No-frills – or basic bank accounts – are another tool in the arsenal of central banks and financial service providers that are interested in promoting universal financial inclusion. They traditionally have two defining characteristics. First, they have minimal to no charges or fees and second, they allow for easier access. Access can be defined in various ways including in terms of reduced KYC requirements or more widely available banking infrastructure. Usually mandated by central banks, the impetus is to bring more of the unbanked into the formal financial sector.

Pakistan has one of the most encouraging regulations towards building financial inclusion and it is exciting to see that trend continue. The National Financial Inclusion Strategy (NFIS) was completed last year in which one target is to, “increase…..adults with a transaction or other type of formal account to 50% by 2020.” To that end, the State Bank of Pakistan has recently launched an initiative that requires every bank to create a new category of accounts that caters to the unbanked and will be called Asaan Accounts. Asaan is an Urdu word which translates to “easy” highlighting a key characteristic for potential customers.

Creating pro-poor bank accounts requires a delicate balance between the desired social impact and the incentives for private banks to develop products for a traditionally underserved segment of the population. As banks in Pakistan begin to establish these no-frills account, it is worthwhile to look around the world at other countries that have lessons to offer from their own efforts at bringing the poor into the formal banking sector.

India and South Africa offer two very different models for developing pro-poor bank accounts in that the former was government mandated and the latter was a collaboration between the largest four banks (which control over 80% of the retail market). This has led to differences in the various aspects of product development including awareness campaigns, pricing, and access. Both initiatives experienced varying levels of success.

A key lesson learned from India and validated by the South African experience is that certain costs associated to these accounts can be borne collectively more effectively rather than if each financial service provider undertakes the cost individually. Costs associated with communications and marketing offer the clearest opportunity for such collaboration especially if the no-frills account will require one naming convention across providers. In India, where individual banks were responsible for their own outreach, there was confusion on the part of customers as to the purpose of the accounts with many assuming that a new government welfare scheme was starting and that the account was a conduit for an upcoming payment. In South Africa, the collaborators paid into a common awareness campaign and this led to one clear and consistent message across all potential customers. Clear, consistent messages are key to reaching the unbanked as it reduces the learning curve required for the newly banked to get comfortable with bank products.

Offering a no-frills account in itself is not enough. Supporting measures, ensuring the low-cost to clients and greater accessibility should complement the regulatory stipulation. The experience from South Africa reinforces the importance of forging partnerships to reach the unbanked in a sustainable way.  Another example of how the South African banks collaborated to positively impact financial inclusion was by allowing customers to transact for free on any participating banks’ ATM network; all ‘off-us’ fees were reduced to zero thus bringing about effective ATM interoperability for all their basic bank account customers. Not only does this reduce the overall cost of maintaining a bank account for a segment of the population that is very cost sensitive but also brings a measure of convenience that is key for financial services and products aimed at this segment. The importance of implementing such measures is reinforced by the analysis of the Indian case where indirect costs of having an ostensibly free or low-fee bank account prevented uptake i.e., customers wishing to deposit small pots of money did not think the trip worth the effort as the cost of the trip outstripped the value of the funds they were transacting.

Despite positive initial uptake, the South African experience shows that basic bank accounts are usually the lowest revenue earners even when compared against the nearest equivalent accounts, making them unattractive to bank staff with monetary targets to meet. A conscious decision therefore, must be taken by a bank’s management about the time and resources to allocate per account. Banks can take one of two paths to implementing basic bank accounts. Either they can allocate a portion of the current staff’s time or ask employees to add to their current set of duties. The case from India clearly shows that not only is it important to understand how to compel potential customers to open accounts but also how to overcome the perception among the bank’s employees that this is not a waste of their time. Sometimes the unwillingness to open accounts was not on the side of the customers but on the banks. This can be overcome by inculcating a culture top-down of commitment to basic bank accounts and ensuring that employees are not being asked to take on work that has no visible impact on a bank’s profitability and may seem unattractive career-wise.

Perhaps one of the key takeaways from the South African and Indian experiences is that engineering the correct formula for the successful uptake of basic bank accounts takes time and effort on the part of both the regulators and the providers. It is safe to surmise that commitment from the very top management of a bank willing to go the extra mile for maximizing financial inclusion, supplemented with the requisite changes made to shareholder messaging and reporting and staff evaluation will play a disproportionate role in determining how successfully the Asaan account is deployed in Pakistan.