In this newest C360 blog, respected regional economist Marla Dukharan, financier and CEO of Bitt Inc. Rawdon Adams, and regional marketer and Chair of GHA Inc. Greg Hoyos share their points of view on various issues.
This question is more about “how can the cost of financial services be lowered to include everyone?” Banks may not be the right means. They do not have a low enough cost base to touch the huge Caribbean informal economies and still turn a profit.
In Barbados alone, this informal economy is estimated to be worth around US$1.5 billion or 30 per cent of what we officially recognize as our economy’s size! That’s a lot of pent-up potential.
So, by definition, we have an exclusionary structure. And it is expensive! One way to see this is in credit card costs and the rewards they typically offer. The reality is that these are being subsidized by debit card and cash users. The poor subsidize the not-so poor.
More choice, driven by public policy would change that. A little self-promotion: this is at the heart of Bitt’s mission – getting financial tools onto smartphones in an economy where the central bank is in charge of issuing digital currency. It would be a liberation; everyone has smartphones!
It may even nudge traditional banks to try a bit harder on things like fees, queues, and even credit card costs.
It’s true that banks have never been under more pressure to find a meaningful role. As in many industries, the world is rapidly changing around them. Today we have alternate sources of money available, both old (credit unions, retailers and finance companies – Courts, Singer, Grace K); and new encroaching; and new (peer-to-peer lending, digital wallets, other innovations).
Plus, if you’re an international banker, you probably have better opportunities elsewhere, and it’s hard to justify continued investment in the Caribbean. Then add in tightening financial rules from the USA and EU, and it’s a tough gig all round.
The truth is, we’re yesterday’s market for them.
Consumers love to blame the banks; our market research is full of these complaints. They imagine good old days (which never really were) and ask: why can’t we go back to them?
And perhaps the banking industry hasn’t had the best PR in this regard. But who would want their job right now?
Banks are a critical component of a healthy economy and financial inclusion is a critical component to the socio-economic development process. Now, in the Caribbean, we have increasingly become financially excluded – at the regional and national levels based on the de-risking phenomenon, and at the individual level based on compliance with FATCA and other requirements.
We also have large informal sectors in our economies in the Caribbean.
The survival approach of the banks to make more money has been to steadily increase their fees, and to try to drive their clients out of the banking halls and onto their ATMs, telephone system, website or apps.
In effect therefore, many clients are facing negative interest rates – same or lower interest payments dwarfed by higher fees, and not been accompanied by better service.
So, in my view, banks in the Caribbean (apart from a precious few) are not making clients happier or better off, not boosting financial inclusion, and therefore not supporting socio-economic development.
While banks are not necessarily past their use-by date in a global context, in a Caribbean context, most of them are clearly not part of the solution.
* Marla Dukharan is a regional economist.
* Rawdon Adams is a financier and CEO of Bitt Inc.
* Greg Hoyos is a regional marketer and Chair of GHA Inc.