Guest Blogger

We’ve written quite a bit about the Philippines on this blog, and today we hear from Maybelle Santos, who is the Senior Manager for Domestic Financial Services at Smart Communications, Inc (SMART), a wholly owned subsidiary of PLDT (Philippine Long Distance Corporation). The PLDT group serves over 34 million subscribers on fixed, mobile and broadband networks and claims one of the largest and most robust mobile-commerce programs in the world with over 11 million daily transactions.

Tell us about Smart Money.
The world’s first electronic cash card linked to a mobile phone came from Smart’s partnership with Mastercard called Smart Money in December 2000. This mobile financial service enabled people with bank accounts to transfer money to a Smart Money account. It also allows un-banked account holders to have a service that provides access to channels otherwise limited to bank account holders. Payments can then be made using a SIM-based menu to transfer money from account to retailers, and subscribers can assign spending rights to other persons from the same Smart Money accounts. The Smart Money card also functions as an ATM card and a prepaid debit card that allows purchases at any Mastercard point-of-sale. The subscriber receives SMS confirmations for all account transactions through SMART.  A Smart Money subscriber can also transfer credits to pre-registered individuals. This is a one-way P2P (person to person) remittance system and it has since been emulated by other countries and mobile operators.

What do you know about your customers and their needs in terms of financial services?
The existing SMART subscriber base is largely pre-paid and over the last 15 months the team built relationships with local microfinance players to reach the unbanked and penetrate the rural microfinance (MFI) segments. The MFI partnerships have added 4,500 Smart Money Users and 7 large/medium sized MFIs/Coops who use the Mobile Money platform to distribute loans.

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Olga Tomilova is CGAP’s regional representative for Europe and Central Asia. She works on policy, technology, and aid effectiveness. Based in Moscow, Olga sends us this snapshot of how the financial crisis may be affecting branchless banking.

As the financial crisis reached Russia and banks began to struggle, some analysts thought the situation would accelerate the acceptance and usage of electronic instant payment systems. A popular branchless banking solution in Russia, such systems allow people to make micropayments via cash-in automated payment terminals without opening a bank account. In fact, the sector has been growing at an annual pace of over 100% each year in recent times.

The current economic climate seems to be hurting the prospects for branchless banking here. As in many other places, most payments are for air-time and e-money purchase, but these have dried up as people purchase less. The profits of cell phone operators plummeted during the last quarter of 2008 by 20 to 40% compared to the same period in 2007.

As for e-money, some say that declining economic activity and purchasing power will sharply decrease the level of online transactions with e-money.  Experts’ predictions include consolidation of some payment companies and closing down of the others – especially if these companies become subject to a planned audit of their systems of personal data, for their compliance with the requirements of Federal Law 152 “On Personal Data”.

We will see if these predictions come true or not, but for me personally, I can say that I was forced to reduce my number and volume of transactions via payment terminals after the commissions soared from 0-2% to at least 6.5%. There is always internet banking, an option for some, certainly not for all.

Jonathan Donner is a researcher in the Technology for Emerging Markets Group at Microsoft Research India in Bangalore, which is collaborating on research around customer adoption with CGAP. Jonathan’s primary research interests concern the economic and social implications of the spread of mobile telephony in the developing world.

Jonathan sends us this note about the forthcoming “Mobile banking and economic development: Linking adoption, impact, and use,” co-authored with London School of Economics and Political Science doctoral candidate Camilo Tellez.

We share many people’s enthusiasm about the potential of m-banking and m-payments to benefit communities not traditionally reached by banks. However, since m-banking is such a new phenomenon in the developing world, there are still relatively few studies exploring this potential.

In the paper, Camilo and I take a step back to look at the current state of three approaches to researching m-banking and m-payments. We find that while there are a growing number of academic studies focused on the drivers and barriers to adoption, there are only a few studies focused on impact (CGAP’s studies notwithstanding), and even fewer studies of how m-banking and m-payments technologies are used in daily life.

We argue that the adoption, impact and ‘use’ approaches need not be separate, as they often are, but can rather can be mutually reinforcing. For example, the things an ethnographic study might reveal about whether people view their m-banking account as a ‘wallet’ or a ‘post office’ should help other researchers design better (and very different) surveys to assess why an ‘adoption’ of the technology has occurred, or what impact the technology is having on households.

Of course, this adoption/impact/use distinction is not unique to m-banking, but instead is a fixture of the interdisciplinary field of ICTD (Information Technology and Development) more generally. So, we also detail how some big themes from ICTD are resurfacing in the current discussions about m-banking.

Finally, we use some illustrative data from fieldwork Camilo carried out with small enterprise owners in Bangalore. We explored what place SMS messages might have in the mediation of the informal credit relationships they have with customers. Would they “bill” or “remind” a customer about an outstanding unpaid balance using the SMS channel? 19 of the 20 interviewees expressed varying degrees of unease with the notion of an SMS used in this way. Mostly, we think, because of the ongoing need to maintain the relationship through carefully-managed face to face interactions. We cast these interviews as examples of a study of context and daily use which can inform the design and assessment of m-banking systems.

The paper will appear in December as part of a special issue 18(4) of the Asian Journal of Communication, called “New Perspectives on Development Communication: Emerging Technologies, Shifting Paradigms”, guest edited by Mark Levy (Professor, Michigan State University).

Stefan Staschen works with CGAP’s technology and policy teams.

Kenya’s banking law and regulations look all too familiar: if an institution accepts deposits and uses this money for lending or investment, it needs to have a bank licence. And banks can only transact through their head office or branches. Full stop. But the Central Bank of Kenya has realized that operating through full-fledged branches, which are subject to detailed regulatory requirements, is a very expensive proposition. If the huge gap of banking services in remote and rural areas is ever to be closed, alternative delivery models will be required. Branchless banking models such as mobile phone banking (pioneered in Kenya by M-Pesa, which is run by a mobile network operator and not a bank) and the use of retail agents will be low-cost alternatives allowing for increased rural penetration. The Central Bank Governor, Prof Njuguna Ndung’u, has now pledged to institute necessary regulatory changes allowing banks to offer financial services outside bank branches.

Financial literacy – the level of understanding that customers have when it comes to services - is significant. Danielle Hopkins is with Microfinance Opportunities, a Washington-based group that focuses on financial literacy and other issues facing microfinance. Here are her thoughts.
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