What North America can Learn about Banking from Developing Countries
For a long time, North America had viewed developing countries only as a potential market for their products with most innovations only happening in the “developed” world. This perception is slowly changing as these “emerging markets” are transforming traditional domains like banking with some amazing innovations that the global North can learn from.
Here are some of the important trends in banking, coming from the developing world.
- Rapid digitization riding on real-time Payment Rails
If you compare the world of real-time Payment Rails, it seems like emerging markets are light-years ahead. In North America, if you try to move money from bank to bank, it could take 2-3 days whereas in many countries in South Asia it’s instant.
While North America is still struggling and planning to offer real-time payment rails, developing countries have already launched and mastered the art. One of the reasons real-time payment rails were slow to implement was because consumers could already make instant payments using their bank cards. Developing countries have never had widespread card adoption so bank account-based real-time payments were the only way.
In one of the rare instances of the government leading the innovation, in countries like India, the government created a centralized settlement system to enable real-time payments and leapfrogged to the digital payments stage with the widespread adoption of the internet and smartphones. North America has traditionally relied on private industry to lead such innovation, but it is difficult for private entities to coordinate such a gargantuan effort without a lead from the government.
- New models of financial inclusion
In North America there exists a significant racial wealth gap between the White and Black/Latinx communities. As per one Mckinsey report, nearly half of Black/Latinx households in the US are unbanked or underbanked and years of financial exclusion have exacerbated this gap. Banks have limited geographic footprints since it’s difficult and expensive to open a bank branch, especially in remote areas.
Developing countries like India have introduced a Business Correspondent (BC) based banking model. A BC acts like an agent or an extended arm of the bank and is an important touchpoint in extending essential banking services to the local community at a very affordable price. In areas that are inaccessible to banks, entities like grocery stores or other retail networks can be authorized to perform financial operations on behalf of the bank.
Simple banking services like opening and maintaining a bank account, small value loans, insurance etc. can be extended through these touchpoints that are overseen and monitored by the nearest bank.
Distributing financial services through a local neighbourhood banking agent that an unbanked population can trust, goes a long way in opening them up to financial inclusion.
- Micro ATMs
It takes thousands of dollars for banks to install and run an ATM machine and this cost is obviously transferred to consumers in the form of several types of bank accounts and ATM fees. In countries like India, Micro-ATMs (a portable device like a POS machine) are used to execute banking transactions like cash deposits, withdrawals and fund transfers using debit or RuPay (homegrown Mastercard/Visa like Card Network with very low fees) cards. The bank representative carrying the machine acts as the cash distributing person.
- Partner with fintech and crypto payment providers to promote simple and affordable banking
In North America, banking costs are quite high while the speed of services is quite slow. There exists a great need for banking that is not just affordable but also quick and stripped of its complexities. Challenger banks have stepped in to fill this need and provide value to customers which have long been neglected by banks.
In Asia, incumbent banks are partnering with upcoming fintech start-ups to offer crypto payments or launch new digital platforms of their own. Banks like DBS and SBI in India have launched apps like SBI YONO & DBS Digibank to offer value-added services that are traditionally not offered by banks allowing them to expand their customer base.
North American banking has to depart from traditional models and disrupt itself to address these challenges and keep pace with the digital era – and the developing world.
