Giving the Poor Smartphones Doesn’t Boost Access to Banking

Smartphones may be hailed as the game-changer in efforts to bring more of the world’s low-income adults into the formal banking system, but the new technology isn’t living up to the hype.

By Leslie Shaffer

Nestor V. Tan, president and CEO of BDO Unibank, the Philippines’ largest bank, said Wednesday during this year's Singapore Fintech Festival, it’s a myth that smartphones increase banking penetration in the world’s unbanked, or adults lacking a formal bank account.

«When people are parting with their money, their behavior is different. It’s not the same, so when you say there’s high penetration rate in phones then automatically digital banking comes in, it’s not the case,» Tan said.

Crucial to Reducing Poverty

Having a bank account is considered crucial to reducing poverty. Around 69 percent of adults globally, or around 3.8 billion people, now have a bank account or a mobile-money provider, up from just 51 percent in 2011, according to the World Bank’s Global Findex report for 2018.

Around 1.7 billion adults globally remain unbanked, the report said but noted around two-thirds of them have mobile phones, which theoretically could help them access financial services.

Mobile Penetration

But the data on the Philippines appear to bear out Tan’s view: In the Philippines, just 34.5 percent of adults have a formal account that can be used for savings, payments and receiving wages or financial help, up 3.2 percentage points from 31.3 percent in 2014, the Findex report said.

But mobile penetration in the Philippines is over 100 percent — there are 124.2 million mobile subscriptions, compared with a population of 107.3 million, according to the Digital 2019 report from Hootsuite and We Are Social.

Lack of Direct Correlation

Internet penetration is at 71 percent of the population, with 89 percent of the population using a mobile phone and 65 percent using a smartphone, while only 54 percent of internet users said they do mobile banking each month, the Digital 2019 report said.

Given the lack of a direct correlation between mobile-phone usage and financial inclusion, Tan said his bank’s approach was to create a physical-to-digital platform. «Our philosophy is we can not push the client faster than they are ready to take on banking,» he added.

No Substitute for Physical

«What we’ve seen in the Philippines and probably most jurisdictions, is that the physical will be the launchpad for digital, but digital will not be a substitute for physical. So you will have to have both,» Tan said. «Over time, people will be comfortable moving from physical to digital. In the Philippines, I think it’s still going to be a while,» he added.

Greta Bull, CEO of the Consultative Group to Assist the Poor (CGAP), noted her organization has seen similar issues with spurring digital banking adoption among lower-income populations.

Four Basic Items Required

She said a colleague developing a digital bank in South Africa offering both digital access and kiosks in shops had found 85 percent of the traffic was via the kiosks.

Tan said financial inclusion required four basic items: «Number one, savings that means we have custody of the bulk of your wealth. Number two is payments; number three is credit. Then if you take it up, to a higher level, you can add insurance and investments in there.»

Most Overlooked

He added the number one, and most overlooked item, to bring more people into the banking system is trust. «Remember, people are parting with their money, so do they trust the institution. So there’s a branding effect there,» he said. «Second is access: Are you there? Can they see you? Can they feel you.»

«Third is credit process because the flip side of them parting with their money is we’re parting with our money so we need to be able to do that,» he said. «The fourth, which is probably the most important part of financial inclusion in the private sector world is sustainability. That means cost-efficiency, scale and ability to expand it into other areas,» Tan emphasized.