For Africa and Asia, Headway in Branchless Banking

They may take their tea with milk and pronounce “tomato” wrong, but here’s something on which we can agree with our friends across the pond.

Yesterday, the UK’s International Development Secretary Douglas Alexander announced DFID‘s ₤1.4 million, three-year project: Facilitating Access to Financial Services through Technology (FAST). Working with CGAP and GTZ, FAST’s aim is to “lay the foundations for financial services to be made available through new and emerging technology across Africa and Asia.”

As it stands now, 2 billion people in the developing world lack access to financial services, because of distance or affordability constraints. With that in mind, FAST aims to explore the possibilities and extend the reach of “branchless banking” using new technologies and innovative methods.

Its three-pronged strategy is to:

1) Test pilot projects to extend the reach of technology-based branchless banking in mass markets in countries in Asia and Africa, including government-to-people (G2P) payment services;
2) Carry out research on the use of new technologies (mobile banking, smart cards, biometric banking) in increasing access to financial services, and extending their reach;
3) Work with governments to develop a policy and regulatory framework that embraces the use of new technologies to increase access to financial services in a secure and low-cost manner.

In countries where FAST will be working, like Pakistan– where only 25 million people have a bank account, but 75 million individuals own a mobile phone– the potential for increasing access to remittances (fewer than 10% of remittance recipients have bank accounts), wage payments, and government social benefits is enormous. And it’s cheap: there’s no need to set up costly infrastructure (it uses the existing mobile phone network), and transaction costs are much lower than through traditional banking channels, which could mean over 1 billion extra dollars reaching the poor each year, according to some estimates.

DFID predicts that mobile banking could add a billion banking customers to the system in five years. If this is the case, the ramifications for poverty alleviation are significant, and FAST’s work over the next three years should be interesting to follow.