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Despite the need for greater financial inclusion, banks have traditionally been hesitant to expand services to underserved regions. They could not risk losing money by lending to customers without sound credit histories and investing in areas without strong financial infrastructure because existent operational costs were too high. But those concerns are waning as digital technologies reduce the cost base of operations. At the same time, fintech companies have discovered innovative ways to extract data from their operations in order to challenge current risk models. Legacy banks are starting to notice these changes… and the opportunities.
Modern digital architecture has delivered hitherto unavailable interoperability and cost advantages, which makes serving unbanked populations financially viable. That’s because the core architecture for modern technology is grounded in the ABCs:
Financial institutions need to figure out how they can offer products and services that resonate with these underserved populations at scale while getting a return on their investments. They can accomplish both by leveraging non-traditional data from customers’ digital footprints and through the adoption of modern technologies and architecture.
First, data: potential customers generate reams of data from their online lives, specifically from their smartphones. Although governments and NGOs have tried to drive financial inclusion through policy reform and community outreach programs, telephone companies actually pioneered simple financial services for unbanked populations. People could use their mobile phones to make payments, take out microloans, send or receive money internationally and much more. This has driven real financial activity in unbanked populations – generating profit and growth.
An important exception to the overall trend of telco companies bringing financial services to unbanked populations is India’s Aadhaar program, which matches biometrically verifiable 12-digit identification numbers with Indian citizens. This lays the foundation for compliance with know your customer (KYC) and identity and verification (ID&V). Aadhaar allowed mobile network operators, such as Reliance Jio, to provide banking and payment services.
Rural and urban communities alike are digitally savvy. Relatively inexpensive phones and data plans resulted in huge market penetration. These mobile networks have effectively established the network and digital architecture that was previously lacking – albeit in a brand-new way. All sorts of companies are engaging with customers through their phones, including rideshares, retailers and fintechs. It’s time for traditional banks to form partnerships with these companies so they can provide data-driven experiences for their own customers.
Though personal banking is important, trade finance represents a far greater opportunity to elevate the region, stoke economic growth and conduct business with an eye toward the future. There’s a $1.6 trillion trade-finance gap in South East Asia at the moment, and a substantial portion of that could be addressed with next-generation credit and financial models – all driven by new sources of data.
From a government perspective, Thailand and Indonesia have begun investing in their financial digital infrastructure and regulations, laying the groundwork for technology and financial companies to be able to digitize products and services. The focus on financial inclusion has also affected banking, financial services and insurance companies (BFSI) in the region. It’s opened the competitive landscape to new entrants and players in the digital banking product market. Data-rich telco companies with access to customer profiles and activity are either partnering or selling their data to BFSI or other start-up Fintechs. Mastercard is partnering with Grab (a company similar to Uber) in Singapore to support payments to drivers and a cashless society. It’s clear the future of digital banking is not limited to the National Banks. In fact, some would suggest that financial technology and other non-traditional companies are better positioned to move fast, fail fast, learn what products work, and what will win in this new era.
Beyond all this, the move toward financial inclusion is causing BFSI to consider some other factors: the products they currently have, the accessibility of their design and using a more mobile-first deployment strategy.
This is where the principles of LEAD (Light, Ethical, Accessible and Dataful) come into play. These principles allow us to make choices in our design, centered on the key things customers need. As we develop for unbanked populations, we need to incorporate all four principles into our propositions:
Financial institutions must clarify how and why a customer’s’ behavioural and social data will be used – especially since this may be their first time with a traditional bank. The entire experience needs to elicit trust. As businesses begin to think about design for the unbanked, they need to consider the whole journey of this new customer—it isn’t enough to simply build an app. To be successful, they’ll need to create an experience ecosystem that both attracts the customer to new products or services, and then engages them again post-use. Businesses that consider how their service is integrated into the customers’ broader way of living and add to both the financial and social capital these new customers desire, are the businesses that will lead the way.
Financial inclusion is a topic that truly can affect people’s lives. New digital banks can help to move the unbanked population into banking customers, creating a better future for Southeast Asians and for their businesses. Taking the time now to learn how to attract and retain this new customer base will not only pay dividends for the unbanked but will help businesses learn how to adapt to the changing needs of all customers in the digital age.
What's happening with banking in Southeast Asia? And why should you care? This conversation looks at the significant opportunity that exists for both the financial industry and the people of Southeast Asia. Watch and find out why it's not a question of whether to create a new digital and affordable services—it's a question of who will lead the way and who will be forced to catch up. Watch now
CTO, SCB TechX
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Managing Director, Publicis Sapient APAC
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