Archive for: Customer Value

Last week, my colleague Claudia McKay continued our blog series on our new CGAP Focus Note which tries to answer the question: “Is the hype around branchless banking justified?”  To dig into some answers, we gathered data on more than 16,000 clients of branchless banking institutions in 10 countries. Today, I’ll discuss the third and final finding from the study.

How do we meet demand for products that go beyond payments?

Most branchless banking services help clients move money over distance : a money transfer to a family member in the countryside, a bill payment to the utility company, a social benefit from the government. Clients also want products that move money over time  – i.e. savings and insurance paid out today to use in the future, credit to be used today and repaid in the future.

We know the poor are very active money managers. Financial diaries used by Collins, Morduch, Rutherford, and Ruthven show low-income families in Bangladesh, India, and South Africa used an average of eight different financial instruments primarily to move money over time, and quite intensively: the average household moved more than US$1,000 through the instruments over the course of a year.

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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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After several years of very high profile attention on mobile money and other branchless banking schemes, we think it’s time to test the hype. Or more accurately, we’ve wanted to for awhile. But acquiring good data is really, really hard. We’ve been unable to say in anything but a fragmented, mostly anecdotal way whether the unbanked really use branchless banking, what they use it for, if it saves them any money, and what more they might want (but aren’t getting yet). Just because we are excited about branchless banking doesn’t mean it is living up to the promises we make on its behalf.

Over the past year, my colleague Claudia McKay and I have pulled together data on 16,708 branchless banking customers in 18 branchless banking providers with more than 50 million customers in 10 countries. Some of the data we had to go and generate ourselves in new field work; we gained access to other people’s research; and some, particularly prices, are public and just needed to be aggregated (somewhat laboriously). We are pretty certain this is the first analysis of branchless banking with a multi-country perspective. What we found is released in a new CGAP Focus Note.  Over the next week, we will look at each of the 3 main findings.

Today: Is branchless banking really reaching the base of the pyramid?

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We started out September with a virtual conference on the topic of a new CGAP Focus Note Microfinance & Mobile Banking: The Story So Far. We invited guest bloggers from the MFIs featured in the paper to share their learnings from implementing mobile banking in their daily operations.  Here SMEP consultant George Kinyanjui explains how group dynamics have changed with the use of M-PESA:

We knew that allowing groups to repay via M-PESA would impact the group cohesion and we worked carefully to ensure this impact was positive. Although clients repay using M-PESA prior to the group meeting, the meetings themselves are still mandatory.  The meetings are much shorter than they used to be since the emphasis is not on collecting cash.  Instead, loan officers can focus immediately on any repayment issues or business problems the clients wish to discuss.  The officers can now accommodate more groups in one day. Clients are happy since they can make repayments whenever they want, group meetings are shorter and there is more security. 

Dan Radcliffe and Ignacio Mas from the Bill & Melinda Gates Foundation finished a paper on Scaling Mobile Money. The paper describes how mobile money systems require scale to get off the ground and struggle to grow incrementally, as they need to reap network effects, build trust, and overcome chicken-and-egg problems of acquiring both customers and merchants simultaneously.  Ignacio also shared 4 priorities for branchless banking via our blog:

It takes a considerably bold(er) person to predict how exactly (branchless banking) will happen and by when. Rather than speculate on that, perhaps it is more useful at this point in time to lay out what are the milestones –let’s call it priorities— that those of us who support the development of branchless banking would like to see happen. I’m talking here about outcomes –what kind of offers we’d like to see in the marketplace—rather than constituent elements of the puzzle (such as regulation, agent network management or technology bits).

Karina Baba and other CGAP Technology Team colleagues released the findings from a survey of mobile money managers to understand their expectations around profitability of the mobile money business:

Considering mobile money on its own as a source of revenue, about 70 percent of the managers who responded agree to a certain extent that this service will be a significant source of revenue for MNOs, making large profits over time. A majority of the respondents view mobile money more as a new source of revenue (63 percent) than as a strategy to acquire new customers (50 percent).

Chris Bold wrote about how branchless banking providers in Pakistan are facilitating both the mobilization of donations and the disbursements of cash to those that need it most following the floods:

CGAP’s partner in Pakistan, Tameer Microfinance Bank, and their parent company, Telenor Pakistan, have made it possible for people in Pakistan who may not have internet access to make donations to relief organizations using their EasyPaisa mobile banking platform and have removed the usual transfer fees. EasyPaisa account holders can make donations direct from their mobile wallets and anyone can walk into one of 6,000 agents to contribute to the work of organizations including the Pakistan Red Crescent Society and SOS Children’s villages. 

Archil Bakuradze guest blogged for us about enabling international remittances in Georgia.  And Mark Pickens closed out the month by writing about mobile money innovation.

Mobile money is mostly one size fits all. Here is your mobile wallet and P2P function – you figure out what you can use it for. What if providers turned this on its head, asked customers why they were using mobile money, and then tailored its features? Saving through your mobile to pay for school fees? Let us send you weekly reminders to help you remember to make a deposit. Would that be terribly expensive for the provider?

- Sarah Rotman

We’ve been pointing out the deficit of fresh thinking on mobile money products (see my blog post after the GSM World Congress, and more recently Bill Mauer and Olga Morawczynski’s take on the subject and my colleague Sarah Rotman’s opinion as well). The topic came back to mind when Gartner released its annual hype cycle for emerging technologies, and tech investor guru Ron Conway made his list of tech megatrends – few if any of them seem useful to the majority of humanity that is low-income and living in a developing economy. Location-aware electronic paper might be cool in Palo Alto, but who is it going to help in the Amazon, Ahmedabad or Abidjan? That’s why we loved the strong nods to the potential of mobile phones at last week’s Clinton Global Initiative (including mobile money in Haiti) and Nokia World earlier this month.

To some extent, falling hardware prices and mobile data transfer costs make it inevitable that we will see suddenly cheap technology applied to old problems. But isn’t there more we could be doing? Since CGAP focuses on financial inclusion, I’ll restrict my musings to mobile money, but these might be applicable to mobile health, education and a variety of other fields.

I can see three avenues we ought to be looking down.

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For all the talk about financial services over mobile technology and our aspirations for a cashless society, it is striking to me how far the economies in the US and Europe still have to go. This blog tends to focus on mobile financial services in the developing world. But I still marvel around the 1st of every month when I have to write a check to my landlord to pay my rent; or when I have to go to the ATM to get $20 to contribute to an office group gift.  Shouldn’t we be beyond this by now?

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There’s been a lot of talk recently comparing M-PESA in Kenya with that in neighboring Tanzania. I shared some of my initial impressions a few months ago after visiting both countries. While on the surface the countries appear to be similar, there are some important differences in geography, culture and market structure that have impacted the way M-PESA has fared in each place.

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Going Cashless at the Point of Sale: Hits and Misses in Developed Countries is the latest CGAP Technology Program paper in which Ignacio Mas and I analyze six instances of electronic money initiatives in the developed world. We hoped that these experiences would provide us with insight into what to do and what not to do with similar initiatives now being attempted in many developing countries around the world. The last post in this series looked at the first scheme under the category of mobile operator-faciliated payment instruments (Mobipay). Now I have taken an excerpt from the second such scheme, Moneta.

SK Telecom (SKT) belongs to the third largest chaebol (conglomerate) in Korea. SKT controls around half the market for mobile telephony, with 20 million customers. It has developed a comprehensive framework for mobile payments (Moneta), mobile banking (Mbank), and mobile commerce. Moneta was launched in November 2002 as a mobile wallet application that allowed customers to make proximity (in-store) payments through several mechanisms. Moneta initially supported a mobile cash payment product (Moneta Cash) and evolved toward a platform to support credit card payments through mobiles.

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In a recent CGAP Focus Note, Ignacio Mas and I wrote about six cases of e-money schemes in developing countries. Going Cashless at the Point of Sale: Hits and Misses in Developed Countries intended to extrapolate lessons from these experiences to shed light on the work being done with e-money in developing countries. In past posts, I chose excerpts of the paper that discussed smartcard-based electronic-cash provider schemes. Now I turn to mobile operator-faciliated instruments, looking first at Mobipay.

Mobipay is a mobile payment mechanism that allows customers to pay for goods through their mobile phone using a range of payment instruments: credit cards, debit cards, or the operator’s account. It supports both in-person and remote payments. The platform is open to any mobile operator or payment instrument issuer in Spain.

Each Mobipay customer gets a virtual wallet, which can contain up to nine different payment instruments. Each time the customer wants to make a payment, the system will ask which of the available payment instruments the user wishes to pay with. Customers can register a new bank payment instrument in their mobile wallet by requesting it from its issuer (through their branch, ATM, Internet banking, or telephone banking channels) or by sending a short messaging service (SMS) with the keyword ALTA (subscribe) followed by the card number. Mobile operators automatically register the mobile account as a payment method (whether the customer is on a prepay or postpay plan) when their customers use Mobipay for the first time.

There are three main ways of initiating a payment. For smaller, in-person transactions, customers can give their phone number to the merchant, who will then issue the payment request. Larger retailers can use a special barcode reader that can acquire the customer’s mobile phone number directly by reading a tag on the customer’s phone, which reduces the possibility of error. For purchases from machines or for remote purchases, the customer can enter a transaction code that identifies the product to be purchased (e.g., a parking meter might display the code *145*980*122#). In this case, the customer initiates the payment request.

Mobipay was trialed in mid-2002 in a small town and launched nationally in late 2002. In less than a year, it acquired 17,000 customers and 4,500 merchants (2,800 online and 1,700 bricks and mortar). Six years later, there are only 400,000 registered—not necessarily active—users, amounting to less than 1 percent of the population. And less than 2000 transactions are processed daily.

This dismal performance can be explained by two main factors. First, Spain is highly penetrated with banking services and infrastructure, so Mobipay struggled to open up a niche in the retail payments market. Second, Mobipay did not have a marketing budget to promote its own service; it had to rely instead on promotion by its shareholders (who were also its customers). These shareholders, in turn, did not see much benefit in promoting the Mobipay brand, because they felt that their competitors (whether the telecoms or the banks) would benefit equally from their marketing expenditures. As a result, Mobipay has languished in the absence of effective marketing or a “killer application” that can raise public awareness of the service.

You can read about the other cases we analyzed in the paper here.

Michael Tarazi works on policy and technology issues at CGAP and this is his very first blog post. Michael joined CGAP in 2008 as a Senior Policy Specialist. He is our Government and Policy Team’s lead person for the Maldives Mobile Phone Banking Project with the World Bank and the Maldives Monetary Authority. As with any blog post, the views here are his own. –Jim

E-money accounts should pay interest. There – I said it.

It took me some time to build up the nerve to say it so directly. I toyed with the usual limp and backside-saving formulations: “perhaps we should consider,” “more thought should be given to . .”, “more studies are needed to explore . . ”.  But I feel pretty confident about this one.

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