement of good intent and there is no hope for at least next six months of any progress,” said financial inclusion expert Vijay Mahajan, chairman of India’s oldest microlender Basix.
On a more upbeat note, two recent developments in impact investing could have lasting positive results on opposite sides of the world. Aavishkar, an Indian micro-finance fund, announced that it expects to raise $75 million for its Frontier Fund by the third quarter of this year. The fund will be deployed in South and Southeast Asia, and will be one of the few India-focused private equity funds going global. As the Business Standard reports, the company plans to take its model of investing to neighboring countries like Indonesia, Sri Lanka, Myanmar, Bangladesh and Pakistan.
Meanwhile, the Multilateral Investment Fund of the Inter-American Development Bank recently announced that it is launching a new $5.3 million facility to support Social Impact Bonds (SIBs) in Latin America and the Caribbean. According to the Center for Global Development's Rita Perakis, the facility will make it “the first development finance institution to commit resources to implementing SIBs … This is fantastic news for everyone who’s been waiting with interest to see when the SIB concept – which has taken off in the UK and the US – will be tested in low and middle countries.” NextBillion will be following this particular event with great interest – check back for further coverage in the weeks ahead.