This post is written by Jesse Fripp, SBI Vice President.
After initial skepticism, a lot of confusion, and countless false starts, the foundations for the e-money ecosystem – or the “LiFi” world as recently described by David Porteous and Ignacio Mas – are being laid in fits and starts. Following in the pioneering footsteps of early innovators such as GCash, SMART, M-Pesa, WIZZIT, and others, over a hundred mobile and branchless platforms are being developed and rolled out in dozens of developing countries. The dual siren song of serving “the bottom of the pyramid” from an inclusion as well as mass-market commercial perspective is sounding ever more loudly across the world, with implications that are yet to be determined.
Unlike the early days of the microfinance “revolution,” in the alternative delivery revolution, major, multi-national and/or heavily capitalized players are getting involved earlier. The major card services are already moving briskly down this road, with the acquisition by Visa of the dominant back-end mobile banking platform Fundamo, and the launch of virtual pre-paid card services in certain markets. Telcos generally struggle with the challenge of understanding and addressing market demand dynamics outside of their primary air-time business, but are cash-rich, and increasingly well-positioned to transform themselves into “holdings” that can leverage the power of their core channel utilities while keeping the financial benefits “within the family” – including through acquisition of banks and financial services companies in key markets. Banks themselves are finally waking up to the potential, and are working their own angles. Primarily, this is through leveraging their specialized regulatory position and knowledge of financial services and products through the creation or acquisition of third-party service companies that can make use of the telco utilities efficiently, without being slaved (or more importantly, slaving their customers) to any single telco platform or provider.
While financial inclusion is commonly understood as a positive end in and of itself, one has only to review the landscape of wrecked individual and household realities in the aftermath of the recent and ongoing global financial crisis to realize some caution may be in order as we race headlong down the road of “inclusion.” Whether it is lower-income, but financially-included, Americans thrown into penury through a combination of willful self-delusion and predatory credit card and mortgage lending, or Indian farmers committing suicide to escape layers upon layers of microcredit captivity, “inclusion” does undeniably have a dark side we would do well to consider and address sooner, rather than later.
Despite the recent high-profile challenges of certain microfinance markets and institutions, the key to achieving the ultimate financial inclusion goal may still lie within this movement and others it has inspired, such as the Global Alliance for Banking on Values. This key is not all philosophical – commercial players lack the deep understanding of ground-level realities within the unserved markets, and knowledge is power in this as any emerging industry. In addition, given what we have seen of the downside of increased access to cheap and easy credit in our current financial crisis, microfinance may also have the best position to inform responsible product and service design that serves the long-term interests of the client as well as the intermediary.
Will the telcos and banks eventually figure this out themselves, and do the right thing with their newfound access to untapped consumer markets? Perhaps, but as a former Citibanker remarked to me recently, what do we think will happen when organizations whose sole purpose is profit-maximization for shareholders get their teeth into 2.5 billion new customers, who also happen to be the poorest and most vulnerable of the world’s population? A lot depends on what their shareholders are willing to accept, perhaps, and that is the subject of a future blog – but the next few years will likely define whether “banking beyond branches” is a new avenue for predatory finance, or a path for the positive power of true financial inclusion.