This is an excerpt from a recent CGAP paper, The Early Experience with Branchless Banking. The paper synthesizes the observations and research of the CGAP Technology Program. Gautam Ivatury and Ignacio Mas wrote the paper, with substantial input from the entire program team. This blog series will cover seven observations, four uncertainties and four predictions for branchless banking – what we call mobile banking and other technology-enabled banking solutions.

In principle, one would expect open, interoperable payments platforms to be easier to market and more successful than closed ones. Some early ventures have indeed tried to work seamlessly with existing systems, offering bank cards alongside mobile phone capability (SmartMoney, WIZZIT).

Yet other ventures have involved closed systems, through which users can transfer funds only to other members of the “club” (G-Cash, M-Pesa). Promoters of closed systems may be able to seize time-to-market advantages by not having to engage in lengthy negotiations with partners. Particularly in a context where many customers may not trust financial institutions to begin with, creating a vertically integrated end-to-end model maybe a reasonable market entry strategy rather than outsourcing key functions, such as cash handling or sales and marketing, to third-party agents or even large retail chains.

But whatever market entry strategies are used, in the long run customers will benefit more and pay less if interoperable networks allow them to transact with anyone, at any time.