Banks are worried that Fintech startups will “eat their lunch”, cherry picking their most valuable customers one service at a time.
Instead of thinking defensively in traditional red ocean markets, they could be looking at blue ocean markets that they are not serving today.
One of the biggest blue ocean markets is the underbanked. These are the billions of people who have been left out of the current financial services, who do not have access to banking.
Most of the underbanked live in the Rest (developing world, emerging markets, frontier markets, rapidly growing economies, whatever we want to call them). However there are also plenty of underbanked in the West. For example, look at the customers being served by Ffrees in the UK.
I prefer the term “underbanked” to “unbanked”. The millions using something as simple as M-Pesa are not unbanked. They have moved from subsistence to a trading economy and have a basic current account – they can make and receive payments. However they do not have savings or lending accounts – so they are “underbanked”.
It was witnessing the M-Pesa revolution that first drew me to this market.
The Fintech City Tour went to India to find the key to the Underbanked market. Today I want to go to “where it all started”, to Africa, to look at Zidisha. If M-Pesa is the basic current/checking account, Zidisha is the lending account. Zidisha can also be seen as 3.0 of Micro Lending (aka Microfinance):
- 1.0 The Gameen Foundation proves that default rates can be low when lending to the very poor. Microfinance is born.
- 2.0 Fast money rushes in and interest rates go to a level that is still better than loan sharks, but not the low rates that billions need in order to escape from poverty. Microfinance may not be a suitable market for the VC to IPO high velocity model.
- 3.0 The poor lend to each other via a platform. This is what Zidisha is doing. It is peer-to-peer micro lending. Conceptually, the beauty of this model is it “kills two birds with one stone”. The poor get both a saving account (they lend their excess cash) and a lending account (they borrow when they need extra cash).
Look at this in banking terms and you see:
zero credit risk
zero balance sheet exposure
zero asset liability mismatch.
Zidisha has its critics. Nothing radical escapes criticism, so this is not surprising. Zidisha is not for profit, but there is no reason why a for profit model cannot work as long as it is efficient, transparent and low cost. Many large companies have shown that there is money to be made in the “bottom of the pyramid”.