Helping to bank the unbanked
Helping to bank the unbanked
One of the most dynamic parts of worldwide banking is found in emerging markets. We take a look at how centralized applications and mobile banking technologies are supporting growth in these traditionally under-banked areas.
Emerging markets is the big growth area in banking, and this trend has been accelerated rather than set back by the recent upheavals in world finance. A 2011 report from Price Waterhouse Coopers predicted that, in just 25 years, the banking assets of the established G7 would be overtaken by the E7 - defined as China, India, Brazil, Russia, Mexico, Indonesia and Turkey. In a similar report published just before the crisis in 2007, PWC predicted that tipping point would occur a decade later than that.
Banks in emerging markets are already at the top table. China's largest bank, Industrial & Commercial Bank of China (ICBC), broke into the top ten largest banks worldwide in 2010, ahead of Citigroup, according to Global Finance magazine. But it isn't just local banks that can capitalize on the growth of banking in emerging markets, Western giants, such as BNP Paribas, are chasing opportunities.
Of course, investing in emerging markets carries an element of risk. Banks need to understand the local market, such as its regulations and service expectations, and deploy flexible solutions that meet the requirements of their customers at an attractive price point.
retail banking expansion
Retail banking is looking to address the huge numbers of unbanked individuals in emerging markets. This is driving technology investments: recent research from market analyst Ovum predicts that investments in retail banking technology will grow by 49% from 2010 to 2015 to hit $12.7 billion in the emerging countries of the Asia Pacific and 36% in the Middle East and Africa, for example. Much of this technology is being deployed in new branches as banks look to build out their sparse branch networks.
"Banks see this as a big opportunity to design a brand new model in emerging markets," said Gilles Sabatier, Vice President / Banking & Insurance, Orange Business Services. "It is a blank page for them for both the back office and the front office. They are looking for low-cost solutions that are rapidly deployed, such as via cloud computing, which work even in times of crisis."
Orange is developing an online service catalog for banks that allows them to centrally deploy banking applications designed for specific markets. Delivered over IP networks, they allow a bank to rapidly set up a contact center agent in each market with tools on their PC localized for local laws and regulations. No additional infrastructure would be required.
"In the past, large banks were organized by country - today we're seeing a move towards a centralized global governance model both for cost reduction purposes and greater efficiency," adds Sabatier. "They are reorganizing the distribution model - from silo mode, we're seeing a move to an integrated model of their CRM channels. The aim of this is to capitalize on each and every contact with their customers to be able to collect profile information and cross-sell or up-sell."
To meet this move to a global retail model, banks are increasing their investment in a range of middle-office applications, such as risk management, anti-fraud and compliance, says Ovum. It estimates that spending on these technologies will grow by 30% through to 2015, hitting $7.2 billion.
mobile banking boom
The other key banking technology growth area in emerging markets is mobile. Market researcher TNS Global found that more than half of consumers in emerging markets wanted to use their mobile phones for greater access to financial services. Consumers in sub-Saharan Africa were particularly enthusiastic, with almost two-thirds (63%) of mobile owners wanting to use their handsets for banking. According to consultancy Roland Berger, mobile penetration in most African markets is almost twice as high as the reach of banks, and it estimates that there is an annual deposit potential of $60 billion in sub-Saharan Africa alone.
The TNS research published in May 2011 found that in countries as diverse as China, Kenya and Brazil, users of mobile banking doubled over the previous year as banks increasingly moved towards delivering services over mobiles. "Mobile finance technologies have the tremendous capacity to be transformational in rapid growth markets, empowering consumers by giving them greater access to financial services," said James Fergusson, Global Technology Sector Head at TNS. Mobile banking allows consumers to move money, pay bills and buy goods or services.
Orange is working on a number of emerging market mobile banking projects. "We have developed partnerships to provide mobile banking in a range of countries, including the Ivory Coast and Kenya," explains Anne Vidal-Sauvet, Large Accounts, Banking & Insurance, Head of International Business Development, Orange Business Services. "They can move very quickly with new innovations because they don't have the old legacy infrastructure to hold them back."
The mobile banking service, called Orange Money, is currently available in six African countries: C�te d'Ivoire, Madagascar, Mali, Niger, Senegal and Kenya. To deliver the service, Orange works in partnership with local banks, such as Equity Bank Group in Kenya and BNP Paribas in the Ivory Coast. The mobile phone-based payment system allows customers to carry out simple banking operations and transactions with total security. They don't need a bank account and can activate their Orange Money account free of charge and with no minimum deposit. Orange Money reached 1 million users in its first year of operation and Orange is planning to roll it out across all of the 19 countries, in which it operates in Africa and the Middle East.
According to consultant Roland Berger, mobile banking holds massive promise for banks, as it allows them to migrate customers to low-cost channels and profitably serve low-income clients. They already have the client base and can cut pressure on their existing infrastructures, such as ATMs and branches. One example it cites is NMBmobile Tanzania, where one-third of its total retail customers now use mobile banking. The customers use mobile to make around seven transactions per month, which the bank is able to facilitate profitably.
By deploying centrally developed and hosted applications that meet local market needs, retail banks hope to be able to meet the needs of consumers in emerging markets. It is essential that these services, whether delivered over the telephone or via mobile banking, are priced low enough to allow them to meet the banking requirements of unbanked individuals in emerging markets. This will drive economic development and help emerging markets fulfil their unquestioned potential.