omnichannel banking and financial inclusion: thoughts and ...€¦ · from multi-channel. high...

VI Latin American Financial Inclusion Congress

Febraban-Felaban

São Paulo, 19 August 2014

Omnichannel banking and financial inclusion: thoughts and metrics

David Tuesta

Financial Inclusion-Chief Economist

Contents

1. Our starting point

2. Financial inclusion and the role of omnichannel banking

3. Access channels, use and financial inclusion: some metrics

4. From omnichannel banking to digital banking: future transformations

5. Conclusions

Omnichannel banking

• This involves being close to the financial customer at all times and in all

places for whatever the customer needs, whenever they need it

• Any kind of intermediation possible, whatever the channel

• Implies multiplying the value of both traditional and new channels. The jump

from multi-channel. High leverage of technology

• Different channels: branches, correspondents, ATMs, Internet, mobile phone

transactions, telephone banking, Smartphones, diverse mobile devices and

future technologies

• A way of fostering financial inclusion?

Omnichannel banking and technological

development

• The transfer to omnichannel banking has been heavily reliant on

technological progress and digital change

• Greater storage capacity, speed, new platforms and new technologies

• Gradual regulatory adaptation

• Improves the financial customer experience

• Note: The technology underpinning omnichannel banking also gives scope

for non-banking, digital players to enter banking

• New channels and the option of incorporating the non-banked

Financial inclusion, technology and

omnichannel banking

• An important factor if households and companies are to continue sustained

growth : better and more timely risk and resource management

• Financial exclusion, which is of particular concern in emerging markets, is a

result of issues relating to use, access and the barriers to participating in the

formal financial system

• Technology means financial services can be offered at a lower cost, with the

potential to be everywhere and be better adapted to the customer’s needs

Financial inclusion, technology and

omnichannel banking

• Lack of access to financial services can lead to the vicious circle of poverty

and greater inequality (Banerjee & Newman, 1993; Galor & Zeira, 1993;

Aghion & Bolton, 1997; Beck Demirguc-Kunt & Levine, 2007)

• Providing access to financial instruments increases saving (Aportela, 1999;

Ashraf et al., 2010), productive investment (Dupas & Robinson, 2009),

consumption (Dupas & Robinson, 2009; Ashraf et al., 2010b) and women’s

empowerment (Ashraf et al., 2010)

• Access to credit and to insurance has positive effects but the empirical

evidence is less robust (Karlan & Morduch, 2010; Banerjee et al., 2010;

Roodman , 2012)

Contents





5. Conclusions

Towards financial inclusion and the role of

omnichannel banking

Barrie

rs

(by

inc

om

e, c

ultu

ral, tru

st, c

os

t-

rela

ted

, ge

og

rap

hic

al)

Consumer protection

Financial infrastructure -

omnichannel banking

Financial

Education Use

Access

Competition

Facilitating

instruments

Regulation

Financial

Inclusion

Results

Omnichannel banking: issues to bear in mind

• Omnichannel banking particularly affects access to the financial system, but

that does not necessarily lead to greater use of, or interaction with, this

system

• The financial and technological landscape and its applications in omnichannel

banking are a necessary but not a sufficient condition for increasing the use

of formal financial services: other factors must be considered when designing

policies to improve financial inclusion

• Instruments that might support greater financial inclusion have to overcome

the barriers excluding participation in the financial system; these tend to be

country-specific

Contents





5. Conclusions

Access and use: bank branches

Argentina

Australia Austria

Bolivia Brazil

Chile Colombia

Croatia Czech Republic

Dominican Rep.

El Salvador

Finland France

Honduras

Ireland

Italy

Japan

Kenya

Mexico

Mongolia

Nicaragua Paraguay

Peru

Portugal

Romania

Slovak Republic

South Africa

Spain Thailand

United States

Uruguay

Venezuela, RB

Zambia

0,00

0,10

0,20

0,30

0,40

0,50

0,60

0,70

0,80

0,90

0 10 20 30 40 50 60 70 80 90 100

Usag

e:

% o

f ad

ult

po

pu

lati

on

Access: number of bank branches per 100,000 people

Bank branches

Access and use: ATMs

Argentina

Australia

Austria

Bolivia

Brazil

Bulgaria

Canada

Chile

Colombia

Costa Rica

Croatia

Dominican Rep. El Salvador

Finland

Honduras

Ireland

Japan

Kenya

Korea, Rep. Latvia

Mexico

Mozambique

Paraguay Peru

Portugal Slovak Republic

South Africa

Spain

United States

Uruguay

Zambia

0,00

0,20

0,40

0,60

0,80

1,00

1,20

0 50 100 150 200 250 300

Usag

e:

% o

f ad

ult

po

pu

lati

on

Access: number of ATMs por 100,000 people

ATMs

Access and use: mobile phones

Albania

Argentina

Bolivia

Brazil

Burundi

Chad

Chile Colombia

Congo, Dem. Rep.

Dominican Rep

Gabon

Kenya

Lesotho

Macedonia, FYR

Madagascar

Mexico Moldova

Nicaragua

Paraguay Peru

Philippines South Africa

Swaziland Tanzania

Uruguay Zambia

0%

10%

20%

30%

40%

50%

60%

70%

80%

0% 20% 40% 60% 80% 100% 120%

Usag

e:

% o

f ad

ult

po

pu

lati

on

Access: % mobile penetration

Mobile phones

Access and use: correspondents

How to measure financial inclusion? What factors

affect it? What part do access channels play?

• Despite the importance of financial inclusion, little is known about how to

measure it, about policies to promote it (Demirguc-Kunt et al., 2008) and its

determinants from a micro-economic point of view (Allen, Demirguc-Kunt,

Klapper & Martinez Peria, 2012)

• Existing studies lean heavily on macroeconomic data (Beck, Demirguc-Kunt,

& Martinez Peria, 2007; Honohan, 2008; Kendall, Mylenko & Ponce, 2010).

This makes it difficult to analyse to what extent specific features determine

financial inclusion

• How much weight do the different factors facilitating greater financial inclusion

have? How does inclusion interact with other factors? Developing a Financial

Inclusion Index

Building a financial inclusion index

• Defining a complete set of measurements for financial inclusion with a multi-

dimensional approach (access, usage and barriers)

• Harmonised financial inclusion index that can be compared between

countries and time periods, allowing differing levels of aggregation

• Useful guideline for policymakers, governments, financial institutions and

international bodies interested in tracking financial inclusion or in designing

policies

Financial Inclusion Index (FII)

• We define an inclusive financial system as one which maximises usage and

access, while also minimising involuntary financial exclusion

• The minimisation of perceived barriers is measured by the reduction of the

obstacles faced by individuals not participating in the formal financial system

• The level of financial inclusion is determined by three dimensions: usage,

access and barriers

• The three dimensions are, in their turn, determined by several indicators

• The FII we have built covers 82 countries and aggregates information from a

total of 11 indicators

• Methodology : Two-step PCA

Financial Inclusion Index

• First step: estimating the three dimensions: usage, access and barriers

𝑌𝑖𝑢 = 𝛽1𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑖 + 𝛽2𝑠𝑎𝑣𝑖𝑛𝑔𝑠𝑖 + 𝛽3𝑙𝑜𝑎𝑛𝑖 + 𝑢𝑖

𝑌𝑖𝑎 = 𝛾1𝐴𝑇𝑀𝑝𝑜𝑝𝑖 + 𝛾2𝑏𝑟𝑎𝑛𝑐ℎ𝑝𝑜𝑝𝑖 + 𝛾3𝑙𝑜𝑎𝑛𝐴𝑇𝑀𝑘𝑚2𝑖 + 𝛾4𝑙𝑜𝑎𝑛𝑏𝑟𝑎𝑛𝑐ℎ𝑘𝑚2𝑖 + 𝑣𝑖

𝑌𝑖𝑏 = 𝜃1𝑑𝑖𝑠𝑡𝑎𝑛𝑐𝑒𝑖 + 𝜃2𝑎𝑓𝑓𝑜𝑟𝑑𝑎𝑏𝑖𝑙𝑖𝑡𝑦𝑖 + 𝜃3𝑑𝑜𝑐𝑢𝑒𝑛𝑡𝑠𝑖 + 𝜃4𝑡𝑟𝑢𝑠𝑡𝑖 + 𝜀𝑖

i : denotes country and (𝑌𝑖𝑢, 𝑌𝑖

𝑎 , 𝑌𝑖𝑏) is a vector which contains the dimensions,

where the superscripts u, a and b denote each dimension

• Second step: estimating the weights of the dimensions and the overall FI

index

Financial Inclusion Index

Contents




4. From omnichannel banking to digital banking: future

transformations

5. Conclusions

With the digital era, financial services provision is extending beyond the classic

financial institutions. There are several vectors of change :

1. Moore’s Law and cost-reductions in “doing banking”

2. Demographic shifts and digital natives

3. The learning curve of digital players transforming industries as they go

4. The incentives of high financial transaction costs and the development of financial

services by non-banking digital players

5. Fixed cost barriers crashing down

6. Asymmetric regulation/supervision

7. The technological legacy of banking

The digital era: beyond omnichannel banking

• The consumer experience is now exposed not only to what is offered by the

supervised financial institution, but also to new digital alternatives from non-

banking players. Financial education is key in this context

• Payment systems, electronic money and facilitators

– Telecoms companies

– Pure digital: PayPal (USD350mn transactions/day), Dwolla (USD35mn), AliPay

(USD400mn/day), Square (USD14bn/year), Venmo, LevelUp, Simple, among

others

• Loans

– Lending Club (USD5bn P2P/ 3% NPL), Zopa (GBP500mn/0.5% NPL), Lenddo

(loans of USD400 to USD800 in emerging markets)

The digital era: beyond omnichannel banking

Contents





5. Conclusions

Conclusions

• The transfer of the traditional financial system to omnichannel banking is based

on technological progress, which have brought improved customer experiences

(higher aggregate value)

• Omnichannel banking, with the development of its customer service channels, is a

necessary but not a sufficient condition for driving financial inclusion. Greater

access will not inevitably bring with it greater use. There are other important

issues

• We are developing a global FII to make a multi-dimensional approach to the

measurement of financial inclusion

• Financial inclusion requires effort to improve use and access and reduce the

barriers limiting participation in the formal financial system

• Omnichannel banking can be understood as a transition phase from the traditional

financial system to the next, truly digital experience, with new players on the

global stage

Thank you very much

[email protected]

Channels, access and use

0

50

100

150

200

250

300

Ko

rea,

Rep

.C

anad

aP

ort

uga

lU

nit

ed S

tate

sA

ust

ralia

Ru

ssia

n F

eder

atio

nSp

ain

Jap

anB

razi

lA

ust

ria

Fran

ceC

roat

iaSl

ove

nia

Ital

yB

elgi

um

Irel

and

Esto

nia

Ukr

ain

eB

ulg

aria

Thai

lan

dN

ew Z

eala

nd

Gre

ece

Kaz

akh

stan

Ch

ileLa

tvia

Den

mar

kR

om

ania

Sou

th A

fric

aTu

rkey

Hu

nga

ryM

alay

sia

Net

her

lan

ds

Po

lan

dC

ost

a R

ica

Slo

vak

Rep

ub

licM

aced

on

ia, F

YRA

rgen

tin

aLi

thu

ania

Mex

ico

Cze

ch R

epu

blic

Swed

enG

eorg

iaV

enez

uel

a, R

BB

elar

us

Arm

enia

Uru

guay

Bo

snia

an

d H

erze

govi

na

Fin

lan

dC

olo

mb

iaA

lban

iaM

on

golia

El S

alva

do

rD

om

inic

an R

epu

blic

Aze

rbai

jan

Pe

ruM

old

ova

Bo

tsw

ana

Bo

livia

Swaz

ilan

dH

on

du

ras

Vie

tnam

Par

agu

ayP

hili

pp

ines

Ind

on

esia

An

gola

Gab

on

Nic

arag

ua

Ken

yaIn

dia

Leso

tho

Zam

bia

Nep

alM

oza

mb

iqu

eP

akis

tan

Tan

zan

iaG

han

aU

gan

da

Mad

agas

car

Cam

ero

on

Bu

run

di

Ch

adC

on

go, D

em. R

ep.

ATMs per 100,000 inhabitants

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Esto

nia

Fin

lan

dN

eth

erla

nd

sJa

pan

Bel

giu

mLa

tvia

Fran

ceSl

ove

nia

Swed

enK

ore

a, R

ep.

Au

stri

aN

ew Z

eala

nd

Can

ada

Irel

and

Au

stra

liaSl

ova

k R

epu

blic

Cze

ch R

epu

blic

Po

rtu

gal

Cro

atia

Lith

uan

iaSp

ain

Hu

nga

ryM

alay

sia

Turk

eyU

nit

ed S

tate

sSo

uth

Afr

ica

Bel

aru

sD

enm

ark

Po

lan

dTh

aila

nd

Gre

ece

Ital

yB

ulg

aria

Mo

zam

biq

ue

Co

sta

Ric

aM

on

golia

Ru

ssia

n F

eder

atio

nB

razi

lR

om

ania

Ukr

ain

eK

enya

Ven

ezu

ela,

RB

Mac

edo

nia

, FYR

Ch

ileA

rgen

tin

aB

osn

ia a

nd

Her

zego

vin

aSw

azila

nd

Kaz

akh

stan

Bo

tsw

ana

An

gola

Alb

ania

Co

lom

bia

Uru

guay

Ph

ilip

pin

esM

exi

coZa

mb

iaD

om

inic

an R

epu

blic

Leso

tho

Geo

rgia

Aze

rbai

jan

Tan

zan

iaM

old

ova

Bo

livia

Vie

tnam

Ind

on

esia

El S

alva

do

rP

arag

uay

Arm

enia

Pe

ruU

gan

da

Gh

ana

Ind

iaG

abo

nH

on

du

ras

Nic

arag

ua

Pak

ista

nN

epal

Ch

adC

amer

oo

nM

adag

asca

rC

on

go, D

em. R

ep.

Bu

run

di

ATM use as % of adult population


0

10

20

30

40

50

60

70

80

90

100

Spai

n

Mo

ngo

lia

Ital

y

Po

rtu

gal

Pe

ru

Bu

lgar

ia

Bra

zil

Bel

giu

m

Fran

ce

Den

mar

k

Gre

ece

Slo

ven

ia

Ru

ssia

n F

eder

atio

n

Un

ited

Sta

tes

Cro

atia

New

Zea

lan

d

Jap

an

Ro

man

ia

Po

lan

d

Bo

snia

an

d H

erze

govi

na

Latv

ia

Au

stra

lia

Lith

uan

ia

Ire

lan

d

Slo

vak

Rep

ub

lic

Can

ada

Mac

edo

nia

, FYR

Cze

ch R

epu

blic

Co

sta

Ric

a

Swed

en

Alb

ania

Ho

nd

ura

s

Net

her

lan

ds

Geo

rgia

El S

alva

do

r

Ko

rea,

Rep

.

Arm

enia

Esto

nia

Turk

ey

Ch

ile

Ven

ezu

ela,

RB

Hu

nga

ry

Au

stri

a

Fin

lan

d

Co

lom

bia

Mex

ico

Uru

guay

Arg

enti

na

Thai

lan

d

Mo

ldo

va

Do

min

ican

Rep

ub

lic

Sou

th A

fric

a

Ind

ia

An

gola

Mal

aysi

a

Aze

rbai

jan

Bo

livia

Par

agu

ay

Pak

ista

n

Bo

tsw

ana

Ind

on

esia

Ph

ilip

pin

es

Nic

arag

ua

Swaz

ilan

d

Nep

al

Gab

on

Gh

ana

Ken

ya

Zam

bia

Mo

zam

biq

ue

Vie

tnam

Kaz

akh

stan

Leso

tho

Uga

nd

a

Bu

run

di

Bel

aru

s

Tan

zan

ia

Cam

ero

on

Ukr

ain

e

Mad

agas

car

Ch

ad

Co

ngo

, Dem

. Rep

.

Offices per 100,000 inhabitants


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Irel

and

Mo

ngo

liaN

ew Z

eala

nd

Spai

nA

ust

ria

Au

stra

liaD

enm

ark

Thai

lan

dSl

ove

nia

Un

ited

Sta

tes

Gre

ece

Mac

ed

on

ia, F

YRFi

nla

nd

Slo

vak

Rep

ub

licFr

ance

Cze

ch R

epu

blic

Can

ada

Swed

enIt

aly

Cro

atia

Bo

snia

an

d H

erze

govi

na

Po

rtu

gal

Sou

th A

fric

aB

elgi

um

Po

lan

dM

oza

mb

iqu

eN

eth

erla

nd

sV

enez

uel

a, R

BK

enya

Co

sta

Ric

aK

ore

a, R

ep.

Hu

nga

ryA

ngo

laIn

dia

Lith

uan

iaD

om

inic

an R

epu

blic

Latv

iaB

ulg

aria

Bra

zil

Gh

ana

Bo

tsw

ana

Mal

aysi

aB

oliv

iaM

exic

oSw

azila

nd

Ch

ileEs

ton

iaN

epal

Co

lom

bia

Ro

man

iaK

azak

hst

anB

elar

us

Alb

ania

Zam

bia

Uga

nd

aJa

pan

Ru

ssia

n F

ed

erat

ion

Ukr

ain

eIn

do

nes

iaH

on

du

ras

Gab

on

Turk

ey

Pe

ruG

eorg

iaLe

soth

oV

ietn

amTa

nza

nia

Par

agu

ayP

hili

pp

ines

Cam

ero

on

El S

alva

do

rA

rmen

iaU

rugu

ayA

rgen

tin

aM

old

ova

Nic

arag

ua

Pak

ista

nB

uru

nd

iC

had

Mad

agas

car

Co

ngo

, Dem

. Rep

.A

zerb

aija

n

Office use as % of adult population


0%

50%

100%

150%

200%

250%

UA

E

Fin

lan

d

Gre

ece

Ru

ssia

Ital

y

Au

stri

a

Sin

gap

ore

Ge

rman

y

Isra

el

Ire

lan

d

Esto

nia

New

Ze

alan

d

Ro

man

ia

Spai

n

Net

her

lan

ds

Slo

vaki

a

Hu

nga

ry

Cap

e V

erd

e

Ko

rea,

Re

p. o

f

USA

Arm

enia

Gam

bia

Slo

ven

ia

Bar

bad

os

Iran

Arg

enti

na

Gab

on

Jord

an

Vie

tnam

Bra

zil

Tun

isia

Ge

org

ia

Mo

rocc

o

Lib

ya

Ukr

ain

e

Mal

div

es

Gu

atem

ala

Thai

lan

d

Po

lan

d

Co

ngo

, Re

p. o

f

Par

agu

ay

Aze

rbai

jan

Kaz

akh

stan

Mau

riti

us

Can

ada

Gu

yan

a

Ko

sovo

Sri L

anka

Pe

ru

Mau

rita

nia

Sou

th A

fric

a

Egyp

t

Co

te d

'Ivo

ire

Sen

ega

l

Ch

ina

Swaz

ilan

d

Pak

ista

n

Nig

eria

Nic

arag

ua

Ban

glad

esh

Afg

anis

tán

Leb

ano

n

Lib

eri

a

Gu

inea

-Bis

sau

Tan

zan

ia

Be

nin

Cam

ero

on

Sie

rra

Leo

ne

Zam

bia

Ke

nya

Yem

en

Co

sta

Ric

a

Rw

and

a

Mal

i

Ch

ad

Bu

rkin

a Fa

so

Mad

agas

car

Bu

tán

Mo

zam

biq

ue

Tim

or-

Lest

e

Nep

al

Co

mo

ros

Solo

mo

n Is

lan

ds

Erit

rea

Mobile phones, % of adult population


0%

10%

20%

30%

40%

50%

60%

70%

80%

Ke

nya

Gab

on

Alb

ania

Uga

nd

aA

ngo

laTa

nza

nia

Swaz

ilan

dC

had

Ph

ilip

pin

esM

ace

do

nia

, FYR

Ukr

ain

eSo

uth

Afr

ica

Cam

ero

on

Bo

tsw

ana

Bo

livia

Do

min

ican

Rep

ub

licM

on

golia

Vie

tnam

Leso

tho

Par

agu

ayK

azak

hst

anM

old

ova

Me

xico

Be

laru

sB

uru

nd

iZa

mb

iaTu

rke

yIn

dia

Latv

iaA

rmen

iaP

eru

Ru

ssia

n F

ed

era

tio

nP

akis

tan

Mal

aysi

aH

on

du

ras

Co

lom

bia

Thai

lan

dM

oza

mb

iqu

eV

en

ezu

ela,

RB

Lith

uan

iaC

on

go, D

em

. Re

p.

Bo

snia

an

d H

erze

govi

na

Gh

ana

Nic

arag

ua

Geo

rgia

Ch

ileEl

Sal

vad

or

Bra

zil

Mad

agas

car

Bu

lgar

iaA

rge

nti

na

Ro

man

iaIn

do

ne

sia

Uru

guay

Mobile phone use in financial transactions, % of adult population


0,000

50,000

100,000

150,000

200,000

250,000

300,000

Correspondents per 100,000 inhabitants


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Den

mar

kA

ust

ralia

Swed

enN

ew Z

eala

nd

Un

ited

Sta

tes

Irel

and

Bel

giu

mC

zech

Rep

ub

licG

eorg

iaLa

tvia

Can

ada

Slo

ven

iaSl

ova

k R

epu

blic

Po

lan

dN

eth

erla

nd

sN

epal

Ch

ileB

razi

lK

enya

Ph

ilip

pin

esM

aced

on

ia, F

YRD

om

inic

an R

epu

blic

Cro

atia

Spai

nP

ort

uga

lFi

nla

nd

Bu

lgar

iaH

on

du

ras

Ind

iaLi

thu

ania

Ukr

ain

eEs

ton

iaC

ost

a R

ica

Mex

ico

Kaz

akh

stan

Fran

ceU

rugu

ayP

akis

tan

Sou

th A

fric

aC

had

Co

lom

bia

Cam

ero

on

Gre

ece

Jap

anP

eru

Tan

zan

iaB

osn

ia a

nd

Her

zego

vin

aH

un

gary

Ind

on

esia

Gab

on

Be

laru

sK

ore

a, R

ep.

Par

agu

ayA

ust

ria

Gh

ana

Ru

ssia

n F

eder

atio

nM

on

golia

An

gola

Mo

zam

biq

ue

Vie

tnam

Mal

aysi

aN

icar

agu

aM

old

ova

Ro

man

iaA

lban

iaC

on

go, D

em. R

ep.

Turk

eyB

oliv

iaSw

azila

nd

Bo

tsw

ana

Ven

ezu

ela,

RB

Arg

enti

na

Aze

rbai

jan

Bu

run

di

El S

alva

do

rTh

aila

nd

Leso

tho

Uga

nd

aA

rmen

iaIt

aly

Mad

agas

car

Zam

bia

Use of correspondents, % of adult population


FII correlations

omnichannel banking and financial inclusion: thoughts and ...€¦ · from multi-channel. high...

Documents