> Posted by Jeff Abrams and James Hokans, Bankable Frontier Associates
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process, and highlights findings from “Mapping the Invisible Market.”
In a blog post entitled “Are E-Payments a Boost or Bane to FI2020?”, Jamie Zimmerman asserted the potential of social transfer schemes to boost electronic payment adoption and ultimately financial inclusion. While G2P (Government to Person) payments are indeed a potential gateway to savings and financial inclusion, our experience managing the Gateway to Financial Innovations for Savings Program (GAFIS) has not found that regular G2P payments are the low-cost acquisition strategy (or gateway) for banks to serve poor people we might have expected. Of the five banks we work with, four pursue G2P-related gateway opportunities (ICICI Bank in India, Standard Bank in South Africa, BANSEFI in Mexico, and Equity Bank in Kenya). Two years into the project, the evidence of progress towards G2P as a gateway for savings is still very limited.
The more common pattern is still for G2P recipients to immediately withdraw all the cash they receive. They use the account as a payment conduit only– which is not the general definition of “financial inclusion.” In South Africa, for example, more than 9 million G2P recipients now receive their payments via an ATM/debit card distributed through a single provider tied to a relatively small bank. This is, in fact, a major step backwards. Recipients no longer have the ability to credit their funds to their bank accounts at any other bank (67 percent of South Africans have bank accounts).
Our findings to date suggest that all of the following factors must be addressed before G2P payments become a more effective gateway to financial inclusion, particularly to savings.
Banks must offer a convenient and affordable channel for accessing the funds. Recipients will not leave savings in their accounts if the access point is inconvenient. However, the business case for agents and electronic access (POS, ATMs, mobile) is unclear for banks at this time.
- Banks must offer an affordable product with a trifecta of privacy, flexibility, and discipline to serve G2P recipients. Privacy is required so account holders do not fear that government will revoke payments if they reveal that they have financial assets by keeping savings in accounts. In some countries, this is merely a perceived risk, while, in others, increased assets can cause beneficiaries to be removed from benefit rolls. Flexibility and discipline are important so that account holders can “force themselves” to save a portion of their savings (e.g. via opt-in option) or otherwise make the account illiquid in order to resist all but the most urgent withdrawals; yet, there has to be some measure of flexibility to ensure access to the funds when the need arises.
- Banks must develop an effective branding and marketing strategy to catalyze not just account opening to receive the G2P payment, but also sustained usage of products. To make these accounts economically viable, banks need clients to either increase balances, or willingly pay transaction fees for good service. Clients need to have strong brand perception of the bank as more than a simple conduit for payment collection, but as a place that values them as “bank customers.” In one instance, only 30 percent of G2P recipients knew that the funds that they collected through the bank and bank agents were actually in a savings account in their name.
- The G2P schemes must have a clear, stable, and enabling policy that encourages financial inclusion. In addition to consistency in actually implementing the announced delivery of payments through bank accounts (we observe inconsistent action here), social ministries and programs must expressly allow and encourage at least some sticky savings.
Without all of the above in place – which we acknowledge is difficult and requires much coordination – results will be sub-optimal.
In 2013, the GAFIS program will continue to support effective implementation of these elements, especially those elements in our partner banks’ control (channel, product, marketing), and it will advocate with authorities on policy. GAFIS will report back formally on the results at the end of 2013, so please stay tuned as more evidence comes to light.
For more information on Financial Inclusion 2020, sign up for campaign updates.
GAFIS is a special project of Rockefeller Philanthropy Advisors, funded by the Bill & Melinda Gates Foundation and managed by Bankable Frontier Associates (BFA).
Jeff Abrams is BFA’s GAFIS Project Manager, and – among other things – manages BFA’s GAFIS engagement with several banks confronting the G2P opportunity, such as ICICI Bank in India, Equity Bank in Kenya, and Standard Bank in South Africa.
James Hokans is a Director at BFA, and – among things such as leading BFA’s housing finance practice – leads BFA’s GAFIS engagement with BANSEFI and its strategies to deliver savings to 6m Oportunidades G2P recipients. James is also an expert in bank agent network strategies.
Image credit: CGAP
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