Banking and Financial Access for All

Asignificant segment of the world’s population remains excluded from banking. Yet as physical cash retreats, it is increasingly important to hold at least a current or checking account. How can society in general, and banks in particular, reduce the proportion of unbanked individuals, and reap the rewards of financial access for all?

The lack of access to banking services may be one of the most pressing economic issues facing modern societies. Without a bank account, many services and activities are simply out of reach. Gaining regular employment and secure housing depends to a large degree on access to banking, and in turn the lack of a fixed address can create its own barriers to opening an account.

In practice, banking exclusion affects two groups more than others: those who are less digitally aware or unable to access digital services, and those that cannot meet regulatory or other criteria.

For example, in 2020 the Financial Conduct Authority reported that some 1.2 million UK adults had no current or e-money account of any sort. With around 5,000 UK bank branches closed since 2015, these individuals are at risk of being shut out from the banking and financial services they need to go about their day-today activities. In 2021, some 6% of the population in France, Italy and Spain were without access to the services of banks or similar organisations, 7% in Israel and the United States, 20% in China and India, and 71% in Morocco. Globally, various sources place the unbanked population at around 1.7 to 2.0 billion people.

Less digitally aware unbanked populations

Branch closure is not a new phenomenon. Cost pressures and digitalisation of services have inexorably driven retail banks to cut expensive brick-and-mortar networks and focus on a smaller number of larger centres. Changes that were already in the pipeline were brought forward at speed by the lockdowns triggered by the COVID-19 pandemic; applying for a loan or mortgage on Zoom or FaceTime became normalised within a few short months.

For older generations familiar with personal visits and physical paperwork, the removal of local branches also cuts their access to financial services. In many cases, these individuals depend on cash and cheque transactions to run their lives, with no recourse to payment cards, online banking and mobile apps.

However, this segment of digitally less-aware individuals are excluded only for practical reasons; in every other respect they remain valuable customers, amenable to loan and investment propositions.

A bank in the Nordics demonstrated that it is possible to resolve many of these types of challenges. Following detailed research, the bank discovered that user interface changes greatly improved user acceptance, and helped customers make successful transitions to digital banking. For example, by creating task-focused, step-by-step instructions with only one action on each view, more customers learned to feel comfortable with the online experience. Lately, many banks and similar services have introduced biometric authentication to replace passwords and simplifying login processes.

In addition, in place of branches, banks are forging new high-street partnerships, with retailers, coffee shops, and co-working spaces. These points of contact replace the high capital investment of fixed bank branches with low-cost shared operations, reaching out to digitally excluded customers in a way that they understand.

Genuinely excluded unbanked individuals

Individuals in the second unbanked group face a very different set of challenges, centred around lack of authentication. Typically, this shows up as missing or unacceptable documentation for Know Your Customer (KYC) processes, and can act as a significant barrier to opening a bank account. Refugees and immigrants, among others, may not possess relevant paperwork, have no local financial history, or offer identification documents that the bank’s systems do not recognise.

For example, as of 1970, banks in the United States banks were required to obtain a Social Security Number (SSN) for all account-holders. In turn, obtaining your SSN depended on an application that gave proof of age, identity, and citizenship or immigration status. The SSN requirement no longer applies, and many formerly excluded potential customers can use alternative identity documents, perhaps originally issued outside the US.

As such, demands to see physical passports and photo-driving licences no longer apply, a change that accelerated during the pandemic. More recently, online verification processes have become perfectly acceptable provided they meet the banks’ risk criteria.

However, large numbers of people remain outside the banking and financial systems. In some cases, potential customers do not meet even minimal identity criteria, and in other cases banks are reluctant to onboard new accounts that may offer little value.

Financial access for all

Despite the current difficulties, financial access for all may be within sight. For example, the branch network for Digibank by DBS is based on a partnership with the India based Café Coffee Day chain. Individuals with a smartphone and their identification number (available to anyone resident in India regardless of citizenship status) can open a Digibank account in just a few minutes.

Elsewhere, new ways to open a payment-card account that do not have strenuous KYC barriers can act as the first steps to creating a financial history. Often this route will be via embedded finance options, such as instalment accounts offered by retailers. In these cases, the transition from unbanked to banked may be almost invisible, where the primary channel is a retailer, telco, internet service provider or TV company.

Key enablers here are fintechs, who see opportunities to recruit accounts with highly targeted offers, such as micro-loans available as embedded finance. With focused offerings, fintechs will accept relatively high account acquisition costs in return for the opportunity. These offerings extend the reach of the financial ecosystem to the unbanked, creating a pathway to full engagement.

Banking innovation, technology, investment

Solving the challenges of financial access for all is likely to involve a combination of banking innovation, technology, and infrastructure investment.

Banking innovation is happening in front of our eyes. Online and app-based banking has removed many of the access barriers, and fintechs are leading the charge into niche and embedded banking services. Going forward, virtual branches and virtual lobbies will enable greater ease for customers to transact and manage their financial services.

To enable fintech and bank innovation, the latest software platforms can enrol large numbers of new customers at low cost and scale to support millions of new accounts – even those with very low, or even zero, deposit balances. With high-efficiency transaction services and deep analytics, the platform technology enables banks to use data to provide highly tailored offerings such as micro-loans to individual customers.

And last but not least, a prime infrastructure example is the Unified Payments Interface (UPI) in India. By establishing a common payments standard across the country, even the smallest of street vendors can use UPI to accept payment by card or smartphone, encouraging millions of traders and their customers to join the banking system. In addition, with a ‘no frills’ banking account, those on a lower income are able to access basic banking facilities and benefit from financial inclusion. These accounts can be maintained without or with a very low minimum balance. In effect, the unbanked can start their banking journey without even realising it.

Driven by innovation, enabled by technology, supported by infrastructure, financial access for all is clearly within the banking industry’s grasp. The cost of account acquisition is declining, and with data-fuelled ways to create value from each customer, the future is positive.

This was previously published in The International Banker.

Digital Banking: Making more of less money

The cost of living crisis that the United Kingdom has been reeling under since late last year is set to get worse, with the annual household energy bill predicted to touch £3,600 this winter. This will put enormous financial stress on families, 1.3 million families went into the pandemic with savings of less than a month’s income. How can banks help customers manage their money so that they save costs and earn better returns in these trying times? This article discusses some ideas.

by John Barber, Vice President, Infosys Finacle Europe and Ram Devanarayanan, Head of Business Consulting, Infosys Finacle Europe

Money management features to support budgeting and planning

The first thing banks can do is provide a tool that simplifies budgeting for the ordinary customer. A few mainstream U.K. banks already offer apps that not only group spending by category – food, utility, entertainment, travel, for example – but also allow users to set (and monitor) category-wise budgets.

For retail customers, some banks also support planning for future expenses by creating “savings pots” in which they can accumulate money towards a specific goal. For example, retail customers can save up for school fees, home renovation and emergency funds. Similar to savings pots, business customers can use virtual accounts to manage their money better. This enables them to use money efficiently and save on overdraft costs and earn higher returns through money market investments. Last but not least, virtual accounts also benefit banks by reducing the costs associated with creating new accounts.

Education for a long-term view

Knowing how the money was spent allows customers to take informed actions to manage their finances better. But tools can only do so much. To really improve the state of financial health, banks should join the government and academic institutions in building money management awareness among the general populace. A great example is LifeSkills, a Barclays initiative that has helped more than 13 million young people learn, among other things, money management skills such as budgeting and avoiding fraud. HSBC believes in informing them young by using storytelling and gaming to teach money concepts to kids right from the age of three. The truth is that only sustained education will teach people to plan finances for the long term. At a time when one protracted crisis is following another, the importance of financial planning cannot be overstated.

Banks can also leverage analytical insights to send contextual alerts nudging customers to pay bills on time, sweep excess funds into a higher-rate deposit and renew an insurance policy.

Open banking for control, convenience and choice

Having greater visibility and control helps customers make the best use of depleted resources. Open banking can play a role in this. For example, it enables Variable Recurring Payments (VRP), whereby customers can authorise payment providers to make payments on their behalf within agreed limits. Customers have greater flexibility over setting up/ switching off VRPs compared to Direct Debits and can also see the status of their VRPs on a dashboard.

Another advantage of open banking is better consent management – users can define clear parameters for what they are consenting to. This is also useful for small business customers to manage cash. For instance, a small business can use this facility to authorise AISPs (Account Information Service Providers) and PISPs (Payment Initiation Service Providers) to sweep excess liquidity into an external fund to earn a higher return.

Still, the adoption of open banking is quite limited in the U.K. Besides having data privacy and security concerns, customers don’t fully understand how open banking works and what it could do for them. Since most of these issues can be addressed through education, banks should include open banking awareness in their financial literacy programmes.

This would benefit them too. Open banking is an opportunity for financial institutions to tap ecosystem partnerships to present a more complete service, including non-banking offerings, to customers. They can source the latest, most innovative offerings from fintech companies to fulfil a variety of needs at competitive rates.

Personalised services at the right “moments in time”

At the very least, “correctly” personalised services – based on data analytics – prevent banks from annoying customers with irrelevant offers. But the real reason for personalising banking should be to deliver the right service at the right moment of time as a frictionless experience. This is also very much in the banks’ interest because it reduces the likelihood of customers fulfilling their requirements elsewhere.

Personalisation also builds banks’ customer understanding, crucial for a successful ecosystem play. The future belongs to banks offering competitive financial and non-financial propositions sourced in-house as well as from third-party ecosystem partners. India’s first fintech unicorn, Paytm, exemplifies this; it grew quickly from being a mobile wallet bill payment platform into a vibrant e-commerce marketplace before acquiring a banking license. In the first 18 months, Paytm Payments Bank opened a massive $42 million savings account.

In contrast, financial institutions persisting with the traditional banking model will be relegated to the role of a utility. To avoid that fate, they must invest in a robust digital platform capable of onboarding and supporting a diverse partner ecosystem.

Embedded, invisible banking

Ecosystem banking leads naturally to embedded finance, where banking products and services are inserted so seamlessly within customer journeys as to be almost invisible. Embedded finance fulfils the younger generations’ demand for an Amazon type of all-encompassing, personalised, frictionless and entirely digital experience that the next-generation providers are bringing to market. For example, Paytm offers a wide range of services, including banking, insurance and investments, ticket booking, food delivery, shopping, and of course, seamless payments to finance all of these.

To compete, banks will also need to compete with apps by increasing the capabilities of their apps beyond just core banking processes. All these evolutions – ecosystem play, platform business model, embedded finance, and app style capabilities – call for comprehensive digital transformation, starting from the banking core. DBS in Singapore is an outstanding example of a traditional financial institution that transformed itself into one of the world’s best digital banks. But even as other banks go on this digital journey, they should continue to create highly competitive products and services. This is especially important because in difficult times customers’ needs, above everything else, are more value for their money.

This was previously published in IBS Intelligence.

In 2023, Step Into the Future of Customer Engagement

Many customers will stick to the changes in banking behavior induced by the pandemic, while some may revert to earlier preferences, such as in-person banking. But what is certain is that banks will need to deepen customer engagement to deliver greater value to customers, and also to ward off next-gen competitors, such as Fintech firms and neo-banks. We believe that in 2023, banks will begin to recompose customer engagement by focusing on omnichannel journeys, hybrid personalized experiences, and continuous transformation at the core.

Omnichannel Journeys: Omnipresent, Consistent, Connected

76 percent of customers prefer different channels for different types of messages, while 90 percent want an absolutely seamless experience when moving between channels.

Hence “truly” customer-first banks will offer highly personalized, seamless services, accessible anywhere, anytime and on any device. To balance the needs of millennials, who will continue to adopt social, conversational, and other advanced channels of banking, and that of older generations, who prefer assisted in-branch service, banks would need to provide a choice of hybrid connections.

Omnichannel engagement through personalized, consistent, and real-time interactions will be critical, not least because it will provide data from multiple touchpoints that can be leveraged to enhance customer engagement further.

Hybrid Experiences: Unique, Personal

Banking consumers also expect their experiences to be smart, quick, visually attractive, and unique across the channels they use. Cloud, Data, AI, and other technologies will be key to enabling this. While engagement will be driven by data and digital, it must also be human-centric, completely tailored to the user’s context with the aim of creating delight.

A recent study commissioned by Infosys Finacle shows that 71 percent of respondent banks are running personalized communication campaigns, and nearly 60 percent offer delivery across traditional, contemporary, and emerging channels. But less than half are: leveraging enterprise customer data management, providing proactive recommendations, data-driven micro-segmentation, and Human augmented sales leveraging AI & machine learning recommendations.

To personalize customer engagement to the fullest, banks must create an integrated technology stack, including a customer data hub for a 360-degree customer view, self-help chatbots, auto-routing to agents for faster resolution, and so on.

Continuous Transformation at the Core – People, Process, Technology

With banks scaling back branches and restructuring staff, bank talent cannot be tightly boxed-in like before. Banks are therefore grooming employees into universal bankers, capable of fulfilling multiple roles.

It is required to augment the workforce to improve engagement, by investing in contemporary skills training, a cultural reset, and intelligent technologies. To simplify complex engagement processes, business processes must be transformed for customer-centricity, ubiquitous automation, and a digital-first approach.

Finally, banks should leverage modern technologies and data-driven insights for superior customer experiences.

By aligning people, processes, and technology in this manner, banks will drive financial empowerment and well-being among their customers. Our research reveals encouraging findings in this area, with 85 percent of banks expressing confidence in their progress in customer experience and engagement, and about 70 percent expressing confidence in improving digital talent and skillsets, as well as processes.

A recent U.S. retail banking satisfaction study reports that banks are falling short of their customers’ expectations for personalized support and that almost one in two customers has switched to a predominantly digital-centric banking relationship. Therefore, engaging better with customers should be a top priority of U.S. banks in 2023. Omnichannel engagement, highly personalized experiences, and transformation of people, processes and technologies, are the areas to focus on.

This article was previously published in the Global Fintech Series.

Wealth Management and the Future of Changing Business Models

The wealth management industry is gearing up for tectonic shifts across the world. Globally, affluence in multiple segments is increasing, while consumer consumption patterns are evolving driven by changing preferences. India is witnessing a rise in savings and a change in investment patterns. These changes have already started shaping a new narrative for the growth of wealth management.

The change is evident in the range of efforts, experimentation, and innovations by Wealth Management firms and ecosystems around them alike. The future is poised to bring a more pronounced response by these companies to the changes. To survive and thrive in the future, wealth management firms would have to relook at the way they engage with their customers and the way they innovate and operate in providing a range of services through an advanced technology stack.

Three shifts that are shaping the industry’s future

Financial services, and specifically investment and wealth management firms, have always been highly sensitive to the play of macro factors unravelling outside their premises. The interplay of post-pandemic economic effects of the slowdown and inflation along with ongoing geo-political changes has created a similar dynamic. On the other hand, there are parallel changes happening in the world around them that have the potential to directly change the way they look at their business and chart their growth stories.

Increasing affluence across the world

The world is witnessing a consistent surge in the concentration of wealth among a section of the population, notwithstanding the slowdown in the rate of increase due to the pandemic. India followed a similar trend. The number of ultra-high-net-worth individuals (UHNWI) with assets of more than $30 million and highnet-worth individuals (HNI) with net assets of more than $1 million are expected to rise in India by 2026.

The shifts in the income levels in India are more pervasive in the segment of the super-rich. The Indian middle class with an annual income between $7700-15400 is expected to increase by 2025 too, according to forecasts made before the pandemic. The pandemic might have slowed the voluminous increase in the middle class but has not stopped its upward movement. In fact, the income levels of higher-income consumers have been either stable or have increased during the last year.

Increasing household savings and changing investment patterns in India

Despite a recent dip in savings, likely because of post-pandemic spending, overall household savings in India are on the rise. However, it is not just the volume of savings that is gradually changing in India, the pattern of investing is also shifting. Traditionally in India, average households held only 5% of their total assets in financial instruments such as deposits and savings, publicly traded shares, mutual funds, life insurance, and retirement accounts.

Savings in financial instruments is on the rise as people gradually move away from traditional forms like gold and silver. The increases are likely driven by the awareness that over-concentration of wealth in non-financial assets in the face of rising inflation can yield negative returns. The change in saving behavior of Indians is apparent in their trend of putting incrementally more money in capital markets. Savings are on the rise and are gradually moving towards financial asset investments.

Evolving preferences of the digitally immersed

Factors to understand customer segments are not limited by income levels, savings, and investment patterns anymore. As money concentrates in hands of the new investors, understanding their changing preferences and behavior is critical to shaping the future of wealth. The new breed of investors is digitally immersed and used to the curated and contextualized offerings of Netflix, Instagram, Amazon, and Spotify. These new investors carry the same expectations to all financial services touchpoints; buying investment products, receiving marketing content, or interacting with customer care.

Worldwide, number of investors who use online trading and robo-advisory is estimated to grow consistently. By 2030 in India, Millennials and Generation Z will constitute 77% of India’s population. This is a cohort that is breaking away from frugal spending patterns and has witnessed ubiquitous digital consumption. By 2030, an increasing number of customer personas from these groups with strong brand preferences, a propensity to research and buy products online, and a preference for technology-enabled consumption models will be a large section of the audience of wealth managers.

Click here to read more about the future of wealth management and the evolving business models in the banking industry.