Claudia McKay

“Cash is easy.” “Cash is what I know most.” “There are no charges when I use cash.”

Ghana Market Seller (Photo Taken by Adam Jones)

I was sitting in a little room in the outskirts of Accra listening to a group of tomato sellers talk about the financial tools they use to manage their finances. As a part of CGAP’s work in Ghana, we have commissioned Bankable Frontiers Associates (working with Easy Errands, a Ghanaian market research firm) to conduct a market research study on the financial needs of low-income customers in Ghana. One of the first steps was to conduct focus groups throughout the country and listen to diverse groups of Ghanaians, including farmers, taxi drivers, traders and students, talk about their strategies for moving and storing money. They discussed bank transfers and drivers and the use of family and friends but more than anything, they talked about cash.

The trite expression ‘Cash is King’ is over-used in our line of work, but as I sat in that little room listening to these people whom mobile money services have spent millions of dollars trying to woo, I realized yet again that the biggest competition we face in scaling branchless banking is not a rival MNO or bank or even the expensive money transfer operators – it’s cash. (Read some recent posts on our blog about this topic here and here.)

Cash is far and away the preferred method for storing and sending money in Ghana, no matter how inconvenient. One tomato seller, Charity, wraps her cash in no less than six black plastic bags and hides it in the back of her refrigerator, underneath her tomatoes and meats, so that the rest of her family does not suspect it is there.  A timber seller, Emmanuel, told us he keeps his cash under the carpet in his living room. When asked whether the cash does not form a noticeable bulk, he replied with a big grin, ‘That’s why I spread it all around so that people walk all over my cash but have no idea it is beneath their feet!’

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Recently, the CGAP Microfinance Blog hosted a series on the role that public funders can play to promote branchless banking. The series was launched in conjunction with a new CGAP Focus Note that highlights emerging lessons from public funders in this space. Regular readers of this blog are very familiar with the excitement around branchless banking and are probably aware that branchless banking is primarily being driven by the private sector. In fact, private investors have provided about 80% of the estimated $400 million in debt/equity investment in the sector. However, public funders are eager to use their resources to help bring branchless banking to more and more countries. Given the current momentum, is there a meaningful role that public funders can play without crowding out private investment?

The new Focus Note and series attempt to answer this question. We spoke with public funders that have already been active in this space and developed case studies to understand what role they played and why. We found that public funders can play an important and additive role in developing branchless banking services. However, they should ensure that their involvement includes one or more of the following factors:

1. Public funders should extract knowledge and learning that will benefit the entire industry. This can be done at both a macro level (investing in public goods to understand issues such as customer adoption and regulatory obstacles) as well as at a provider level (extracting learning from specific services that can be shared widely).
2. They should seek to influence the industry and specific implementations to develop products and services that are relevant for the low-income and unbanked segment.
3. Public money can kick-start development, especially in smaller or post-conflict countries where providers struggle to obtain the capital and buy-in to make major investments.

To learn more, read the Focus Note. Or, check out the blog series to learn how USAID is working with governments in the Philippines and Colombia to promote branchless banking, how UNCDF is working with the private sector to bring branchless banking to some of the most remote and challenging parts of the world and how the IFC is combining investments with technical assistance to help small companies grow.

- Claudia McKay

Over the past several months, we have taken a close look at the branchless banking industry in a few key countries. We have presented our learning from Brazil, Mexico, India and Pakistan. Today we continue with our analysis of Ghana and share this summary note on the branchless banking industry.

With 6 live branchless banking deployments involving 12 banks, 3 Mobile Network Operators, 2 start-ups and a government entity, the race is on in Ghana to reach the unbanked with branchless banking services. Ghana has 15 million adults and a majority of the population living on less than $2 a day, making it significantly smaller and poorer than the other countries featured in this series. It is a unique market with a regulatory focus on interoperability and interesting dynamics in the bank-MNO partnerships. As the market develops, it should yield useful lessons on the role of government, interoperability and the nature of partnerships.

In 2008, the Bank of Ghana issued Branchless Banking Guidelines that allowed for a bank-based model of branchless banking using nonbank retail agents. This is common yet the Bank of Ghana added a stipulation that makes the market different from any other we know: it also prohibited exclusive partnerships and only permitted a many-to-many model. Its reasoning was that “this model offers maximum connectivity and hence maximum outreach and is closer to the desired situation where all banks and all telcos should be able to entertain each other’s customers.”  As a result, each of the MNOs with branchless banking services has signed up at least 3 partner banks (and in one case, 9).

So, who are the main players? Of the 6 branchless banking deployments, 3 (Airtel Money, MTN Mobile Money and Tigo Cash) are run by MNOs in partnership with banks. Of these, MTN Mobile Money has been around the longest and has the highest number of registered customers. Two others (AfricXpress and eTranzact) are start-ups and one (eZwich) is actually run by a government entity, the Ghana Interbank Payment and Settlement System. Together, the deployments claim to have more than 3 million registered customers but the number of active customers is much less. This is partly due to issues within the MNO-bank partnerships as well as a combination of operational challenges around building a viable agent network, effective marketing and robust technology.

Moving forward, there are at least 4 interesting dynamics within Ghana that should yield lessons applicable to the wider branchless banking world:

• Interoperability and the Role of Government – The Bank of Ghana is actively trying to ensure that branchless banking services are interoperable from the inception of the industry. In addition, it is pushing its own interoperable card and POS solution in the market. Many governments are interested in interoperability and the Ghana market will provide useful lessons on the pros and cons of direct government support for this.
• Bank-MNO Partnerships – Around the world, banks and MNOs are forming often uneasy alliances, acknowledging that each needs the other but struggling to bring two very different cultures together. In Ghana, these dynamics are exacerbated as each MNO is working with multiple banks. Not only is there disagreement between the MNO and the banks on roles and responsibility (and corresponding remuneration) but the banks are asked to invest in a service that will also directly benefit their competitors.
• Customer Adoption and Product Development – The current deployments have struggled to gain traction with customers when pushing domestic remittances. The market to ‘send money home’ seems to be limited and there is a big opportunity for creative product development in areas such as micro insurance (exciting pilots are underway) and even savings (Susu collectors are widespread in Ghana).
• Agent Networks – The MNOs in Ghana are taking very different approaches to building networks of agents. MTN has built a completely independent network of cash-in/out agents as airtime distributors were initially reluctant to get involved in mobile money. However, other MNOs are attempting to completely leverage their existing airtime staff and distributors. It will be interesting to see how these two different approaches work in the same market.

There will be much to learn from Ghana as the market develops. For more detailed information on branchless banking in Ghana, read our country note here.

- Claudia McKay

This is the fourth piece in the five-part series launching CGAP’s Agent Network Management Toolkit (available to download and highlights are on CGAP’s website). The toolkit is based on more than a year of research that yielded data on more than 16,000 agents in Brazil, India, and Kenya. In-depth interviews were conducted with 466 agents, agent network managers and providers, including mobile network operators, banks, MFIs and technology companies.

When providers are planning the launch of a branchless banking service, one of the critical decisions facing them is how to structure the agent network. As CGAP’s newly released Agent Management Toolkit describes, there are many different ways to do this. For example, half of Orange Mali’s agents were MFI branches when it first launched. EKO in India planned to use the huge distribution network offered by the largest telco in India, Airtel. And others like WING Money in Cambodia painstakingly sign up local merchants one by one to act as agents. There is no best structure for an agent network and the toolkit describes some of the implications of different network structures on factors such as network readiness (speed to go to market), reach (number and location of outlets) and control that the provider has.

Yet most agent networks that have been around for a while have one thing in common: their structure has changed dramatically over time. M-PESA in Kenya, which has seen its agent network grow from zero to over 23,000 in less than four years, has gone through three different phases in regards to agent management.

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In the past year, several high-profile branchless banking deployments have publicized the fact that they’ve reached more than one million users. Yet what is never publicized in press releases or speeches is the very low number of active users in most deployments. In a recent CGAP survey, 64% of mobile money managers indicated that less than 30% of their registered users are active, and active rates of less than 10% are not uncommon.

This is a problem for several reasons. First and foremost, since it costs money to acquire customers, low activity rates greatly drive up the cost of acquiring each active customer. The figure here shows the acquisition cost per active customer based on a $5 customer acquisition cost. This covers the commission bonus to agents, fulfilling back-office KYC requirements and a starter kit for customers available with some services.  If a deployment has a healthy 50% activity rate, the acquisition cost is a reasonable $10 per active customer. However, if the activity rate drops to 10%, the cost per active customer increases dramatically to $50. Some deployments have activity rates as low as 1% – and they are paying $500 for every active customer, an investment that may never be recouped.

Since the issue at hand is low customer usage, it’s easy to simply think of this as a problem related to customer perception of the service’s value for money, leading to tweaks in pricing or higher investment in marketing and financial education. Read the rest of this page »

Last week, my colleague Mark Pickens started a blog series on the 3 main findings in our new CGAP Focus Note, which looks at several aspects of branchless banking across 18 branchless banking providers with more than 50 million customers in 10 countries.  You can read a full web feature about the paper on the CGAP website.  In this post, we’ll look at the second question we asked in the Focus Note:

Is branchless banking cheaper than traditional banking, and by how much?

To answer this question, we compared the prices charged by 16 branchless banking providers across 10 countries and by 10 traditional banks in five countries across 8 use cases.  We first released the results of our analysis on this blog in May.  Here are the highlights:

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The CGAP Technology Blog will be hosting a virtual conference on Microfinance and Mobile Banking next week on September 8 and 9.  Kabir Kumar, Sarah Rotman and I recently published a Focus Note on this topic describing how microfinance organizations around the world are responding to the potential and challenges of mobile banking.  We studied 15 microfinance organizations that are pioneers in the mobile banking space in different ways.

For the virtual conference, we’ll be joined by several of these industry experts who will discuss their experiences and lead conversations on four themes.

Day One: Wednesday, September 8, 2010

• What benefits can MFIs expect to gain by using m-banking? - Moderated by Sarah Rotman, co-author of paper [6am ET / 10am GMT]

• Should an MFI in a country without any existing m-banking infrastructure create its own m-banking system? - Moderated by Aleksandr-Alain Kalanda, CEO of Opportunity Bank Malawi [9am ET / 1pm GMT]

Day Two: Thursday, September 9, 2010

• When should an MFI consider being an agent in an m-banking system? - Moderated by David Kleiman, Managing Director, WING Money, with participation by Veasna Chumsam, Business Initiative Manager, VisionFund Cambodia [6am ET / 10am GMT]

• Can mobile banking be used to collect loan repayments and deposits? -  Moderated by Kenyan MFI [9am ET / 1pm GMT]

No advance registration is required – simply come to the CGAP Technology Blog next Wednesday morning at 10am GMT to join the conversation by submitting comments under each conversation. This is your chance to interact with microfinance practitioners who are daily experiencing the opportunities and the challenges associated with mobile banking.

- Claudia McKay

Regular readers of this blog are familiar with mobile banking and its potential to bring vast numbers of the unbanked into a more formal financial system and revolutionize the way they manage their money. Yet although microfinance institutions (MFIs) have spent decades serving this clientele with loans and increasingly savings and other financial products, they have not featured prominently in this space. The mobile banking charge has been led by mobile network operators and, to a lesser extent, large banks. Although MFIs understand the potential of mobile banking, they have struggled to see how they can take advantage of it. The core competencies of most MFIs lie in their understanding of low-income customers’ needs and close relationships with these customers, not in complex technology projects or managing large-scale distribution networks. So how can MFIs take advantage of mobile banking?

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A few weeks ago, CGAP released a study comparing the prices of 16 branchless banking pioneers and 10 traditional banks across eight use cases. We found that the average monthly cost of using a branchless banking service is $3.90 (PPP adjusted) compared with US$4.80 when using a traditional bank. The conclusion: branchless banking is cheaper than traditional banking, but the gap is not as wide as some may think.

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In the past few weeks, my colleagues have blogged about our study of agent networks in India. You can see our overall analysis of agents (called CSPs or Customer Service Points in India) here. The India research was one part of a three-country study (along with Brazil and Kenya) that highlights the critical role agents play as the key interface between a branchless banking service and its customers.

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