We have found that many banks are developing the capabilities that will allow them to service the previously remote and high-cost financial inclusion market, including mobile phone based access, payment cards, agent networks and savings groups. Now, most banks are developing these capabilities to service their mass affluent and SME markets, and relatively few of the banks we spoke to are targeting the ‘bottom of the pyramid’ customers that universal access to financial services requires.
Given the substantial investments banks have been making in these capabilities, and the returns to scale available in this sector, we would anticipate that increasing numbers of banks will attempt to sweat their assets and reach much larger segments of the population with this infrastructure. Indeed a small number of banks are using these same capabilities to start to make a profit from very low-income customers.
The strategic opportunity for banks is enormous: 2 billion unbanked people, 320 million unbanked or underbanked micro and small businesses, and a total credit gap to micro, small and medium enterprises (MSMEs) globally at $2.1-2.6 trillion. And the importance of this opportunity was supported by my fellow panellist, Matt Wilson of Barclays.
Barclays have partnered with CARE International and Plan over the last few years in Banking on Change, which has included a programme of linking savings and loans groups to Barclays and to other banks, to ensure cost-effective formal financial services for group members, who live on under $2 a day, and of whom 75% are women.
This originated in the Community Investment work of Barclays in a number of African countries. What was striking however was Matt’s tale of how this group linkage programme is starting to be taken over by the retail management in the relevant countries. They have become convinced by the size of the opportunity to find new customers, and to service them cost-effectively via groups, generating a real win-win.
The CARE and Accenture analysis has shown that the capabilities are in place in many banks and that some are already targeting the bottom of the pyramid. And even a large international bank like Barclays, based on substantial practical experience of working with savings and loan groups, can see how even the poorest can save, can access formal financial services and can be a significant revenue stream.
So if you are a bank executive and you are not currently thinking through your strategy on reaching even the poorest and most remote citizens, then now is the time to start worrying.
