There are 2 important factors for success of financial inclusion in a country. The core technology being implemented acts as a crucial factor. But the way the overall planning for implementation is done plays a greater role itself. Majority of core technologies required for financial inclusion exist in developed nations and this is what this article is all about. Developing nations are bringing in new innovations through the way they are planning the implementation of existing technologies. African nations like Kenya, Nigeria are classic examples in this regard.
Today, more than half of the world’s population is still unbanked and this problem is even more severe in the under privileged regions where more than three fourths of the population is deprived of basic banking services. In India, only 59% of the population has bank accounts; in Indonesia, only 20% have bank accounts; in Brazil it is 56%; in Nigeria it is 30% and in Pakistan, only 10% of the population has bank accounts. People in these countries do not have access to basic financial services like loans and savings accounts. This creates hindrances in income generation, building assets and managing financial risks.
The phenomenon is not limited to just the developing and underdeveloped countries; in fact, majority of the world’s major economies grapple with the reality of unbanked populations. Historically, banks and other financial institutions have found it difficult to capture this segment due to constraints in resources and in-House capabilities. With the rise in technology and mutual collaboration among players from different industries, we are now finding newer ways to approach the problem of financial inclusion. At the forefront, it would be up to the developed world technologies to really bring this change.
The optimum solution would be a combination of numerous local provider ecosystems that eventually reach all citizens of a country and will comprise a large number of front-end entities trusted by the community such as banking agents, cash-in/cash-out outlets or microfinance institutions; a payment infrastructure that links these institutions to the broader financial system; and a smaller number of well-capitalized and regulated entities that hold and manage the financial risks that the more inclusive system has originated.
But such ecosystems would be costly and prohibitive. Convergence of technologies backed by IT and Telecom players can bring the costs of innovation down substantially to a benchmark applicable to financial inclusion. Technology players possess the power of mobility & cloud infrastructure to deliver solutions that would enable players in the financial sector design services more applicable to people deprived of financial services.
There are two prominent factors that can help in bringing financial inclusion in developing nations:
- Traditional banks and alternative service providers such as mobile network operators and online lenders are seeking new markets and innovating to attract new customers including the unbanked and the under banked.
- Increasing access to mobile devices, cloud-based services and internet access is increasing customer choice and making clients more demanding.
The adoption of new technologies takes different paths in different economies. With mobile technology, it is not necessary that a high penetration of mobiles phones is required for development of mobile banking. Consider the case of Kenya, where mobile payment services took off when the penetration level was only 20%.
Take the example of MasterCard which has leveraged efficient technologies and increased Government engagement to drive financial inclusion:
- It has worked with the South African Social Security Agency to deliver funds using electronic payments
- In Nigeria, the government has launched a national ID program combined with biometric authentication and prepaid payment functionality powered by MasterCard.
- In Egypt, MasterCard partnered with National Bank of Egypt and Etisalat to unveil a mobile money program to enable subscribers to transfer money using mobile.
Sometimes, simple mobility features can find great use in enabling financial inclusion. The M-Pesa service in Kenya offers seamless P2P remittance using two technologies found in any operator linked mobile phone: STK i.e. SIM ToolKit and USSD i.e. Unstructured Supplementary Service Data.
From an ICT (Information & Communication Technology) perspective, Cloud Computing and “Software as a Service” have much to offer to financial inclusion. The availability of data storage and service provision “in the cloud” ensures quick transaction processing and full connectivity between the front-end and back-end of financial services. It can also lower barriers to entry for start-ups wishing to test new products as part of the financial inclusion initiative.
Taking advantage of Big Data as a cutting-edge technology, analytical tools and data access can make the traditional bottlenecks of financial inclusion a little less challenging. For financial inclusion, Big Data is about taking what have been time-, money- and people-intensive processes and transforming them into their instant, automated, and cheap alternatives. It’s about making it a little easier to bring customers closer to the financial system which was difficult through traditional methods.
There is no doubt that technological innovation in developed nations can bring in new opportunities for financial inclusion in developing nations.