Branch Density is inverse to Inclusion
Regardless of which branch density number is the right number, let’s compare branch density with financial inclusion numbers for a few countries where branch density is above the developed economy norm:
- United States (330 branches per million) – 75% inclusion
- Spain (900 branches per million) – 92% inclusion
- Greece (360 branches per million) – 72% inclusion
What about some countries where branch density is low, how does this correlate with financial inclusion:
- Norway (90 branches per million) – 98% inclusion
- Singapore (90 branches per million) – 98% inclusion
- Sweden (150 branches per million) – 99% inclusion
- South Korea (160 branches per million) – 93% inclusion
Looking at this data, you could rightly determine that financial inclusion is actually inverse to branch density Now look at Kenya, 50 branches per million people, 20% financial inclusion through a bank, and 65% financial inclusion through a mobile phone or mobile money account.
Identity Verification in-branch is the single biggest hurdle to financial inclusion today in both the developed and developing world. In fact, the lesson here is even more stark.
No economy in the world has ever improved financial inclusion for poorer segments of the market through branch access, and no market in the world will ever get to 100% financial inclusion based on branch density and traditional in-branch onboarding. However, it is entirely possible that Kenya could surpass the US in terms of financial inclusion over the next 5 years based on the mobile phone.
Inclusion gets killed by Branch ID&V/KYC
For countries like India more branches are not the answer. Enabling more phones for payments and money movements with easy onboarding might just be. In India the Universal Identity Number (and associated Aadhaar ID card) are hailed by regulators as the mechanism by which face-to-face Identity Verification will be underpinned for financial inclusion. The bigger problem that we see is that even if you were able to get adequate branch density, people are still not going to visit a bank branch. They might visit a post-office outlet, a grocery store or a mobile phone store, but the KYC requirements have to be light.
If a regulator doesn’t have a plan for allowing the on-boarding of new bank accounts via a mobile phone, they are already out of step with the numbers when it comes to both inclusion and customer behavioral adoption when it comes to banking.