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The role of technology in expanding financial inclusion
The potential role that technology can play in enabling financial inclusion is significant. Concentrating low-value transactions at a limited number of branches is very costly for banks and their customers alike. Banks have to invest large fixed costs in setting up and maintaining their branch network and customers often expend significant time and money to travel to distant branches, especially in rural areas. As a result, banks often stay away from poor or rural communities, which they find too costly to serve and poor people fall back on local, informal options to manage their finances (Mas and Almazan, 2011). Poor people may require as many, if not more, financial transactions than average bank customers since their income is less predictable. Poor people are often paid more frequently (daily or weekly) and their daily financial circumstances may be more easily overwhelmed by health or other shocks.
However active cash flow management may not translate into long-term financial accumulation, given the pressing consumption and investment needs poor people face. Serving the poor presents two major challenges for retail banks: devising a viable revenue model that is consistent with customers’ cash flow needs and perceptions of value andminimisingthe infrastructure and operational burden of handling large numbers of small transactions. Formal financial institutions can provide a range of financial services to the poor and support the drive for financial inclusion through the use of technology-based solutions. The effective use of technology can reduce the cost of operations. Through technology, banks have the potential to reach out to poor and unbanked people through the ATMs and POS networks (Natu, 2008).
A cost comparison of technology based solutions and traditional banking highlights significant cost benefits to banks. ATM transaction costs are as much as five times less expensive than those of a bank teller. Other technologies, particularly mobile phones, are now widely used among poor people across Africa. Inexpensive POS devices that read debit and credit cards can now be used without constant telecommunications and electricity connections (Ivatury, 2007).
“Branchless banking” is a term coined by the Consultative Group to Assist the Poor (CGAP) to refer to distribution channels that allow financial institutions and other commercial actors to offer financial services outside traditional bank premises (Lyman et al., 2006). Branchless banking allows customers to conduct basic financial transactions such as deposits and withdrawals at a variety of outlets using technology in the form of cards, mobile phones, POS devices and ATMs to properly secure and authorise the transactions. Access to transaction facilities is a major enabler for achieving universal access to finance. Once the capability to easily pay and receive money to and from anyone exists, the range of financial possibilities expands.
Branchless banking allows customers to access financial services beyond bank branches and thereby holds the promise of addressing two major hurdles to financial inclusion, the lack of accessibility and high costs. It builds on the sustained development of mobile telecommunications that makes it possible for the banking sector to embrace indirect distribution and for new financial services to reach otherwise unbanked customers. Banking beyond branches means having better access to electronic transactions and the access to formal financial services becomes more convenient (Alexandre, 2011). Using data from surveys with more than 16,000 users, McKay and Pickens (2010) reviewed the experience of 18 branchless banking deployments that were mostly but not exclusively mobile based, focusing on the number of customers served, service pricing and customer needs. They found that each service averaged 1.37 million active, previously unbanked users and that the majority had more active customers than the largest comparable microfinance institution. Branchless banking was also cheaper than traditional banking channels with low-volume transactions priced 38 percent lower than those of comparable providers (McKay and Pickens, 2010).
The role of intermediaries in expanding financial inclusion
In a growing number of countries, banks and other commercial financial service providers are partnering with intermediaries to deliver financial services to unbanked people. Rather than using bank branches and their own field officers, they offer banking and payment services through postal and retail outlets.
Grocery stores, pharmacies and petrol stations are examples of retail outlets through which financial services can be provided. For poor people, “branchless banking” through intermediaries such as retail outlets may be far more convenient and efficient than going to a bank branch. For many poor customers, it may be the first time they have access to any formal financial services (Lyman et.al, 2006). Two models of branchless banking through intermediaries are emerging. Banks lead the first model; nonbank commercial players lead the other. Both use information and communication technologies such as cell phones, debit and prepaid cards and card readers to transmit transaction details from the retail agent or customer to the bank.
Finding ways for these outlets to offer financial services has three main economic advantages for banks: (i) it permits an increased physical presence in the area for banks or other providers at drastically reduced set-up costs for banks; (ii) it turns customer service costs into variable costs, insofar as outlets are remunerated per transaction; and (iii) it offers the opportunity to create a familiar service environment for poor, less educated people who may feel intimidated by the service style at traditional bank branches (Mas, 2008). Technology can enable banks and their customers to interact remotely in a trusted way through existing intermediaries. Customers can be issued bank cards with appropriate personal identification number (PIN) based or biometric security features and the local intermediary – the “banking agent” – can be equipped with a POS device controlled by and connected to the bank using a phone line or wireless or satellite technology. Infrastructure requirements can be further reduced by using mobile phones both to hold “virtual cards” for customers and as a POS device at the store (Mas and Hannah, 2008).
Retail stores are not the only viable intermediaries. Historically post offices have played a role in the provision of remittances and basic financial services to low-income populations. This function is being revived in an increasing number of developing and emerging countries. India Post, with its 155,000 post offices (139,000 of which are located in rural areas), has adopted a multi-agent banking approach(Kugemann, 2009). It distributes financial services on behalf of several partner institutions, thus acting as an agent for each of them, in addition to the development of its own savings accounts. Either directly or through various partnerships, 220 million savings accounts had been opened with India Post by the end of 2009 (Kugemann, 2009). Many postal services are leveraging their physical networks to further develop their financial services business, which generally consists of basic savings, payment and remittance services. The South African Post Office has over 2,400 outlets and due to its universal mandate many of these are located in poor or rural areas.
CHAPTER 1
South African economic history and poverty.
1.1. Background.
1.2. The current South African economic context
1.3. Definition of financial services
1.4. Financial exclusion
1.5. Financial inclusion and poverty alleviation.
1.6. The South African banking sector
1.7. The role of technology in expanding financial inclusion
1.8. The role of intermediaries in expanding financial inclusion
1.9. The research gap
1.10. The research problem
1.11. The need for the study
1.12. Structure of the thesis
CHAPTER 2
Extended Technology Acceptance model development
2.1. The Technology Acceptance Model
2.2. The Technology Acceptance Model in financial services
2.3. Extension of the Technology Acceptance Model
2.4. Use of grounded theory to derive proposed model constructs.
2.5. The proposed extended Technology Acceptance Model
2.6. Hypothesis of the proposed model
2.7. Conclusion.
CHAPTER 3
Instrument design and data acquisition
3.1. Determination of the bottom of the pyramid in South Africa.
3.2. Sampling methodology
3.3. Sample size
3.4. Instrument development.
3.5. Model construct development
3.6. Sample descriptive statistics
3.7. Factors associated with being unbanked
3.8. Intermediary adoption at the bottom of the pyramid.
3.9. Conclusion
CHAPTER 4
Structural equation modelling in extended TAM
4.1. Structural Equation Modelling – an overview.
4.2. Advantages of using SEM over other techniques
4.3. Model estimation and fit.
4.4. Assessment of normality and multicollinearity.
4.5. SEM sample size
4.6. Measurement model – Confirmatory factor analysis
4.7. Structural model – Path Analysis
4.8. Conclusion
CHAPTER 5
Results
5.1. Hypothesis
5.2. Multi-group analysis
5.3. Conclusion.
CHAPTER 6
An architecture for expanding financial inclusion
6.1. The proposed role of supermarkets and the post office
6.2. A technology approach for expanding financial inclusion
6.3. Conclusion
CHAPTER 7
Conclusions
7.1. Specific contribution of the work
7.2. Research limitations
7.3. Future scope of work
REFERENCES
