To promote effective regulation of mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized this week’s second Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation.

The proper role of nonbanks in branchless banking bedevils regulators and industry alike. The central bank of the Philippines just released new regulations creating an e-money license. In recent months, Kenya has seen a wave of complaints from banks about the success of Safaricom’s M-PESA service and whether or not it constitutes un-regulated banking. Regulators in some countries — India, prominently — have made clear statements that banks should take the leading role (for example, see RBI’s mobile banking guidelines).

We now have a decade of branchless banking implementations to gaze backwards on. This graphic lists notable branchless banking implementations, beginning in 2000 and running through to 2009. By “notable” I mean implementations which are some combination of aimed at low income customers, successful in proving the business case, or otherwise attracting attention from those watching the BB space.

Three points emerge, and one takeaway.

First, the number of implementations is accelerating, as is the range of countries. In 2000, there really were a few early pioneers, notably the beginning of explosive growth in banking correspondents in Brazil (which have now topped more than 100,000 agents processing $104 billion in bill payments and social transfers), South Africa’s Net1 (offering a smartcard and with nearly 3,000 merchants, 1.46 mil clients accepting $1.1 bil in social transfers), and Smart Money in the Philippines (a “reloadable payment card” accessed via mobile or debit card, handling more than USD 1.5 bil in airtime purchases and remittances). Since then, we’ve seen a proliferation of branchless banking schemes launching, with the bulk in 2007 and 2008.

Second, nonbanks tank a prominent role in the majority of implementations. We’ve highlighted these implementations in the second graphic.

By prominent, I mean the nonbank is either the offerer of the service themselves (such as M-PESA in Kenya) OR a bank has outsourced significant functions to a nonbank, including key activities which have implications for stability, integrity and compliance with financial sector regulatory standards. Smart Money is a good example of the latter, where funds are held by its bank partner, Banco de Oro, which is the regulated body responsible to the Philippines central bank, but where the brand, marketing, transaction authorization, data storage, and a range of data analysis functions reside with the mobile operator, Smart. We see an ever-increasing number of bank-nonbank tie-ups like this, and believe partnerships will dominate over “go it alone” strategies for both banks and mobile operators in the future.

Third, we are not only talking about mobile operators. WIZZIT and Eko are typical of a different sort of nonbank which tends to differ from mobile operators in three significant ways. Branchless banking is not a sideline (as it may be for a mobile operator). Instead, its the core business. Additionally, they tend to be much smaller than operators, which manifests itself in two ways — capital available (much lower), and level of management attention they can devote to making branchless banking a success (potentially higher). By contrast, mobile operators come from a different perspective. They are accustomed to a high-margin, high-churn business in voice. On margin, pre-paid airtime is quite lucrative. In many countries, mobile operators are among the most profitable companies, with EBITDA in the 60% and above range in some instances (again, Smart). But they deal with a constant level of customer defection to the competition, which drives customer acquisition costs. Thus, for operators, accomplishing churn reduction is a key motivation. Banks are accustomed to a low–margin, low-churn business. People infrequently shift banks – in fact, banking is one of the stickiest commercial relationships out there. But transactional banking offers slim margins. This may make the concept of going after even lower-income clients less appetizing without some assurance about the margins that can be had.

What can we draw out of this? One takeaway is we ought not to be talking too much about bank-based and nonbank-based models as starkly distinct. In fact, the growing number of partnerships blurs the lines between th two. It’s increasingly hard to say when something is truly “bank-based”. Just because a service involves funds deposited in a bank should not automatically confer it with greater security in the minds of regulators. The real risk profile of a branchless banking service might very well lie in the degree and nature of outsoucing from the bank to the nonbank and the mechanisms in place to ensure those activities are safely and soundly discharged.