From rice to money: potential pitfalls on the bridge to commoditization

This post is written by Jesse Fripp, SBI Vice President.

In November of 2010, following the Gates Foundation’s inaugural “Global Savings Forum,” Ignacio Mas spoke before a small breakfast crowd in Seattle. For over an hour, he described his vision of a new era of technology-enabled delivery channels for inclusive finance, where the “Golden Gate bridges” which control  the flow of conventional commercial banking and finance are transformed into a series of smaller “foot bridges,” built to the requirements of the billions of people currently locked out of the formal financial system. He underlined the well-known fact that nearly 70% of the world’s economically-active adult population does not have the ability to traverse the financial “stream” that will bring them along on the journey to asset growth, increased well-being, and increased security against life’s inevitable shocks.

Photo credit: Dreamstime

At one point, he drew a parallel between the decision process of a low-income consumer in purchasing a cup of rice, and deciding on a money transfer service provider on a mobile payments platform. With that comparison, he framed what may very well be the ultimate vision for success of the technology-enabled inclusive finance revolution currently underway – a phenomenon we may look back on in 25 years as the “commoditization of financial services.”

The cynic might say, “rice is rice.” You cook it, eat it, and are nourished. Even cash does not and will never have the same intrinsic value. The response to this is that small financial transactions, like cooking and eating rice, are a daily necessity for household and individual survival in much of the developing world. The promise of branchless banking – or as we prefer to call it, banking beyond branches – is that at some point in the not too distant future, a low-income client in Bangladesh can walk into her local kirana shop and choose from three different “brands” of savings account delivered on a common platform. Just as she chooses from three different brands of commodity rice sitting on the shelf, each will compete on razor-thin margins, with a focus on emotional brand response of the customer, packaging and scale to suit her household needs, and volume sales to drive the business.

This vision has tremendous implications for the future shape of our global, national, local and individual economic and social realities, few of which we have even begun to fully understand. Certainly, the prospect of bringing the excluded majority of nearly 2 billion economically active individuals into a formal retail framework has tremendous “creative destruction” implications for our current financial sector models and institutions, as well as our broader economic and social relationships.

From a financial inclusion perspective, the vision of ubiquitous, cheap, reliable, accessible “commoditized” financial services that put full decision-making and purchasing power in the hands of the low-income client would be the realization of an elusive dream. However, the realization of this vision requires answering to a number of key questions, such as how do we ensure adequate consumer protections for the hitherto unknown volumes of low-income entrants to the formal sector as the commoditization process takes hold? How do we avoid the “panacea” phenomenon that has affected in negative ways the public view of microfinance as a stepping stone in the inclusion process? And how do we ensure consistency in the infrastructure quality of a diverse network of “foot bridges” that replace the larger, traditional financial intermediation mechanisms going forward? These and other questions will be discussed in upcoming entries as the conversation continues.


5 thoughts on “From rice to money: potential pitfalls on the bridge to commoditization

  1. Thank you very much for this forward thinking vision of banking beyond branches. It has much resonance with our own thinking about the ‘disruptive’ impact of ADC’s at the Base of the Pyramid. The rapidly emerging mobile money transfer and cloud computing spaces will permit the “foot bridges” that will build out the village-based economies of the Base of the Pyramid (BOP) Revolution in the same way the commercial banking sector created the “Golden Gate Bridges” that helped to build out the Industrial Revolution. Given the backlog of need for financial inclusion at the BOP the ‘commoditization’ of finance will be the natural outcome with supporting requirements in the areas of standards, reliability, regulation, awareness, consistency, training, analytics and much more.

    • Thanks Lee for your thoughtful response, and the additional points clarifying the disruptive realities of ADCs in the BOP economies. As you rightly point out, we have just begun the work of preparing for the emerging BOP financial services commoditization reality in a way that can hopefully help to avoid some of the excesses and failures of the current conventional financial system.

  2. Whether it be on the part of the FI or the consumer, financial risk management shall be the key to success. The operational and technological risks are amongst the major pifals on these bridges and the require full identification and measurement so that the trust of the clients opting to cross these footbridges is not shaking. The necessary controls to mitigate and cover the risks involved shall serve as milestones and directions towards these bridges.

    The other thing that needs mention here is the fact that its not that we should expect money to be a commodity and get sold as one of the other products at the Kiryana Stores but its the FI Savings and other products that are commoditized through ADC’s.

    • Thanks Raja, you make some excellent points about the critical aspect of risk management frameworks, tools and approaches, and the need to adapt these to the emerging new products and delivery channels (and institutional structures). Thanks also for your clarification point – indeed, it is not physical money that will be commoditized, rather, it is the enabling product that can help a low-income client to pursue her individual or household objectives. Indeed, perhaps cash will eventually fade from use, though this is probably still well into the future in most markets, unfortunately. For all sorts of reasons ranging from basic intermediation inefficiencies, fraud, corruption, security and more, cash is truly the enemy of sustainable development.

  3. Pingback: Build it, and they will come… but will they stay? | Banking Beyond Branches

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