MIX News Brief: 14 December 2018
14 December 2018
Every other week we post recent articles curated by our team of data analysts and financial sector experts. The articles span sectors and topics including fintech, smallholder finance, mobile money and more. The MIX News Brief is intended to keep socially responsible investors and businesses updated on the latest thinking on financial services for the poor because, at MIX, our mission is to provide the data, analytics and insight that enable decision makers to build inclusive financial services ecosystems. Let us know what you think by tweeting at @mix_market!
This article is a bit of a case study on India but its lessons are global. Alexander Dunaev walks through a few of the barriers to financial inclusion with a particular focus on digital infrastructure. The primary barrier he cites is no surprise, coming from the co-founder of ID Finance: "Identity [is] at the core of increasing financial inclusion." Unfortunately, as he notes, the Supreme Court of India's recent ruling restricting private companies from using Aadhaar places a stick directly in the front wheel of eKYC efforts. Yet the inspiration for governments to reduce barriers is summed up nicely: "...with three billion new smartphone users expected in emerging markets by 2020, McKinsey estimates that emerging economies could boost their GDP by $3.7tn by 2025 by fully embracing digital finance." That's quite the carrot.
As Stanley Mutinda writes, "Digitization ... [has] transformed the bank experience from a place you go to something you do...". But as customers and banks transition to alternative channels including ATMs and agent banking, does this reduce the cost structure for financial service providers? Interestingly, as data from the Central Bank of Kenya shows, staff salaries are actually climbing. Even with a reduction in overall staff, several commercial banks including Equity Bank and Barclays are seeing staff costs rise. It runs counterintuitive to one of the primary motivations for deploying these channels (and cited in our report Measuring the Performance of Alternative Delivery Channels): to reduce costs. The causes are complicated but banks will need to find a way to cope; 96 percent of Equity Bank's transactions now occur outside its branches.
The assault on the incumbent banks in the United States continues. This week Robinhood, the free stock-trading app that's already ruffled the feathers of brokers E*Trade and Charles Schwab, announced it would launch "zero-fee" checking/savings accounts with a Mastercard debit card. While this is just the latest attack from 'neo banks', it is most surprising because Robinhood actually expects to turn a profit by utilizing a lean staffing model and a revenue share with Mastercard on merchant fees. The team at Robinhood is operating under the assumption that Americans will want to swap overdraft fees for a 3 percent interest rate (OK, maybe they will) but also a bank teller for a online customer support specialist (yes, it's possible). Only time will tell but one thing is for sure: this model will certainly "put the squeeze on Wells Fargo, Chase, and Bank of America."