Scenarios for 2020

For the past several months, we’ve been hearing from many of you about the forces and uncertainties that will shape branchless banking, including mobile banking, and how much (or how little) it reaches poor people over the next decade. We had a series of podcasts with leading thinkers in the sphere of financial inclusion, as well as a prediction market and some serious discussion with the nearly 2,000 of you who have joined the Linkedin group on mobile banking and microfinance.

My colleagues, Mark Pickens and Sarah Rotman of CGAP and David Porteous for DFID took in the views of nearly 200 people from 30 countries to try to answer this question:

How can government and private sector most affect the uptake and usage of branchless banking among the unserved majority by 2020?

I won’t tell you that we’ve answered this question *completely.* But we do have, after just a few months, a new CGAP/DFID Focus Note that concludes that the growing use of branchless banking, including mobile phone banking, is inevitable in most countries. But it’s far less certain whether large numbers of the unbanked poor will use these alternative channels for financial services beyond payments, such as savings and credit. Some highlights:

Snapshot of Branchless Banking Today

• Financial inclusion is growing in most countries. This is often as a result of the expansion of conventional banking channels, such as branches and automated teller machines (ATMs);
• Bricks-and-mortar growth is inherently limited by its cost. Branchless banking presents a cheaper option but has only modest reach to date in most countries;
• Where branchless banking is occurring, several of the following factors are usually at work: (i) industry belief in future profitability; (ii) enabling regulatory change; (iii) a dramatic fall in connectivity costs; (iv) the creation of cash-handling agents using existing networks; and,
• Current hype about the potential of branchless banking is running ahead of reality. Massive sustained success in reaching the poor requires more accurate insights on poor people’s financial needs and adoption behavior. This is only now starting to become available.

Four Forces Shaping Branchless Banking for 2020

• Demographic changes—including a greater number of younger consumers coming into the market and greater mobility at least within countries—will be favorable for the adoption of branchless banking;
• Activist governments will play a greater role as regulators of the financial sector, providers of social safety nets, and providers or encouragers of the rollout of low-cost bank accounts and financial infrastructure. This expanded role may be helpful for financial inclusion;
• While security concerns about cash crime will continue to drive the adoption of electronic transaction channels, the rise of electronic crime will affect consumer confidence and test the risk management of financial providers; and,
• Internet browsing via mobile phones will reduce costs of financial transactions and enable new players to offer financial services.

In the coming weeks, we’ll discuss the four scenarios (alternate realities, actually) that the authors crafted to help explain how branchless banking will evolve between now and the year 2020.

-Jim Rosenberg