We’ve done a lot of thinking at CGAP about the different business models and partnerships that exist in branchless banking. What I find interesting is that rarely do you find two models that look exactly alike. Once you begin to really dig beneath the surface, you realize that even among those businesses that we might simplistically call “telco-led” or “bank-led”, there are significant differences. For example, Orange’s partnership with BNP Paribas in Cote d’Ivoire (the local subsidiary BICICI) is slightly different than MTN’s partnership with Societe Generale (local subsidiary SGBCI) also in Cote d’Ivoire. Similarly, when we did our comparative agent research in Kenya, Brazil and India, we learned that while many banks in Brazil use agents extensively in their outreach strategy, they each manage their agent networks quite differently.
Instead of playing to the same tune, I’d say that branchless banking actors are playing variations on a theme. Here we share a couple videos that describe two particular variations out of the many that exist.
1st Variation: One of the largest Brazilian commercial banks Bradesco has been targeting the mass market since its beginning, going so far as to build branches without doors to encourage anyone to enter. It’s no surprise then that Bradesco has always been trying to be as close as possible to its customers (which currently number 62 million) and to future customers. In this video, Marcos Bader, General Director at Bradesco, explains how technology and new business models based on the use of agent networks have helped the bank reach this goal. He explains many interesting aspects of their business, but what I find quite remarkable in particular is that 90% of all transactions at the bank go through alternative distribution channels. Marcos also lives up to the Brazilian stereotype by somehow finding a way to draw a parallel between branchless banking and soccer!
2nd Variation: Regulation usually defines what branchless banking players can and cannot do. Roar Bjaerum, Head of easypaisa at Telenor Pakistan explains in this video how the regulation in Pakistan was clear in its “bank-led” approach. But regulation also allowed telcos to take ownership in banks. In 2008, this is exactly what Telenor Pakistan did in partnership with Tameer Microfinance Bank, paving the way for a truly innovative business model in branchless banking. As Roar explains, the market has since taken off in many different directions, with some banks leading their own branchless banking business and some telcos acquiring microfinance licenses. We’ve written about and discussed the Pakistan market a lot, but here Roar describes the market from the perspective of someone working on the day to day business of mobile money.
In these two particular “variations on a business model theme” and in the many others that exist around the world, the challenge, as Marcos puts it, is “to define the boundary between cooperation and competition.” This is indeed the task at hand in order to produce a wonderful melody instead of discordant chords in our objective to reach the unbanked.
Watch the two videos we posted last week on OXXO and DD-DEDO here.
In this third post in the series on Brazil, we discuss another recurring issue about the agent business in Brazil. Read our first two posts on Brazil here.
In a country where agents have existed for close to 10 years nationwide, we would expect that by now banks would have found business reasons to share agents. From a consumer perspective, it is clearly attractive to be able to access banking services for multiple providers at a single agent. Yet agents in Brazil are still exclusive to banks and branded exclusively. Regulation in some markets requires agent exclusivity, but that is not the case in Brazil which makes this largely a business decision. After all these years, why hasn’t it made business sense to banks to share agents? Why haven’t retailers and agent companies struck partnerships with multiple banks and been more aggressive as they have in Mexico?
Does the new Elo brand indicate future plans to share agent networks?
It is important to note that there is already “sharing” of agents at some level. Credit agents are already shared between the small and medium banks, like Banco Cacique and Banco BMG, which specialize in offering payroll-consigned loans. Sharing credit agents turns out to be an attractive situation for these banks which often don’t have bank branches. New regulation recently restricted tiering for these types of agents — you can only outsource one level — but that will not stop the sharing (it should decrease however, the actual number of agents). Transactional agents, on the other hand, while exclusively branded and contracted with one bank can handle transactions for multiple banks. Just as it is with interoperable ATMs, transactional agents of one bank can process boletos (see here again on background) of another bank with differential charges. At least when it comes to processing boletos, which as discussed in an earlier post cover a range of payment transactions and are most likely 70%+ of transactions at agents, there is some form of interoperability at agents. Read the rest of this page »
In this second post in the series on Brazil (read the first one here), we answer the first of the following two recurring questions about the agent business in Brazil: (1) Will agents become a channel for a wider range of financial services for the poor? (2) Will banks share agents and why has that not happened already?
Banco do Brasil agent in Brasilia
The prevailing wisdom about Brazil’s vast agent network (largest in the world, 4x that of Kenya and the Philippines combined!) is that it is used mainly for bill payments. This network appears to be a missed opportunity to also make credit, savings, and other products available to low-income people in an affordable way. Is this channel being underutilized for poor people? (See here for agent numbers and here for coverage maps.)
The truth is that credit, savings and insurance have been made available via agents. Government benefits are also disbursed via agents. At the ~160,000 transactional agents, which include stores, the postal and lottery networks, customers make a variety of payments, deposit into and withdraw from accounts. Even though the role of transactional agents in the account opening process is restricted by regulation to ID check, document collection and forwarding, banks still use them to start the account opening process. In addition, there are ~500,000 credit agents, which are individuals on foot who sell payroll-consigned loans. While all banks use credit agents, small and medium banks rely on them for their core loan business. Both transactional and credit agents are covered by the same set of regulations.
While research indicates that the majority of transactions at transactional agents (70%+) are “bill” payments, the bills against which payments are received cover a range of services, not just utilities. Any service provider can issue a bill or boleto which can be paid at any agent (more on boletos here). The payments part of any financial product could be issued as a boleto. A lender can issue a boleto to borrowers for repayment. An insurance company can issue a boleto for premium payments.
While products are available at agents, it is also true that banks have not systematically developed products for the poor via the agent channel. A few factors are likely to play a part in how exactly banks end up using agents moving forward:
Lawsuits. The banking employees unions are suing banks and agent companies arguing that agents should be treated like bank employees and paid accordingly (read this basic FAQ on these lawsuits). Banks argue that agents do a lot less than bank employees and their role is similar to a basic teller. If this line of argument allows banks and agent companies to win lawsuits (they have had some favorable rulings already), it will mean that while banks may not be able to develop the agent channel to do more (into a sales and service channel, for instance), they can continue to use agents to process boletos.
Regulations. New regulations that came out four months ago have very nearly eliminated any business from doing just the banking agent business. The regulations prohibit agents whose sole function is that of a transactional agent from receiving and forwarding account opening proposals and processing receipts, payments and electronic transfers for bank deposit and payment orders. As a result, banks will continue to face natural time and bandwidth restrictions on how much an agent does.
Viability. An implication of these new regulations and lawsuits is that transactional agents can perform nothing more than a basic teller function. Will banks and agents find this limited role economically attractive moving forward? Historically, banks have paid little to agents to handle transactions and agent companies stay in business only because banks pay more for account opening and for loans offered by credit agents. Moreover, at higher transactional volumes, fixed cost infrastructure like ATMs is more economical for banks. In fact, banks are exploring ATM-like alternatives to agents especially in higher volume urban areas where most Brazilians reside anyway.
Channel strategy. Large banks in Brazil already own large acquiring networks and with boletos becoming electronic (read here), the difference between payments at those networks and agents disappears. While a number of municipalities in the most economically poor areas of the North and Northeast are serviced only by agents today, banks have been known to open mini-branches and install ATMs on the heels of agents, and they may do more of that. More importantly, a couple of banks in the process of developing services for lower-income segments are not necessarily restricting themselves to agents but considering leveraging all their channels.
Building a viable agent network is a critical success factor for any branchless banking service. But the industry is in a state of creative chaos with widely divergent approaches (and performance) to rapidly setting up a dense, liquid carpet of agents adhering to service quality standards.
In February, CGAP released an Agent Management Toolkit which aims to demystify the process. The toolkit is based on 500 interviews with agents, agent network managers and financial institutions in Brazil (Banco do Brasil and Banco Postal), India (EKO and FINO), and Kenya (M-PESA). All told, CGAP analyzed data on more than 16,000 agents for the Toolkit.
We’ve distilled the Toolkit into an Agent Management Training Package to enable you to train your own colleagues and service partners about key steps in building a robust agent network.
Section 1 looks at the business case from the agent’s perspective. This includes an exercise comparing the business drivers for 3 agents from Brazil, India and Kenya.
Section 2 looks at the role of Agent Network Managers, with a case study of a Brazilian ANM’s journey towards profitability.
Section 3 looks at options to generate adequate revenue to satisfy all partners in the supply chain, and an exercise where participants will discuss a hypothetical branchless banking service.
Section 4 looks at structuring an agent network, with a case study showing how the supply chain has evolved for M-PESA in Kenya.
Section 5 looks at lessons from Brazil, India and Kenya for managing agents, with an exercise comparing training approaches in these and other markets.
The package can be used in multiple ways, from a 30 minute rapid review of key messages, a day-long training, or selecting one of the modules matching your interest. The package includes detailed notes for trainers on how to present each slide and key takeaways to highlight. Feel free to use with attribution.
This is a guest blog by Mireya Almazán & Ignacio Mas from the Bill & Melinda Gates Foundation.
A couple of months ago, we launched the Bill & Melinda Gates Foundation initiative, Showcasing Successes in Banking Beyond Branches, and blogged about it here. We’re pleased to report that success stories are out there and 3 institutions have claimed success under the showcase criteria: Safaricom, Banco de Crédito del Perú (BCP), and Banco Wal-Mart (BWM). Safaricom and BCP lead the way in the Bridges to Cash showcase, and BWM carries the torch for the Digital Piggy Bank showcase. Successful showcase entries were announced at the World Economic Forum Africa Summit in Cape Town this week, and you can read about them on the foundation’s website.
As a reminder, the Bridges to Cash showcase recognizes players who have built a dense and sustainable network of cash merchants where people cash-in and cash-out conveniently from their electronic accounts. Under the showcase criteria, this is defined by a volume of transactions at cash merchants of at least 30 per day, and a network of cash merchants with at least 10 times the number of bank branches of the largest bank in the country where it operates. The Digital Piggy Bank showcase recognizes players that can demonstrate their electronic accounts are being used as a store of value, with at least 100,000 customers with a non-zero balance in their electronic accounts, and an average balance of at least 20 USD.
Over the past several months, we have taken a close look at the branchless banking industry in a few key countries. We start here by presenting our learnings from Brazil and share our summary note on the industry. We will continue in the coming weeks to look at several other markets, including Mexico, India and Pakistan.
Financial inclusion in Brazil needs to now turn urban (Photo Credit: André Mantelli)
The job of financial inclusion in Brazil is arguably done. Brazil’s banks have made it a global leader in branchless banking. The underlying retail payment infrastructure is in place. There are agent locations in almost every municipality. New agent management companies from around the world regularly visit more than 30 of their counterparts in Brazil to understand how the business works. And Brazil’s Bolsa Familia program, already successful in moving beyond G2P payments to credit and savings, is considered a global flagship.
And yet, financial inclusion in Brazil still has a long way to go. CGAP has studied the branchless banking market in Brazil over the past few months and has written a country note available here. In this blog series, we discuss some of the challenges identified in that note. We start the series here on the CGAP Technology Blog, but we will continue the conversation on a joint blog to be developed by Center for Microfinance Studies at FGV (Fundação Getulio Vargas).
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
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 »
The conclusion: mobile banking and other forms of branchless banking are cheaper than traditional banking, but the gap between the two may not be as wide as some may think.
On average, branchless banking is 19% cheaper than banks. Why isn’t the pricing gap wider? Mobile money providers might be keeping profits for themselves and not passing them on in lower costs. There could be a good reason.
It is possible that establishing a successful, scaled branchless banking service could be more expensive than expected. Some branchless banking providers want to leave room to come down on prices as more competitors enter the market.
Other highlights:
The lower the transaction value, the cheaper branchless banking is in comparison with banks. For example, at a transactional value of $23, branchless banking is on average 38% cheaper than commercial banks the study looked at.
Branchless banking is 54% cheaper than informal options for money transfer.
Customer usage is influenced not only by absolute prices but by the way a service is priced. For example, in order to encourage trial of money transfers, some services offer free deposits, which make branchless banking an affordable way to save.
Average branchless banking price is $3.90 per month.
Informal providers charge double the price for a money transfer than a branchless banking provider.
Services analyzed:
Afghanistan: M‐Paisa
Brazil: Bradesco and Caixa
Cambodia: WING Money
Cote d’Ivoire: MTN Mobile Money, Orange Money
India: Eko
Kenya: M‐PESA and Zap
Pakistan: easypaisa
Philippines: GCash and Smart Money
Tanzania: M‐PESA, Zap
South Africa: MTN Mobile Money, WIZZIT
The study found that by comparing 26 branchless banking pioneers and traditional banks with products aimed at the same kind of customers, on average, branchless banking is 19% cheaper across eight use cases:
1. Sending Money Transfer
2. Receiving Money Transfer
3. Short‐term safekeeping
4. Medium‐term saving for asset
5. Bill Payments
6. High Usage (as a proxy for financial inclusion)
7. Average monthly transactions per M‐PESA user in 2008
8. Average monthly transactions per Kenyan banking customer in 2008
To promote effective regulation of branchless banking, especially mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized the third Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. This week we’re blogging from the seminar. One session on branchless banking from the consumer’s point of view (download the presentation here) was chaired by Daryl Collins, a Senior Associate at Bankable Frontiers and co – author of the influential Portfolios of the Poor: How the World’s Poor Live on $2 a Day. The book draws on year-long surveys of financial diaries from families in Bangladesh, India and South Africa. The surprise conclusion: many of the people they tracked were not living hand-to-mouth. Rather, the poor often rely on a variety of complex tactics and tools to manage money. In preparation for the session, Daryl reviewed household survey data from Brazil and Kenya – what experiences the poor have had with branchless banking and how this might inform the choices that regulators make when it comes to branchless banking. This is the second part of a two-part interview I conducted with her.
How are consumer experiences with branchless banking driving the policy debate?
What we are trying to do is to talk about the evidence on the ground. A lot of times what drives policy is perception – through the media, what people may hear about rather than systematic evidence. So we conducted a bespoke survey on correspondence banking in Brazil and looked at an exsisting surveyon M-PESA to look at the incidence with which the poor have problems with branchless banking.
To promote effective regulation of branchless banking, especially mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized the third Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. This week we’re blogging from the seminar. One session on branchless banking from the consumer’s point of view (download the presentation here) was chaired by Daryl Collins, a Senior Associate at Bankable Frontiers and co – author of the influential Portfolios of the Poor: How the World’s Poor Live on $2 a Day. The book draws on year-long surveys of financial diaries from families in Bangladesh, India and South Africa. The surprise conclusion: many of the people they tracked were not living hand-to-mouth. Rather, the poor often rely on a variety of complex tactics and tools to manage money.
How are people who live on $2 a day different from, say, the people who are reading this blog? How would you sum up the financial needs of poor consumers?
When it comes to major cash flow, like incomes, most of us have got a predictable pattern and we can plan our financial lives. Poor people have low, unpredictable incomes, where it’s hard to have mechanisms to siphon off income to save money, service a loan, etc. We’re used to having a monthly or biweekly pattern to our financial lives as we get paid a regular salary on a regular basis. Having a predictable pattern means being able to plan your financial life. If you’re talking about people who don’t have a salaried job, their income is irregular. Many of the people who live on $2 a day don’t have that predictability and so their financial lives revolve around mitigating uncertainty.
Talk a bit more about the issue of unreliability and informal financial services.
It is crucial to be able to leave your money in a safe place. Formal services generally offer more safety than informal services, but the problem is that formal services are less convenient. This isn’t just about transaction costs – the time and money spent on a bus or taxi ride as you get to the bank. It’s not even about waiting in line for a long time at a bank branch. It’s also about the mental accounting behind making transactions. If people think they can get at their money more easily, when they want it, then they will feel comfortable about shifting away from informal devices and towards a formal service.
What can we learn from “Portfolios of the Poor” that applies to branchless/mobile banking?
You need to make a service convenient and flexible. So if someone can walk up to a banking agent in their neighborhood and make a transaction, they’ll use it. Formal financial instruments, such as a bank account, are not always flexible enough to meet the demands and challenges created by the irregular cash flows that many poor people live with day in and day out. So making services more affordable and geographically closer to the poor – something that mobile banking does – can help expand the reach of the formal financial system.
The real story here is about expanding the reach and reducing the cost of formal financial services to better meet the needs of poor consumers.
Yes. We have seen that poor people manage their money in a variety of ways, not all of which work well. The services they have available to them are not lined up with their cash flows. Informal financial instruments, such as savings clubs, do a better job at matching cash flows to savings points and being more convenient. But informal services tend to have their own costs, which really center on unreliability. Branchless banking may help people begin to tilt their portfolios towards more formal uses. But we need to be realistic about how quickly this might happen. People are not about to leave informal instruments and go completely into the formal. it’s a subtle shift that will grow over time.
-Daryl Collins, as told to Jim Rosenberg
Next: The consumer experience in Brazil and Kenya, and implications for policymakers.
