What is the problem?
For reasons linked to a) costs of acquisition, and b) available data sets not meeting requirements for traditional KYC checks to be completed, many developing countries have vast numbers of their population tagged as either ‘underbanked’ or ‘unbanked’.
These people either don’t have access to financial services / products, or if they do, it’s in a very limited capacity; eg: they may have a bank account in their name, however it probably hasn’t been accessed for a period of time and is now considered dormant.
How can banks tap into this vast market in an economically beneficial manner while also adhering to the G20 goals for financial inclusion?
How big is the problem?
According to the World Bank, global figures of ‘underbanked’ or ‘unbanked’ is roughly 2 billion, of whom about 35% come from India, China and Indonesia.
What’s the solution?
Smart phone penetration is well and truly on the rise. This provides two useful bits of data, capable of building the blocks to this solution. Firstly, having a smart phone gives the user access to the internet and thus, the services offered by social media platforms. Secondly, having a mobile phone, in most cases also means that the user also has a payment contact with a local telephone company.
Alternate KYC can be undertaken through the data points made available via social media and the mobile phone service contact provider. Unlike a traditional KYC process which is based on a data set at a given point in time, by augmenting these two data sets, KYC can be performed on an ongoing basis. Social media data is ever changing and through it, a financial services provider is able to see how their client interacts with other people. The addition of the mobile phone contact data is sufficient to confirm a) that the person is natural and not an entity or simply an online profile, and b) that they are capable of making periodic payments to maintain their mobile phone service, thus a viable credit rating is determined.
Mobile Banking platforms have the potential to provide financial services to geographic areas which have historically not been considered as economically viable to banks. Not economically viable because servicing costs through a physical branch have been prohibitive. However, if the same services can be offered through a mobile platform, then the cost of customer acquisition and maintenance become a fraction of the cost using a physical branch model.
What is the value add?
Value add to the financial service provider is the ability to access new markets and thus, gain a new client base.
For the previously ‘un’ or ‘under’ banked population, there is now the potential to have initial access or greater access to financial services and products.
Having access to bank accounts and credit/loan facilities, is sufficient to encourage economic growth; greater opportunity to spend, save and business setup and expansion.