Asia: Banking on the unbanked

Having the privilege of working in the Central Business District (CBD) of Singapore means that I am exposed, on a daily basis, to one of the most densely developed places in Asia. This business district is the epitome of infrastructural sophistication and prowess, with thoughtful placements of facilities lined with abundant lush greenery along roads and aisles. Cafes and bars are a stone’s throw away from anywhere in the area, with access points to the city’s underground Mass Rapid Transit (MRT) system spread conveniently across easily accessible locations. Key amenities like convenience stores are also optimally placed at zones with high human traffic. Of course, this would also mean that access to key financial facilities like branches and Automated Teller Machines (ATMs) is easy, with an ATM around almost every corner.However, not everyone is so fortunate to be able to enjoy such an easy reach to services such as these.

Compared to its neighbouring countries in Southeast Asia, Singapore has a significantly higher level of banking penetration. According to the 2014 Global Financial Inclusion Database, 96.4% of Singapore’s population aged over 15 have at least one banking account with a financial institution. In stark contrast, countries like the Philippines and Indonesia only manage 28.1% and 35.9%, respectively. Unlike Singapore, these countries face geographical and population density challenges when it comes to reaching the unbanked. However, challenging circumstances often breed innovation, and the banking landscape in these two countries is no exception.

Indonesia, the largest island country in the world, is comprised of an archipelago of about 17,000 islands spread across the entire expanse of Southeast Asia. With a population density of 135 people/km(as compared to 7,697 people/km2 in Singapore), capitalising on the traditional method of building bank branches or creating an ATM network to try to cover the entire population would clearly be a costly choice. Instead, state-owned Bank Rakyat Indonesia (BRI) initiated a boat banking service, where the bank is brought to the people instead. This floating, mobile bank overcomes the cost inefficiencies associated with a static bank branch which can only serve a set population within a set range. Leveraging the network of water bodies across the island nation also means that the unbanked in otherwise unreachable areas can finally be financially included.

Whilst the Philippines is similar to Indonesia with regards to being an island country (with more than 7,500 islands), it has utilised a different approach in a bid to reach the unbanked. Leveraging the country’s high penetration of mobile phones, Bank of the Philippine Islands (BPI) has launched BanKO, self-described as “the first mobile phone-based savings bank”.

Rather than bringing a physical bank branch to the unbanked (like Indonesia), BPI took the mobile banking approach. Similar to GCash’s mobile money offering in the Philippines, and the M-Pesa offering in Kenya, BanKO’s mobile banking service (primarily operated through SMS) allows for phones with basic messaging functionality to act as an intermediary for access to basic banking services. According to Statista, smartphone users in the Philippines stand at 21.8 million in 2014, which translates to approximately 22% of the population. According to RFi Group, this increases to 77% among the banked population. 

Drawing parallels to how DBS and POSB customers in Singapore are able to withdraw cash over-the-counter from 7-Eleven convenience stores, BanKO overcomes the need to construct new ATM and branch facilities by allowing small businesses (e.g. shops) to register as partner outlets for withdrawals and deposits. On top of that, BanKO customers can also withdraw cash from any ATM nationwide. This approach minimises the need to create new facilities, instead utilising on existing ones.

In 2011, Indonesia also initiated their own branchless banking program, commonly known as Laku Pandai. However, unlike the mobile phone-driven approach with BanKO, Laku Pandai takes on a more agent-driven approach. This program enables individuals within locations that are distant from the bank to conduct their banking activities through specific licensed individuals or organizations within the particular district.

Both methods seek to reduce the need for an actual physical bank branch for people to gain access to basic banking and financing needs.

Financial innovation can occur anywhere and everywhere. At first glance, the geographical and demographic challenges faced in Indonesia and the Philippines may seem to be a stumbling block for financial institutions when it comes to reach and acquisition. However, it is often those unfavourable conditions which give rise to unconventional and innovative approaches to banking. The lion’s share of any untapped market goes to the players who are able to circumvent challenges, and ultimately translate weaknesses into opportunities. Banks all over the world have much to learn from out-of-the-box approaches to real business issues such as these.