InclusionFinancial

01 02

Towards full bankingpenetration?

INFOGRAFÍAFinancial inclusion2011/2014

03

04 INTERVIEWGema Sacristán

05 Banking penetration in Africa driven by mobiledevices

FINTECH SERIE BY innovation edge

BANKING PENETRATION,

AN INSTRUMENT

TO PROMOTE DEVELOPMENT

The gaps of banking penetration

01Towards full banking penetration? Between 2011 and 2014, 700 million people opened a bank account. The number of

people outside the banking system fell by 20% worldwide.

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

Between 2011 and 2014, 700 million people

opened a bank account. In the same period, the

number of people outside the banking system

fell by 20%, or 2 billion adults. In 2014, 62% of

adults held an account, well above the 54%

registered in 2011.

The World Bank's 2014 Global Findex study,

funded by the Bill and Melinda Gates Foundation

in partnership with Gallup, Inc., highlights the

importance of banking penetration for a country's

development: “It is a critical factor in reducing

poverty and is the result of economic growth. It is

not an end in itself, but it leads us towards an end

since it offers substantial benefits for individuals.”

The year 2020 is one of the dates set by the

World Bank for many countries in Latin America to

achieve full banking penetration. Meanwhile,

governments are implementing programs to put

an end to the so-called “financial illiteracy” of the

population. This report stresses that to the extent

that “people participate in the financial system,

they are better prepared to run their businesses,

invest in education or face risks”. financiero está

más capacitada para desarrollar sus negocios,

invertir en educación o enfrentarse a los riesgos”.

Pedro Ramiro, coordinator of the Latin American

Multinational Company Observatory (OMAL),

points out in this article published in El País the

possibilities that banking penetration offers to

financial institutions: “Workers are paid in an

envelope, families do not use standing orders, or

mortgages… there is a huge potentiality for

customers.”

Turning to the report, Global Findex shows that

Latin America and the Caribbean have made

significant progress in banking penetration. 51%

of adults (over the age of 15) in Latin America and

the Caribbean hold an account, compared with

39% in 2011, but even though this progress is

significant, there are still 210 million adults outside

the banking system. These account for 10% of the

total 2 billion people who are still not using

financial services worldwide.

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

Today, 40 million adults receive government

payments in accounts. In Brazil, 88% of the

beneficiaries of government transfers received

them in an account. In Argentina, the number of

account holders among the poorest 40% of

households doubled to 44% between 2011 and

2014.

In Mexico, the percentage of the adult population

with an account increased from 27.4% in 2011 to

31.1% in 2014, a level well below countries like

Brazil (68.1% of adults with an account), Chile

(63.3%), Venezuela (57%), Ecuador (46.2%),

Uruguay (45.6%), Panama (43.7%), Bolivia

(41.8%) and Guatemala (41.3%).

The most notable change in access to financial

services in the region comes from Central

America: in El Salvador, Guatemala, Panama and

Honduras the number of account holders

increased by more than 50% between 2011 and

2014. Lagging behind are Peru (with only 29% of

adults with an account), Nicaragua (19%) and Haiti

(18%).

In the region as a whole, 28% of adults make

payments directly against their accounts using a

debit card, compared with 14% in developing

countries on average.

Central America the number of account

holders increased by more than

50%

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

The role of governments

and private institutions in

banking penetration

These figures show that there

is still a long way to go in

promoting the use of banking:

135 million adults hold an

account, but they pay for their

utility bills in cash. The report

says: “By paying wages in the

public sector and government

wages and transfers in digital

format (instead of in cash),

governments and the private

sector can play a key role in

accelerating the opening of

accounts and boosting financial

inclusion. Worldwide, payment

of government wages and

transfers through accounts

could increase to 160 million

the number of adults holding

an account.”

The report also addresses

another important part of

banking penetration: saving.

However, holding a checking

account does not guarantee

that people will save money at

a financial institution.

Of the 41% of people who

claimed to have saved in

2014, more than half did not

to so through financial and

similar institutions, although

compared with 2011 there

was a 13% increase in those

who saved using bank

branches.

When asked why they do not

hold an account, their answer

is that they are very expensive

and they believe that they

have no need to hold an

account. The report highlights

that the moment “costs go

down, many people will be

willing to hold an account”.

Full banking penetration is

one of the most effective

instruments in fighting

poverty.

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

The gaps of banking penetration

02

More than one billion women have no access to

the financial system ( ) ; 58% are bank account

holders compared with 65% of men.

More than one billion women --40% of women

worldwide-- have no access to the financial system.

According to the Global Findex 2014 report, the

gender gap is obvious: 58% are bank account holders

compared with 65% of men.

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

Poor women bear the brunt:

because of their low income

they are still being denied

access to financial tools. As

pointed out in this article by Sri

Mulyani Indrawati, Managing

Director and Chief Operating

Officer of the World Bank:

“Women in particular are in a

situation of disadvantage as

regards access to financial

services. In developing

economies they are 20% less

likely than men to hold a bank

account and 17% less likely to

apply formally for a loan.

Moreover, they have less access

to secure saving mechanisms

and are more likely to use

informal, and therefore,

probably riskier and more

expensive methods.”

of wome are bankaccount holders

compared with 65% of men

58%

of women worldwide, have no access to the

financial system

40%

This represents an 11% increase

for both sexes if we take the

initial 2011 survey as a

reference, although the

inequality between men and

women stands at 7% (globally)

and increases to 9% in

developing economies. In

Southeast Asia only 35% of

women have access to an

account, while the percentage

for men increases to 55%.

The gap is particularly significant

in the Middle East, where

women are half as likely to hold

an account compared with men.

In Latin America, inequality has

decreased and tends to level off:

47% of women hold an account,

compared with 54% of men.

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

According to Ursula Heimann,

managing partner of Solliv:

“Women usually manage their

money in the short term better

than men, but they have less

financial expertise and

confidence in their abilities, which

leads to less access to formal

financial products”.

And what happens when a

woman applies for a loan? This

report by Chile's Bank and

Financial Institution Association

(ABIF) points out that “women

are better payers than men.

Despite facing a more complex

financial situation at home,

women make a relatively bigger

effort to pay off their debts (...)

and tend to assess in a more

critical way the financial situation

of their households, which leads

to better financial planning and,

in turn, to better payment

behavior”.

The benefits of giving women

access to finance extends to

their children and goes much

further, since women spend

money on health and

education. In South Africa or

Brazil, for example,

granddaughters are more

likely to enroll in school when

the grandmothers receive a

pension.

A woman who has access to a

bank account looks after her

family and after herself and can

change the future. This is

illustrated by a Huffington Post

article, Bank on Her: 5 Women

Prove Why They Belong in the

Formal Financial System, that

shows how access to the

financial system changes the

lives of women and of their

families completely.

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

The obstacles

Women face many barriers

when it comes to having

access to financial services and

sometimes are not aware of the

services available or are

prevented from having access

to them. In less developed

economies, women cannot

have access to banks because

they live in remote areas and

even on some occasions, as

stated in this report by the

World Bank, are regarded as

second-class clients by financial

institutions.

Another problem they face is

that 200 million women,

according to this study by

GSMA, have no cell phones,

which excludes them from all

digital banking opportunities,.

that very vigorous in countries

with less banking penetration.

To achieve gender equity in

access to financial products and

services the institutions need to

recognize the key aspects of the

financial lives of women and their

motivations.

As Sri Mulyani Indrawati

concludes: “Financial inclusion

matters not only because it

promotes growth, but also

because it helps to ensure that

prosperity is widely shared.

Access to financial services plays

a key role in the task of lifting

people out of poverty, in

empowering women and helping

governments deliver services to

the population. It is decisive in

the fight against poverty.”

FINTECH SERIE · JULY 2015

INFOGRAPHIC

FinancialinclusionIn 2011 the World Bank set up the Global

Findex databases in order to study the

financial transactions people use to save, ask

for loans, make payments and manage risks.

Share on Pinterest

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

Growth of financial inclusion

Between 2011 and 2014 there has been a significantgrowth in financial inclusión worldwide.

Growth in developing countries

Adults in the worldwith a bank account

20142011

51% 62%

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

Opportunities

GenderIn devoloping countries there is still a gender gap in terms of financialinclusion.

By residenceWith a formal account in low-income economies:

Less likelyto have anaccount.

Less likely to have savedformally.

Urbanresidence

Rural residence

Men Women

Formal bankaccount

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

By agePeople aged between15 and 24 are

Cellphone accountWhile only 2% of adults around the world have their money account on their cellphone, 12% in sub-Saharan African countries have an account of this kind, and of this number, half have only this account.

Cash paymentsIn developing countries over 400 million non-bankarized adults receive their wages or government support payments in cash.

Account usesHaving an account is the first step towards financial inclusion. In developing countries, account holders use their accounts for a range of functions.

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

Millions of adults with money account on their cellphones:

Agriculturalpaymentsin cash

Gema Sacristán heads the Financial Markets Division at the

Structured and Corporate Finance Department at the IDB, the area

responsible for development and capital markets, financing

foreign trade, and relations with financial intermediaries –mainly

banks and mutual funds.

04/INTERVIEW“Financial literacy plays a key role in responsible decision-making”– GEMA SACRISTÁN

227 million adults in Latin

America and the Caribbean do

not have access to formal

financial services How can we

fight to achieve financial

inclusion?

We are currently seeing a

redoubling of the efforts to

increase access to financial

services worldwide through a

range of public and private

initiatives and community

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

support schemes, such as

opening accounts for depositing

payroll checks or for transferring

funds to the beneficiaries of

public programs; financing

guarantee systems for targeted

loans; creating financial

intermediaries; their funding and

capitalization; subsidies for

acquiring physical and

technological infrastructure;

providing technical assistance;

and –in terms of the legal

framework– the creation and

adaptation of specific laws to

regulate the activity of non-

banking financial intermediaries.

In addition large-scale financial

services with a business focus

are being provided by the banks

(downscaling) and other

companies and financial

intermediaries.

the Caribbean (LAC). These

include regulatory reforms for

the supply of electronic money,

increased coverage of physical

access points by financial

intermediaries, and the use of

systems for making government

payments.

What are the IDB's proposals?

Recent years have seen a

number of public and private

initiatives aimed at generating

major changes in the financial

systems of Latin America and

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

The IDB works in several areas

to improve financial inclusion in

the region. Transactions and

product knowledge focus on

expanding the financing frontier

for the productive sector,

developing capital markets and

risk management instruments,

and implementing and

reinforcing the rules and

institutions for the effective

management of macro-financial

risks. The aim of our beyond

Banking program is to promote

practices of social and

environmental sustainability and

corporate governance among

the financial intermediaries in

the region.

What should the involvement

of governments be?

In spite of the advances in

recent years, the governments

in the region need to reinforce

public policies aimed at

increasing financial inclusion,

and this requires more work in

the areas of service supply and

demand and in the institutional

framework. For example, even

in countries with greater

regulatory advances, there is still

a need for reforms to simplify

the basic accounts and reduce

the regulatory cost of accessing

the system, to facilitate the

expansion and financial viability

of non-banking correspondents

to lower transaction costs for

users and providers, and to put

in place sensible frameworks to

back the regulations governing

electronic money. This will

ensure they are proportional to

the risk assumed by the

providers, and grant the

necessary legal security while

guaranteeing the financial

stability of the system.

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

And how should the private

sector be involved?

Financial literacy plays a key

role in responsible decision-

making. It offers considerable

benefits both for individuals

and for the economy as a

whole, as it helps develop

the necessary skills to assess

the risks and consider the

potential gains of a financial

transaction; in short, it

teaches people how to weigh

up the positive and negative

aspects of a financial

alternative and reach a

responsible decision.

Financial literacy also benefits

individuals in all stages of their

lives: children, by teaching

them the value of money and

saving; young people, by

preparing them to exercise

responsible citizenship; adults,

by helping them to plan

crucial economic decisions

throughout their lives such as

buying a home or preparing

for retirement. It also helps

families to adapt their savings and investment

decisions to their risk profile and to their needs,

which builds confidence and confers stability on

the financial system. Equally, it promotes the

development of new quality products and

services, competition and financial innovation.

of Latin AmericanWomen still do not have a bank account

%52

What is the position of women in terms of

financial inclusion in Latin America and the

Caribbean?

The proportion of women in this area who have a

bank account in a formal institution rose from

35% in 2011 to 48.5% in 2014, which narrows

the gap with men from 9.3 points to 5.5 points.

In spite of these advances, there is still work to be

done to include the region's women, as more than

half (52%) still do not have a bank account. This

figure continues to be higher than the average for

women excluded worldwide (43%), in middle-

income countries (47%), and significantly higher

than in OECD countries (6%). In addition, the

improvements in the regional average are largely

due to specific advances in particular countries

such as Brazil, Costa Rica, Jamaica, Mexico and

the Dominican Republic, which saw increases in

the number of women included and a narrowing

of the gap. Countries like Chile, El Salvador and

Uruguay considerably improved the proportion of

women included, but at the same time show an

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

increase in the gender gap,

which suggests that the

intensive processes of inclusion

are not always equitable.

However only 11.4% of women

in LAC save in a financial

institution; that is, less than half

the world average (25%) for

middle-income countries (22%),

and far below the average for

OECD countries (50.4%).

Are there any countries that

are doing particularly well in

terms of female inclusion and

which could serve as an

example for the rest?

Brazil, Costa Rica, Jamaica,

Mexico and the Dominican

Republic, which saw advances in

both the number of women

included and a narrowing of the

gap. According to the report

What can be done to reduce

the financial gap for women-

owned SMEs in Latin

America and the Caribbean?

In the future, both public

programs and policies and

products should be designed

to adapt to women, by taking

into account their specific

preferences and restrictions.

However, there is a systematic

lack of gender-disaggregated

data in the public and private

sector on both the demand

side (data from users of

household or special surveys)

and on the supply side (data

from banks). This dearth of

information makes it difficult

to reach a satisfactory

diagnosis, and to design

policies and assess public

interventions.

WEVentureScope by the FOMIN

and Economist Intelligence Unit,

Chile ranks first in the region for

its support for women's

entrepreneurial initiatives,

followed by Peru, Colombia and

Mexico. Chile heads the general

ranking with low

macroeconomic risk, particularly

strong initiatives for diversity of

providers and solid social

services.

Peru comes just below Chile

thanks to its strong business

networks, technical support

programs for SMEs and its stable

macroeconomic environment.

Colombia comes in third: it has

well-developed training

programs for SMEs and offers

ample access to university

education for women.

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

In the private sector, the business case for

investing in women-owned SMEs should be

promoted more intensively. Organizations such as

the IDB, FOMIN and Global Banking Alliance for

Women (GBA) are spearheading this effort.

Academic studies have shown that providing

women with access to capital, savings accounts,

training in business management, professional

training and employment receipts helps raise the

productivity and income of self-employed women

workers. The private sector will certainly play an

important role in narrowing the gap, and the IDB

helps banks in Latin America and the Caribbean

through its women entrepreneurship Banking

initiative (weB) to implement funding models that

support the growth of businesses owned by

women. The aim is to incentivize banks and other

financial institutions to testdrive innovative and

inclusive funding products and services. Until June

2015, the IDB –through weB– has approved 14

projects, which are expected to benefit

approximately 100,000 micro, small and medium-

sized enterprises through to 2019.

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

What are the main problems

facing the population in Latin

America?

The slowdown in economic

growth and the diminished hope

of a substantial upturn pose a

challenge for the LAC region,

exemplified by a "new normality"

featuring stagnant growth rates

and less room to maneuver to

bring the situation to an end.

Experts and policy designers are

concerned that these more

limited outlooks may jeopardize

the social advances of the last

decade and push the Latin

American economies towards

the so-called middle-income trap

–a situation where a country's

development prospects become

bogged down.

The economic growth of LAC

could recover slightly to 2.2%

in 2015, compared to 1.3% in

2014, the lowest rate since

the global financial crisis. In

the words of Luis Alberto

Moreno, chairman of the IDB,

Latin American and Caribbean

countries should prioritize

reforms that ensure sustained

and inclusive growth in the

medium and long term. “The

answer today, more than ever

before, lies in internal order

growth sources”, he says.

“Here the overriding challenge

is to increase productivity".

This is the factor that explains

our relative backwardness

compared to other parts of

the world”.

In the last ten years, Latin

America has succeeded in lifting

over 70 million people out of

poverty; meanwhile its middle

classes have expanded until they

now represent over 50% of the

population. Education,

infrastructure, security and

better quality healthcare services

now form the core demands of

the region's growing middle

classes. While it works to meet

these new expectations, the

region is in turn facing the

challenge of having a large part

of its population living in a

situation of “chronic poverty” –

130 million people, according to

a recent study.

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

64 million people hold mobile money accounts

in Sub-Saharan Africa. Beyond the M-Pesa app,

which has been such a huge success in Kenya,

here we examine some of the other startups

that are thriving in Africa.

05Banking penetration in Africa driven by mobile devices

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

In the year 2030 two billion people will use their

cell phones to save, lend and make payments,

according to Bill Gates. But you don't need to peer

that far into the future to recognize the potential

that mobile banking offers as a driver of financial

inclusion.

Figures from the World Bank demonstrate just

how vital mobile devices are for the unbanked

population: in Sub-Saharan Africa 12% of adults

(64 million people) have mobile money accounts,

10% more than in the rest of the world (2%).

Kenya leads the way, with mobile money account

ownership at 58%, while Tanzania and Uganda

have rates of close to 35%. In Kenya more than

half of adults who pay utility bills use a cell phone

to do so. One success story that corroborates this

trend is that of the M-Pesa app.

In Ivory Coast, Somalia, Tanzania, Uganda and

Zimbabwe more adults have mobile money

accounts than bank accounts. In Tanzania nearly a

quarter of individuals who collect payments for

agricultural products do so with their cell phones

in hand.

More figures: 48% of adults in Sub-Saharan Africa

send or receive remittances. In the wake of M-

Pesa's success in Kenya, plenty of startups are

emerging with the intent to provide financial

services to the 75% of the African population that

is excluded from traditional banking.

FINTECH SERIE

In March of 2013 the Moroccan entrepreneur

Rania Belkahia partnered with Jérémy Stoss and

François Sevaistre to launch this startup, which

aims to compete with the giant names dominating

the remittance business. Every year emigrants

send 60 billion dollars to Africa. However, just 5%

of Africans hold bank accounts, which means this

money is either moved by "informal" means or via

the two major players in money transfers: Western

Union and MoneyGram, which together account

for 75% of the market.

As Belkahia explained to La Tribune, “on average a

fee of 12.5% of each transfer amount is charged,

plus a commission on the exchange rate. We

provide a cheaper alternative that also guarantees

that the funds will be put to good use."

Afrimarket puts the person making the transfer in

control of how the money is spent. They can

specify whether it can be used to buy food, make

payments on a home, education, domestic

appliances, etc. An SMS is sent to the beneficiary

detailing how much they have to spend on items

via a catalog or at any of the 300 partner

establishments, which are equipped with

Afrimarket mobile payment terminals.

"Beneficiaries simply waive their cell phone close to

the terminal to authenticate the transaction: we use

encrypted sound technology that works with all

operators and devices. Including the 10 euro

Chinese cell phones that are so widely used in

Africa," says Belkahia. Orange has invested in the

business, which operates in Abidjan, Dakar, Lomé,

Cotonou and Bamako.

Afrimarket: a “cash-to-goods” transfer service

that is breaking Western Union's monopoly.

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

Bouquet Pass Santé in Senegal: paying

medical bills from abroad.

Bouquet Pass Santé is a startup

from Senegalese entrepreneur

Moussa Traoré, which allows

money to be made available

to cover medical emergencies

and healthcare bills. The

process is simple: if, for

example, someone falls ill in

Dakar, a relative living in Spain

could use the Bouquet Pass

Santé website to select a

doctor for them. The relative

makes the payment online

and the patient is sent a

message with a code detailing

their appointment. In Senegal

around 80% of remittances are

used to buy food, while just

4% is spent on health.

Nigeria: Simple Pay.

Uber and the travel agency

Jovago have created an app that

supports secure and instant

direct payments, competing with

PayPal.

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

SnapScan: South Africa's Apple Pay

SnapScan provides contract-

free payment services in Cape

Town, Durban and Pretoria,

just as Apple Pay does in the

United States. The process is

as follows: once the SnapScan

app has been downloaded, the

user takes a photo of a

product's QR code and enters

a 4 digit code to confirm the

purchase. SnapScan provides

contract-free payment services

in Cape Town, Durban and

Pretoria, just as Apple Pay does

in the United States. The

process is as follows: once the

SnapScan app has been

downloaded, the user takes a

photo of a product's QR code

and enters a 4 digit code to

confirm the purchase. By

2017 350 million Africans will

own cell phones. These

startups have a huge market

open to them.

Bitcoin in Ghana.

The Bean app is designed to do

away with commissions. It

therefore uses bitcoins instead of

the local currency. Nikunj Handa

says in this report carried by Le

Monde, “the aim is to attract a

significant share of remittance

flows. We are focusing on Ghana

and Nigeria. By using bitcoins,

transfer costs are reduced from

the 12% charged by traditional

operators to 3% with Beam. We

are far more competitive. Of the

60 billion dollars that are sent to

Africa, 7 billion goes toward

transfer costs.“

Beam converts its customers'

money into bitcoins, which can

then be changed into Ghanaian

cedis via the recipient's mobile

device.

FINTECH SERIE · JULY 2015 · www.centrodeinnovacionbbva.com/en

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