[dropcap]T[/dropcap]hroughout the Caribbean region, island states are recording sluggish economic growth and rising poverty and inequality. One of the major weapons in addressing these two key problems is financial inclusion. A region where all citizens are offered financial aid, support and services is a region that can anticipate long-term growth, a higher standard of living and reduced hardship.
Yet studies show that almost half of the Caribbean’s adult citizens are unbanked, operating in a cash-based economy that leaves them exposed to crime, corruption and destitution. Reaching these informal spenders and savers means rethinking the current banking model, leveraging technology to provide more efficient and more customised services, at a lower cost to the consumer.
In 2014, only 51 per cent of all adults in Latin America and the Caribbean had a bank account according to The World Bank’s Global Findex Index. While this figure may have climbed slightly in the intervening years, there is still a sizeable portion of the region’s population relying on an inadequate and vulnerable informal system of savings and loans.
And those who do have accounts are not taking advantage of the services available to them. Just 2 per cent of account holders in the region have mobile money accounts, only 10 per cent make regular online payments and around 75 per cent are not formally saving. The majority of people who have utility bills to pay, such as water and electricity, are handing over cash, and only 60 per cent of workers receive their pay cheques directly into their account.
Few in the Caribbean are saving formally by entrusting their funds to a financial institution. This has worrying implications as most have no emergency nest egg if the worst should happen. Those seeking loans generally turn to friends and family. This is especially true for small business owners as SMEs are frequently seen as high-risk by financial institutions and therefore not a good investment. Start-ups and entrepreneurs are often forced to scrape together ad hoc funding from a variety of sources.
Bringing these potential customers onboard represents a huge pay-off for banks. The World Bank Group estimates that increased banking penetration in personal banking in Latin America and the Caribbean is a US$34bn opportunity for would-be providers, while micro and small banking business could be worth as much as US$81bn.
But transforming the unbanked into the banked means understanding who these potential customers are, and what they want. There are many reasons why adults in the Caribbean choose not to open bank accounts. These range from not having enough funds for an initial deposit to relying on another family member’s account. Some lack the necessary documentation, others don’t want to, or can’t, pay the fees of opening and maintaining an account. And then there are those who distrust financial institutions, or simply can’t get to the bank’s physical location.
FinTech can help banks overcome these issues by providing services that are accessible, convenient, secure, efficient and user-friendly. Mobile payment applications, the most common form of FinTech innovation, allow clients to access their accounts from their personal devices and make payments in real time—without having to queue up at their branch.
As services like these proliferate, the traditional fees associated with banking are being driven down. The level of market competition is forcing banks to refine their strategy and offer more for less.
Financial institutions in the Caribbean may be behind the curve when it comes to FinTech, but they’re catching up quickly. In March The World Bank’s International Finance Corporation (IFC) launched the IFC DigiLab—a new project which aims to educate banks on market trends and how adopting new technologies will not only bring in more customers but also improve their bottom line.
The Lab’s first initiative will focus on FinTech, with an emphasis on cloud computing, analytics, and mobile technology, and will be delivered in partnership with global consulting firm Accenture. Participating bankers will get the chance to meet with industry leaders, identify opportunities, attend workshops and visit innovation labs.
“The goal of the IFC DigiLab Finance programme is to offer an innovative, creative and market-driven capacity building project that ultimately helps financial institutions to enhance their digital value proposition and create sizeable commercial opportunities at a lower cost to underbanked citizens in ways previously hard to imagine,” says Paulo de Bolle, IFC Global Industry Director for the Global Financial Institutions Group.
Widespread adoption of FinTech in the region doesn’t just mean educating banks. It also requires partnership between private tech companies and forward-looking financial institutions. Seeing the potential of the unbanked market, many private firms are targeting the region. In 2016 UK-based Caricoin introduced its all-in-one mobile bitcoin wallet which allows users to send money, shop online and top-up their mobile with the crypocurrency.
Similarly, Barbados-based FinTech firm Bitt Inc recently signed a Memorandum of Understanding with the Eastern Caribbean Central Bank (ECCB) to develop blockchain technology in ECCB member countries. This forms part of the Bank’s 2017-2021 Strategic Plan, one of the core aims of which is to increase financial inclusion through greater use of FinTech.
In Norway every citizen has a bank account, Canada and the UK have a banked population of 99.1% and 98.9% respectively. In the developed world, it’s easy to take having a bank account for granted but almost half of the Caribbean goes without this kind of financial support.
Bringing new customers into the formal economy will take a collaborative effort between regulators and market players, but the foundations are there and the opportunities exist. The region already has the necessary infrastructure, particularly in Saint Lucia which is set to roll out a new US$4m high-speed broadband network in the next few months. The region has a high uptake of smartphone technology, and telecommunications industry group GSMA estimates that there will be almost 150 million new mobile internet subscribers in Latin America and the Caribbean by 2020. This expanding mobile ecosystem is good business for banks, forcing them to adapt, innovate and help elevate those who have been financially marginalised.
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