DIGITAL FINANCIAL SERVICES CHALLENGES AND OPPORTUNITIES FOR BANKS MARTIN HOLTMANN MANAGER, DIGITAL FINANCE AND MICROFINANCE FINANCIAL INSTITUTIONS GROUP
Digital Financial Services (DFS) Financial Services provision utilizing technology Financial Service • Banks - Digital Bank as a priority client (Domestic / International) Providers • NBFIs, MFIs, PSPs, Platform/Service Provider/Tech Startups/ MNOs Savings, Lending (incl. Factoring, Products Investment Supply Chain Finance) Payments, Remittances, Insurance Transactional Accounts Channels Alternative Distribution Channels (ADC) enabled by technology: • Online/internet, cards/ POS, tablets and Mobile in combination with agent networks (Branchless banking) Customers Unbanked and underbanked segments particularly in frontier/rural areas: MSMEs (including women-owned) in underserved geographies • Individual consumers/retail customers • Sources: IFC Enterprise Finance Gap Database (2011), FinScope, IFC IDG Targets for Micro/Retail and MSMEs. 2
Demand Side: What are WBG’s and IFC’s goals in Universal Financial Access? By 2020: 1 billion clients by WBG, of which 600 million clients by IFC • The World Bank Group is committed to providing access to finance for one billion people by 2020. As part of this ambitious goal, IFC has committed to help provide access to 600 million financial transaction accounts by 2020. • IFC's goal is to increase the reach and breadth of financial services to the world’s un - and underbanked on a massive scale, while simultaneously reducing the cost to serve by fostering and supporting innovative and sustainable financial services providers. • DFS is critical in achieving this goal . IFC wants to reach 250 million clients through Digital Financial Services in FIG by 2020. WBG’s Goal in Universal Financial Access = 50% of (UFA) 2020 2 billion = 1 billion financially excluded Sources: IFC Enterprise Finance Gap Database (2011), FinScope, IFC IDG Targets for Micro/Retail and MSMEs. 3
25 Focus Countries of UFA*: 73% of the world’s unbanked Countries prioritized based on share of unbanked, IDA, and FCS: 2014 FINDEX WBG’s UFA’s focus country selection India Bangla- Niger Pakistan based chiefly on top desh ia 20 countries by 5.2% 20.6% 3.7% 2.7% share of world’s unbanked plus additional countries (of the world’s Mexico Brazil Egypt selected on criteria 2.6% 2.4% including IDA unbanked) 2.4% commitment (14 IDA Colom countries), FCS Viet- Philippin Turkey -bia focus (2 FCS 1.2% nam es 1.1% Indo- countries), regional China 2.4% 2.2% Tanzan Peru ia balance, and nesia 0.8% Ethiopia 0.8% inclusion of Morocco 11.6% 2.1% M 0.7% ‘demonstration’/stra 5.6% Myanma Yemen DRC R tegic engagement r 0.7% South 1.5% Z K countries (e.g. Africa 1.5% 0.5% Rwanda) IDA countries: 0% - 25% 26% - 50% 51% - 100% % Access: M: Mozambique 0.4%; K: Kenya 0.3%; Z: Zambia 0.2%; R: Rwanda 0.2% Sources: IFC Enterprise Finance Gap Database (2011), FinScope, IFC IDG Targets for Micro/Retail and MSMEs. *Universal Financial Access 4 Sources: Global Findex 2014, IMF Financial Access Survey 2012
Demand Side: Increasing adoption of digital services, faster than banking penetration 1.9M 2.5 billion mobile subscribers • 1.55 billion active facebook users • Sources: IFC Enterprise Finance Gap Database (2011), FinScope, IFC IDG Targets for Micro/Retail and MSMEs. 5 Source: ACCION, World Bank
Supply Side: Why should Financial Institutions focus on DFS? Company (Banks) • Cost Reduction Big Opportunities: Operational cost - by • $5.8 trillion annual income reducing branch cost by bottom 40% of world Cost of funds - by population by 2020* collecting cheap deposits • They indeed save small • Revenue growth As an example, banks amounts, send and receive Reaching new segments in in Europe risk losing money from relatives, pay mass market out on € 22bn of bills, and borrow through Offering new products and revenues to digital informal channels. services enabled by disrupters with the technology retail payments Customers Competition sector.** The same trend is happening in • Take first mover • Reach larger number of emerging markets advantage and be a customers untapped by market leader against existing delivery model other conventional banks • Improve quality of • Be ready to face service competition from • Increase efficiency of disruptors and acquire delivery and/or adapt new technology to leap forward Sources: IFC Enterprise Finance Gap Database (2011), FinScope, IFC IDG Targets for Micro/Retail and MSMEs. Source: *Center for Financial Inclusion, ** Financial Times 6
Supply Side: How are leading Banks/FIs responding to emerging trends? Banks’ Response Emerging Trends and Disruption Aditya Puri, CEO, HDFC Bank – “…the only Growing global adoption. 183 mn Aware & Active way we could be disintermediated is if we people in Africa alone own a Virtual Wallets buried our heads in the sand and did not mobile wallet come out with our own solution ” More mobile wallets are becoming Agricultural Bank of China’s Innovation interoperable Lab; Wells Fargo Startup Accelerator, Citibank Innovation Lab etc. Data driven/ P2P lending, Platform lending Internet Mobile wallets and other prepaid Alibaba’s MYbank, an online lender Lending, instruments, NFC-enabled payment systems that also takes deposits Launch Savings Banks have tied up with Telcos - India products Payments Banks, Mbank-Orange Poland Banks are adapting to online lending and Comparison/fulfillment portals credit underwriting (CBA, Barclays); also Personal Finance and Wealth entering ecommerce to retain customers Financial e- Management (China banks) commerce Wealthfront took only 2 years to reach US$1bn in AUM Acquiring FinTech start-ups – BBVA Santander acquired Simple; HSBC, Citibank, Mandiri have VC like structures in place for Invest / Acquire mPoS as a medium of transaction + FinTech/DFS / Partner Citigroup has partnered with Lending Club lending Infrastructure White label ATMs to lend US$150 mn through its online Payments gateways, switches platform Specialized digital subsidiaries – ING Direct, First Direct HSBC, B-Kash (Brac Bank) However, most banks have not yet fully responded to the emerging threats and opportunities 7
DFS can target broad types of existing and potential clients NBFIs/ Enablers Business FIs & MFIs Lending MNOs (PSPs, Agent Systems/IT* Platforms networks) FIs MFIs Why DFS? • To create new • To create new • To create new • To reduce • To capture business churn business business new market • To increase models models models segments • To extend • To extend • To extend reach ARPU and earn • To reduce to mass market additional and reach to mass reach to mass costs market clients market clients clients non traditional • To improve • To provide Telco revenues and • To cross sell credit more differentiate efficiently new payment services * Only if the technology/service is core enabler/ building block for banking operation 8
Recommend
More recommend
