What developing countries can teach America about banking

For decades, the US has led the way in helping other countries develop. Whether it’s been through USAID programs like Farmer-to-Farmer, educational programs like Fulbright scholarships, or volunteer activities like the Peace Corps.
But the tables have turned — at least, when it comes to advances in financial inclusion. Countries like Kenya and Vietnam have been leapfrogging the US. While tens of millions of Americans remain unbanked or underbanked, these countries are rapidly developing modern financial systems, introducing millions to services previously unavailable to them.
Of course, emerging market environments differ dramatically from mature markets like the United States, and solutions cannot be simply copy-pasted from one market to another. But given the rate of progress in each of these countries, it is worthwhile to look at how they did it and where the US may be falling short.
The catchphrase “it is expensive to be poor,” continues to be true in the US. While wealthy customers are lured by financial institutions with juicy sign up offers, fee waivers and complimentary golf tee times, those at the bottom of the pyramid pay for every basic service, including human tellers, paper statements and monthly account maintenance fees.
For many, the inability to even get to a physical branch — bank branches are highly concentrated in urban areas — means that they don’t have access to banking services at all. As a result, about 6.5% of American households still don’t have a bank account, while another 18.7% are “underbanked” — they have an account, but also use check-cashing or payday loans. In all, over 60 million adults are unbanked or “underbanked” in this country.
It doesn’t need to be so. In Kenya, for example, 82% of inhabitants have a financial account, the highest in Sub-Saharan Africa, according to the World Bank, and almost double what it was in 2011.
That Kenya was able to accelerate while the US stood still is thanks in large part to mobile wallet system M-Pesa. This low-tech innovation — it is offered on regular mobile phones, not just smartphones — came to Kenya long before Venmo became the latest craze among Millennials.
Launched in 2007 by mobile operator Safaricom, M-Pesa allows users to pay for everything from their utility bills to food at street stands. The system is simple: People store money in digital wallets on their phone and use that wallet to pay for services by sending it instantly via text message to other users for little or no cost.
Convinced by its benefits, Kenyans adopted the technology in masses. Not only did virtually everyone with a financial account adopt the M-Pesa platform, so too did millions of people who previously did not have any financial accounts. Indeed, 73% of Kenyans use a mobile money account, according to 2018 World Bank data.
A similar evolution happened in Vietnam. After decades of war and failed economic policies turned it into one of the world’s poorest countries, Vietnam has since become an economic “mini China” over the past decade as a mobile revolution takes hold. Smartphones and their subscriptions are relatively cheap, bringing millions of Vietnamese online.