Monday, 17 September 2012
EIU report highlights growth of new banking models
A quiet revolution is occurring in the methods and composition of the global banking market, according to a new report from the Economist Intelligence Unit.
Banks in the emerging markets of Asia, Latin America, and Africa are expanding rapidly, with plenty of scope for continued growth in their home markets. The report, Beyond branches: Innovations in emerging-market banking, says players such as Banco Bradesco of Brazil, HDFC of India or Kenya’s Equity Bank and M-Pesa are set to become the new kids on the banking block, accounting for 35% of the global market by 2016.
Crucially, their expansion is set to revolutionise banking methods, as innovative business models developed for lower-income markets are deployed across the developed world. Branded bank branches will become increasingly irrelevant, as financial transactions take place more frequently on mobile phones, over the Internet, in partner retail locations and even through home visits. A gradual decline in the use of cash will also make branches and automated teller machines of steadily declining importance.
Jason Karaian, author of Beyond branches: Innovations in emerging-market banking explained: “This is a textbook case of disruptive innovation. Emerging market banks are growing to fill a domestic vacuum. In China 64% of adults have a bank account. In Brazil, the figure is 56%. In Russia (48%) and India (35%), less than one in two adults uses banking services.
“Tapping into underdeveloped markets has required a greater use of mobile and virtual banking. Now, as these new actors take to the global banking stage, they are set to transform the way the industry operates worldwide. This is both an opportunity and a major threat to the existing giants of world retail banking.”
Rich-country banking systems accounted for over 90% of worldwide industry assets as recently as 2004, according to EIU data. The financial crisis of 2008-09 marked the beginning of a global shift in the industry. Developing-country lenders now account for about 24% of global banking assets, and this share will increase to over 35% by 2016.
New model banking
New technologies are an important driver in the rise of emerging-market banks. Mobile banking and mobile payments have received the most attention, particularly in Africa, where few people have bank accounts but many own mobile phones. Other breakthroughs are important as well: widespread wireless Internet access now allows banks to reconcile financial transactions as they take deposits, honour withdrawals and grant loans nearly anywhere. Meanwhile, new payment systems increasingly allow for instant, cash-free transactions.
Low-cost business models are another key driver. Financial firms in developing countries are accustomed to serving many low-balance account holders. To do so, they have created appropriate systems for customer service and account maintenance. They often save money by reducing their own costs for expensive staff and locations, instead relying more heavily on technology, the outlets of their partners, and even mobile branches on lorries (in India) or riverboats (in Brazil).
Beyond branches: Innovations in emerging-market banking is available at: http://www.eiu.com/beyondbranches