Archive for: China

This blog post summarizes a quick review of commercial investments in mobile financial services and branchless banking. We focused our review on equity deals between 2005 and 2010 involving mobile payment companies, agent companies, payment platforms and others providers that we knew were targeting the financially excluded in developing countries. We looked at press releases and other publicly-available sources for information on deal sizes and structures. We also included a few notable deals involving banks such as Telenor’s acquisition of Tameer Microfinance Bank in Pakistan and the creation of BanKO by Globe Telecom and others in the Philippines. The dataset is available upon request (technology@cgap.org).

Here are a few basic findings:

• 47 deals with USD 400 M in cumulative volume between 2005 and 2010
• Average deal size of USD 7 M with the largest number of deals under USD 4 M
• Most investments were in technology companies but new opportunities are emerging
• International Finance Corporation (IFC) was the most active investor globally
• India was the most active market

Click on images for clearer view

47 deals with USD 400 M in cumulative volume between 2005 and 2010.  Whether USD 400 M is sizeable or not depends on your perspective. It is sizeable if you consider that grant funding to companies in branchless banking between 2005 and 2010 totaled well below USD 100 M. From the perspective of those of you watching the larger payments or mobile money environment, the total size might be small, but there are a number of additional factors to keep in mind. First, a large share of the USD 400 M is attributed to a single deal – Obopay’s deal at USD 139 M. In fact, investments made into four firms – Obopay, Cointel, FINO, and Monitise – account for 60% of volume. Second, there are roughly 15 deals with an amount that was not publicly available or disclosed to us. Lastly, USD 400 M is not the complete figure of private investments made into mobile financial services or branchless banking. That figure is significantly higher if you consider internal investments made by mobile network operators, banks and others into their implementations.  Read the rest of this page »

Janine Firpo is currently living in Jakarta, Indonesia where she serving as IFC’s East Asia & Pacific (EAP) Mobile Banking Consultant.  In addition, she is President of Sevak Solutions, a nonprofit company that she co-founded to promote inclusive systems for the delivery of financial services to the world’s 1.7 billion urban and rural poor.  For the past six years, Janine has focused exclusively on the role of information and communications technologies in the extension of financial services.  She is a pioneer in the implementation of branchless banking solutions and has worked on a range of related issues in Africa, Asia, and Latin America. Janine brings over 24 years experience in technology, international development, and consortium building to her efforts.

You are currently working with IFC to advance mobile banking in East Asia and the Pacific.  Can you tell me a bit about IFC’s mobile banking program in that region? The EAP M-Banking Program will focus on three key areas:  (1) supporting Central Banks as they assess the regulatory requirements for mobile money and mobile banking, (2) working with partners to establish pilots and build the business case for m-banking, and (3) providing knowledge sharing, advocacy, and education among market players across the region.  Our initial activities will include seminars, market studies, regulatory assessments, and pilots.  Specific projects and partners will differ by country, depending on local requirements.

Why is IFC interested in advancing mobile banking? The percentage of households in East Asia and the Pacific with basic bank accounts ranges from 5 to 20 percent.  Access to bank branches and ATMs is among the lowest in the world.  In contrast, large numbers of people have access to cell phones, even in rural areas.  For instance, an estimated 40 million people have cell phones but no bank accounts in Indonesia, and about 1 million unbanked cell phone subscribers live in Cambodia.  M-banking addresses the dual problems of cost and access to financial services by transforming every cell phone into a device for performing a range of financial transactions such as depositing and withdrawing cash, transferring money, and making payments.

Most existing m-banking products (including those offered in Indonesia, China, and Vietnam) are generally limited to existing bank customers, offering an additional delivery mechanism for them to check balances, make payments, and so on.  This is referred to as the “additive” m-banking model.  IFC’s EAP M-Banking Program focuses on the “transformational” m-banking model – where m-banking technology allows banks, telcos, or technology companies to pull unbanked populations into the financial system via mobile phones.

Why is mobile banking so popular right now? The incredibly rapid acceptance of mobile phones across the world suggests that they will become the computing platform of the masses.  Although communication is the killer application that is responsible for this dynamic growth, telecom companies and other players recognize the opportunity to leverage this extensive infrastructure to deliver other services.  Financial access is one of the first product lines that has shown commercial promise.  We can expect to see other product lines delivered via mobile phones in the future.

What is driving  businesses in East Asia & the Pacific (EAP) to deliver mobile banking products?  Actually, I think they are delivering not just mobile banking, but a broader range of mobile financial services.

How would you define mobile banking? There is currently a lot of confusion in the market about the term mobile banking because it is often used interchangeably with mobile money, mobile financial services, electronic money, branchless banking and related terms.  Therefore, I would like to clarify what I mean by these terms.  Electronic money is a broad term that encompasses all forms of electronic and stored value products.  Examples could include debit and prepaid cards in addition to money stored on a mobile phone.  Mobile money or mobile financial services connote financial services delivered through a mobile phone.  These services may or may not be tied directly to a personal bank account.  Mobile banking is a more specific term referring to the delivery of banking services, such as deposits, withdrawals, and bank transfers, through a mobile phone.  A mobile bank product is often tied to an individual’s bank account. These distinctions are important.  Often when we talk about mobile banking, I think we are really referring to the broader category of mobile money.

Ok, based on those definitions, what is driving businesses in East Asia & the Pacific (EAP) to deliver mobile financial services? There are different reasons for different players in the market.  Telecom companies see an opportunity to leverage their existing infrastructure by offering value-added services.  Since the market is nascent, they also see an opportunity to promote their brand as well as to gain and retain customers.  Bigger banks that are servicing wealthier clientele also see a brand building and customer retention opportunity.  Some of the more innovative players recognize the transformative power of mobile financial services to bank unbanked populations, acquiring a new customer base.  We are also seeing technology companies that offer multi-channel, multi-bank solutions entering the market to provide interoperable infrastructures.  These solutions remind me of the payment service providers that have emerged around the world to deliver shared ATM and POS networks.

You are bringing up the concept of interoperability.  How important do you think that is in these markets? Ultimately, I think it is very important.  Although it may not be where markets start due to first-mover advantage, I do believe it is where they will eventually end up.  IFC just co-hosted an e-Money seminar with Bank Indonesia, the theme of which was efficiency.  Bank Indonesia would like to promote not only efficient mobile financial services but efficient payment systems in their country.  We might be overlooking an important opportunity if we focus on mobile financial services to the exclusion of other payment systems – and payment networks – in the countries in which we are working.

A lot of the countries in EAP have large rural populations.  What are some of the most difficult challenges you see for reaching people in poor, remote areas? From my perspective, there are three primary challenges.  First, and foremost, is an appropriate product mix that meets market demand.  Second is a strong advertising and marketing campaign to raise awareness about the benefits of mobile money, mobile banking, and financial services in general.  This may well require financial literacy training.  Third will be the presence of an extensive network of cash-in/cash-out points.  Since many rural customers still depend on cash, they will need easy, accessible ways into which to transfer cash into electronic value and back out as cash again.

Do you see any special circumstances in the EAP region? In some of the Pacific island countries, in which IFC works, people use barter instead of cash.  That reality needs to be taken into consideration across all three of these obstacles – market demand, market awareness, and cash management.

Banks have been struggling with rural outreach for decades.  Why do you think mobile financial services is a solution? A huge part of the challenge that banks have faced in the past is the high, often unsustainable, cost of establishing branches in rural areas.  CGAP has studies suggesting that a mobile access point is as little as 1/50th the cost of a branch.  Isn’t that correct?  So the entire business model shifts with mobile money.  In addition, there are new participants in the value chain – telecoms, agent networks, and technology companies.  These businesses can bear some of the cost of infrastructure.  With a branch model, banks had to absorb virtually all the costs.

What is the mindset shift that would need to happen for banks to be able to work with mobile operators, technology companies, and other entities to reach the unbanked? For one thing, the banks would need to view this customer base as a source of additional revenue.  In addition, they would need to be willing to build a part of their business that caters to this new clientele because they will not be able to use the same business practices that they use with wealthier clients on this new market.  And the banks will need to collaborate with a range of new partners to meet their goals.

Do you think the potential of mobile banking has been oversold?  Why or why not?  What will we be talking about or worried about five years from now? It is not my belief that the potential of mobile financial services have been oversold.  If there is hype, it is more likely to be around the speed at which mobile financial services will spread. What we are seeing is not that different from the fits and starts that were seen more than 40 years ago with the advent of credit cards.  Getting the business models right, identifying the key players, and growing to scale all take time.  But, in my opinion, the benefits are there.  So once we figure out some of these parameters, I believe transformative mobile banking will flourish.  In five years time, I think we will be grappling with issues related to interoperability and co-opetition, the requirement for the banks and telcos to cooperate on infrastructure and compete on product, pricing, and service.

Pakistan: State Bank issues draft policy
The launch of Branchless Banking (BB) by using delivery channels such as retail agents and mobile phones was announced Saturday by State Bank of Pakistan (SBP) Governor Dr Shamshad Akhtar.  The new system offers a significantly cheaper alternative to conventional branch-based banking and allows financial institutions and other commercial players to offer financial services outside the premises of traditional banks. BB can be used to substantially increase the outreach of financial services to “un-banked” communities. The provision of enabling a regulatory environment by careful risk-reward balancing is, however, necessary to use such models. (CGAP related resource)

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Great news…several of CGAP’s publications have been released in Chinese and are now available online. Here are two of our favorites:

Using Technology to Build Inclusive Financial Systems
Focus Note No. 32, January 2006 (Chinese, pdf)
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?

Use of Agents in Branchless Banking for the Poor: Rewards, Risks, and Regulation
Focus Note No. 38, October 2006 (Chinese, pdf)
Use of Agents in Branchless Banking for the Poor: Rewards, Risks, and Regulation
This Focus Note examines the experience of five pioneering countries–Brazil, India, South Africa, the Philippines, and Kenya–where agent-assisted branchless banking that targets poor customers is already a reality. It introduces the main issues involved in regulating branchless banking, particularly regarding the use of retail agents.