Banking the unbanked - new strategies needed!
There are new developments in the financial sector, new startups taking on the challenge and investments moving abroad to new markets which if cracked will bring great opportunities. However, the issue is that the unbanked market requires a different type of approach as traditional financial structures don’t work and still have a ways to go. Often in many underdeveloped markets there is no existing financial infrastructure so new companies need to build networks from scratch. It's not all bad though as there are ways to capture the unbanked market effectively by utilising the newest technology to reach more customers and interact with them the way they want.
So how can we mould the landscape to service customers better? Well as an example, Mobile Money- a concept some telecommunication companies have leveraged, uses the prevalence of smartphones which supersedes bank account ownership as a way to move into the payments space. Enabling network providers to acquire unbanked customers through App stores and not bank branches, a more scalable solution.
With this in mind, a different way to bank is developing specifically in remittances where Telcos have the opportunity to form different ways of conducting AML/KYC better suited to the financial landscape of the unbanked. What’s interesting is the new forms of customer identification such as social scoring to define eligibly for financial services that are popping up in countries like the Philippines where more people are active users of Facebook than bank account holders making alternative forms of verification an attractive one.
Hurdles for Digital Payments and a Cash Based Markets
In countries with a large unbanked population, we see new tech entering the market at a rapid rate however unless born from “INtrepreneurship” that is, technology generated from established businesses with a substantial network, they are likely to fail due to inability to handle how the physical cash gets into their customers digital wallets. With this hurdle any product created for the unbanked has to navigate a market that has no financial access to credit cards to top up their payment/wallet Apps, stored value cards or even a popularised convenience store. Their products work but to build a cash in system is where the hurdle exists for most startups in the remittance field which Bitspark aims to address in its product offering to businesses and consumers. For companies which crack the cash to digital problem, a flurry of financial data from an opaque market will give insights on how to improve and leverage it.
Traditional Banking Has No Place For The Unbanked
Traditional banking strategies to capture unbanked customers comes with inefficient systems not suited to the continually changing landscape of the unbanked. In fact due to the outdated way to “get banked” which involves a long string of processes and protocols at physical locations the market has flowed in another direction. In developed economies payments is slowly transitioning from banks to mobile App’s and technology such as NFC payments often provided by third parties. These third party providers address a need which banks are unable to support while doing substantially better job of providing the basics of banking with emphasis on easy access and painless experience to customers. The past 5 years have seen the disruption of traditional retail banking and transition to digital banking where options are plentiful and for unbanked markets such developments are opportunities to leap directly over traditional means of banking to a digital one.
One of the exciting aspects about creating financial technology or services for the unbanked is that it’s a new frontier demanding a different type of thinking for those in need making it an enticing, intriguing, and a beautiful challenge. Challenges will come in identifying key financial development trends for the unbanked and applying creative thinking in the next frontier to get 2 billion banked!