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“You have to think like a bank and dance like a telco”

We chatted to Scott Bales, Managing Director at Innovation Labs Asia, about the challenge of financial inclusion globally and the ways in which it can be overcome.

What do you think is the best way for businesses to achieve financial inclusion?

The most important thing, in my opinion, is empathy. The worst thing any bank can do now is just try and build. When you’re a banker, and you have 30 years of experience doing payments in a particular way, you need to consider that it may not be the right way for the market. So if you take the time to understand the market, to empathise with the needs and pain points, you’ll build better services.

Something that has driven growth in countries like Kenya and Bangladesh is having ecosystems that don’t require a smartphone – they work on an old Nokia phone. Even though Nokia has been out of the handset business for some time, their phones still sell very well in some developing markets. In those cases, they’ve actually made the technologies work on things like SMS or USSD – really basic level technologies. The key is to understand people’s needs and what technology they already have, and then design the product to fit.

I’d encourage the Central Bank not to overburden the ecosystem with regulation – allow them to find what’s right for the market first, but still ensure that there is consumer protection and trust. These things can be upheld while allowing innovation – it’s just a matter of finding the balance.

Do you think financial inclusion is only relevant for emerging markets, or also for developed market, like the US?

There’s the reality, and there’s the bias. The reality is that financial inclusion is as big a problem in the US as it is in the Nigeria, for example. The challenge is that people take a humanitarian angle – that’s the bias. So organisations would rather help Nigeria than the US, because they see the US as stronger – it can help itself.

Social responsibility is a huge motivator in encouraging financial inclusion, and it’s how you get organisations like the World Bank involved, but it shouldn’t be the only reason. It has to make good business sense, otherwise the momentum and interest will fade and the business will be shut down, which is not good for anyone.

In your opinion, what are the best cases for financial inclusion globally?

The best models are what we call – ‘think like a bank, dance like a telco’; you think like the ecosystem of a bank, but you do distribution and product like a telco does, and fuse the best of both worlds together. It’s a very successful model all around the world, where the bank manages the risk, the capital and the compliance and then contracts with a third party, typically a telco, for part distribution and customer acquisition. It’s a good model because the telco has a contractual obligation to uphold the regulatory obligations of the bank, but it still has the ability to actually go and distribute the product.

The other case is the app based one, the WeChat model, where it doesn’t necessarily have to be a bank. It’s embedding simple financial services into an app that is already in your everyday life, like a messaging platform or social media. The most popular apps in daily life are the best for embedding financial services, especially apps that connect people. That ecosystem in itself has a high element of trust, so if we’re already connected and we chat every day, I trust you enough to send you money. It’s a carry over of daily trust into financial trust.

Do you think blockchain will help encourage financial inclusion?

One of the biggest challenges in the current financial system is that, in many countries, trust in the system is not great. Blockchain can help overcome that by the core ledger being owned by nobody – the ledger itself is a verifier, with or without the banks. This is particularly important in countries where the banking system has a bad history. That said, while blockchain is a very promising technology, it still doesn’t have global acceptance as a normal part of life. So even though it has a big upside, there is execution risk, which means a lot of people will not choose it right now.

Finally, what do you think the unbanked population globally will look like in ten years?

If we look at the year 2030, my hope is that the percentage excluded is half what it is today.


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