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Is It True that the Big Banks Will Never Offer Financial Inclusion?

This guest post was contributed by Chris Skinner of The Finanser blog.


Three years ago, I asked the question: When will banks stop seeing financial inclusion as charity?

A couple weeks ago, my friends from CGAP posted a blog with me about digital banking for the poor. I said I would reciprocate with my own view, from a bank’s perspective, so here it is.

Banks see financial inclusion as a charitable thing because they have no idea how to make money out of it. The thing is: companies are making money out of it. M-Pesa proves this in Kenya, and WeBank is doing amazing things in China. They are both making money out of financial inclusion, because if you understand technology, then you can.

Bank teller and customer
Photo: Stanislas Fradelizi / World Bank

My 2018 book “Digital Human” explained this in-depth and included a major case study analysis of Ant Financial, which runs China’s Alipay system, another system for financial inclusion. What that case study shows — along with the discussions of M-Pesa and WeBank — is that you can run an amazingly inclusive financial business if you start technology-first.

M-Pesa, and the many that have followed them since, began with basic payment services. It wasn’t financial services. It was text messaging money. From that simple idea, they’ve ballooned to become a Kenyan monopoly and have seen imitators everywhere.

WeBank began in 2016 with the idea of banking for China’s unbanked. Since then, they’ve gained over 200 million users and run a bank that offers basic banking services operating at a cost of less than half a dollar per user. Oh, and yes, it is profitable. In fact, it has been profitable since its second year of operation.

So, why don’t banks offer services like M-Pesa and WeBank?

Because they don’t think this way. In fact, their thinking is very different when it comes to digital banking for the poor because banks were established to provide physical banking for the rich. Banks were built centuries ago for the industrial revolution and the global rise of cross-border trade and finance. Their business model is built for cash, checks, receivables and payables over a counter with a building and human. The human records the transactions, and away you go.

Now, when it comes to operating the global distribution of data through software and servers, it’s really tough for these big old banks. In a digital business model, a $0.50 transaction costs the same as a $1,000,000 transaction, if you’ve got the software right.

In a physical business model, it’s completely the opposite. In the old business model, the bank has to set the bar for transaction size quite high to cover the overhead of those buildings and humans. In the digital business model, there is no bar.

In an analogue world, this is why we worked with annuity products for those who could afford it. There was no point in meeting more than once a year, as it would cost too much. That’s why you have 25-year mortgages, annual car insurance and APR (annual percentage rates).

In a digital world, we can work in real-time all-the-time. We can offer insurance for the next few hours (Trov), or investment products for today (Ant Financial), and flexible home loan solutions. Oh, and financial inclusion.

For banks, this thinking is hard as they’re dealing with bigger issues, like moving from analogue to digital. But, for technology-first companies born on the internet, like M-Pesa and WeBank, it’s really different. This is why the technology-first companies are jumping on the financial ladder, but they start at the bottom: offering basic mobile money messaging and basic banking services. Then they work their way up. If you look at any of the technology-first, born on the internet, new financial players — like the ones I’ve mentioned — they start simple, and then add more and more capabilities.

You then look at a bank and realize they are at the top of the financial ladder. They offer all the capabilities from savings to loans to investments to payments to wealth management and commercial banking, and they are working down the ladder. They are trying to streamline, to move to agile and lean, to downsize the corporation, to become digital.

This is why financial inclusion for the big banks is such a hard task. Big banks weren’t built for cheap, free, unlimited, scalable basic banking for the poor. That’s why new companies, born on the internet, are succeeding so well and so fast in this space.

But it doesn’t mean that big banks will never focus upon digital banking for the poor. After all, if a big bank looked at a market and felt they could bank the unbanked using a technology-first approach in a market they understand … well, that will never happen, will it?


Chris Skinner is known as an independent commentator on the financial markets and fintech through his books and The Finanser blog.

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