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.
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.