CGAP Report Finds Four Forces to Shape Future of Mobile Banking

UK Minister for Trade and Development Gareth Thomas today said: "The fact that many of the 2.7 billion people who currently don't use a bank will have access to branchless banking methods such as mobile phones and the internet by 2020 is a huge step towards financial inclusion for people in developing countries.

"The poor are kept in poverty when they are financially excluded. This means they lack safe places to save money, the opportunity to invest in their future and cannot reduce the risk of their savings being lost in natural disasters.

"As this report shows, governments and the private sector both have a huge role to play in ensuring investment is made to deliver technology-based financial services to billions of poor people."

The report sets out four scenarios on the future of branchless banking. In all four scenarios, the adoption and use of branchless banking services is forecast to be higher in 2020 than it is today. But in two of the scenarios, bursts of rapid acceleration are followed by periods of falloff or flatter growth.

"Mobile banking pioneers give us hope that millions of poor people, especially those living in rural areas, finally might be served by the banking system. That said, new business models and partnerships that provide the right incentives to banks and banking agents are vital if we are to move beyond simple payments and transfers to being able to offer other basic banking services, especially savings, that poor people need and want," said Elizabeth Littlefield, CEO of CGAP.

The report is the product of a six month scenario-building project that engaged nearly 200 leaders from the fields of technology and finance from more than 30 countries.

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 behaviour. 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 favourable 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.

CGAP and GSMA researchers have found that across Africa, Latin America and Asia, the number of people who do not have a bank account but do have a mobile phone is set to grow from 1 billion today to 1.7 billion by 2012. These "unbanked mobiled" individuals represent a compelling market opportunity for service providers.