Gautam Ivatury joined CGAP in 2003. He manages CGAP’s Technology Program. Before joining CGAP, Ivatury was vice president of Finance and Administration at SKS Microfinance in India, an investment analyst at International Finance Corporation, and a co-founder of a startup education technology venture. Ivatury also worked as an investment banker at Donaldson, Lufkin & Jenrette (now Credit Suisse First Boston). He has a Master’s degree in International Affairs from Johns Hopkins University. He speaks English and is proficient in French and Hindi.
Why is mobile banking slow to grow?
Much has been written about how innovations go from being extraordinary and untested to becoming commonplace (Everett Rogers, Diffusion of Innovations, 2003). How can we apply the thinking that “innovation diffusion” research has come up with to mobile banking?
First, let’s identify what the innovations are in mobile banking. For someone who has a mobile phone, but doesn’t have any bank account, I would see three:
- a new concept of value – electronic, not cash or in kind
- a new financial provider – not manual exchange or through hawala or through bus driver or friends/family, but unknown / untrusted organization or some bank
- a new use of device – use existing device for new purpose (idea that phone can be used for finance is a new idea)
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Anybody out there?… outsourced MFI information systems
Putting in place a cost-effective, efficient, scalable core banking system (or information system) is a tough job for any business. For many small and medium microfinance institutions (MFIs), it’s proven to be virtually impossible. Strong IT staff are hard to come by and retain, managers have limited training in making IT decisions, and getting loan officers and accountants to buy into a new system is no piece of cake.
When are these MFIs going to learn to stick to their knitting and outsource their IT systems, just like the rest of the financial services world? … Well, maybe it’s not so easy…
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How to launch mobile banking in India
Vodafone’s M-Pesa mobile phone payments and transfer service in Kenya has signed up an impressive 140,000 customers in just 3 and a half months, according to Vodafone’s head of mobile payments. Although there are anecdotal reports of customers who are confused by the service, glitches in the sign up process, etc., it’s a good start. With this in mind, one wonders about India.
India’s cell phone user population doubled during the past year to 150 million at the end of 2006. That’s amazing growth and helps explain Vodafone’s recent purchase of most of the shares of Essar, India’s fourth-largest mobile operator.
So what about mobile phone banking? The Reserve Bank of India has so far been less open to allowing a mobile operator to issue e-money, at least in comparison to the central bank of Kenya.
One strategy an operator might take would be to partner with a financial institution that could hold customer accounts. If Vodafone could partner with a bank to make sure customers have accounts at a licensed financial instution rather than offering virtual accounts as it does in Kenya, then the regulatory hurdle becomes much more manageable. However, the business arrangements naturally grow in complexity.
A second major regulatory question, also dealt with in CGAP’s recent diagnostic on the regulatory framework in India, concerns agents. Key to a successful m-banking model is the ability to use agents such as airtime resellers to open accounts and take in and give out cash.
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Slowing down the m-banking future
“Slow down the future.”
This is how a former head of strategy for Vodafone Europe described to me what mobile operators try to do. Theirs is essentially a fixed-asset business, in which networks have been built and the aim is to maximize the return from customers. In that sense operators are not about innovation around new technologies, because they’re trying to recoup their investments in technologies they’ve already deployed.
Does this mean operators aren’t interested in mobile banking? So far, quite the opposite.
Mobile banking and payments are two potential revenue sources from existing customers. They may be particularly useful in increasing average revenue per user or ARPU of low-income customers who generate low revenue and low margins. Payment and banking products that are fee-based and reduce customer turnover might be just what’s needed to make these customers more profitable.
Where do handset makers like Nokia and Motorola come out on m-banking? They make money when they sell phones, so adding new features and functions is essential. Building new payment capabilities into phones is just the kind of differentiator that will make the next generation of models sell.
Will handset makers build in this capability even if there are few places where you can tap your phone and make a payment? Which standard will they use, if any? And how can combining the motivations of operators and handset makers increase mobile banking services for poor people? A few questions we’ll continue to explore.
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Using Technology to Build Inclusive Financial Systems
Using Technology to Build Inclusive Financial Systems (pdf)
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Using Technology to Build Inclusive Financial Systems (Focus Note)
Using Technology to Build Inclusive Financial Systems
Some of the innovations commercial banks need to service poor clients may be found in information and communications technologies (ICTs).This Focus Note addresses the following questions: Can banking technologies, applied innovatively in developing countries, make microfinance profitable for formal financial institutions? Will they reduce costs to such an extent that banks could profitably serve even those whom MFIs have mostly excluded to date, such as very poor and remote rural customers? Will these customers be comfortable using technology?
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Funding Microfinance Technology
Funding Microfinance Technology
New technologies are available to help microfinance providers improve efficiency, track operations more accurately, increase transparency, and reach new customers, yet MFIs struggle to select the right technologies and get the most from their investments. This Donor Brief offers guidance on how to ensure microfinance providers follow good investment and management principles when choosing and implementing new technologies.
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Breaking Down the Walls between Microfinance and the Formal Financial System
Breaking Down the Walls between Microfinance and the Formal Financial System
(adapted from Elizabeth Littlefield and Richard Rosenberg, “Microfinance and the Poor: Breaking Down the Walls between Microfinance and Formal Finance,” Finance & Development 41, no. 2 (June 2004): 38-40)
There is a dawning understanding that developing countries’ financial systems need to be more accessible to poor people and that there are practical ways to make this happen. All kinds of financial institutions–regulators, mainstream rating agencies, commercial and state banks, insurance companies, and credit bureaus–are starting to play a part in developing sound, inclusive financial systems that serve the majority of poor countries citizens.
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