This post is part of our Closing the Gap: Financial Inclusion blog series, which shares the views of selected experts and practitioners on different financial inclusion topics.
WSBI works with savings banks in the developing world to increase the number of savings accounts for the poor. The ten participating banks are KPOSB Kenya, LPB Lesotho, PBU Uganda, SAPB South Africa, Al Barid Bank Morocco, Sistema Fedécredito El Salvador, Sonapost Burkina Faso, TPB Tanzania, Bank BTN Indonesia, and VPSC Vietnam. We recently surveyed the progress of eight of these ten banks and the results are promising.
We've found that the poor are not so different in their needs than the mass market of which they constitute the largest part. The mass retail banking model to which most WSBI members aspire provides services that encapsulate the needs of poorer markets. In short, universal is pro-poor, but this will only be accepted when savings banks demonstrate increased use of their products and services by the poor. Affordability is, of course, key, and it can be achieved even when customers are poor rural householders, but only by shifting the transaction mix from cash to electronic.
The Golden Rules of Mass Retail Banking
Our experiences have shown the three golden rules of mass retail banking to be true:
- It only really works across a broad range of customers, meeting a broad range of needs in a standardised way, thus achieving the economies of scale that underpin profitability in mass retail markets.
- These needs must be addressed in a continuous and coherent way, otherwise customers start to pick the package apart and economies of scope are lost.
- Price must encourage customers to buy the whole package and not pick it apart; if pricing is too high, demand is pushed back into the informal and cash economy and the bank is left with too small a share of consumer demand to achieve economies of either scale or scope.
Going electronic is the only way
Clearly, pricing must come down – going electronic is the only way. And because the customer hates ledger fees and won’t do business with us if we use them, switching from ledger-based fees to transaction fees is crucial. To be affordable for the poor, cost per transaction should be approximately $0.10-$0.20. The WSBI Programme has determined that banks should seek to price a five-transaction bundle within what a rural $2/day household can afford per month.
The next level of usability is to allow over-the-counter triggering of electronic transfers that form the basis of modern bill payment. At minimum, the same mechanism that allows bill payments should also allow inter-personal transfers.
Measuring results: Where are we seeing progress?
So how are WSBI Programme banks doing? The recent survey suggests:
on product design and features –
• the WSBI Programme has rounded out members’ capacity to meet the needs of ordinary individuals and others in the mass retail market;
• that capacity (combined with improvements in proximity) makes members’ product and service offer potentially much more relevant to the poor;
• it is crucial that customers start initiating payments and transfers remotely by electronic means;
on affordability –
• although some fine-tuning on pricing is needed, it does look as if savings banks are close to the semi-/informal pricing the rural poor are willing to pay;
• but to do this sustainably, savings banks need to shift the balance of their business away from cash-in/out and towards remotely triggered electronic activity;
• and even with this there remains one need that the poor would probably like to meet via cash – regular saving of a few cents a day – where only partnership will allow affordability;
on transaction and platform mix –
• the switch to non-cash is only just starting (back in 2010 half the surveyed members were locked into 100% cash-in/out and for the rest 80:20 looks good) but the potential is increasingly there;
• mobile-phones must be a part of this, but at present network operators only seem willing to offer links to mobile money services at prices that make the overall offer unaffordable;
• however, some surveyed banks use direct mobile access, and lessons from these for designing and negotiating mobile money partnerships may help.
Overall, real progress is being made on the technical aspects of usability, but more needs to be done to turn potential into demonstrable reality. Part of that will be in terms of pricing, but members have the potential to make a breakthrough on this as well. Pricing a five-transaction bundle within what a rural $2/day household can afford per month is the hardest challenge any mass retail bank could face. If members can do it, it will make them fundamentally more competitive across the whole market. That it appears possible is good news.