Financial Inclusion- News and Views - October 2013
The monthly newsletter from the Indicus Centre for Financial Inclusion documents the latest news and views in the financial inclusion space, to provide a knowledge base that will help build understanding around how to accelerate the poor’s access to high-quality financial services.
While digital payments have been accepted as the first stage towards achieving financial inclusion, there are many challenges for service providers to make the linkages and bring the unbanked into the formal financial net. This month’s lead stories include a) ‘Fighting poverty profitably’, a study by the Gates Foundation of payment systems in more than 30 countries that brings out key lessons for sustainable business models while expanding digital payments, b) a blog post by Rodger Voorhies that highlights the need for cooperation from all stakeholders; policymakers, bankers and non-banks should work together to enable innovations through sustainable business models and c) a speech by H. R. Khan, Deputy Governor, RBI on the trends and challenges in payment systems in India.
A team from the Gates Foundation studied the economic models of payment systems in more than 30 countries using a new four-part framework, “ACTA” (Account, Cash-in-cash-out, Transactions, and Adjacencies). The survey of country systems reveals that successful systems most commonly follow one of three economic models: Account balance-driven profitability, Transaction and account balance-driven profitability and Usage-driven profitability. The four main findings from this extensive study are a) usage-driven models create the strongest case for providers to serve the poor, b) system design, minimum scale and operational efficiency are the three methods that consistently offer opportunities for reducing operating costs across each element of the ACTA framework, c) adjacency revenue beyond just interest on account balances will be vital for financial inclusion over the long run and d) market structures have a major impact on how providers reach the poor. While the study delineates the most successful practices, for each country the specifics of local market dynamics, regulations, and related providers need to be paired with user needs to develop an effective system.
This post by Rodger Voorhies points out the potential of innovations through digital payments system to lift the financial excluded out of the poverty trap. However, he cautions that though the tools for revolutionising the lives of the poor are there, this big task can be done only when policymakers, investors, bankers and the private sector work together.
This speech by H.R. Khan, Deputy Governor, RBI, talks of the present system in India, the challenges before all stakeholders, especially on points of securing electronic payments, interoperability, standardisation and creating awareness amongst customers on using these new modes of payments.
Section I: Policy – the latest from India’s policymakers
The Indicus Centre for Financial Inclusion was launched in 2011 to distil and disseminate information on accelerating the poor’s access to high-quality financial services. The Centre is supported by the Bill & Melinda Gates Foundation. http://www.indicus.net/icfi