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Sanat Rao

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Sanat Rao - Infosys Technologies Ltd

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Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Banking the Other Half

17 February 2011  |  4071 views  |  2

According to estimates:
• 2.5 billion people have no access to financial services.
• The number of mobile connections worldwide stands at over 5 billion.
• Usage of mobile banking will double in less than 3 years to touch 400 million.

These facts tell the story of a new banking, which is intent on spreading financial inclusion through the use of low-cost high-technology channels.

With urban markets saturating fast, going after underserved pockets is as much an economic necessity for banks as a social agenda for governments. But historically, problems of infrastructure, logistics and cost of servicing have hampered the viability of financial inclusion. Until now.

The mobile phone channel has provided last mile connectivity to financial service institutions at a scale that could never be matched by the combined might of kiosks, rural branches and field agents, at a fraction of the cost. Acceptance was never going to be a problem, because people already knew how to work the device; nor was there any great need for literacy – a stumbling block in the way of ATM/kiosk usage. Kenya is the current poster boy of financial inclusion, with over 10 million of its citizens using their mobile phone to transfer money.

The proliferation of online channels is also helping banks – in an early-bird-catches-the worm-fashion – reach out to their future customers among the Y Generation, who, given their need for independence, ubiquitous access and immediate fulfilment are unlikely to ever walk into a branch. Social media channels will play a vital role in building a bridge to this audience.

Besides the rural and low income urban populace, other segments defined by ethnicity, belief or other dimension also need to be brought into the financial net. The provision of customised money transfer services for the Hispanic population in the U.S. and the emergence of faith-based are noteworthy examples.

Now, for the other side of the story. At a recent meeting, one CEO said plainly that the unbanked were so for a very good reason, which is that they simply did not have the resources to be bankable. The cost and feasibility of complying with KYC regulations for rural or poor customers, is another hurdle. Is inclusivity such an attractive proposition after all? Would you rather put those resources into milking the urban market, or are you a banking brave heart?

TagsSibosRetail banking

Comments: (2)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 18 February, 2011, 08:23

I don't think financial inclusivity was - or is - an attractive business proposition from the perspective of banks. This seems to be equally true in emerging markets (ex: India) as developed ones (ex: USA, UK).

MNOs can fill the gap only if they're permitted to take deposits and provide other financial services without any link to banks, like in the case of Kenya. However, where regulators only permit banks to carry out these activities (ex: India), I don't hold much hope for the spread of financial inclusion - MNOs can't do it, banks won't do it. Eliminating free checking - an intent articulated by a few large American banks in recent times - is a huge kicker for bringing in additional revenues. Under the circumstance, I'm not sure if they will change their approach towards financial inclusion.

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John Dring
John Dring - Intel Network Services - Swindon | 23 February, 2011, 12:24

Well put - "MNOs can't do it, Banks won't"

Mobile Money Transfer (MMT) has the mandate to define how a mobile can be used as a transmission or receiving terminal for funds transfer, but it still needs to be tied to an account (=bank) and distribution network (=operator and or payments network).  Paypal Mobile does a pretty good job of moving money from one wallet to another, again linked to a bank account though.

For MNOs to get more of the pie, they probably need to bit the bullet and get banking licences, and that means deviating from current core business.

 

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job title VP & Head Worldwide Biz. Dev & Alliances
location London
member since 2009
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I spearhead worldwide business development, strategic alliances and analyst relations initiatives for Finacle from Infosys. Based out of London, I have over 18 years of experience in banking and Infor...

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