The launch of BanKO, Globe Telecom’s new bank, raises a number of questions. Why a new bank for Globe when it has a mobile commerce outfit, GXI, and why now? For one, they can do it — regulation permits it. Few other regulators would easily permit such a bank. CGAP is aware of a couple of other similar businesses being set-up in Africa but EasyPaisa in Pakistan and now BanKO are the two notable ones to date. For Globe/GXI, it means the possibility of more revenue if they reach Filipinos with a range of financial services. CGAP is not complaining. If they are able to design products and leverage their distribution, then Globe/GXI will help bring even more reliable formal options to low-income Filipinos than they currently face.

GXI has trialed a number of different things over the last five years (see Paul Leishman’s report for a fresh overview on GXI, SMART and the Philippines). The the addition of BanKO, however, represents a significant milestone. Our view is that the model here is likely to be BanKO issuing loans and maintaining savings account, while Globe/GXI are the bank’s distribution partners carrying out functions in the account acquisition and processing value chain.

The vision for BanKO was set a couple of years back but GXI’s recent experience trying to reach low-income Filipinos confirmed the path they have been on. Competing in a highly fragmented Philippines remittance market means running a very low-margin business. GXI could have secured a position in the market but it would have been a lot of effort for little payback. GXI’s experience with setting up agents in rural provinces proved more difficult the last couple of years. Volumes were never going to be high enough to make the business attractive for agents.

CGAP carried out an assessment of how the agent network was faring in the three provinces where GCASH had been launched as part of our project with GXI. CGAP visited 1 agent location in Manila and 16 in two provinces to assess the performance of the service and provide recommendations to GXI. Agents had a very positive view of GCASH. They reported that servicing any one GCASH customer did not lead to any notable downtime or interruption in the service. Transactions were similar across all areas between the two provinces. In the two provinces we visited, agents reported 8-10 transactions per day at an average value of USD 20 per transaction. At that volume, agents were making roughly USD 1.5 per day.

At these low volumes, it was not surprising that agents did not see the service as necessarily transforming their business. Newly-minted agents in particular expected little and put in little.

On the surface, the low volumes of GCASH may be attributed to a few factors. First, GCASH as a remittance service was competing with existing well worn remittance providers, in particular the pawnshops (I will explain more about this in subsequent posts). Second, while GCASH faced stiff competition from these pawnshops, GXI’s marketing approach – not emphasizing any one use of GCASH – made it difficult to see it as a cheaper and convenient remittance alternative. As a result, customers don’t associate GCASH with any one thing. In addition, GXI’s agent branding and merchandising was not consistent.

Third, GXI’s commissions to agents were not designed to create incentives for those agents to drive customer adoption and usage as has been done by Safaricom with M-pesa. GXI did not pay agents to sign-up customers, for instance. Agents charged 1 percent for cash-in but GXI did not track this closely and some agents were known to charge up to 3 percent. GXI changed this with some modest gains in customer acquisition and transactions in the provinces of Bohol, Palawan and Surigao. They also improved the merchandising of the outlets making it consistent and visible.

Lastly, and more importantly, GXI has had a difficult time signing agents at the provincial level. The Central bank requires USD 32 in up-front licensing fees for each retail point and a day-long AML/CFT training delivered directly by central bank staff at central bank offices in Manila or select provincial towns. Retailers don’t want to be accredited because they are not sure if it is worth it for the low volumes and for the time it takes to sign on, let alone the upfront licensing charge.

However, recently, concessions have been made by the Central Bank when it comes to centralized retail chains. For those chains, central bank will license the entire chain at the HQ level and either the staff of that retail chain or GXI staff can deliver training directly to the last mile retailers. These concessions have made it possible for GXI to use chains like Cell Depot which are headquartered in large towns but have tiny franchise locations in small towns of 3,000 to 10,000 people. It has also makes it more attractive to make the best of Globe’s own distribution.

While GXI made changes to their approach following recommendations by CGAP, they have realized that competing in remittances may not be the most attractive business after all. Mobile money industry has been galvanized by M-pesa. But, in reality, it has been difficult to follow the M-pesa example. Globe’s experience is likely to be similar to other MNOs in the world. Globe’s is not a monopoly. Its market share is similar to most well placed telecom operators globally. Globe has a tiered distribution working via territory distributors. And, unlike in Kenya, pursuing domestic remittance in the Philippines does not translate into a high volume business at the agent level.

-Kabir Kumar