This post is written by Jesse Fripp, SBI Vice President.
In recent posts, we’ve prognosticated on what 2012 may hold for banking beyond branches, discussed pricing and products, the painful realities of lack of reliable power in many of the prime “beyond branches” markets, issues of pitfalls and challenges on the road to true financial inclusion, report-out on our industry discussions around the future of traditional microfinance institutions in this new era, and more. As we begin a fresh year, it is worth considering in further detail where we are, and what “banking beyond branches” really requires, primarily A) mass-market demand for products and services, B) a scalable delivery channel or platform within an appropriate regulatory framework, and C) products and services to deliver in response to defined mass-market demand.
If we consider where we are, broadly speaking, in mobile and branchless banking today, we’ve spent an enormous amount of time and energy on B, coupled with some cursory thinking around A, and comparatively little time on C. If we consider where the real energy in this space is likely going to need to be focused in the future, our bet is overwhelmingly on C, assuming we can get a much more granular and contextualized grasp on the realities of A in the meantime. The graph below attempts to capture this likely trend.
Briefly, the blue trend line describes a trajectory for the number of global platforms (telco, bank, and third-party led) as pioneers lead a surge of platform rollouts. This culminates in a high level of competition followed by consolidation and stabilization as the winners consume the losers, and national platforms seek and gain scale by going multinational. The yellow trend line describes a trajectory for the services delivered on these platforms, which initially are fairly limited (top-ups, payments, remittance, bill pay, etc), then experience a likely “surge” as demand and use drives linkages to financial intermediaries able to provide basic value-adding services (current accounts, savings accounts, and the like), and then eventually – at a time and degree yet to be determined – hits a fairly constant upward trend as the full potential of the platform “utility” is realized and a wide range of micro-targeted but highly scaleable products and services (financial as well as non-financial) are developed and delivered by a range of linked institutions. This phenomenon could be likened to the proliferation of “apps” for the increasingly accessible smartphone hardware, powered by increasingly capable network capacity.
The fact that most of the time, money, interest, and hype has been focused to-date on the building and roll-out of channels and platforms is perhaps understandable – “build it and they will come” has a special, and non-mystical, meaning in the context of mobile and branchless banking. However, as platforms are deployed, and as they stabilize and compete, financial drivers and margins will mirror those of the telcos that power them, by and large, and the likely eventual outcome will be consolidation, increasingly at multi-national levels. In the meantime, the disconsolate consumer – the 70% of the unbanked world – is happy to use the core and fairly basic (from an economic standpoint) money-transfer power of the branchless or mobile platform, but can make relatively little additional value-added use of it.
That is, until such time as increased energy and interest begins to focus on the broader potential of linking specialized product and service providers to these new delivery channels. Build it, and they may indeed come – but the question is, what will make them stay?