Retail not-banking

[Dave Birch] The relationship between payments and banking is, generally speaking, under some pressure from both developments in technology and wider cultural and business changes. Although these pressures exist in the developed world, they are most visible in the developing world where the lack of existing infrastructure means that technology and business change come together unencumbered. The result is called by some “branchless banking”, although in the payments space “bankless banking” might be more appropriate. Anyway, the essence of the concept is access for the financial excluded through non-bank distribution channels. Why? Well, in many (if not most) countries, most people don’t have bank accounts:

Statistics from the Central Bank shows that banks currently hold less than 3 million accounts, both current and savings across the country. The present development which is not healthy for the economy means that less than 15 percent of the about 22 million population in the country saves with the banks. According to the data, while the economy is cash based, 80 percent of cash is outside the universal banks.

[From 18m Ghanaians Shun Banks – ModernGhana.com]

Look at the example of Brazil to see how the technology, business and social factors can co-evolve: In Brazil, payments account for nearly four-fifths of bankless banking transactions. In other words, transactions that are performed over electronic channels (in countries like Brazil, this almost always means mobile, not the internet) are overwhelmingly payments transactions. Again in Brazil, 90% of the people who use some form of branchless banking, use it to make utility payments and other non-interpersonal payments. And of those people, only 5% have a bank account. This market shape is unlikely to change because the cost of providing these people with bank accounts that have the potential to deliver a wide range of financial services, but the cost base to go with that is simply too high. In fact, I would go further and say that it seems to me entirely likely that of the small number of people who do have bank accounts, many of them only really want payments accounts (if we can them that). Therefore if technology makes it cost-effective to deliver payment accounts into mass markets, then the demand for bank accounts at the low end will fall further.

The role of the mobile phone in all of this is critical. Mobile banking providers have now both the products and the implementation experiences needed to open up much wider markets. They are held back or constrained in one rather obvious way, which is that they depend on the handset manufacturers and mobile operators to provide the platform for the functionality that they need, and this often constrains the customer experience, but nevertheless they are taking transactions to the masses.


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