Since the official launch of GCASH in early 2004, Globe Telecom’s subsidiary GXI set-up a number of initiatives to help them arrive at a strategy for mobile banking in the Philippines. As part of those efforts, CGAP and GXI partnered to roll-out GCASH in three predominantly rural and low-income provinces of Bohol, Palawan and Surigao. Our goal was to understand how to expand the reach of GXI’s agent network into smaller towns and how customers would use the service. I am writing to share briefly what we learned in terms of customer usage and preferences in the low-income provinces that we have been working in.

In 18 months, GXI signed up 120,000 new GCASH customers in three low income provinces (Bohol, Surigao del Norte and Palawan) and set-up 200 agents to service those customers (GXI has 1.1 million GCASH customers nationally with 3,000 agents). GXI reached over half of the registered base in the first three quarters of 2009 – roughly 72,000 new GCASH accounts. About 2,000 of those customers (under 3 percent of total) have been conducting one or more GCASH transactions a month. The average transaction size was very low at USD 30, reflecting GCASH’s appeal to those looking to transact at low values. In addition, a very small number of customers have used the wallet for storage. We found a small subset (6-7 customers) maintain a monthly running balance.

GXI found that their approach to marketing worked well because they let potential customers just try out the service extensively up front. Their marketing campaigns involved large musical concerts. On-foot sales agents were on hand to sign-up customers and train them on how to use the service. Musical performances would draw people in from surrounding towns and barangays and sales agents would approach people to trial the service. People would be allowed to try out multiple transactions as they discovered the service. GXI also used commission based sales agents (“roving” agents) to reach out to customers in the provinces at their homes. These agents were equipped to promote the SMS-based service as well as the new G-cash menu-based application.

GXI’s experience with an entirely text-based interface has been mixed. Our interviews with GCASH agents did not suggest that either the agents or the GCASH customers they serviced had a difficult time using a text-based service. Philippines is known as the texting capital of the world but we were working in provinces that were poorer and where literacy levels were lower than the national norm. What we found is true in most markets globally: younger people whose social lives involve being connected via cell phones and people with exposure to using computers are more comfortable using cell phones to begin with.

GCASH volumes have been low in these three provinces. There has been a lag between when people register and when they start actively using the service. We met an active user in Palawan who started using six months after registering for the service. She was receiving money from Manila.

There are a number of other factors for the low volume but the bottom line: GCASH as a remittance service was competing with existing well worn remittance providers, in particular the pawnshops.
There are a number of regionally dominant pawnshop chains that provide remittance services. Pawnshops got into remittance in part to deal with having a lot of cash at each of their locations. Pawnshop remittance products like ML Kwarta Padala and Express Pera Padala have 1000 and 300 shops each servicing localized markets. Express Pera Padala is Palawan Pawn Shop’s domestic remittance service. They have 30 locations in Palawan alone and, based on interviews we conducted, we estimated that locations in Puerto Princessa (Palawan’s capital) serviced 150-200 remittances customers a day. Average fees were at 3 percent (6% for smallest at ~ $6 and 1% for highest at $420). In comparison, Drugman, a general goods store and Globe’s airtime sub-distributor for Palawan saw on average of six G-cash transactions a day. Most customers were cashing out in Puerto Princessa. Average transaction sizes were $21.

Because people were already used to remitting using the pawnshops, GXI partnered with some of them to make GCASH available at their stores. GCASH’s performance has not been exceptionally different from other locations, however. It did help to have the GCASH brand associated with existing remittance providers which are well known locally but it was unclear if that drove additional sales.

These providers also compete with informal channels like truck drivers. The small island of Bohol with just over 1 million people has three or four formal options and a slew of informal ones just to send money within the bounds of the island province. The island itself is small enough making it possible for someone to simply carry the money themselves on regular visits back home. I talked to a number of people (domestic workers, fast food chain employees, etc.) who simply do that. Truck drivers are known to ferry cash up the major road that skirt the island. The drivers don’t always charge and the frequency with which these trucks ply that road makes it possible to send money daily.

Poor Filipinos have options to remit but that still does not mean GCASH couldn’t deliver value. M-PESA changed people’s remittance behavior – they remitted more frequently and at lower values. At one percent cash-in, GCASH charges were already far below what the competition charges in the Philippines. GXI could have created a value proposition in the low-value remittance market (see chart and thanks to Ignacio Mas for making it) pursuing a high-volume low-margin business – large numbers of provincial customers sending money domestically paying 3 to 5 percent in commissions and at under $20 per transaction.

-Kabir Kumar