Gateway Concept

Gateway opportunities include:

GAFIS sees opportunity in these gateways to leverage either (i) the extra income created by cash transfers or remittances, (ii) the existing basic bank account relationship between bank and customer, and/or (iii) a more accessible, scaled transactional platform. Therefore, GAFIS-supported products will be bank accounts used for savings by poor customers, designed and marketed in light of the particular gateway opportunity on the one hand and existing formal and informal financial management strategies of the target customers on the other.

More discussion of gateway opportunities

Regular payment inflows

In theory, the first two types of gateway opportunities (G2P or remittance inflows) enhance the capability to save on the part of poor recipients; and equally, the volumes and regularity of the flows (or the fees earned by the bank from the payor, especially from government with G2P) can create a compelling business model for the bank.

However, to date, the relationship tends to begin and end with receipt and immediate withdrawal of the payment inflow, and so the relationship is essentially limited to the financial institution serving as a conduit for periodic (e.g., once a month) withdrawals. The account holder bounces in and out of the bank (and in turn the financial system) once or maybe twice a month (or however often a payment arrives in the account), but no money is left behind, either for savings or other purposes (e.g., making transactions/payments from the account). The money does not “stick”, and the account holder does not really enter beyond the front “gate” of the financial system, and therefore does not take advantage of other financial management tools offered inside.

GAFIS wants to help increase the “stickiness” of bank deposits.

Existing scale of inactive basic bank accounts

Ten developing countries around the world, including Mexico and India, now require banks to issue basic bank accounts. South Africa’s major banks launched the Mzansi basic bank account in 2004 in response to political pressure for them to become more active in expanding access to savings and transactional bank products for unbanked people. Six million people, or close to one in five adults, opened Mzanzi accounts within four years, most of them previously unbanked and relatively poor. A recent report for FinMark Trust by BFA (2009).pdf found a dormancy rate (no transaction in the past 12 months) of around 40%. The majority of account openings were triggered, at least in part, by the account holder’s need to receive a salary payment, a G2P payment, or a remittance, the first two of which are sometimes mandated by the payor to be paid into a bank account. Significantly, although not designed primarily for savings (it was a basic card-based demand account with low interest rates), the report found that a sizable proportion (44%) of clients said they opened the accounts “to save”, indicating a desire and intention to save. However, very few accounts showed evidence of sizeable accumulation: 74% of active accounts had a balance under $10; and 92% were below $100. In a different context, in a 2008 survey, 21% of users of Kenya’s M-Pesa mobile payment service said that they use the service, which is marketed as a payment service only, to save and/or to store money for everyday usage.

Cultivating “banked savers” from the “unbanked” may be a two-step process

The above-described gateway opportunities indicate that there are forces at work bringing large amounts of previously unbanked into the banked community. But the experience also suggests the actual banking activity is quite limited, and indeed often goes dormant/inactive, with little (if any) sustained savings activity taking place. One dynamic has brought them to the gate, but they are not really coming too far inside and are not staying inside for long.

Arguably, helping the “unbanked” become “banked savers” is a two-step process. First, efforts need to be made to get the unbanked banked. This may mean just getting them to open a basic account or otherwise establish some basic relationship with a bank. But savings activity (in the bank) does not seem to happen as an automatic next step. It appears, in most instances, that some sort of deliberate second step is needed. Exactly what else is needed is a core question that GAFIS seeks to answer, through action research.

GAFIS wants to catalyze, or build an accessible bridge to, the second step. GAFIS wants to support qualifying and interested banks to take advantage of circumstances where the first step has already been made, in order to develop and market savings products that are designed to link to the initial gateway.