What do 59% of the adults in developing countries have in common?

…Some facts & figures based on a research executed in 2013…

59% of the adults in developing countries do not use banking services. This is the big challenge developing economies are facing. The unbanked mainly rely on cash-based financial services such as check cashers, money orders among others to handle their transaction needs. In the broader discussion we could argue the need for a bank at all, but for this research we focused on banking services, sometimes without involvement of a bank anyway.



Globally over 40% of people living in urban areas do not have a formal bank account, compared to 56% of those living in rural areas. This split doesn’t really surprise me due to factors such as accessibility, higher income levels, adherence to Know-Your-Customer (KYC) norms among others.

This research has been executed as part of a broader discussion around reasons why people in developing countries don’t have a bank account. We identified several opportunities to approach this group of people and discussed some examples that have proven to be successful for a variety of reasons. I would like to thank Tom van de Wal (Capgemini Consulting) for doing this research with me and translating some of our findings in nice overviews.

The need to target this unbanked population

There are several reasons that justify this need. We see strong growth in developing countries from lower classes to middle classes (although I hate it to call them classes), a rise in urbanization, an increased mobile penetration and increasing government focus on financial inclusion. Together this makes it imperative for financial institutions to target the unbanked. Some facts to support these messages are shared below.

1)      Industrialization and growth of developing countries:

  • East Asia is set to grow by 7.3% in 2013 before accelerating to 7.5% in 2014 & 2015
  • Sub Saharan Africa is expected to grow by 5.2% between 2013-2015, while South Asia is expected to grow by 6% and 6.2% in 2014 and 2015
  • High growth in these regions will reduce inequality and raise the overall income of the poor

2)      Increased mobile penetration:

  • Mobile phones have a global reach of 87% and in developing countries adoption rate of 79%
  • As the costs of information and communications technology shrink, technology can be used to address financial exclusion
  • Mobile devices can reduce costs to serve by 50-70%
  • Growing mobile penetration which makes it easier to target the poorer segments of the social class.

3)      Government focus on financial inclusion:

  • Government as part of their financial inclusion initiatives are targeting the poor with direct cash transfer for their various welfare benefits
  • Many governments are pioneering policy and regulatory responses to market innovations for new approaches to the delivery of financial services

4)      Urbanization & Growing Middle Class:

  • The UN’s Global report on human settlements 2011 predicts that 59% of the world’s population will be living in urban areas by 2030, from 50% in 2007, and majority of this transformation is in developing countries
  • Most of those moving to urban areas are the poor and offer attractive potential for m-banking service for remittances and micro-credit products etc.
  • If we look at Brazil;  In 2003, 55% of the population was part of the lower classes, versus 38% in the middle class. In 2014 we expect this to be just 28% of the population to be part of lower classes versus 57% in the middle class. Keeping in mind that there are 72 million people in Brazil without a bank account you can imagine the numbers we are speaking about.

There are challenges for the unbanked and financial institutions


The most commonly reported barriers to opening of a formal account are lack of savings, high cost, physical distance and lack of necessary documentation among others. Therefore it is essential for financial institutions to collaborate with regulatory authorities to introduce no-frill accounts, with very less documentation and easy accessibility among others, targeting the unbanked.

How to target the Unbanked?

There is a clear opportunity for financial institutions to serve the unbanked/underbanked. But as no single player can successfully offer a full suite of financial services on their own, strong partnerships are essential to establish an effective financial service ecosystem. Some examples of products, channels or programs to target the unbanked are shortlisted below:

Direct Bank Transfer: Worldwide about 26% of account holders use their account to receive money or payments from the government, a practice most common in high-income economies

Non-banking Retail Agents: There are increased instances of delivery of financial services outside conventional branches of financial institutions and an enlarged presence of non-bank retail agents to reach the financially excluded

M-Money: M-banking has become a powerful way of delivering banking services to billions of people worldwide who have a mobile phone but no bank account

Prepaid Cards: Prepaid cards are popular in high income countries with Governments transferring welfare benefits to poor in loaded cards and employers using the medium to pay salaries to temp workers

Financial Literacy: Financial programs are tools to introduce basic financial concepts and to promote financial inclusion for the poor, thereby boosting uptake and use

What is important in the operating model?

Our research found that to be successful an operating model needs to focus on availability, affordability, acceptability and awareness. I elaborated on this a little more in detail including an example of an organization that has been able to deliver this need to a large group of unbanked.

Availability – Engage with partners & clients like M-Pesa

  • Use multiple partners to acquire unbanked customers, starting with employers, retailers and MNO agents
  • Proximity & ease of access: Connect to the local community of the unbanked in their daily neighborhood
  • Empower advocacy: engage with existing mobile customers to introduce friends and receive rewards and group offers


M-Pesa‘s agent network is organized in  agent group models to manage liquidity problems, manage e-float and increase the number of agents





Affordability – Low cost customer interaction like Wizzit

  • Innovate and radically redesign the product and service to meet the needs of the unbanked
  • Develop hybrid services blending old known and new innovative ways of customer interaction
  • Stay close to basic needs of the customers like food, water, housing, health
  • People in rural areas are not only price sensitive, but also quality conscious


wizzit-5-2011-3-1Conscious of the barriers that have inhibited the unbanked from participating in the formal financial sector, Wizzit  adopted policies to encourage new customers, like: The ability to open accounts 24/7; Community based wizzkids; representatives who will come to the client to help and open an account instead of the client coming to the bank


Awareness – Ease of use makes it irresistible like Standard Bank

  • Emphasize the ease of use
  • Educate and training the unbanked people is essential to build trust with the unbanked population as they are unknown and reluctant to formal financial services


Consumer education activities provide general financial education to people in the informal economy to empower them to make better financial decisions




Acceptability – Understand needs to create trust, like Tigo

  • Access is the first level in building trust and key to successfully crack the unbanked
  • Add services to local infrastructure that are currently missing by collaborating with non-traditional partners
  • Tap in to the differing segments and needs of the unbanked target group (avoid one-size-fits-all)

Tigo MG_35151-300x199

In Paraguay domestic remittance was done via bus drivers. People where accustomed to it and speed wasn’t a complaint. Tigo gained the valuable insight that price rather than speed was the driver for consumer usage.



Overall there is a lot of work to do for banks and government. Technology is not the only driver and especially the security factor cannot be underestimated. We see a continuous increase of mobile penetration for years already. And last but not least, we have seen this working successfully in several countries already!

I would like to thank Tom van de Wal, (Capgemini Consulting in The Netherlands), for contributing to this research including the graphical representation of some our findings. It is clear that there is a lot more to say about this enormous group of people.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s