The Promise of Digital to increase financeability of the world's poorest and most disadvantaged populations

1. 1
Infrastructure for Inclusive
Banking: Dawn of a New Age
Supriya Sen
Senior Advisor, McKinsey
Hanoi, Vietnam
13 July 2017

2. 2
Contents
Problem: The size of the financial inclusion gap
Solutions: Mobile & digital finance offers new hope
Examples: Simple, innovative solutions from around the world
Enablers: What is needed for sustainable provision

3. 3
Adults with account (%) Adult wage payment by method (%) Adults with debit card (%)
265M unbanked individuals in ASEAN…
<50% of adults have bank accounts ~71% are paid in cash by employer ~30% of adults have a debit card
“Unbanked” individuals lack a credit history and a verifiable economic identity –they stay
disenfranchised and excluded from the global economy
Source: World Bank

4. 4
Contents
Problem: The size of the financial inclusion gap
Solutions: Mobile & digital finance offers new hope
Examples: Simple, innovative solutions from around the world
Enablers: What is needed for sustainable provision

5. 5
Mobile connectivity has spread rapidly
The world based on internet population (2014)
While half the world remains unbanked, >80% of adults have mobile (and increasingly,
smart) phones
Source: WEF 2016

6. 6
…so the time is ripe for digital finance
• Lower Cost
• Increase Convenience
• Increase Access
• Increase Choice
• +1.6B people to FS network
• Increase Efficiency
• Better understand consumer
preference and behavior
• +$2.1T new lending and +$4.2T new
deposits
• Increased growth - productivity
• Better capital deployment into
financial system
• More tax revenue
• +GDP by $3.7B, +95 M new jobs
ConsumersFirmsEconomy
Source: McKinsey 2016

7. 7
Digital finance applies across the spectrum
Source: E&Y 2016

8. 8
Contents
Problem: The size of the financial inclusion gap
Solutions: Mobile & digital finance offers new hope
Examples: Simple, innovative solutions from around the world
Enablers: What is needed for sustainable provision

9. 9
Unique ID infrastructure
Give each individual a national ID card, supported by biometric technology
• From 2009 : India
• World’s largest biometric ID system
• $1.1B project - 1.1B unique IDs
• High tech, powerful architecture
• Secure cloud based infrastructure
• Multiple functions incl. banking, health,
government transfer
• Supports interoperability
• Eliminate duplicate and fake identities
• Verify transactions online at lower cost
• Consumer friendly
Benefits
1
Case study: Aadhaar

10. 10
Digital payments infrastructure
Instant payments infrastructure – incl. digitized G2P payments
• Launched in 2016 in India
• Links with Aadhaar ID
• Enables instant, cardless transfers via
mobile through GOI’s Bharat Interface for
Money (BHIM app) or PhonePe, TruPay
• Started with P2P and G2P capability
• Now P2M enabled: merchants use
BharatQR for transactions in lieu of card
swiping machines
• Instant transfer
• Lower cost
• Interoperability
• Permits easy P2M, P2P, B2B, G2P
payments on common network
Benefits Case study: UPI & BHIM
2

11. 11
Telco - Finco Partnership
Leverage the infrastructure and reach of telcos, banks and other large players
Case study: MShwari
• Leverage distribution network of telco to
reach retailers and individuals
• Leverage lending capabilities of finco
• Enable KYC through location, airtime
payment data
• MPESA launched in 2007; Mshwari in
2012 in Kenya
• JV between FSP (CBA) & MSP (Safaricom)
in Africa
• Started out as “MPESA” (payments) –
evolved into Mshwari (lending)
• Now 25% of GNP flows through M-Pesa,
and used by 1/3 of the population
Benefits
3

12. 12
Crowd funding and P2P lending
Affordable microloans to individuals using P2P lending model
Case study: Rang De
• Launched in 2008 in India
• Social investors choose borrowers
seeking funds for small business or
education
• Loans administered and disbursed by
NGO partners. Borrowers repay as per
a schedule
• Many investors can fund one project.
One investor can fund many projects
• Improves access to credit
• Rewards good credit history
• Creates investment opportunities for
social investors
• Makes small loan sizes economical
Benefits
4

13. 13
• Farmers are immediately credited into
their account the payment for milk
purchased by diary (Milk to Money).
• They also earn interest, avail of over-draft
facility, etc.
• Payment records create credit history for
business loans
• Similar for honey farmers in Kashmir
Finco - Data analytics partnership
New products for the unbanked based on instantaneous data and analysis
Case study: YES e-banking
• Leverage data analytics on account
behaviour to ensure timely lending, avoid
overfunding, and act upon default
Benefits
5

14. 14
E-commerce - Finco partnership
Leverage the reach & credit history of e-commerce to make less risky loans
Case study: Mybank / Alipay
• Alipay launched in 2004 in China
• Today Alipay has > 450 m users, >200
Finco partners & 10 m e-merchants.
• In 2015, Alipay-backed Mybank started
targeting merchants on Taobao to make
small loans without collateral
• In place of collateral, financial data for
credit scoring from Alipay
• Can mine data to assess credit
worthiness, improve profitability, assess
risks
• Can integrate remote sensors, IoT
• Offer insurance discounts based on
behaviors
Benefits
6

15. 15
Blockchain
Secure, shared digital ledger for transfer of value
Case study: Banqu
• Eliminates need for trusted 3rd party
• Reduced cost and increased speed
• Increased security and transparency
• Smart contracts enabled - esp. useful in
trade finance, land titling, and
ownership of moveable assets.
• Launched in 2015 in US
• BanQu creates personal digital profiles
• Profile recognized and accepted by DFIs
• targets the world’s poorest (incl
refugees)
• Acquires and validates info, distributes
encrypted updates to clients in real
time
• Keeps historical records of all docs/
compliance activities, providing
evidence that bank has acted per reqts
Benefits
7

16. 16
Contents
Problem: The size of the financial inclusion gap
Solutions: Mobile & digital finance offers new hope
Examples: Simple, innovative solutions from around the world
Enablers: What is needed for sustainable provision

17. 17
• Initiatives to improve sophistication of financial sector
• Assessment of which sectors could make optimal use of digital financial
services
Summary: Need the full ecosystem to
participate to unlock the capability of digital
Digital finance
& mobile
infrastructure
Enabling
regulatory
environment
Sector
readiness
New business
models and
partnerships
• Universal national ID
• Robust, high-speed and widespread mobile infrastructure
• Efficient & fast settlement with Universal Payment Interface
• Affordable data plans, smartphones
• Risk proportionate regulation
• Interoperable networks between telcos and fincos
• Open architecture and room to innovate
• Facilitate trust, transparency, safety and privacy for consumers
• Scalable acquisition of merchants into network
• Efficiencies unlocked through digital currency, Blockchain
• Compelling value propositions focused on lowering barriers / meeting needs
• G2P payments to stimulate usage

18. 18