Financial Inclusion: Savings

How can FinTech be leveraged to help the financially underserved across the savings space?

Money is a peculiar thing. Unlike other forms of wealth like farmland and livestock that require continuous engagement with the natural environment and living creatures as well as the help of other people, money can sit in a bank and grow on its own. A FinTech solution trying to upend traditional methods of saving has to answer two basic questions: Can it gain the trust of individual users? Does the service offer attractive enough returns compared to other assets?

It is said that nearly a third of today’s global population remains unbanked.[1] Some of the population in Pakistan “hand over savings to their trusted social contacts such as a family member or friend and request money whenever they needed.”[2] In Zimbabwe, the asset of a traditional farmer is stored in his livestock. Moreover, the returns from livestock within six months to two years are higher than interest income, and livestock can provide the farmer with milk, manure and the power to plough the land, which money in a bank cannot.[3]

FinTech Revolutionising Savings in Kenya, India and Colombia

Different organisations around the world, from telecom companies through banks to FinTechs, have tried to address these needs.

In Kenya, over a third of people prefer to save their money in a secret place due to ease of access to funds in emergencies, the
most preferred method by far at 43.3% is to save on mobile platform.[4]  Part of the reason for this high preference towards mobile is Safaricom, the company behind the mobile remittance platform M-Pesa which is used by 97% of Kenyan households.[5] The company has been involved in a series of ventures when it comes to innovating savings. In 2010, they partnered with Equity Bank to launch “M-Kesho,” a solution enabling anyone with a cell phone to earn interest on savings.[6] In 2012, they worked with Commercial Bank of Africa (CBA) to launch “M-Shwari,” a similar mobile-based savings and loans product, which signed up 10 million users.[7] In 2015, they partnered with Kenya Commercial Bank (KCB) to launch yet another similar product called “KCB M-Pesa Account,” which offers interest on deposits.[8]  In addition to making savings accounts no longer a privilege of the wealthy or the middle-class, Safaricom also manages non-profit campaigns such as helping expectant mothers to save a small amount for health insurance which allows them to give birth in a hospital rather than at home.[9] In subtle ways, and enabled by the use of simple mobile phones (and not smartphones), Safaricom is transforming the financial behaviour of many Kenyans.

In India, ICICI Bank’s “Money Multiplier” is a sweep account solution that helps depositors to achieve higher returns on idle savings. Money Multiplier automatically “sweeps” one’s savings balance over 10,000 Rupees (US$150) into a higher interest bearing fixed-term account. It also has an automatic “sweep back” function when the main account balance falls below 10,000 Rupees, so that one will not be out of cash for their day-to-day expenses.[10] Other Indian banks such as HDFC Bank and Axis Bank have also launched similar products. Both ICICI Bank and Axis Bank have lower minimum deposit requirements, which enables users to maximize savings on surplus money.[11]

Also in India, Syndicate Bank’s “Pigmy Savings Scheme” employs authorised agents to collect money deposits from users on a daily basis. [12]  It is a recurring deposits scheme in which small amounts can be saved on each day. It is meant to help wage earners, housewives, small traders and farmers save more to fund their bigger expenses, such as a wedding. Other banks in India have also launched similar schemes.[13] The role of the authorised agent is instrumental in educating people in rural communities lacking ready access to a bank branch – they bring financial knowledge and advice to the users

One of the major reasons for saving is to have emergency funds for unforeseen circumstances, such as a major illness. In Colombia, Bancolombia’s “Ahorro a la Mano” offers medical insurance if the depositor’s average balance of the previous month was US$135 or more. The insurance plan pays US$9.80 per day of hospital treatment and US$17.50 per day for women giving birth.[14] By saving money in a bank account, the user gains insurance coverage for medical needs. Not only does this approach target users who may be reluctant to buy insurance and would have preferred to save their own money, but it also appeals to users who may not have been motivated enough to save money to begin with.

It is apparent from these examples that FinTech is offering creative solutions to accumulate wealth. Through innovative solutions, these companies are positioning themselves as a helping hand to the hitherto financially excluded. To return to the two questions at the beginning of the post: whether investment returns are satisfactory may depend on subjective expectations, but it is clear that these companies are increasingly gaining the trust of their users.

In our next blog post in the KAE Financial Inclusion series, we will explore what FinTech is doing to reduce the difficulties that the financially underserved have to overcome to make payments.

 

 

 

 

 

[1] https://www.accenture.com/gb-en/insight-billion-reasons-bank-inclusively

[2] Kamran, Sohail, and Outi Uusitalo. “Vulnerability of the Unbanked: Evidence from a Developing Country.” International Journal of Consumer Studies, vol. 40, no. 4, 2016, pp. 400-409doi:10.1111/ijcs.12277.

[3] https://www.newsday.co.zw/2017/02/08/financialinclusionmaywrongterminology/

[4] https://www.standardmedia.co.ke/business/article/2001230604/millions-of-kenyans-still-stash-cash-under-mattresses

[5] https://www.cnet.com/uk/news/kenya-mobile-money-vodafone-mpesa-10-years/

[6] http://www.financialaccess.org/blog/2015/7/16/m-kesho-in-kenya-a-new-step-for-m-pesa-and-mobile-banking

[7] http://fsdkenya.org/blog/m-shwari-vs-kcb-m-pesa-convergence-or-divergence/

[8] http://fsdkenya.org/blog/m-shwari-vs-kcb-m-pesa-convergence-or-divergence/

[9] https://www.cnet.com/uk/news/kenya-mobile-money-vodafone-mpesa-10-years

[10] https://www.womensworldbanking.org/wp-content/uploads/2015/08/Digital-Savings-The-Key-to-Women%E2%80%99s-Financial-Inclusion_WomensWorldBanking.pdf

[11] http://www.thehindubusinessline.com/portfolio/beyond-stocks/dont-let-money-idle-in-savings-accounts/article8377731.ece

[12] https://www.syndicatebank.in/english/Pigmy1928Deposit.aspx

[13] https://en.wikipedia.org/wiki/Pigmy_Deposit_Scheme

[14] https://www.womensworldbanking.org/wp-content/uploads/2015/08/Digital-Savings-The-Key-to-Women%E2%80%99s-Financial-Inclusion_WomensWorldBanking.pdf

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