As the momentum of the digital economy continues to grow - from eCommerce, to various forms of mobile commerce, to now the dawn of IoT and Mobile Banking - there is now increasing discussion about how to more accurately characterize and define the human experience for being able to 'transact' in both the physical and digital worlds (as technologies and plans are being developed to help the under-served optimally participate in the economy).
Coming down a bit from that 200,000+ foot notion, while tempted to revisit the basic history of value-negotiating, assigning & trading - initially in the form of bartering, then via the innovative concept of currencies representing values (from shells to shekels to paper to countless combinations of 0's & 1's) - advancing technologies now have us at the doorstep of realizing breakthrough progress in enabling serving what most popularly is referred to as the 'unbanked'. It is that term unbanked that is now being increasingly scrutinized to more accurately understand the distinctions in transacting in various global markets so that real transacting needs can be better understood and thus addressed.
If one is unbanked, is one excluded from transacting? Of course not. Besides bartering, there is also a vast category of transacting done outside of the banking industry globally ... referred to as 'Alternative Financial Services'.
Wearing a hat representing banking leadership, I would absolutely aim to optimally 'bank' as many people as possible - with the caveat that the cost of acquiring and maintaining a incremental unbanked customer does not conflict with margin requirements to satisfy investors (investors who could easily move their investments to a vast array of other investment choices which could yield higher returns). A companion economic consideration of the banking industry is that if the economic model of being a banked customer is altered to increase the ability to bank more of the unbanked, does that altered model put cannibalization pressure on the bank's base of banked clients? Typically it would thus the continuing challenge for how to bring economically feasible banking services to the unbanked - who often are more remote thus more costly to reach and serve
as distant rural communities do not have the volumes to justify capital investments and ongoing operating expenses. This however is a paradigm/challenge for the banking industry, but not necessarily for Alternative Financial Services (AFSs) - established and emerging.
Back to the increasing focus on the question about what is trying to be accomplished and what really is the transacting landscape by market globally for having access to banking services vs. access to AFSs .... vs. no access to either. With the operating assumption that regulatory safeguards per nation/market are researched, developed and modified as needed over time per AFS method to ensure that a person's value deposited is safe and available for withdrawal in its respective forms, then the understandings that must be gained are:
1) What percent of the population per country is both unbanked, and, without access to any AFSs?
2) For percentages of populations that are unbanked but with access to AFSs, are the AFS options per country adequate for at least their fundamental transacting needs of depositing, transferring and withdrawing (intra-market and inter-market)?
3) The banking industry can decide by market whether the economics make sense to penetrate further into the unbanked populations, however, the ball is really in the court of regulators per nation to decide what existing and/or emerging AFS models may be more viable for reaching the un-banked.
In India a break-through regulatory development is opening the door to a new
category of financial services. "Payment Bank" is the name used but fundamentally the new Payment Bank 'entity' will be a regulatory approved/licensed entity that is not a traditional bank. India opened the door to applications for Payment Bank licenses until early 1Q2015. The deadline was then extended due to significant interest, with an estimated 40 companies - from Telcos/ Carriers to eCommerce service providers and more - applying for what is anticipated to be the granting of 6-8 Payment Bank licenses initially (tbd if more are approved afterwards).
Roughly half of India's population lives in communities that are too small to be economically served by traditional banks. In simple, high level terms, the Payment Bank model takes best practice safeguards
from the banking industry to ensure adequate safeguards comparable to traditional banks will be in place with Payment Banks for deposits. The new Payment Bank regulation extends the definition of entities allowed to serve a role in the money movement ecosystem. This means a small crossroad community in rural India today, whose only business may be a small Mom & Pop-like convenience store, could become a place where locals (virtually all un-banked) could begin utilizing this hybrid AFS to
(for instance) withdraw cash sent from overseas family by their mobile phone via rural Mom & Pop shop now licensed as part of the approved Payment Bank entity. As a significant majority of India's population now have mobile phones, it is the regulatory decision to permit the new Payment Bank type entity that will instantly provide significant portions of the population with direct access to banking-like services via this breakthrough regulatory decision that will unleash enhanced financial service inclusion opportunity for virtually all of India's population.
In markets like the US, those on the sidelines of eCommerce are generally characterized as unbanked kids and teens (although that is changing due to more generous decisions parents are making to allow their kids access to their credir cards), unbanked recent immigrants, some of the unbanked poor, plus those who fear using their credit/debit/ACH accounts online due to concerns about ongoing news of hacking, identity theft, etc. The US's unbanked may be slightly south of 10% of the population, yet those on the eCommerce sidelines (depending on which study one looks at) are still north of 30-40%.
The image here shows key current components and moving parts of the complex
transacting ecosystem with various solution provider entities jockeying for position to achieve greater roles in economically serving optimal people per nation/market. The yellow dotted line of demarcation between Telco and Bank is positioned reflecting the typical US market today, however, in other markets globally where bank penetration is far lower than in the US, the Telcos are increasingly realizing that their near ubiquitous direct billing access/ customer relationships are also their crown jewels, thus are leveraging these assets and core competencies and extending their solutions further across the continuum of this transaction ecosystem to better address marketplace needs of their respective nations/markets served.
Un-banked or Un-AFS'd ... what is the right question to ask and answer? There are important un-banked vs. un-AFS's distinctions per market. To be optimally effective, it is obviously key to understand these important nuances per market ... as this further insight will be vital in formulating the best possible plans for solutions best suited to optimally address precise needs per market.
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