In many emerging economies, the advent of financial technology (Fintech) industry driven by mobile phone penetration and new regulations that are giving opportunity for the creation of new products have accelerated the pace of financial inclusion.
Fuelled by the need to eradicate long queues in banking halls, make cash transactions easier, faster and resolve other issues associated with payments and financial transactions the shifts are also making it possible to achieve inclusive financial inclusion, checks by BusinessDay shows.
“From Bangladesh to Kenya, and Nigeria to Mexico, financial sector business models are using digital solutions to fulfill client needs and transform financial inclusion,” Citibank said in its report titled Banking the next billionaire: Digital Financial Inclusion in Action.
According to the consumer division of financial services multinational Citigroup countries that should grow fast in mobile money but have faced policy roadblocks include Egypt and Nigeria.
“We now flag Nigeria as the market most likely to see rapid growth in the short term as we foresee an industry transformation following regulatory changes that will allow telco-led mobile money models,” New York-based lender said.
Telecommunication operators’ push to offer mobile money services in Nigeria received the official nod of the regulator, the Central Bank with the issuance of guidelines for players to apply for the payment service bank (PSB) licence.
A PSB license will allow the companies to among other things; maintain savings accounts and accept deposits from individuals and small businesses, which is covered by the deposit insurance scheme; carry out payments and remittance (including cross-border personal remittance) services through various channels within Nigeria; issue debit and prepaid cards; and operate an electronic purse or wallet.
Before October 2018, only banks and licensed financial institutions were allowed to provide financial services. Although telecom operators and other Fintech companies indicated interests to operate in the market, the CBN policy would not allow them. The regulator eventually shifted because of the increasing rate of financially excluded people in Nigeria and the lack of progress in getting banks to provide financial services to people living in areas that lack access.
The latest figures by EFInA put Nigeria’s financial inclusion rate at 63.2 percent, meaning as much as 36.8 percent of adults still lack access.
Telco-led financial inclusion model in African countries has led to tremendous progress in the number of people with access to financial services owing to the already existing large customer base of the Telcos.
Kenya has about 60 percent mobile money service penetration, while Ghana has about 40 percent service penetration, and Nigeria with a lot more population numbers, remains at 1 percent owing to its bank-led model.
Ghana’s decision to have a Telco led model resulted in a 73 percent increase in registered mobile money customers in just one year, according to World bank data, and has helped lift financial inclusion rates in Ghana to 58 percent in 2017 from 41 percent in 2014.
This was not different for Ivory Coast who has experienced a mobile money revolution. As a result, there are now more adults with mobile money accounts of 24.3 percent than with bank accounts of 15 percent.
Ivory Coast has the fifth highest rate of mobile money accounts in the world behind Kenya (58 percent), Somalia (37 percent), Uganda (35 percent), and Tanzania (32 percent), according to Brookings Institute, a Washington-based nonprofit public policy organization.
Kenya also improved to 81.6 percent financial inclusion rate in 2017 from 74.7 percent in 2014, Ivory Coast improved to 41.3 percent from 34.3 percent and South Africa increased marginally to 69.2 percent from 70.3 percent.
“The roll-out of Payment Service Banks guidelines that allows licensing of Telco subsidiaries is welcome and should be implemented,” International Monetary Fund (IMF) said in April 2019.
Citibank said in it believes there are four key approaches on the forefront of driving inclusive growth through financial technology and they include:
Unique identity models
According to Citibank, unique identity models are changing the way people bank because new national identity programs have facilitated biometric information to tackle regulatory issues that have historically been roadblocks to reaching new clients.
Lack of identity being one of the requirements for opening a bank account is one of the reasons for the Nigeria’s high exclusion rate, checks by BusinessDay shows.
Although, the Committee on Citizen Data Management and Harmonization inaugurated by President Muhammadu Buhari has assured that it would enhance speedy harmonization of Nigeria’s numerous citizen identification data held by different government Ministries, Departments and Agencies with a view to ensuring a single database owned and managed by the Federal Government.
Mobile money
Mobile money is one of the approaches recommended by Citibank for any nation that wants to achieve an inclusion financial inclusion growth.
Defining it as the technology that allows people to retrieve, store and spend money using a mobile device, Citibank said due to the combination of simplicity, convenience and safety, mobile money is becoming an alternative to bank accounts and payments in several emerging and frontier markets.
“Mobile money has grown at a rapid pace, and mobile money operators and conveniently located agents are replacing traditional bank branches,” said while recommending it as a catalyst for inclusive access growth.
Fintech
“BigTech firms today have a larger customer base and broader geographic reach than leading financial institutions, and with their robust customer behavior data, could increasingly support customer-centric products and experiences, and even become financial service providers themselves,” Citibank said.
Microfinance
According to Citibank, microfinance continues to evolve and expand, accompanied by new products such as credit, savings, insurance and payments, often enabled by mobile technology.
“By designing financial products and methodologies based on an understanding of their client needs and capacity, microfinance institutions have demonstrated that historically excluded segments can be served sustainably, overcoming some of the biggest obstacles to provide access to credit or savings products,” it said.
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