Accenture Banking Billion Reasons to Bank Inclusively · Accenture modeled current consumer...

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Accenture Banking Billion Reasons to Bank Inclusively

Transcript of Accenture Banking Billion Reasons to Bank Inclusively · Accenture modeled current consumer...

Accenture Banking

Billion Reasons to Bank Inclusively

2 | Billion Reasons to Bank Inclusively

Banks have a notable history of extending financial services to an increasingly large segment of the world’s population. Still, more than a third of the world’s adult population and numerous small companies make little or no use of formal financial services. The majority of this population are found in low- and middle-income emerging markets; though in high-income countries, large numbers of people also do not draw on banks to help meet their day-to-day financial needs.

From a business standpoint, it was reasonable for banks to leave such a sizable market to informal service providers, government agencies and non-government organizations (NGOs). Banking services to the unbanked and underbanked tended to be low-end, unprofitable and expensive to provide. However, today’s market drivers are giving banks good reason to rethink their position.

Financial inclusion is now an agenda item for public and private institutions. They recognize the importance of including as many people as possible in the financial system in building a nation or expanding business. Income levels are growing, particularly in emerging markets, fueling the financial services needs of low-income consumers. New business models, enabled by digital technologies, are opening up more efficient access, effectively making the costs and profits in serving this segment more attractive. Digital technology innovation is enabling banks to profitably build this high-volume-relatively low-margin business in the un/underbanked markets. Accenture estimates that bringing today’s excluded adults and businesses into the formal banking sector could generate about $380 billion in new revenues for banks.1

Can banks afford to sit on the sidelines while a consumer financial services revolution is taking place around the globe? In this paper, Accenture examines the low-income unbanked market and offers building blocks that can help banks change their customer offerings and operating model to serve this fast-growing segment as a long-term commercially viable business.

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TABle OF CONTeNTS

A $380 billion revenue opportunity on the tableTwo primary reasons for banks to act

The bottom of the Consumer Pyramid is enticing

Income progression ups the ante

What un/underbanked consumers need

Digital revolution opens attractive doors to un/underbanked marketsCreative collaboration among converging providers

More compelling, technology-driven models

Banking business model that reflects the un/underbanked market

Banks can take the lead

Developing as well as developed countries have a large number of small and micro enterprises that lack access to finance. Factoring in the sizeable unbanked and underbanked populations, the opportunity for banks increases. Reaching, attracting and serving these small businesses and individuals in the right way holds a two-fold value for banks: new revenues and greater social dividends.

A $380 billion revenue opportunity on the table

New revenuesTo better understand the total market potential for banks to grow revenue, Accenture modeled current consumer financial services usage and spend onto the low- and middle-income enterprises and adult population. As shown in Figure 1, Accenture estimates that banks could generate nearly $380 billion2 in annual revenues by 2020 within emerging markets alone by:

4 | Billion Reasons to Bank Inclusively

Source: Accenture Research estimates based on World Bank Global Consumption, Global Findex, IFC enterprise Finance Gap databases

Accenture estimates that banks could generate up to $380 billion in annual revenues by closing the small business credit gap and including un/underbanked adults into the formal financial system. Much of this revenue potential, understandably, is in the larger and more affluent emerging market regions.

FIGURE 1. Financial services revenue potential assuming 100 percent penetration of the unbanked in emerging markets

Two primary reasons for banks to act

Personal BankingEstimated financial services consumption increase through 100% banking penetration and increased utilization by adult population (USD bn)

MSME BankingEstimated Revenues in meeting Credit Gap to Micro, Small and Medium Enterprises (USD bn)

Potential

34

2014

22

2014

6 7

Potential

+15.2 +15.7 +26.2

Potential

22

2014

+53.2

79

26

2014

8

Potential

<$1k p.a.$1-$3k p.a.$3-$8k p.a.

Asia Pacific Latin America & Caribbean

Eastern European and Central Asia

Africa & Middle East

Eastern Europe & Central Asia

34

Latin America & Caribbean

Africa & Middle East 57

81

Asia Pacific 95

Potential Fee Revenue

Formal SME Lending

Formal Micro & Informal MSME Lending

Income band of adults

Over 160 million small and micro businesses lack access to finance; another 160 million are underbanked, according to the Inter-national Finance Corporation. Additionally, an estimated two billion adults—or 38 percent of the world’s adult population—do not have access to basic financial services, according to The World Bank.3

Together, small and micro businesses and un/underbanked adults comprise a huge base of the consumer pyramid, and thus, a significant business opportunity for banks (Figure 2).

Small business banking Across developing countries where both banking distribution networks and depth of credit and savings are more limited, some 160 million small and micro businesses lack access to finance; another 160 million are underbanked.4 The International Finance Corporation estimates that these statistics represent a credit gap to micro, small, and medium enterprise businesses in developing economies of $2.1 trillion to $2.6 trillion ($3.2 to $3.9 trillion globally).5

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• Closing the small business credit gap at average lending spreads and conservative estimates of fee-based services which could generate $268 to 270 billion.

• Including unbanked adults into the formal financial system, and raising their financial services spending levels on average to that of lower middle income countries which could generate another $110 billion.

Much of the revenue potential from the unbanked, understandably, is in the larger and more affluent emerging market regions and countries with Asia Pacific and Latin America offering the greatest potential.

Greater social dividendsThe social and economic dividends from financial inclusion are broad and powerful. It gives people greater access to services, protection from risks, opportunities to participate fully in the economy, incentives to save money and support to start and grow businesses. In many cases, people and businesses without access to formal bank services pay more to access alternative financial services than those fully banked, often in the form of high check cashing fees, high interest rates or cash delivery transport costs. Banks on the forefront of financial inclusion for low-income consumers will be well-positioned to reap both economic and goodwill value in return— essentially, banking for good.

70 percent of micro-enterprises have a bank account but only 5 percent have access to term loans from banks and 1 percent to working capital loans from banks.Jana Footprint Survey of central business districts in Bangalore, India6

The bottom of the Consumer Pyramid is enticing

6 | Billion Reasons to Bank Inclusively

1Note: $456p.a. is the $1.25p/d/ poverty lineSource: World Bank and IFC’s SMe Banking Knowledge Guide

FIGURE 2. Consumer market pyramid—emerging marketsWho are the potential mass market customers for banks?Estimated adult (15+) population size by income expenditure (PPP) bands and firms by number of employees

Retail Commercial

c.1.3bn

c. 2.3bn

~27m Firms

~370m Firms

c. 0.6bn

Mass A�uent

HNW

Commercial

Corp.

Small & Medium Enterprises (5+ employees)

Mass Market ($3k - $8.4 p.a.)

Low Income ($1k - $3k p.a.)

Lowest Income ($0.5k - $1k p.a.)

Micro segment (<$0.5k p.a.1)

Micro & Informal Enterprises (0-4 Employees)

Personal bankingNew data from the World Bank’s Global Findex point to significant progress in financial inclusion; the number of unbanked adults dropped 20 percent between 2011 and 2014. Still, an estimated two billion adults—the majority of whom are based in low- and middle-income countries and earn less than $3,000 per year—did not have accounts at any type of financial institution in 2014, as shown in Figure 3. The World Bank Group and partners set an ambitious goal to achieve universal financial access for working-age adults by 2020. Banks are uniquely positioned to help achieve this goal. The presence

of a bank is seen to have a positive and significant effect on the use of financial services, especially among low-income consumers, as examined by a study on the impact of Equity Bank on financial inclusion in Kenya.7

Banks that decide to compete and innovate can both effectively reach this market and capture first-mover advantages. They can move radically and fast to create relationships now and begin realizing the market’s potential rather than fighting for relevance after the potential is realized by others.

Source: World Bank, Global Findex Database

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FIGURE 3. World’s unbanked population by region (in millions)

South Asia

East Asia & Pacific

Sub-Saharan Africa

Latin America& Caribbean

Europe & Central Asia

Middle East& North Africa

North America

626

508

345

208

170

136

17

India Pakistan Bangladesh

Nepal

Myanmar

Thailand

VietnamIndonesiaChina

Nigeria Congo, Dom. Rep.

Sudan

Tanzania

Niger

Angola

Kenya

Peru

Ukraine

Morocco

Algeria

Iraq

Chile

Argentina

Columbia

Ghana

Ethiopia

Mexico

Egypt, Arab Rep.

Turkey

Brazil

Philippines

Russian Federation

Un/underbanked Consumers in High-Income Countries

Of the estimated two billion unbanked adults globally, approximately 60 million are located in high-income countries, based on numbers from the Global Findex 2014. The United States has one of the lowest rates of bank account ownership amongst developed countries, with 6.4 percent or approximately 16.3 million adults estimated as unbanked. Poland, with 22 percent or 7 million adults and Italy with 13 percent or 6.6 million adults unbanked are other examples of developed markets with low rates

of bank penetration. Even countries with account ownership rates in the mid to high 90 percentile face challenges. For example, Japan and France have an estimated 3.7 million and 1.8 million adults, respectively, without formal bank accounts.8

Similarly, a large segment of people— though more difficult to measure— are underbanked. They have bank accounts, but still opt to use informal providers, such as savings

collectors, credit associations, and money lenders, to satisfy their financial needs. In the US, the Federal Deposit Insurance Commission estimates that 20 percent of house-holds are underbanked9, while the Center for Financial Services Innovation estimated the alternative financial services market serving US underbanked consumers in 2011 to be $78 billion.10

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Source: Homi Kharas, The emerging Middle Class in Developing Countries, OeCD, 2010

FIGURE 4. The global middle class market forecast for 2030

A range of economic and demographic macro market drivers are causing unprecedented change in the size and attractiveness of the unbanked market. Primarily, many of the emerging market economies (where much of the mass market banking opportunity resides today) are forecast to grow at a rate faster than advanced economies which should boost economic activity, income levels and demand for new financial services from individuals and businesses.

Also, increased policy action combined with economic growth is lifting hundreds of millions of people out of extreme poverty into the low-income brackets where commercial financial services are more relevant. According to the World Bank, the global rate of extreme poverty (those earning less than US$1.25 per day)

shrank from 36.4 percent in 1990 to 14.5 percent in 2011.11 As low-income consumers improve their economic position, more of them will enter the middle class, having a disposable income of US$10 or more per day. This will also increase demand for financial products and services, not just for transactions and savings, but also to help achieve longer term goals. As shown in Figure 4, the global middle class is expected to increase 2.7 times from approximately 2 billion in 2009 to 5 billion in 2030.12 Accordingly, the purchasing power of middle-income consumers is forecast to more than double—from US$21 trillion in 2009 to US$55 trillion in 2030.13 Much of the growth in the segment’s size and spending will come from emerging economies. In essence, low-income customers of today will soon become the middle- and upper-income earners of tomorrow.

Income progression ups the ante

18%

2%

36%

28%

6%

10%

MENA Sub-Saharan Africa Europe North America Asia Pacific Central & South America

2%

66%

6%

14%

7% 5%

4%

1%

38%

23%

7%

26%

4%

10%

6%

20%

1%

59%

Middle Class Population (bn) Middle Class Expenditure ($USD PPP)

2009

2030

2.7x 2.6x

1.8bn

4.9bn

$21tn

$55tn

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There are three common needs of un/underbanked consumers for financial services:

• Easy access, where use of financial products and services decreases rapidly if access points are far away or difficult to use. Because physical banking infrastructures are expensive to develop, alternative distribution approaches are emerging. The most powerful of these may be mobile financial services, as mobile device ownership is surpassing bank account ownership particularly in many low-income countries, which enable cost-effective transactions and product management. The access to human touch points, whether field agents or remote call centers, is also critical for financial education and building trust with new users of financial services.

• Appropriate products, going beyond the physical availability of financial services provision to addressing whether or not financial products and services are appropriate for mass market consumers. Available financial services also means available at the right price and design—affordable for low-income customers and relevant to their needs, with administrative or regulatory policies that reflect their unique circumstances (such as a lack of formal documentation or irregular incomes).

• Attractive to use, effectively addressing the dormant tendencies of low-income consumers and nurturing wide acceptance by encouraging usage through incentives, low costs and other similar strategies. A critical part of utilization is financial literacy to help customers understand how to use and benefit from available services.

Many bank-led initiatives toward these three requirements have made slow progress, encumbered by legacy operating models and complex operating priorities. So, the question now is: How can banks best change their business models to develop the un/underbanked potential profitably, at scale and ahead of new entrants?

What un/underbanked consumers need

10 | Billion Reasons to Bank Inclusively

Recognizing the importance and potential of the un/underbanked market, various actors are emerging on the stage (Figure 5). They are bringing with them creative ways to boost, enter and collaborate to serve un/underbanked consumers. Key among the convergence and collaboration activities are national governments, development institutions and NGOs; microfinance institutions (MFIs); and new entrants and non-bank financial institutions.

Digital revolution opens attractive doors to un/underbanked markets

Retail banking has already become a digital business globally, with more than 80 percent of customers using online or mobile banking.14 Such a digital shift, coupled with the convergence of industries and providers, are yielding profitable partnerships and more compelling business models for banks.

FIGURE 5. Convergence of veteran and new actors around the un/underbanked segment

Source: Accenture Research

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National governments, regulators, development institutions and NGOs understand that access to financial services is critical to helping people participate in the economy, improve resilience and escape poverty. As such, they are adopting financial inclusion as a foundational driver for poverty relief, economic growth and nation building. They are facilitating access by streamlining regulation, encouraging participation from providers, including banks, and sponsoring inclusion

efforts. Already, significant national and international inclusion programs include direct transfers, funding and credit guarantee initiatives, access directives for banks and new regulation that facilitates provision and open markets. Regulators’ initiatives to issue new licenses to small finance banks and payments banks, such as the case in India, also focus on bringing competition into the financial inclusion space. To achieve the goal of universal financial access by 2020, the World Bank Group is convening a broad coalition of partners, including banks, to step up commitments to private-sector innovation and investment. Priority actions include reforms to eliminate or reduce cost or distance barriers to opening and using accounts, measures that increase the viability of new technology and business models to reach the financially excluded.15

Creative collaboration among providers

Banks down-streamingEXAMPLESAbsa by Barclays, Access by Standard Bank (S.Africa)Easy by RHB (Malaysia)New license for payments and small finance banks (India)

Mass A�uent

HNW

Commercial

Corp.

Small & Medium Enterprises (5+ employees)

Mass Market

Low Income

Lowest Income

Micro segment

Micro & Informal Enterprises (0-4 Employees)

MFIs upscalingEXAMPLESVBSP (Vietnam), Grameen (Bangladesh)Fortis (Nigeria), NMB (Tanzania)miBanco (Peru), BancoSol (Bolivia), Bandhan (India)

Social and state banks

Greenfield microfinance banksErstwhile MFIs turned banks

Governments and development organizations facilitatingEXAMPLESIndia’s central bank

World Bank Group

CARE

National regulators directing commercial banks on inclusive financeDevelopment organizations enabling environment for private-sector investment NGOs linking informal groups to formal financial services

New entrants innovatingEXAMPLESM-PESA (Kenya)Wanda (Latam)Alibaba (China)Kiva (US)Azteca (Mexico)

MNO-led modelMobile paymentsInternet firmsP2P platformsRetail firms

12 | Billion Reasons to Bank Inclusively

Microfinance institutionsAnother player on the rise is the MFI both in terms of number and scale. The number of MFIs reporting to the Microfinance Information Exchange increased from 521 in 2002 with US$5.5 billion in assets to almost 1,252 in 2012 with more than US$81.5 billion in assets.16 These include social and state MFIs and social development banks, such as Grameen Bank (Bangladesh) or VBSP (Vietnam); erstwhile MFIs turned banks, such as Banco Compartamos (Mexico), BancoSol (Bolivia), Equity Bank (Kenya) and recently Bandhan (India); greenfield microfinance banks, such as Fortis (Nigeria) and NMB (Tanzania).

Central banks and regulators in developing countries continue to encourage the upscaling of MFIs by passing new legislation, raising lending limits, or setting up special licenses and funds. For example, Egypt passed its first microfinance law in November 2014 as a way to shore up private investment with the aim of creating employment opportunities for the country’s young people. Central Bank of Nigeria launched a US$1.4bn fund to boost lending to small firms through participating microfinance banks and institutions. In April 2014, the Philippines central bank raised the cap on microfinance loans from just P150,000 (US$3,538) to P300,000 (US$7,076). This year India followed suit when its central bank eased lending norms for MFIs by raising the limits for lending and also widening the base of borrowers17.

New entrants and non-bank financial institutionsFinally, a wide range of newcomers are devising innovative ways to serve the unbanked. For example, retailers, such as Banco Azteca (Mexico) and Walmart (US and Mexico), are executing complimentary financial services models alongside their established retail networks and customer base. Internet firms are doing likewise; these include US-based Kiva as a peer-to-peer microfinance lender, and use of social and mobile phone calling data by Lenddo and Cignifi to establish credit records and facilitate lending decisions. Telecommunications companies, the most powerful competitor to banks in serving mass market customers, are offering simple transactional services on top of voice and data services. The telecom business model is predicated on incremental revenue with much lower distribution and legacy costs, enabling fast service to meet mass market consumers’ financial needs. For example, M-Pesa, a money-transfer system operated in Kenya by mobile network operators Safaricom and Vodacom, has more than 13.9 million 30-day active users—over 60 percent of Kenya’s adult population.18 It has become a default financial platform and is increasing the range of its financial services provision through bank partnerships. Other Mobile Network Operators (MNO) venturing in financial services for mass market consumer in emerging markets include MTN (Africa), Orange (Africa and Europe), Telefonica’s Movistar and MasterCard (Latin American), and Globe and Smart (Philippines). In 2014, there were more than 255 mobile money services for the unbanked across 89 countries and 21 services reach more than one million active customers, while in 16 markets there are more mobile money accounts than bank accounts.19

Banks can get in on the action The convergence and collaboration in support of financial inclusion opens new doors for banks to join hands with various providers to profitably serve un/underbanked consumers, as shown in Figure 6. Such partnership opportunities are agnostic of the type of provider, whether an established commercial or social organization or a startup, and can encompass bilateral or multilateral collaboration.

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PROVIDER TyPE ExAMPLES OF PARTNERSHIP WITH BANKS NEEDS ADDRESSED

Governments Bank Mandiri in Indonesia and Bansefi in Mexico are supporting their respective government’s social services transfers to millions of citizens—that is, government- to-person (G2P) payment which is considered to be the primary gateway for driving the utilization of banking services and attracting more savings20

Easy access; appropriate products; attractive to use

Development institutions

Fortis bank in Nigeria has strategic partnership for SME lending with local and international development agencies, such as the Small and Medium Enterprises Development Agency of Nigeria, National Directorate of Employment, UNDP and ILO21

Easy access; appropriate products

Non-government organizations

Barclays bank is linked by CARE in Kenya and Uganda to 400 savings groups, which have saved over $120,000 under the CARE’s Village Savings and Loan Association model22

Easy access; appropriate products; attractive to use

Microfinance institutions

United Bank for Africa partners with MFIs on the visa prepaid card in 19 countries. MFIs earn fees by educating customers about the UBA prepaid Africard, and carrying out related functions such as loading money on card, card replacement, card to card transfer and pin reset23

Easy access; appropriate products

Non-bank financial institutions

A bank in Ghana that had been experiencing low account balances and limited transactions partnered with StarLife Assurance to launch an insurance product tied to the savings accounts; as a result deposits from clients with balances below US$60 increased by 207 per cent in five months as clients saved more to access the free insurance24

Appropriate products; attractive to use

New entrants— Mobile startup

The World Savings and Retail Banking Institute (WSBI) signed an agreement with startup Cignifi, which models a person’s creditworthiness based on mobile phone behavioral data, to develop and test-market an innovative mobile savings product targeted at underserved and dormant savers; product to be tested through WSBI member HFC Bank Ghana and Airtel Ghana25

Appropriate products; attractive to use

New entrants— Internet firm

India’s ICICI bank is partnering with Chinese e-commerce firm Alibaba to establish an online trade facilitation centre that will make it easier to offer trade finance to small and medium enterprises who are members of Alibaba.com26

Easy access; appropriate products; attractive to use

Multiple local and international organizations

China’s Harbin bank signed a cooperation agreement with the International Finance Cooperation (IFC) to develop mobile banking services in the northeast region; collaborated with Planet Finance to develop microcredit products based on international best practices; Harbin bank’s Microfinance R&D Center initiated with China Association of Micro-finance (CAM), Rural Development Institute of Chinese Academy of Social Sciences (CASS) and the global MIx Market to set up a small lending industry benchmark27

Easy access; appropriate products; attractive to use

Agents Equity Bank in Kenya has a tiered franchise system of selecting and managing agents, who drive more number of transactions than any other channel. Agents of the bank must set aside physical space, and are required to invest in marketing collateral, POS machines and mobile phones. Today, more than 25 percent of the agents’ activities are profitable as stand-alone businesses, while the rest are break-even or expected to be profitable in the near future28

Easy access; appropriate products

FIGURE 6. Strategic partnership opportunities for banks

14 | Billion Reasons to Bank Inclusively

Players are using mobility, cloud, analytics and other new technologies to enable more effective, cost-efficient business models in reaching un/underbanked markets. Many of these models—emerging from banks as well as from alternative financial services providers, telecommunications companies and governments—not only improve the speed, economic and utility of banking products, but also distribution approaches and the underlying operations and cost structures of supplying retail and business financial services.

Mobility, in particular, is heading toward critical mass. Mobile penetration even in low-income countries is over 50 percent.29 Mobile banking and payment solutions are opening up new access routes to and for customers, beyond that of traditional banking distribution. They are already in the hands of many potential low-income customers, most notably the young. This is significant as traditional physical distribution assets in most emerging market countries are underdeveloped, making distance to access a major challenge (Figure 7). Additionally, the cost for a mobile transaction is a fraction of the cost of other banking distribution channels. For example, the average cost of transactions served through mobile channels is as low as two percent of the branch cost.

More compelling, technology-driven business models

FIGURE 7. Banking distribution infrastructure by income group

4.912.522.430.8

5.823.7

48.4

80.4

1.1

71.9

202.6

52.2

80.0

118.7126.9

High Income Upper Middle Income

Lower Middle Income

Low Income

13.6

Branch Penetration (per 100k)

ATM Penetration (per100k) POS Penetration (per 1m)

Mobile Penetration (per 100)

Source: World Bank Development Indicators. Financial Access Survey

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Source: Accenture Research

Source: Accenture Research

The powerful building blocks of partnerships and technology for financial inclusion

How partnerships and technology can drive multi-channel distribution

How partnerships and technology can drive the loan application process

Branch/ATM Agents Own Sales Force

Bank

Customer

Merchants/Other E-Commerce (Internet, telesales)

MNO*

DIRECT INTERMEDIATED

Distribution model targeted at the mass market customer across the plurality of channels

e.g., Barclays Africa Group Limited’s retail customers can access bank and insurance account information, all on the same online platform

e.g., Barclays’ Absa Cellphone Banking where customers can use an app on their smartphone and tablet devices to quickly open accounts, apply for loans and receive funds

e.g., Branch-on-Wheels by Equity bank in Kenya

e.g., Direct sales agents is one strategy that countries in the Middle East and North Africa region adopted to increase financial inclusion

e.g., 7-Eleven retail chain as agent of Banorte bank in Mexico

e.g., Bancolombia’s Ahorro a la Mano product launched with telcos Tigo, Claro, Movistar

e.g., Small savings collected by ICICI bank’s agent network partner, Cashpor in India

Mobile phone (*as aid to all other channels versus MNO-intermediated distribution)

Innovative customer identification through biometrics authentication (such as fingerprint and iris recognition capabilities) at ATMs and in mobile apps

Know Your Customer (onboarding)

Credit assessment Credit guarantee Cash handling

Core systems

e.g., linking into Aadhaar National Identity Scheme oers banks in India a backbone for simple account opening, reducing on-boarding documentation requirements

e.g., Argentina’s Banco Macro uses Cloud as the basis for a new business unit, Alumbra, which oers loans of $250 to $6,000 to micro-enterprises and small businesses, with a vision to potentially integrate the capability with the bank’s core systems in the future.

Analytics on digital data capture for borrower assessment

e.g., China’s Alibaba uses customer’s commercial transactions on their ecommerce platform Taobao to establish credit records and conduct SME lending; customers qualify for a credit limit based entirely on their online score; NPL on portfolio is less than .0005%.

Partnership for credit risk management

e.g., Mexico’s Banorte bank, in partnership with the International Finance Corporation, oers special guarantees on financing for SME, agribusiness, low- and middle-income housing and other priority sectors

Digital technology for cash disbursement and collection

e.g., Ezetap’s mobile POS device enables card payments through a mobile phone or tablet for Bajaj Finserv agents in India, reducing the costs associated with cash handling (such as loss, theft and accounting delays)

APPROVED

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Banking business model that reflects the un/underbanked market

Still, to capture the financial inclusion opportunity, banks will need a new service model that reflects the market’s traits and needs—such as its high-volume-relatively-low value service profile. Accordingly, banks will need a segment-specific revenue model that focuses on activity-based charging rather than gathering large asset and liability balances. The model must also incorporate a cultural focus on developing customer potential as well as work with external partners to satisfy complex customer needs. The model is likely to be very technology and data-driven to achieve the scalable efficiency needed operationally to serve large numbers of customers at a very low cost.

Accenture created a blueprint, shown in Figure 9, that illustrates the operating model banks need to deliver full-service banking to un/underbanked consumers. While there are many variants—such as banks that emphasize physical or mobile distribution—the core components of the capabilities for mass market banks will be consistent:

• Offerings. Simple, needs-based product set: transact, save, borrow, invest and protect. Multiple customer use cases built on an open platform. Affordable, transparent and activity-based pricing.

• Distribution. Low-cost branches, taking advantage of hub and spoke servicing. Extended agent network with correspondent branches and agents. Mobile access, mobile banking and payments. Point-of-sale enablement.

• Customer. Simple and easy banking processes. Focus on customer needs and financial education. Enablement of customer self-servicing and instant/rapid customer fulfilment.

The good news is that banks remain relevant. They know financial customers and can draw on the best of banking models to overcome key customer challenges around use and behavior. They possess the scale, capital and know-how to effect and rapidly accelerate financial inclusion. Banks also have key competitive advantages of capital and risk management, branch networks and broad product and service range. To seize the financial inclusion opportunity, banks need to develop the right playbook—key actions outlined in Figure 8.

ACTIONS OBSTACLES

Define clear strategy to serve the mass market segment as long-term commercially viable business

Limited management time and focus

Simplify existing products, services and processes; build a distinct sub-brand with specific products and services

Legacy systems that present hurdles in getting to the right level of cost-to-serve and profitability; initial investment cost and risk associated with any new business

Innovate, drive digital-enablement to deliver services to the mass market segment

Initial investment cost, risk associated with any new business

Partner with existing microfinance or alternative providers

Managing commercial agreements, business continuity risk

Optimize third-party solutions and managed services

Initial investment cost and risk, managing commercial agreements

FIGURE 8. Key actions for banks in pursuing un/underbanked consumers

Source: Accenture

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FIGURE 9. Bank operating model blueprint for un/underbanked market

• Enterprise. Straight-through processing with zero back office. Automated controls and risk decision-making. Digital customer credit and identification analytics. Real-time reporting and planning.

• People. Customer and sales orientation. Reach extended through third-party partner and agent management. Oversight and management analytics.

• Technology. Digital and automated process. Mobile- and digital-first enablement. High-volume, low-cost processing to crush legacy costs. Just-in-time model with flexible, low-cost, managed services. Big data, analytic enablement.

Digital

Physical Distribution Agent, Third Party

Distribution

Transactional Factories

Cross Product Operations

Savings & Lending Payments Insurance Investments

Sales & Service

Customer O�er Assembly

Lean Governance

Customer View

Analytics & Customer Supply Chain

O�er Management Pricing Decision Models Service Integration

Customer Management

Sales & Agent Management

Contract Management

Service Management

Plan & Control

Finance Risk Management

HR Vendor Management

Legal & Compliance

Towards a logical operating model for mass market banks

The starting point for any bank in achieving a sustainable bank operating model for the un/underbanked market is to define the vision and goals. For some banks, the level of change may be extensive. They may choose to seize the market opportunity indirectly, such as by collaborating with microfinance organizations or working as funding partners. Some may opt to fully engage in the market by creating radical, new business and operating models, while others will seek to evolve existing operations into effective mass market bank models.

Many of the decisions banks face in addressing the un/underbanked market require a reassessment of how they provide banking services. This creates challenges and trade-offs that need to be made between banks’ ambition to capture the segment and the degree of required change and investment.

18 | Billion Reasons to Bank Inclusively

Janalakshmi Financial Services (JFS) quickly stabilized and scaled up its operations to deliver microloans to India’s unbanked consumers. With help from Accenture in areas of customer on-boarding and processing operations, JFS was able to double the number of loans it disbursed in 17 months. At the same time, it decreased its loan turnaround time by nearly 40 percent. With such outcomes from the partnership, JFS recently extended the effort to transform its operations in hundreds of branches to further improve speed and convenience to its customers. JFS, India’s fastest growing large microfinance institution, plays an important role in bringing the unbanked Indian population under the banking umbrella.

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Banks that focused early on this segment have innovated business models with proven profitability. For first-mover commercial banks, in fact, poor customers (those below the national poverty line) comprise a sizeable proportion of the mass market—ranging from 47 percent at Kenya’s Equity Bank to 70 percent at South Africa’s Standard Bank30. Despite the low-income consumer focus, Equity Bank group’s return on equity at 28 percent in 2014 is likely above the average return earned from banking high-income consumers in developed markets. Notably, Standard Bank merged its Inclusive Banking division into its retail banking unit’s profitability; bottom-line responsibility for financial inclusion customers, migration to core banking system and all marketing efforts conform to bank-wide standards.

Banks take the lead

Banks pursuing the un/underbanked market opportunity cannot afford to make incremental efforts in gaining traction with the billions of potential customers. Banks will need a clear strategy and new service model—to achieve the scalable efficiency in serving large numbers of customers at a very low cost. Accenture continues to help banks, MFIs, NGOs and other organizations around the world refine their approach to inclusive finance and accelerate delivery of financial services to un/underbanked markets. Whether it is adapting distribution and product models to reach unbanked customers in emerging markets, or adapting product and pricing models to reach underbanked customers in mature markets, innovators are showing the way. Banks can take the lead by adopting a holistic approach centered on customer needs and reflected across the business model through radical simplification, digital adoption and a partner ecosystem. Putting the building blocks in place can give banks the prospect of engaging billions of potential new customers.

Un/underbanked consumers represent a huge market that, up to now, has been largely overlooked and unreachable. Today, the financial inclusion opportunity lies at the convergence of two major trends: the increasing incomes of the low-income populations in emerging market economies, and the reality of digital technology to revolutionize the provision and price point of financial services. For banks, this means the moment has arrived where a digital-powered business model can embrace un/underbanked consumers and capture the US$380 billion opportunity profitably. Banking the low-income segment will call for its own people, process, technology, infrastructure, and a new enterprise network that efficiently connects banks with partners. It will call for capabilities to manage high- volume-relatively-low-margin operations that are built with a long term view. It calls for an ability to grow with the consumers and mature to more sophisticated financial services over the course of time.

About AccentureAccenture is a global management consulting, technology services and outsourcing company, with more than 358,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$31.0 billion for the fiscal year ended Aug. 31, 2015. Its home page is www.accenture.com.

Juan Pedro MorenoSenior Managing Director, Global Banking [email protected]

Madhu VaziraniThought Leadership Senior [email protected]

Schira LillisThought Leadership Research Principal [email protected]

1 World Bank Consumption, Global Findex, IFC Enterprise Finance Gap databases

2 Ibid

3 World Bank, Measuring Financial Inclusion: The Global Findex Database, 2014

4 IFC, Closing the Credit Gap for Formal and Informal Micro, Small and Medium Enterprises, 2013; IFC Enterprise Finance Gap Database

5 Ibid

6 Janalakshmi Financial Services, Jana survey, 2014

7 World Bank, Measuring Financial Inclusion: The Global Findex Database, 2014

8 Ibid

9 FDIC, Addendum to the 2011 FDIC National Survey of Unbanked and Under-banked Households, 2013

About The Authors

References10 Center for Financial Services Innovation, Underbanked Market Sizing Study, 2011

11 World Bank, Global Monitoring Report 2014/2015, Ending Poverty and Sharing Prosperity

12 Homi Kharas, The Emerging Middle Class in Developing Countries, OECD, 2010

13 Ibid

14 Banking 2016 in Distribution & Marketing: Accelerating Growth While Optimizing Cost to Serve, 2012

15 The World Bank Group press release, 17 April 2015

16 MIx Market, Microfinance Barometer 2014

17 Livemint, 7 April 2015

18 Safaricom, FY15 Results Presentation

19 “State of the Industry 2014: Mobile Financial Services for the Unbanked”, GSMA 2015

20 Analysis: Improving financial services for Indonesia’s underserved, The Jakarta Post, 2014 and CGAP G2P Research, Project Mexico Country Report, 2011

21 Fortis Bank web site

22 Connecting the World’s Poorest People to the Gobal Economy, CARE, 2013

23 Bussy Bambo Business Blog, 2013

24 ILO Briefing Note 15, Pathways to Greater Impact, January 2013

25 WBSI press release, 20 January 2015

26 ICICI bank press release, 22 June 2015

27 IFC press release, Nov 2013 and MIx Market

28 GAFIS, Big banks and small savings, December 2013

29 World Bank Development Indicators, Financial Access Survey

30 GAFIS, Big banks and small savings, December 2013

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