Is Banking Ever “Simple?”

> Posted by Hannah Henderson, Principal Director, Communications, Accion

The Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.

In the United States, online banking has become the norm for many, with over 63 percent of U.S. households now using online financial services.* I recall ING Direct putting branchless banking on my personal finance radar back in September 2000 with its do-it-yourself, low overhead, higher interest bearing online savings account. Just the other day, I read about a new online banking platform called Simple, which bills itself as a “worry-free alternative to traditional banking.” Simple is a purely transactional web-based platform that partners with The Bancorp Bank where customer funds are held.

The concept that banking could be simple, or better yet, worry-free, seemed a remote possibility not so long ago. In my own experience, I’ve found relative simplicity in online banking but my personal finances are far from worry-free. These days, I can easily move funds between my savings and checking accounts—even though they are with different banks. I can pay all of my bills online and keep an eye on my balance in real time. My mobile phone allows me to stay on top of my bills even when I am traveling. And my credit score only stands to gain as my auto-paid recurring bills no longer rely on my memory to be processed on time. What do I worry about? Cash flow, fees, and trying to get to the bank or ATM when I need to deposit or withdraw cash. I am fortunate to rarely worry about safety—but I live in a virtually crime-free neighborhood.

For millions of people living in un- or underserved markets, banking still isn’t simple. However, change is coming quickly, even for the clients of microfinance institutions, thanks to technology-enhanced business models. It is already a decade since Accion began experimenting with gathering client data on PDAs (remember them?) during the loan approval process. Today’s cutting edge is about going completely digital, as highlighted recently in an article from The Economist on Kenyan MFI Musoni. All sorts of technologies are being employed by microfinance institutions in the pursuit of simplicity for clients, from faster and more capable core banking systems, to more accurate credit scoring and loan approvals, to more convenient payments services through mobile banking and agent networks. Families with low incomes will never be free from financial worries, but with new technologies rapidly spreading, the idea of banking at the base of the pyramid being “simple” may stand a chance of becoming reality sooner than we might imagine.