Mark Pickens is a Microfinance Analyst with CGAP’s Technology Program. Prior to joining CGAP he consulted to Amret Microfinance, Bank of Africa, USAID, UNCDF and worked with Development Alternatives, Inc. , a consulting firm specializing in economic development solutions in emerging markets. Pickens has helped launch four institutions that successfully mix for-profit sensibility with social mission, including CGAP’s technology program, New York City’s largest business incubator for immigrant entrepreneurs, an award-winning internet news portal, and a public health non-profit in Madagascar. He has a Master’s degree in microfinance from Columbia University.
We’re just two weeks from the Mobile Money Summit…where all will be revealed - the results of the CGAP-GSMA Mobile Money Market Sizing Study. The findings describe in detail how unbanked people use mobile money services, and also provide a framework based on industry best practices to help mobile operators drive initial adoption and progress towards more sophisticated offerings, such as savings and credit. Read the rest of this page »
It seems like every week there’s a new market study that comes out about mobile banking – but few of those (if any) focus exclusively on the opportunity to be found in serving poor, unbanked people in developing countries.
So, with our friends at the GSMA, we thought we’d share a preview of the upcoming results of the CGAP-GSMA Mobile Money Market Sizing Study, which includes:
a projection of the unbanked poor who could be reached globally by 2012;
an in-depth look at unbanked mobile money users in the Philippines today;
and a survey of more than 40 operators, vendors and other industry actors.
The aim is to help mobile operators drive initial adoption and progress towards more sophisticated offerings, such as savings and credit. Some highlights after the jump….
People working on social protection policy and financial inclusion don’t always find a lot of common ground. In fact, some would say they put out competing views of poverty alleviation: direct payments from the government to raise incomes, or increasing poor people’s access to financial services to help weather shocks and increase incomes. Of course, this is an over-simplification, and somewhat artificial. Both want the same end (poverty alleviation) and neither casts itself as the magic bullet. There’s a good 20+ years of thinking on how social protection and financial inclusion are mutually reinforcing, including somewhat famously the idea of Individual Development Accounts (IDAs) as created by Michael Sherraden.
There’s a new surge of interest, this time looking at how the impact of conditional cash transfers (CCTs) can be magnified by providing recipients with basic financial services.
I recently participated in a panel on the topic organized by The New America Foundation’s Jamie Zimmerman, who along with Yves Moury, have authored a paper on the topic. Here’s the video.
My take? If linking the poor to financial services helps them, why stop at CCTs? Let’s look at a wider world of government-to-person (G2P) payments, including other types of social welfare payments as well as wages and pensions. By CGAP’s estimate, more than 155 million of the world’s poor receive a regular payment from their government. But far less than 1/4 land in an account.
Those of us working on the financial inclusion need to line up the evidence to convince social policymakers that bolting on basic bank accounts for recipients will have benefits. And crucially, we need to boost the business case for banks to provide basic banking to poor G2P recipients on a profitable basis. One key will be deploying on more cost-effective delivery channels — such as point of sale terminals at existing merchants in the community rather than expensive bank branches.
Ten years ago, there was no active m-banking. Global cell phone penetration stood at 8% (0% among low income countries). The Central Bank of Brazil was promulgating the first set of regulations which would allow bank correspondents on a broader basis. Microfinance had caught the eye of some beyond its enthusiasts and practitioners, but the cause of financial access was considered a niche not a mainstream policy emphasis.
Last week was the gigantic GSM Mobile World Congress in Barcelona. At the Mobile Money Forum, optimism ran fast and deep. That tone was a refreshing break from the steady tide of gloom and doom in the financial press. Safaricom won another award for its M-PESA mobile money service, which has now signed up over 5 million Kenyans.
There was also lot of congratulations for making it possible for people the world over to buy airtime in amounts as little as 5 cents from literally millions of sellers in the smallest villages. One commentator called it “the cheapest, biggest, most powerful sales channel in human history.” The mobile industry thinks they have a huge advantage in delivering financial services cheaply.
I’m just back from the Mobile World Congress. Tomorrow I’ll write about banking agents and share our presentation from Barcelona. Meantime, I came home with a question: I can load any software I want onto my PC, so why can’t I do the same with my phone? Better yet, why can’t poor people?
I’d love to see a boom of cheap m-banking software, designed by people who know how poor people want to use their phones. Although lower-income, non-Western users make up 80% of the world’s new mobile consumers, the guys in Finland, Sweden and South Korea still decide how people’s phones look and feel. But for how long? I’m interested, because I expect usability to be one key in how fast poor people are willing to adopt mobile-based financial services (which CGAP believes can blow open the frontier for access to finance for the poor).
The global economy is sliding. The OECD predicts 2009 will be the worst year for the world economy since 1974. The mobile industry is already feeling the effects. Operator revenues grew by 5% in 2008, down nearly half from 2009, and are expected to soften further to 4.5% in 2009, according to Wireless Intelligence. And this is on top of the continual slide in ARPU (average revenue per user) which emerging market operators have seen for several years, as they pick up customers who are now disproportionately lower income.
What does mean for mobile financial services? It probably gives a boost to two opposing trends. As margins get squeezed in 2009, senior management might be less willing to take on any new, unproven projects. Instead, they’ll concentrate on keeping the core business of voice in the black.
But others will think it’s high time to boost non-voice spend from customers. It could make the difference between surviving and flourishing one or even several years of rocky returns coming up in 2009 and beyond. We think mobile financial services is still a good bet for many operators.”
In forthcoming research, CGAP and GSMA estimate that mobile payments and banking will add at least USD 0.6 in direct revenues per customer. That’s quite nice if you’re looking at revenues of USD 3 and 4 per customer. It’s been a long time since SMS, the last value added service to boost revenues in a big way. Texting was just an additive communication option on top of voice. Mobile financial services could tap a completely new pool of unserved demand among low-ARPU customers who are overwhelmingly unbanked.
Just as the M-PESA mobile money service hits 5 million registered clients in Kenya, it’s encountering a wave of attention about its regulatory status. The tide of critique has been rising, as we highlighted last month. The rub is with Safaricom’s regulatory status. Some say M-PESA’s lack of status as a bank puts customer funds are at risk. This recent article from the East African Standardconcludes M-PESA “could be a disaster waiting to happen.” Kenya’s Finance Minister ordered an audit of M-PESA and is on record with the Standard saying, “I am not sure M-PESA will end well. We want to protect wananchi [citizens] from the sharks who want to make money from the misfortune of others.”
The Kenyan media contains alternate voices that are much more sanguine about M-PESA’s safety. They highlight that M-PESA is a money transfer service, rather than a bank, which implies it should be regulated differently. This article from the Business Daily recounts the widespread belief that much of the pressure being piled on Kenyan regulators originates from a banking sector which sees M-PESA as encroaching on the financial service space. As John Walbengo, an IT Lecturer at the Multimedia University College of Kenya tells the Business Daily: “The chief suspects… would obviously be the 48 commercial banks whose total and national customer base is only one-tenth of the four million M-PESA customers that Safaricom controls.”
The Business Daily also cited CGAP. The paper reported - incorrectly - the numbers of daily transactions for M-PESA and Equity Bank, Kenya’s largest commercial bank, also with a track record of reaching many ordinary Kenyans. The right numbers, as we released in December at a mobile banking roundtable, are M-PESA, 160,000 P2P transactions per day; and Equity 118,061 m-banking transactions per day.
Vodafone’s M-PESA service continues to stir up attention, launching international remittances and stirring up questions about regulating nonbanks offering financial services.
The service has two anchors. It uses Western Union’s existing remittance systems ($64 billion in cross-border remittances last year) to provide the connection between the UK and Kenya. Delivery will happen via the more than 4,000 merchants who already act as cash-handling agents for M-PESA. M-PESA is the successful domestic mobile payment service operated by Vodafone’s Kenyan affiliate ( Safaricom). In less than 2 years, more than 4 million Kenyans have signed up for M-PESA. Safaricom processes transactions worth approx. USD 120 million per month.
Vodafone’s partnership with Western Union could become one of the first successful mobile remittance services aimed at clients who are lower-income, unbanked or have poor access to affordable, secure, convenient financial services. GCash and Smart Money in the Philippines have offered remittances via mobile phone for several years, trying to tap into the USD 15 billion per year sent home by overseas Filipino workers. Kenya receives USD 1.3 billion per year. Orange, Zain, MTN and other mobile operators are exploring the potential to tie into the global remittance business, which the World Bank estimates will total USD 283 billion in 2008.
The genesis of the decision to audit M-PESA is still unclear. The announcement marked a complete about turn by Mr. Michuki, who two weeks ago defended M-PESA in Parliament. Safaricom says it welcomes the opportunity to satisfy regulators about safeguards in place.
This could be the latest sign of a growing backlash against new entrants – like mobile network operators – into traditional banking space. Banks have put pressure on the Central Bank of Kenya for the past year to put a heavier regulatory yoke on M-PESA. We’ve seen a similar trend in other countries where mobile operators are eager to offer mobile financial services.
Then today, Prof. Njuguna Ndung’u, the central bank Governor said the audit will be limited and mobile money transfer is valuable in spreading access to better payment services to rural areas. Further, he said the central bank will approve Zain – Safaricom’s chief competitor – to offer a mobile money transfer facility, once it receives the request. CBK has waited for parliament to pass a long-awaited payment system act which will give regulators clear authority to oversee new payment services, such as M-PESA.
