Digital Finance to Bank the Unbanked Can Boost GDP by As Much As 6% in Southeast Asia
- January 31, 2017 Digital technology that promotes financial inclusion can increase GDP by as much as 6% for economies in Southeast Asia, according to a new report
Accelerating Financial Inclusion in Southeast Asia with Digital Finance. The report
is jointly published by Asian Development Bank (ADB), global management consulting firm Oliver Wyman, and financial inclusion-focused consulting firm MicroSave
The study, which looks at digital finance in Cambodia, Indonesia, Myanmar, and the Philippines, is derived from interviews with more than 80 stakeholders across the four markets, extensive secondary research, and economic analysis.
Promoting the use of formal financial services continues to be a challenge in the region and the depth of engagement varies with different financial products. Among the study’s findings, only 18% of adults use a bank account to receive wages or pay utility bills and only 11% borrow from formal sources.
“ADB sees financial inclusion as an essential part of financial sector development,” said Michael Barrow, Director General of ADB’s Private Sector Operations Department. “Without access to formal financial services, the unserved and underserved segments of society will be excluded from growth and its benefits.Digital finance presents a unique and potentially transformative opportunity to advance financial inclusion.”
The research finds that digital financial solutions could play a significant part in closing gaps in financial inclusion, addressing about 40% of the volume of unmet demand for payment services and 20% of the unmet credit needs in the base of pyramid and micro, small, and medium enterprises segments.
Digital financial solutions will have the most significant impact on financial inclusion in five key areas:
1. Enabling fast, low-cost, and convenient customer identification and verification processes;
2. Improving supply-side economics with last mile distribution and servicing enabled by mobile phones and point-of-sale devices;
3. Supporting supply-side business cases with initial push in government-to-person payments and remittance flows;
4. Enhancing access to alternative sources of data to improve customer profiling, credit risk assessment, and fraud detection;
5. Mobilizing micro-saving through lower cost digital origination and servicing channels.
“For this opportunity to be realized, collaboration by different participants in the ecosystem will be critical,” according to Duncan Woods, Head of Oliver Wyman’s Retail & Business Practice in Asia-Pacific. “Public policy and regulatory guidelines can provide the framework to stimulate the development of digital financial solutions, which we expect will materialize through collaborations between banks, telecommunications and financial technology firms, , and NGOs, each bringing specific capabilities along each part of the financial value chain.”
While digital finance alone cannot close the gaps in financial inclusion, the effect of leveraging digital technology to bank the unbanked could boost GDP by 2% to 3% in markets like Indonesia and the Philippines, and 6% in Cambodia.
Making the most of this opportunity could also help influence the financial services industry, particularly in smaller markets such as Cambodia and Myanmar, where only a small percentage of the current needs for financial services are met by formal providers.
“Digital finance is the new normal in banking. Financial institutions will have to make this transition and develop distribution models and products for digital finance,” said Manoj Sharma, Managing Director of MicroSave in Asia.
About Asian Development Bank
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB in December 2016 marked 50 years of development partnership in the region. It is owned by 67 members – 48 from the region.
About Oliver Wyman
With offices in 50+ cities across 26 countries, Oliver Wyman is a global leader in management consulting that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. For more information on Oliver Wyman visit www.oliverwyman.com
. Follow Oliver Wyman on Twitter @OliverWyman.
is an international financial inclusion consulting firm with nearly 20 years of experience, operating in eleven offices across Asia and Africa. Our mission is to strengthen the capacity of institutions to deliver market-led, scalable financial services for all. We guide policy, provide customised strategic advice and on the ground implementation support to our partners, in key thematic areas such as Digital Financial Services, Inclusive Finance and Banking, Micro, Small and Medium Enterprises, and Private Sector Development in developing markets. For more information please visit www.microsave.net
. Follow MicroSave
on Twitter @MicroSave
Enroll for a Great Training on Product Innovation and Development
The vast majority of digital financial services are still based on P2P and bill payments. How can we move to the next level and offer solutions that meet the mass market’s myriad of financial needs? The Helix Institute of Digital Finance offers all providers the opportunity to learn how to design successful digital financial services though training. The training on “Product Innovation and Development” is scheduled from March 6-10, 2017 on the beautiful Mombasa, Kenya. See the details of the course here
. To download the application form click here
This course takes participants through a systematic process for developing market-responsive products from insight generation, through to design and development. It is tailored to meet the needs of institutions in need of a market-making anchor product, as well as those looking to expand their product offerings.
Course at a glance:
Participants will learn a systematic process for strategic product development including:
The application of market research and behavioral economics to understand how people make money management decisions,
Using this knowledge to build product suites that meet different financial needs, and
The operational systems and partnerships necessary to deliver products successfully.
Topics to be covered:
DFS Ecosystem & Constraints Framework
Market Insights for Innovation and Design (MI4ID)
Building & Managing DFS Partnerships
Product Pricing & Delivery Channel Rewards
Technology & Delivery Channels
Risk & Fraud in Product Development
Product Marketing & Communications
Product Evolution: Looking into the Future
Who Should Attend?
This course targets middle to senior level managers in mobile network operators, banks and other financial institutions as well as third parties who are involved in DFS product development.
Using Interoperability to Become Cashless
New Delhi, India: December 22, 2016, LiveMint, a leading English daily published an article titled ‘Using interoperability to become cashless’. The article debates how the recent monetary experiment has provided an opportunity to focus on India’s non-cash payment infrastructure.
The news item states that the aftermath of the government’s decision to withdraw high-value banknotes have reached fever pitch. In the public discourse on Facebook and Twitter, arguments have usually taken colour from the political affiliation of the commenter; in more hallowed debates among policy wonks and economists, the views appear to be sharply divided on whether the withdrawal will bring net benefits or not. Some influential voices (Kenneth Rogoff, Larry Summers, among others) have argued that this monetary experiment may hurt. Others (like Bibek Debroy, J.R. Varma and Vivek Dehejia) have argued in favour of the withdrawal—that this will operate as a one-time tax on the current float of unaccounted-for wealth stored in cash while whiplashing the consumer economy into digital (or plasticized) transactions. Regardless of the merits of the measure, however, what seems certain is that unless the government and regulators act swiftly to put in place infrastructure facilitating digital transactions, the potential positives will remain just that—potential positives.
One such critical infrastructural necessity is the interoperability of prepaid payment instruments (PPI), popularly known as wallets. While interoperability has several dimensions, in its simplest form it is the ability of, say, a Paytm user to transact with a merchant/user that uses another wallet (say, Freecharge). The ATM provides the most visible example of interoperability in retail finance. You walk into the ATM of any bank and swipe a card issued by your bank and withdraw cash. The card/point-of-sale terminal ecosystem is another example of interoperability. Interoperability is said to have pro-competitive effects and also promote financial inclusion.
The authors of the article are Sakshi Chadha, Manager, MicroSave and Mandar Kagade, Policy Analyst, Bharti Institute of Public Policy, Indian School of Business. Read the entire article here.