Banks Are Driving Financial Inclusion

> Posted by Tim Adams, President and CEO, Institute of International Finance

Access to financial services and products is one of the most important drivers of economic development. At a time of tepid global growth where financial institutions are searching for new market opportunities, the benefits of bringing the unbanked and underbanked into the global financial system are more important than ever.

In a new study we published a few weeks ago along with our colleagues at the Center for Financial Inclusion, we examined how banks approach financial inclusion from a business perspective. We found that it is now a key aspect of strategic planning for traditional financial institutions, particularly local banks. With a timeline to break-even, firms are investing heavily in new technology and leading the charge in bringing access to financial services to populations that are unbanked and underbanked.

Utilizing innovative technologies was a clear trend among the banks that are successfully reaching underserved populations. While shifting their operations to take advantage of cost reductions and efficiencies in these technologies, they are opening opportunities to serve the so-called “base of the pyramid,” which in turn allows poor households to expand consumption, absorb disruptive shocks, manage risks and invest in durable goods, healthcare, and education.

The report highlighted a wide range of partnerships and new business models that banks are using in previously overlooked areas of the world. Programs that serve as both an incentive for financial account use and to improve quality of life are proving very successful. Banks are starting to embed financial capability building into customer interfaces at teachable moments when customers are making financial decisions. BBVA Bancomer contracts with the fintech company Juntos to send tailored SMS messages to customers based on their banking patterns. The responses from those customers then give BBVA Bancomer more information about their customers’ specific needs and preferences. Australia-New Zealand Bank is partnering with suppliers of rice and other food staples in the Pacific to digitize and simplify payments throughout the supply chain. Programs like these are key to expanding the financial ecosystem in areas where it is difficult for people to get cash or pay with a card.

Other efforts focus on building trust between banks and communities. In areas where firms employ banking agents to replace branches as a touch point, relationships are being strengthened through technology. State Bank of India has more than 61,000 agents throughout the country and is a great example of this strategy. Their program connects potential or existing customers with local, familiar agents who can enroll new customers and assist all account holders in a convenient, reliable way. Agents are responsible for helping customers fill out applications for loans, open accounts and more, all through digital channels including POS card devices, mobile phones, Internet-based kiosks, and biometric IDs with fingerprint technology. These types of programs lower costs, increase points of service and build trust.

Apart from the cutting-edge programs highlighted in this report, the study also features a range of recommendations that came from the banks we interviewed. There are still many business models that need to be improved, trust to be reinforced, and capacity for financial services to be built. Banks cannot do this alone. New partnerships with fintech firms, telcos, retailers and others will bring new products to those who are currently underbanked or unbanked. In order to succeed, banks need policymakers to develop and implement legislation that supports their efforts. By developing a regulatory framework that supports digital banking and by moving their own operations to digital, regulators will be facilitating the type of environment that supports and broadens financial inclusion efforts.

Have you read?

New Video: Susy Cheston Interviews Dr. William Derban on “The Business of Financial Inclusion”

The Business of Financial Inclusion: Insights from Emerging Market Banks

Banks in Financial Inclusion: Improving the Customer Experience