The Pacific’s digital answer

The Asian Development Bank ranks the Pacific Islands Countries (PICs) as some of the most underbanked regions in the world, with low access to formal financial services in some Pacific countries.

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The disparate nature of the Pacific means people living on smaller outer islands or in remote areas away from cities often rely on cash - and do not have bank accounts. Even if they do have an account, they may still rely on alternative financial services such as money orders, money transfer organisations, cheque cashing services and payday loans.

"Delivering the right outcomes for customers while running an efficient and profitable business in the Pacific means we need to overcome these geographic challenges for our customers.”

The data are patchy but a 2016 study by the Pacific Financial Inclusion Programme (PFIP) found that while a large proportion of Fijian and Samoan savers have bank accounts, in the Solomon Islands the percentage reduces to only 26 per cent of adults. Women fare worse.

Now the situation is improving – we understand in Fiji, for example, the total banked population has reached more than 80 per cent compared with 64 per cent in 2015. The rest of the Pacific is improving too, particularly compared with the broader challenge in the emerging world. But there is still much which needs to be done.

There are significant international efforts underway, including by the PFIP, to change this. ANZ builds partnerships with not only PFIP but also governments, regulators and international organisations. These include the United Nations Development Programme, the United Nations Fund for International Partnerships and the Reserve Bank of Fiji. Our aim is to introduce digital banking and combine this with MoneyMinded – our flagship, highly regarded financial education program for adults.

But the end result of the ‘under-banking’ and under-developed banking in the PICs is higher costs, poor customer experience and inadequate service for Pacific people. In my view, that is unacceptable and at ANZ we’re doing something about it.

With a presence in 12 countries in the Pacific, serving customers across hundreds of islands, ANZ faces a challenge in serving our customers. Traditional bricks and mortar banking services don’t meet the needs of many in remote areas and outer islands.

Delivering the right outcomes for customers while running an efficient and profitable business in the Pacific means we need to overcome these geographic challenges for our customers.

I truly believe the answer is digital.

Digital banking lowers the cost of services for individuals, lowers transaction costs for businesses and promotes financial inclusion. It effectively breaks down barriers to access and gives Pacific people a global platform to compete on the international stage.

While access is uneven across countries, better internet in the Pacific means technology is rapidly changing the status quo, much like it has elsewhere. More people own mobile phones and have more reliable internet connections, even in some extremely remote locations.

There are still challenges of reliability and cost but these will improve over time with more infrastructure investment.

The digital promise

Digital technologies, starting with mobile phones, can rapidly fix problems encountered when savings are stored outside the financial system and foster faster, more inclusive growth, write Laura Tyson and Susan Lund in Project Syndicate.

In emerging economies today, two billion people – 45 per cent of all adults – do not have a formal account at a bank, financial institution, or with a mobile-money provider. The “unbanked” rate is even higher for women, the poor, and people living in rural areas. Moreover, at least 200 million small- and medium-size enterprises lack sufficient credit, or have no access to credit at all.

Entrepreneurship, investment, and economic growth suffer when savings are stored outside the financial system, and credit is scarce and expensive. Fortunately, according to the McKinsey Global Institute (MGI), digital technologies – starting with mobile phones – can rapidly fix this problem and foster faster, more inclusive growth.

Mobile phones and the Internet can reduce the need for cash and bypass traditional brick-and-mortar channels. This dramatically reduces financial-service providers’ costs, and makes their services more convenient and accessible for users – especially low-income users in remote locations.

MGI estimates that if digital finance is widely adopted, it could add $US3.7 trillion to emerging countries’ gross domestic product (GDP) by 2025. That amounts to a 6 per cent increase above business as usual.

Digital finance can boost GDP in several ways. Nearly two-thirds of the expected growth would come from increased productivity, because businesses, financial-service providers, and government organisations would be able to operate much more efficiently if they did not have to rely on cash and paper recordkeeping.

Another one-third would come from increased investment throughout the economy, as personal and business savings were moved into the formal financial system, and then mobilised to provide more credit. The remaining gains would come from people working more hours – the time they would have spent traveling to bank branches and waiting in queues.

As for financial inclusion, digital finance has two positive effects. First, it expands access. In emerging markets in 2014, only about 55 per cent of adults had a bank or financial-services account, but nearly 80 per cent had a mobile phone. That 25-percentage-point gap could be closed by making mobile banking and digital wallets a reality. But a gender gap will also have to be closed: worldwide, about 200 million fewer women than men have mobile phones or Internet access.

Second, digital finance reduces costs: MGI estimates that it would cost financial-service providers 80-90 per cent less – about $US10 per year, compared to the $US100 per year it costs today – to offer customers digital accounts than accounts through traditional bank branches. Using purely digital channels thus makes it feasible to meet the needs of low-income customers. Financial inclusion becomes profitable for providers even when account balances and transactions are small.

Source: The promise of digital finance - Project Syndicate and the McKinsey Global Institute

What we’re seeing at ANZ is that people in the Pacific can see the potential and are already extremely connected online.

In 2020 for example, we saw a 124 per cent increase in the number of active customers using our ANZ Pacific banking app. That’s coming off a low base but interestingly, we’ve seen a huge catalyst in the Pacific in the last 12 months off the back of the COVID-19 pandemic.

In the past 12 months, we have moved from:

  • 26 to 35 per cent of Pacific customers on internet banking;
  • 12 to 23 per cent of Pacific customers on our ANZ Pacific app;
  • 17 to 23 per cent of Pacific business customers using our Transactive app for business.

One key part of Pacific economies is remittances – the money sent back home by the Pacific diaspora living abroad.

Remittances account for around 15-25 per cent of Pacific household incomes and in the past year they have become even more important. Total remittances to Fiji in 2020 was FJD653 million (6.9 per cent of GDP), Samoa was WST603 million (29 per cent of GDP) and Tonga was TOP425 million (37 per cent of GDP). All were a historical record.

But we know that traditionally, the cost of sending money home to the Pacific is among the highest in the world.

It’s yet another barrier to the financial wellbeing of Pacific people.

So ANZ has prioritised digitising International Money Transfers (IMTs) to the Pacific to bring down costs and breakdown these barriers. Since 2019, we have offered IMTs via our ANZ Pacific app and internet banking platforms. We face a challenge to get the word out but this provides a cheap and secure option for those wanting to send money home.

And in a year like no other, ANZ made the decision to waive fees for online money transfers from Australia and New Zealand for six months from September 2020. We recently extended this fee waiver out to September 2021.

What we saw was phenomenal.

Pacific people really took advantage of the fee waiver, rallying to support friends and family at home. We’ve seen a huge jump in both the volume and the total amount of money being sent back to the Pacific.

In February 2021, we saw:

  • A 71 per cent increase in volume of transfers from Australia and a 127 per cent increase from New Zealand (based on the prior comparable period).
  • A 27 per cent increase in the amount of money being sent from Australia and a 47 per cent increase from New Zealand (based on the prior comparable period).

The results demonstrate Pasifika culture at its best; that we are stronger together and we will rally to support each other in tough economic times.

But with vaccines on the horizon, the conversation must now shift to the rebound.

For the financial services industry that means not just helping our customers survive but rather to thrive off the back of the rebound. On digital, the challenge we face now in the Pacific is one of infrastructure, continuous improvement, information, education and word of mouth.

Tessa Price is Pacific Regional Executive at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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