Good Cause. Great Business.
Consider for a moment, banks that have leveraged new age technology to redraw the retail landscape favorably for themselves, extending banking to include more segments of the masses, than ever before. I believe what’s achieved, though undoubtedly commendable, is a mere indication of the true potential of all that’s possible in the retail banking space. If banks can effectively accommodate banking transaction tickets of a smaller size, they would have a clear business imperative in converting the periphery into the mainstream, and banking the unbanked. This would mean flexibility in savings and repayment schedules, simplicity in processing, small product sizes when it comes to loans and low-balance savings accounts. Undoubtedly, proximity and ease of access, along with basic financial education or information, will go a long way in easing the pain. And if the technology advantage could be harnessed to achieve the scale, reach and efficiencies to do it then, what’s to stop the ambitious from leveraging the edge that technology can provide to bank the unbanked, NOW?!!!
The technology is ready. The business is great. The cause is good. The unbanked await a change leader to lead the way…
Comments
Hi Haragopal,
It is a very nice & thought provoking article.
By its very nature banking the 'unbanked' will be a business with lesser margins, higher capital adequacy, higher transaction volume than normal banking.
Potential market markers would come from banks 'forced' to grow and 'capital' wanting to de-risk through diversification (Foreign Institutional Investors, Wealth Funds etc). Legislation to create a favorable eco-system to all participants is required to accelerate this process.
To make banking, to the 'unbanked' attractive, government MUST use various tools including but not limited to allowing, to raise capital through tax exempt bonds, to securitization unsecured credit, a tailor made regulatory framework for oversight of institutions.
Ability to raise capital cheaply and strong technology back bone will two most important requirements to be catered to make the endeavor viable. The 'unbanked' are geographical distributed and will be catered to by institution like the RRB; but to satisfy the two key requirements you need a central institution. Once such institutions are viable, to sustain them independently we need scale of operation, again re-forcing the need of a central institution.
Limiting our discussion to the role of technology,
The central institution will own the technology program. This could range from investing and owning the technology platform or choosing to pay per transaction.
Technology will allow the program to attain critical mass at a rapid rate. New solution will emerge, for instance providing core banking services over a Cloud (Platform as a service). Technological improvements and a large user base will start feeding into each other to create vibrant and flexibility institutions that will work towards alleviating the 'unbanked'
To Summarize, it will be technology that will make banking the 'unbanked' possible
Posted by: Vallinayagam S | July 28, 2009 07:30 PM