Banks targeting the unbanked face telco threat


‘Banking the unbanked’ is a key opportunity for banks in emerging Asia, especially as Myanmar re-emerges as an open market. However, experts warn that acquiring these customers will be a challenge as telecommunications companies move into financial services.

“The unbanked customer segment can generate some significant income, especially in the informal sectors like food vendors, and motorcycle taxi drivers,” said Dan Harsono, Chief Marketing Officer at Thai bank, Krungsri. With 50 to 60 per cent of the population in South Asian countries employed in these informal sectors, banks can increase their customer numbers in multiples on paper.

Kenya’s M-Pesa is a textbook example of how to attract unbanked customers. Starting as a scheme to build loyalty with existing customers of the telecommunications operator Safaricom, M-Pesa grew as an efficient way to attract new unbanked customers and now accounts for over 10 per cent of the group’s revenue.

According to Michael Yeo Sek Pheng, IDC Financial Insights market analyst, the success of M-Pesa can be replicated in Asia, with some tweaking. “[Asian banks] will need to study their own home markets carefully in order to assess the behaviour of their customers and determine exactly what niche their services can capture in the overall financial ecosystem,” Pheng said.

To attract the unbanked market, banks need to contend with telco companies’ easy access to these customers compared to traditional banks. “Banks need to learn how a telco muscled in quickly into the traditional domain of a bank and pushed them out by creating an adjacent system,” Pheng said, adding “fast action is needed in developing markets and the first player to the post will have a good chance of holding on in the long run.”

With regional giants such as Vodafone announcing the intention to develop financial services, Pheng suggested though the initial returns for acquiring the unbanked customers might be minimal for now, the longer-term strategy could be a great boon to traditional banking and should be an immediate focus.

“We are looking at revenue scales of perhaps a couple of hundred million USD. In terms of financial services, they are still very much on the smaller scale of things,” Pheng said. “Banks involved will try and continue to build on their unbanked user bases. Their eventual aim will be trying to upsell other services and convert this segment to their own traditional bank services as time goes by and the markets mature.”

For Krungsri, there may be opportunities to partner with emerging non-traditional financial services to reach the unbanked. Harsono said “banks can partner with some of the organisations that work with the segments, whether it’s the government bodies or other associations the customers belong to. These will make it easier for the bank to reach out to them.”

In some Asian nations regulation can provide some barriers to entry to telco challengers. Countries such as India and Thailand have regulations that mandate face-to-face communication for many banking services. In Thailand, customers must open a bank account at a physical branch. While this slows the banks’ ability to reach rural communities, it also helps foster a deeper engagement.

“Banks need to reach out to them to let them know they are wanted and invite them to come to a bank branch first,” Harsono said. “Those customers may also feel more comfortable dealing with non-bank financial companies, so earning their trust can open additional opportunities for us.”