For banks in developing economies, expansion can be hindered by vast rural terrain and isolated unbanked populations. However, several trailblazing Latin American banks are overcoming the geographic, economic and regulatory hurdles, with floating branches, outpost locations and ATMs with native language options.
This is a significant development, since our recent report, The Role of Mexican banks in economic growth, notes the opportunity for banks in Mexico, or any developing market, that find alternative ways to serve smaller communities.
While some banks have introduced rural mobile phone banking or set up in-store kiosks, one of Brazil’s largest banks began testing Amazon River services three years ago, using a 125-foot riverboat. With a laptop-equipped banker onboard, as well as a copier and ATM, the vessel travels every two weeks between a dozen Amazon ports including Colombian and Peruvian border towns.
This strategy enables the bank to serve remote customers who often earn low or variable incomes, producing small margins that don’t justify big investments in technology or branches. The bank also overcame the obstacle posed by anti-money laundering laws, which would typically prohibit deposit-taking from customers with no fixed address or official documents.
By negotiating with authorities who are eager to improve rural financial inclusion, they agreed to basic personal data collection, including cell phone numbers, and limiting transactions and balances. These guidelines could change as client needs and confidence increase. In just three years, the bank has opened more than half a million accounts linked to a cell phone.
A major Peruvian retail bank began testing a similar concept last year by sending a riverboat branch into the sparsely populated Amazon region of Loreto. The bank has also enabled dozens of local stores to act as correspondent agency branches, to receive deposits and pay cash through SMS messages. Meanwhile, a Peruvian state-owned bank is rolling out an electronic cash transfer program for rural residents and installing Quechua-language ATMs in villages where Spanish is not widely spoken.
These banks expect that customers will gradually learn to manage their money and increase their savings as local economic development accelerates. Eventually, the banks may introduce more sophisticated products such as savings accounts, loans and insurance.
Such low cost approaches offer potential for banks to expand their coverage and nurture relationships with un-banked populations, without major technology, staffing or real estate investment.