Alternative Delivery Channels for Financial Inclusion: Opportunities and Challenges in African Banks and Microfinance Institutions 2016
With approximately two billion unbanked and underbanked individuals globally, down from 2.5 billion just a few years ago (Global Findex 2011-2014), substantial progress has been made towards the goal of full financial inclusion, but is still far from being achieved. In particular, financial inclusion rates in sub-Saharan Africa, where poor infrastructure, low population density and high costs have created significant barriers for financial service providers (FSPs) to serve low-income clients, have remained among the lowest globally.
Advances, however, in information and communication technology (ICT), especially mobile phones and telecommunication infrastructure, have opened opportunities beyond the traditional bank branch to reach previously unserved populations. FSPs worldwide are venturing into using alternative delivery channels (ADCs) to reduce the cost of service and drive client growth.
Banks in developed markets have been deploying the channels of internet banking and ATMs for several decades. Strategists and global trends suggest that future digitization will dramatically change banking as we know it. According to BCG, “rapidly evolving
digital capabilities – particularly mobile, social media, big data, and cloud technologies – offer financial services companies entirely new opportunities for understanding, serving, and engaging customers.These capabilities will be powerful allies in the pursuit of greater customer-centricity.” Commercial banks in developing and emerging markets have also been deploying a range of channels.
“Technology is a game changer: Every bank in [a recent study by the Institute of International Finance and the Center for Financial
Inclusion] is innovating in delivery channels and other uses of technology. In order to increase convenience and encourage usage, banks are establishing a wide range of customer points of contact”. These trends in financial services are inevitable with the rapid advances of technology and digitization. Globally, commercial FSPs are rapidly entering the digital age, typically through some form of partnership with MNOs or other payment service providers.
The IFC has identified common success factors in such partnerships, as well as common pitfalls, drawing from existing experiments in this field. For example, Tameer Bank in Pakistan jointly scaled up payment services with its telco owner Telenor, resulting in significant growth in transaction fee income. Other MFIs, such as Musoni in Kenya, are deploying digital field applications to change traditional banking business models.
It is within this context that The MasterCard Foundation’s financial inclusion partners have identified ADCs as having high potential to reach the “last mile” customer with relevant and accessible access to finance. As part of its multi-pronged effort to promote financial inclusion and increase economic opportunities for the underserved, the Foundation has supported testing a range of models and approaches for using ADCs to deliver financial services through a portfolio of five partners (the “ADC partners”) in sub-Saharan Africa.