Executive Summary Youth take up an increasingly greater portion of the total population in the global South, but largely remain financially excluded. Setting up a savings product for poor youth in the developing world is extremely costly. For reasons such as low or unstable account balances, and frequent transactions, operational expenses are high. The uncertain nature of youth savings makes these deposits ill-suited for on-lending and therefore deprives financial institutions of a primary source of revenues. For youth savings to be viable, financial institutions must take different approaches to scaling up youth savings products in a sustainable manner. Mobile technology has been heralded as the future for financial inclusion of the poor. Indeed, mobile banking can particularly offer microfinance institutions (MFIs) some significant cost reductions. Personnel and travel are important cost drivers for an MFI, due to its relatively strong client interaction. At the same time, the costs of setting up a mobile banking system are becoming increasingly within reach for MFIs. This report demonstrates through various examples how the design and implementation costs are approximately equal to the annual running costs of one single bank branch. However, mobile banking cannot be viewed as a magic solution for financial inclusion and the enhancement of financial capability. Clients have found mobile banking sometimes difficult to use and not in line with their financial needs. Others do not always have trust in the agent, system infrastructure or network coverage. Then there are those who simply do not feel comfortable with technology and cannot take advantage of the new product innovations. It can be hard to justify setting up a cost-reducing mobile banking system if people are reluctant to use it. This is where youth savings products come into the picture. Mobile phone penetration rates in developing countries among youth aged 15-24 are generally higher than among the 25+. Youth are usually keen to test new innovations and are still receptive to - and quick to take up - substantial education in financial literacy and product usage. Youth fully familiarized with mobile banking can act as a gateway to educating and building trust among the less tech-savvy generations. However, there are a few caveats that could limit a large-scale uptake among youth. Regulatory Subscriber Indentity Module (SIM) registration requirements are in some countries increasingly limiting the scope for those below the age of majority to legally acquire a SIM card. This adds another layer to the often already stringent regulatory environments that exist concerning youth access to financial services. Yet even under a favourable regulatory environment, the uptake of youth savings products cannot be guaranteed and will instead largely depend on their perceived relevance and how comfortable and satisfied youth are with using them. As new consumer financial protection concerns emerge, MFIs will need to gain great awareness of the distinct needs and vulnerabilities youth face depending on factors such as age, gender, socio-economic status, level of education, patterns of income and expenditure, financial and household responsibility and phone ownership. Particularly the poorest and most vulnerable youth may, for instance, share one phone with several relatives or friends, which raises important digital privacy issues. Child and Youth Finance International has defined general Child and Youth-Friendly Banking Principles to guide financial institutions in a youth-centered product design1. In addition to these principles, this report offers additional youth mobile banking-specific recommendations. Providing youth savings through mobile phones will remain expensive. Previous business case analyses have argued that – through cross-selling other, profitable financial products to the family members and peers of youth clients – MFIs could somehow manage to keep youth savings products financially sustainable. However, the true value of youth clients may lie elsewhere. If properly executed, youth can become champions of a revolutionary mobile banking system. It would be a triple win for youth, MFIs and adult customers. Youth are critical to the future of mobile banking.
1
Child and Youth Finance International and Mastercard Corporation, 2014, p18.
2