> Posted by Hannah Sherman, Project Associate, CFI
In a world of rapid change, few organizations have all the capabilities needed to accomplish every aspect of their business. This is true for commercial banks, which often find success in adapting to new opportunities through partnering. CFI’s most recent publication, The Business of Financial Inclusion: Insights from Banks in Emerging Markets, a joint publication with the Institute of International Finance (IIF), illustrates how banks use partners to adopt new technologies and reach previously underserved markets.
The report, based on interviews with the financial inclusion leads at 24 banks, shines a spotlight on the role of banks as leaders in financial inclusion and discusses their specific strategies related to technology, data, financial capability, partnerships, and other issues.
The report found that banks create a variety of partnerships. The banks in our survey partner with telcos, payments companies, insurance companies, microfinance institutions, retailers, and consumer-goods companies. They work closely with governments for G2P payments and with international development agencies and donors that provide start-up capital for new financial inclusion initiatives. They also contract with digital technology providers such as data analytics companies, back-office systems providers, digital channel providers, financial capability providers, and other fintech firms.
Among many other areas, banks often use partnerships to improve on the following:
- Customer acquisition
- Customer engagement and support
- Distribution and payments
- Enhanced product offerings
- Back office systems and data analytics
- Financial partnerships
- Ecosystem development
For example, BBVA partners with the data analytics startup Destacame to extend credit access to low-file customers in Latin America. Destacame enables underbanked individuals to build a credit score based on their history of paying everyday bills like those for electricity or gas. BBVA also joined with OXXO, Mexico’s largest convenience store chain, to expand services access. BBVA clients are able to make cash withdrawals at any of OXXO’s 12,000 stores in the country, without the requirement of making a separate purchase. The partnership helps BBVA build on its agent network of 25,000 agents in Mexico and increase banking penetration in rural areas. OXXO is making progress in offering the cash withdrawal service to cardholders of other banks, too. In CFI’s study on the financial capability landscape, a similar partnership between Banamex and OXXO (the Saldazo card) is profiled.
To increase the ease of which customers can access payments, the Commercial International Bank (CIB) in Egypt relies on smart phones in a partnership with Mastercard and Fawry, an electronic payment network. Egypt has over 100 percent mobile penetration, 10 percent bank account penetration, and 26 percent smart phone penetration – there are more smart phones than bank accounts. Smart Wallet is CIB’s e-wallet app, supported by Mastercard, that enables customers to use their phones to make payments and purchases, transfer money, deposit and withdrawal. CIB’s partnership with Fawry has enabled 50,000 merchant outlets in Egypt to accept Smart Wallet payments.
A three-way partnership between Fidelity Bank Ghana, Airtel, and Tiaxa is behind the recent launch of a nano-loan product offered through the Airtel Money wallet in Ghana. Fidelity Bank and Airtel had partnered previously in offering Airtel Money, Airtel’s comprehensive mobile money platform. (Fidelity Bank also works with MTN, another mobile network operator, on mobile money.) Tiaxa is a global leader in nano credits, providing small loans in more than 20 countries both as airtime for prepaid mobile subscribers and as cash through mobile money. In Ghana, the nano-loan partnership enables eligible Airtel Money subscribers to instantly borrow up to GHC 200 (~US$ 51) for last-minute needs, like extra funds for an emergency purchase.
A number of banks have made very strong financial partnerships, the most successful of which have been with microfinance organizations. Microfinance institutions (MFIs) serve poor and low-income customers that banks may not be able to serve, especially with credit. Many banks find it more compatible with their business models to fund MFIs with debt, equity, or purchase of their loan portfolios. In this way banks can participate in financial inclusion indirectly. In some cases, the banks are actually majority owners. Of the banks interviewed for the report, Citi, Standard Chartered, Banco de Crédito del Perú (BCP), Habib Bank Limited (HBL), HSBC India, and Santander Brasil, among others, have all invested in MFIs or other financial institutions.
In addition, a number of banks are working to develop the ecosystem in which they operate. One example of this is the Association of Banks of Peru (ASBANC), which worked together with banks, telcos, and the government to create BiM (Billetera Movil), the world’s first fully interoperable national payments platform. Among our surveyed banks, BCP was deeply involved in the development and marketing of the BiM e-wallet. BCP contributed to the process in collaboration with over 30 other financial institutions and four major telecommunications companies.
In Colombia, Bancolombia joined with 10 other public, private, and academic partners to create a center for big data and data analytics as part of the CAOBA Initiative, and to improve their data analytics capacity. CAOBA is a public-private partnership to create a center for big data and data analytics in Colombia, building capacity to use alternative data to reach unserved and underserved populations.
While the specific collaboration models change from one bank to another, there is one overarching message: partnerships can be the key for many banks as they attempt to reach unbanked and underbanked customers in emerging markets.
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