New technology has potential to provide millions with financial access
13 February 2009
Douglas Alexander sets out how "branchless banking" can help the poorest people.
The economic crisis has shown how important banks and access to financial
services are. Yet more than 2 billion people in developing countries have no
access to financial services such as bank accounts, formal credit or
remittances. This hampers people’s ability to reduce their vulnerability,
improve their incomes, and pay for healthcare and education. This can also hold
back countries’ economic growth.
At a meeting of leading mobile phone, banking and communications company representatives at Chatham House this week (12/2/09) International Development Secretary Douglas Alexander set out how modern technology and the concept of “branchless banking” is transforming the way banks work in the 21st Century.
He explained that technologies including mobiles phones, smartcards and fingerprint recognition technology had the potential to give some of the poorest people in the world access to the basic financial services that they have lacked for too long.
Mr Alexander also announced a UK-led three-year project that will help to lay the foundations for financial services to be made available through new and emerging technology across Africa and Asia.
Douglas Alexander said:
“A lack of access to finance in some parts of the developing world stifles entrepreneurship, stunts development and leaves people trapped in a poor, cash-only society.
Advancements in technology and the explosion in mobile phone use is changing the how we all live our lives and has the potential to give people access to banking no matter where they live.
It is the world’s poorest who could benefit from this most and that is why I am launching a three year project to help expand the availability of ‘branchless banking’ across the developing world.
A rapid increase in access to financial services could lift millions out of poverty and help change their lives forever.”
FAST (Facilitating Access to financial Services through Technology) is a new initiative to support the use of technology and innovation to bring financial services to millions of “un-served” people across the globe. FAST will:
- Provide funding for research and diagnostic studies, test pilots and work with partner governments to develop a policy and regulatory framework that supports the use of new technology and innovative models to scale up access to finance safely and at dramatically lower costs.
- Test pilots and help develop a framework for using new technology based financial services in making government to people (G2P) payments to promote financial inclusion.
- Work strategically with other development partners, such as the Consultative Group to Assist the Poor (CGAP), and German Technical Cooperation (Gtz) as well as the private sector to leverage investment into this fast emerging space.
‘Branchless banking’ allows an individual to have a remote bank account that
is accessed and managed through their mobile phone or other technologies. This
could mean those with no chance of using traditional banks – because they are
either too poor or the nearest bank is miles away - will be given the
opportunity to save money, gain access to credit and receive money sent from
family members in other countries.
The potential market for technology and mobile phone companies is huge, and by piggy-backing on existing technologies and infrastructures, the transaction cost can be much cheaper than traditional banks. For example a study in India showed it costs $1 per transaction in a bank, 40-50 cents per transaction from a cash machine and only 10 cents when a smart card is used.
The new project will build on an earlier DFID-funded pilot programme like Vodafone’s M-PESA. M-PESA was set up to test whether a mobile phone-based platform to transfer money in remote parts of Kenya would work. Two years later, M-PESA has 5 million users, more than all the bank accounts in Kenya, and is being expanded to support remittances, salary payments and bill payments.
Background:
Branchless banking service providers can build business models around large financial flows like remittances, government social benefits or wage payments - huge potential revenue through high volume transactions.
Branchless banking is more transparent because it uses the digital mobile phone infrastructure and other technologies such as fingerprint recognition – only the person whose fingerprint matches can access or receive the money.
Examples
- Pakistan - only 17% of population (25 million people) have a bank account, yet 70 million people have a mobile phone. Setting up a bank branch in the Orangi slum of Karachi costs 30 times more than setting up an agent such as a grocery store. Monthly running costs are $28,000 for a branch compared to $300 for an agent.
- Kenya – DFID is working with Equity Bank to help make social benefit payments to poor people through smart cards/ biometric identification. Currently northern Kenya has only 5 bank branches in an area the size of the UK with a population of 1.5 million. Equity Bank’s operations will help double the physical branches and add 150 agents.
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