Morgan Stanley
  • Research
  • Sep 25, 2017

What a Billion New Bank Accounts Could Mean for Global Growth

For European banks, financial inclusion is not only socially responsible—it may help drive sustained economic growth in emerging markets.

Three years ago, World Bank President Jim Yong Kim set a bold goal for providing financial inclusion for billions of global citizens: Cut the number of unbanked people from two billion to one billion by 2020.

Such action is critical to helping reduce global poverty and spurring more economic growth. FinTech and mobile phone companies have largely heeded Kim's call, helping provide more than 700 million people with accounts between 2011 and 2014.

Meanwhile, most European banks have remained on the sidelines, partly because of concerns that unbanked populations are unprofitable and too risky. A new report from Morgan Stanley reveals just the opposite—an undeniable opportunity for banks to boost their revenue, while providing critical financial services to those who haven't had access before.

Why Inclusion Matters

The World Bank reports that almost 40% of adults around the world didn't have access to a bank account in 2014. The numbers of unbanked differ widely by region and also by gender. For example, in Africa, only 34% of adults have bank accounts, compared with 95% of adults in Europe. And in nearly every place, there are more unbanked women than men.

The reasons that so many remain disenfranchised from the financial system vary.  The majority of the unbanked believe that they don't have enough money to warrant a bank account.  Others feel that they don't need an account or that bank accounts are too expensive. Yet, several studies show that increasing financial inclusion helps lift people out of poverty.

“Access to accounts, savings and payment mechanisms can boost productive investment and consumption, and there is empirical evidence that when people participate in the financial system, they are more willing to transact, start businesses, invest in education and are (better) able to manage risks and sustain any financial shock," says Damien Souchet, a Morgan Stanley equity analyst and co-author of Financial Inclusion: Seizing the Revenue Opportunity.

A True Win-Win

When it comes to bringing banking to the masses, FinTech and mobile network operators (MNOs) have been the driving forces, Morgan Stanley Research reports. For example, in Kenya, more than two-thirds of the adult population now have mobile banking accounts, thanks to a Kenyan MNO.

The report also suggests that there are moral, financial and regulatory incentives for European banks to gain millions of new customers. Souchet and his co-authors estimate that by targeting the unbanked population, the sector could garner between €13 billion and €27 billion over the next decade, providing a 2% to 5% boost to banks' top lines.

How much banks stand to benefit depends on how many new accounts they establish, and how they cross-sell new account holders into other revenue-generating products such as credit cards. The report does reveal a sweet spot for account penetration—noting that increasing global bank account ownership to 67% could bring in the top end of that revenue range. Returns then diminish significantly after that, as the cost of acquiring the remaining unbanked customers, who would likely be in very remote areas, becomes too high.

The Power of Partnerships

Increasing bank account access around the globe is no small feat. The Morgan Stanley report notes that countries need viable mobile infrastructure, and people need financial education to understand how bank accounts can help them. Governments must also join the fray by committing to protect consumers and provide access.

To accelerate their own progress, European banks should consider partnering with FinTech and MNOs who have already paved the way. “We see banks' ability to create partnerships and leverage technology as key to driving financial inclusion," Souchet says.

Finally, traditional business practices may need to give way to new ideas. For example, building physical branches and installing ATMs all over the world is far too costly. Instead, Morgan Stanley researchers cite the success of agent banking—using retail agents and technology such as card readers, mobile phones and point-of-sale terminals, to introduce banking services to underserved areas.

For example, one Italian and one French bank offer access to their services through an existing network of postage stamp retailers/tobacco shops. Another bank in Mexico allows customers to conduct financial transactions at convenience stores. Moving towards such a model in developed economies could potentially help accelerate network and cost reduction, depending on banks' ability to partner with businesses and develop points of sale.

For more Morgan Stanley Research on financial inclusion ask your Morgan Stanley representative or Financial Advisor for the full report, “Financial Inclusion–Seizing the Revenue Opportunity” (August 15, 2017). Plus, more Ideas.