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Technology and Access to Finance. The Access to Finance Challenge. Vision All segments can be profitably addressed, with technology. Lower transaction costs – go electronic Improve reach – go local, go branchless Reduce risks – build rich customer data to reduce information asymmetries.
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The Access to Finance Challenge Vision All segments can be profitably addressed, with technology • Lower transaction costs – go electronic • Improve reach – go local, go branchless • Reduce risks – build rich customer data to reduce information asymmetries • Banks have no presence where I live • Going to the bank is not convenient for me (distance, queues, attitude) • I am not eligible for banking services (lack of records, minimum balance) • It´s too expensive Today Transacting and saving in cash is still the superior option for many people
Helping Poor People Save, Borrow & Build • Easy account opening • Ability to transact remotely • Convenient cash dispensing • Documented customer histories Challenges We must tackle barriers on a number of fronts • Lower cost to provider • Lower cost to customer • Adoption of service • Customer welfare • Community benefits Impact Triggering far-reaching knock-on economic & social effects
Challenge 1: Account opening EASYaccount opening A transactional account for all • Proving ID & eligibility • Use of agents • Store-of-value issuance
Challenge 2: Technology in the front-end ~3bn Ability to transact REMOTELY ~25m A transactional terminal nearby ~1m 600k 500k 250k • Real-time payments • Deployed base of devices • Ease of use, security Mobile Phones Western Bank Post ATMs POS Union branches offices Sources: Western Union website, VISA, World Bank, UPU 2006, GSM Association
Challenge 3: Converting to cash 7,900Points CONVENIENTcash dispensing Cash off-the-shelf 2,993Branches • Use of agents • Agent liquidity • Claims redress process
Challenge 4: Customer data DOCUMENTEDcustomer histories Converting user info into useful financial services • Credit scoring • Product targeting
Potential impact of mobiles 1 Billion have bank accounts ~3 Billion mobile phones (and growing) ~2 Billion potential impact 6.5 BillionWorld Population Source: CGAP Estimates
Remittances opportunity • $230-300 bn sent through formal channels in 2005, estimated to be around $700 bn in 5 years • Over 200m people working abroad send money back to around 800m • Over 50% flows through informal channels • Average transaction estimated to be $200, sent as frequently as 12-14 times/year Source: CGAP Research, World Bank, BCG.
Who uses it and why? Mainly payments Agents (Brazil) • Only 6% of users make deposits M-banking (South Africa) • Perceived as costly • Limited cash-in network in rural areas % Source: CGAP, 2007.
Reducing costs through mobiles (XacBank) Creating G-Cash ecosystems on rural islands in Philippines Pushing the frontier
Combining welfare payments and financial services (Vodafone) Converting VISA’s acquiring network into banking agents Pushing the frontier
Regulatory uncertainties Can third parties be used as agents? Will account opening standards work for the poor? Can non-banks play in this space? Consumer protection issues? Source: “Use of Agents in Branchless Banking for the Poor: Rewards, Risks and Regulation,” CGAP Focus Note 38, 2006.
High potential technologies Mobile phone banking and agents POS agent network for banking Institutional Capacity Needed Statistical scoring model for credit Deploying ATMs Issuing payment cards Data collection thru PDAs Joining a shared IS Computerized MIS Potential to Expand Access
Some early learnings • Demand for services: transactions > savings > credit • Card/POS-based systems may be easier for customer adoption, but the business case may be hard to prove • Developing countries may well leap-frog more advanced countries in adoption of mobile banking 3 things to develop an “ecosystem” • Technology • Regulatory framework • Business model
CGAP Technology Program • Learn how technology can reach the poorest • Fund and advise experimental ideas • Share lessons learned to influence the market • Inform and advise regulators Supported by the Bill and Melinda Gates Foundation