Time to disrupt the Jamaican banking system [PART 2]
MAYBE JAMAICA needs to follow Australia and establish a commission to look into the irregularities of the banking industry. The Royal Commission identified major abuses by the industry and changes were implemented to address these shortcomings. Bank concentration does not have to be exploitative. Just look at Canada.
On too many occasions banks are allowed to contravene the letter and spirit of the law. When was the last time the regulators levelled any fine on the banks? The number of incidental charges is way out of line. There is a crying need for shivering the timbers of the Jamaican banking industry. Given that the majority of financial intermediations are with the banks.
The Government needs to level the playing field by embracing Fintech. The country needs seismic changes to address the nascent and rudiment banking industry. This would substantially propagate the financial inclusion so badly needed.
Digital banking has a major effect in countries such as China, India, Brazil and India. What Jamaica needs to do is to use digital banking to reach the unbanked. It is estimated that over 30 per cent of the population is unbanked. This would have a major dent on the underground economy. Too many players are operating outside the system. Moreover, it would give the Government more data points to better help manage the economy. It would also reduce the use of cash in the economy. This would have a significant impact on crime. Less cash, less crime. It will make it far much easier to monitor fraud.
INTENSIFY COMPETITION
The Jamaican public needs a smorgasbord of banking options. With this in mind, the Government should intensify competition by granting more banking licences.
1. TELECOMMUNICATIONS COMPANIES
Let’s start with the telecom companies. Both FLOW and Digicel should look at what Millicom is doing with Tigo in Paraguay; how effective this mobile banking service is and the sound impact it has on Paraguay economy. Before granting these entities any licence, it should guarantee that wireless broadband is ubiquitous throughout the country.
2. CREDIT UNIONS
Then there are the credit unions. Their charters should be revised and services they offered broaden. One of the areas they could have meaningful impact is in payment. Also, there should be a concerted effort made to have mergers among these institutions. That will give them scale to offer more diverse and better services.
3. OPEN BANKING
Open banking should be endorsed. It provides connection to customer data and facilitates payments. We see how effective open banking has become in England. Transactional data should belong to the consumer. It gives transparency, speed and accuracy. Here, the players can use technology to improve customer service while at the same time providing better insights. Data will now be shared with third parties. The banking ecosystem must be expanded.
What we need in Jamaica is banking anywhere, anytime with agility. It behoves the Government to commoditise credit. This will go a long way in helping the SME to grow and thus the economy.
4. THE PAYMENT INDUSTRY
The payment industry in Jamaica provides a pricing umbrella which new entrants can easily exploit. With the advent of WhatsApp pay, the country would benefit immensely by its adoption. Given the omnipresence of WhatsApp among Jamaicans, this payment system would go a long way in reducing cost while enhancing efficiency. It should be enthusiastically embraced.
5. DIGITAL BANKING
Globally, neobanks are disrupting the banking industry and are having a most positive impact in the societies they serve. Look at Varo, N26, Monzo, Chime, Koho, Pockit, Resoult and Atom. They have completely altered the banking landscape.
Jamaica needs to look at the cogent impact digital banking is having globally. Nubank in Brazil, Albo in Mexico, JUMO in Africa and OPEN in Asia are prime examples of what can happen in Jamaica.
The benefit to the country of these prudent policies would be a vast expansion of financial inclusion, accessibility, financial literacy, better credit provisioning and better allocation of capital, which can translate into wealth creation.
It was the great sage Bill Gates who said, “Banking is necessary, not banks.”