THE UNBANKED MARKET

WHY BANKS NEED TO BREAK INTO THE UNBANKED MARKET :

  • Daniel Tuitt
  • Published: 14 November 2018

There’s a new buzz around banking with the emergence of exciting new market players such as Monzo, Starling and Revolut. However, not everyone gets to reap benefits of the latest banking trends - or even a bank.

Fintechs have started to address this issue by creating products for people that have limited, or no access to banking services (‘the unbanked’), but there is still a lot of work to be done - and we believe there is a great financial opportunity for fintechs and banks to partner together.

A global issue

For many parts of the world, ATMs, as well as banking services, are an intrinsic part of modern life. However, in reality, financial inclusion is a very disparate picture. Last year, The World Bank estimated that 1.7 billion adults lack a bank account and 31 percent of adults are unbanked globally.

It is perhaps of little surprise that unbanked individuals tend to live in developing economies. Whilst India for example, may be the fourth fastest-growing economy and home to 16 percent of the world’s population, there are still many generations of women without birth certificates and official personal documentation. This makes basic activities that we take for granted such as opening a bank account or applying for a loan almost impossible.

Technological innovation is opening doors, however. Humaniq provide a mobile banking solution powered by blockchain, targeting people with no identification documents and therefore no access to banking services. They believe that this segment will reach over two billion individuals in the coming years, and aim to financially empower them by replacing typical photo identification, such as passports required to open an account, with bio-identification technology.

Monzo meanwhile have recently moved past one million users since opening in 2015, and have been working on offering savings accounts, online payments and an ATM debit card to the unbanked population. The unbanked in parts of the world such as Africa and India only use cash to trade and technically no physical accounts to put it in, so tapping into this market could prove lucrative for new players.

Traditional banks can develop new business models that solve many of the issues the unbanked face by leveraging technologies that support financial equality and inclusion. Improving accessibility for these individuals will also create a significant financial opportunity for banks, one that we estimate could add an additional $24 billion to annual revenue.

Last year, The World Bank estimated that 1.7 billion adults lack a bank account and 31 percent of adults are unbanked globally.

www.globalfindex.worldbank.org

Can banks cooperate with fintech companies?

How do these fintech companies create an ecosystem that would allow much fast transactions and transparency for the unbanked? By creating a powerful platform where mobile solutions can be developed on. This allows, individuals and businesses alike to interact freely, powered by cutting-edge technology such as machine learning, biometric and blockchain.

Visa has already started collaborating with a host of parties to empower the unbanked by building financial inclusion through innovative solutions, such as voice authorization and touch ID. By collaborating with the right partners, they can scale innovation through a global network.

Banks, on the other hand, can enrich the ecosystem by connecting their own accounts and clients to the fintech network. This development is happening right now, though there remains a big obstacle for many banks - their legacy systems. The rigid governance of banks has been the greatest obstacle in partnering with technology innovators; once they find a way around that, consumers will be able to enjoy the perfect balance between the great customer experience offered by fintechs and the stability offered by the traditional banks.

With the rise of online solutions and general availability of the internet, fintech companies can step up and provide solutions to connect the unbanked with banks. Even Facebook is investing in tokens to provide solutions, such as online payment methods, that can address the lack of mainstream financial services. With revenues and market opportunity expected to reach $1 trillion by 2023, the banking sector should look closely to work with fintech companies in the future.

Connecting the dots

To stay relevant in today’s evolving financial landscape, banks need to shift their position. It is not only millennials turning away from mainstream banking, freelancers and travelers are increasingly looking to online solutions too. If many organizations are connecting individuals who lack financial services to a global accessible payment network that is safe, transparent and simple, shouldn’t banks follow suit?

If you want to learn more about the unbanked market, please feel free to reach out to Dan Jones, Partner, Capco Digital.

Read our previous paper focusing on Banking for the 21st Century: https://capco.com/Intelligence/Capco-Intelligence/Accessibility-Banking-for-the-21st-century