Archive for: Brazil

This is an excerpt from a recent CGAP paper, The Early Experience with Branchless Banking. The paper synthesizes the observations and research of the CGAP Technology Program. Gautam Ivatury and Ignacio Mas wrote the paper, with substantial input from the entire program team. This blog series will cover seven observations, four uncertainties and four predictions for branchless banking - what we call mobile banking and other technology-enabled banking solutions.

Customers primarily make payments and send transfers through branchless banking channels, even when most branchless banking channels offer a broader range of services, including account opening, cash deposits, and cash withdrawals. Most customers either time their deposits to coincide with bill payments or cash withdrawals, leaving a near-zero balance in their accounts, or they do not open a savings account at all. Consider the following experiences:

• In Brazil, bill payments and the payments of government benefits to individuals comprised 78 percent of the 1.53 billion transactions conducted at the country’s more than 95,000 agents in 2006. CGAP research in Brazil found that, of the 750 people who responded to a survey in Pernambuco State, 90 percent reported using banking agents to pay utility and other bills, only 5 percent reported opening a bank account at the agent, and less than 5 percent said they had made a cash deposit in to their bank account at an agent.7 Indeed, 87 percent of those who had opened an account stated that they had done so just to receive welfare or salary payments.

• In Russia, more than 100,000 automated payment terminals have sprung up in the larger cities in recent years. One provider, CyberPlat, claims to have processed 1.2 billion transactions worth US$4.7 billion through the first three quarters of 2007 via its 70,000 “cash acceptance” points, mostly for prepaid air time, television, Internet, and other utilities.

• The average mobile banking customer of WIZZIT (a mobile phone banking provider in South Africa) bought air time with WIZZIT twice as often (2.6 times) as they withdrew funds from a branch or ATM (1.3 times), and five times as often as they made a money transfer (0.5 times).

Customers use payments and transfers rather than banking services in part because providers focus their marketing efforts on payments and transfers. M-Pesa advertises its service as “an affordable, fast, convenient, and safe way to transfer money by SMS any where in Kenya,” and WIZZIT’s slogan is “the easy way to pay.” Mobile operators, in particular, prefer marketing payments services rather than the ability to store value because payments services are a closer fit with their traditional revenue model (e.g., per minute or per SMS). Some mobile operators argue that if they did advertise the ability of their mobile banking services to take deposits, they would run afoul of the approvals they’ve received from banking regulators.

The predominance of payments services over savings also likely reflects the perceived relative value that each service brings to the economic lives of the poor. Using banking agents and electronic payments to pay utility bills takes less time than traveling to and queuing in a range of utility offices, thereby bringing very tangible benefits. Similarly, collecting a pension, remittance receipt, and welfare or salary payment is a strong driver for opening accounts.

On the other hand, the value proposition of saving money, particularly in electronic form, appears to be less strong. The former head of Banco Postal in Brazil reported that, in rural areas in particular, his team spent considerable effort trying to explain to customers why they should have a bank account at all.10 It seems that although branchless banking has brought formal banking services physically closer to many unbanked people, it hasn’t changed their perceptions of the value proposition of saving in formal financial institutions. When they receive a payment or a remittance, an overwhelming majority of people go to the agent to withdraw the full amount received.

We believe that, over time, as customers increase their use of branchless channels to make a broader range of payments, they will start to find more value in maintaining transactional or savings balances in their account. In the meantime, more research must be done to distinguish how customers feel about savings in general, about the benefits of saving in banks, and about the branch and branchless channels available to them.

The success of agents in Brazil—achieving 100 percent coverage of municipalities—hinged in no small degree on the fact that utility bill paying is considered a banking service and cannot be done at nonbank outlets. This created a natural captive market of transactions for new correspondents opening up in towns without prior bank presence, where previously residents had no choice but to travel to nearby towns to pay their utility bills. In other countries, such as Colombia, local stores may have collection contracts with utilities, and it has proven much harder for correspondents to seize the utility payments business upon entering the market.

This Focus Note considers the issues, challenges, and opportunities of banking through networks of retail agents. It addresses the idea that, to achieve universal access, banks will need to adapt their systems to a low-value, high-volume transactional environment and to build more flexible, scalable retail networks of points at which people can conveniently pay into or cash out from their transactional accounts.

Mobile banking and other technologies need a balanced regulatory approach

Washington D.C. (January 31, 2008) – Basic, everyday financial services are out of reach for more than two billion people in developing countries. But the rapid growth of branchless banking – including mobile phone banking – is reducing the cost and expanding the availability of such services.

“All of this innovation presents challenges and opportunities for regulators,” says Elizabeth Littlefield, CEO of CGAP. “Policy will determine not only where branchless banking is allowed, but also which business models turn out to make economic sense - and how far they will go in reaching poor people.”

Regulating Transformational Branchless Banking is a product of collaboration between CGAP and the UK’s Department for International Development (DFID), in partnership with the GSM Association, the global trade association for over 700 mobile phone operators. The authors also benefited from conducting three of seven diagnostic missions with the World Bank’s Financial Markets Integrity Unit.

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Reaching poor clients with financial services in rural areas is often prohibitively expensive for financial institutions since low transaction numbers and volumes typically would not cover the cost of a branch. To overcome that challenge, financial institutions in developing markets are increasingly turning to banking agents, using retail outlets to process financial transactions that would usually be handled by a branch teller.  Lower set-up and running costs of banking agents should enable providers to viably offer a full range of financial services to low-income clients in rural and remote areas.

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Brazil’s ACSP Launches Global FICO Consumer Credit Scores
Fair Isaac and Associacao Comercial de Sao Paulo (ACSP), one of the largest credit bureaus in Brazil, have announced ACSP’s launch of Global FICO Score for Brazilian businesses - saying that “the launch of this innovative consumer credit-risk score makes Brazil the first South American nation to access Fair Isaac’s global-standard FICO credit risk scoring technology.”

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The Economist this week takes on mobile banking and the challenges and opportunities regulators are dealing with when it comes to increasing access to finance, quoting CGAP’s own Tim Lyman: 

What can governments do to foster m-banking? As with the spread of mobile phones themselves, a lot depends on putting the right regulations in place. They need to be tight enough to protect users and discourage money laundering, but open enough to allow new services to emerge. The existing banking model is both over- and under-protective, says Tim Lyman of the World Bank, because “it did not foresee the convergence of telecommunications and financial services.”

CGAP has been working hard on this issue, in collaboration with DFID and the GSM Association - learning how regulation is working and how it could be improved in seven countries. The results of that work will be shared in a CGAP/DFID Focus Note in early 2008. For more information, please drop me a line or call me at +1 202 473-1084.

In her opening remarks, Elizabeth Littlefield used the example of Brazil to illustrate two points. Since the government began allowing use of banking agents to deliver financial services several years ago, 98% of the municipalities now have easy access to financial services. That number is enviable by all standards. At the same time, one network manager experienced an 85% turnover in agents during the first few years.

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Since Monday, more than 300 people from 60 countries have gathered at our Next Generation Access to Finance Conference in Washington DC.

The opening sessions covered the opportunities that technology provides, but also helped identify the areas we jointly need to tackle to unleash the power of technology to deliver financial services to people who are too poor, live too far from a traditional bank branch, or do not have a formal credit history.

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Happy Monday…this Monday is more auspicious than most because it’s the start of our three day conference looking at how technologies such as card-based networks and mobile phones could increase access to finance. IFC is a co-organizer, and Visa is a sponsor.

Want to know more? Visit here for the full agenda.

We’ll be posting presentations as we get them…and this link should take you to a live video stream of the event.

Banking agents have helped increase access to finance in Brazil. But success seems to be bringing competition among partners. The Valor Economico reports that Correios, the Brazilian postal network and Banco Bradesco, the country’s largest private bank are fighting about the postal bank they operate together. 

Banco Postal was born out of a joint venture between Branco Bradesco and Correios in 2001. Banco Bradesco bid US$90 million for the 10-year contract and beat Itaú and state bank Caixa Economica Federal.

“Before we arrived, people in São Francisco de Paula had to go 10 kilometers to the nearest town with a bank to withdraw salaries or pensions,” said André Rodrigues Cano, a former Banco Bradesco director.

This was in March 2002 when, Banco Postal’s first branch opened in remote Sao Francisco de Paula in the south of Brazil. Now it seems as if Banco Postal account holders in rural and remote Brazil may have to take the bus again to reach their branch.

Banco Bradesco did not plan on building branches; they decided to use the postal outlets as their correspondentes bancarios, banking agents that deliver financial services.

Within only five years, Banco Postal was able to turn 5,460 postal outlets into full-service banking agents at which clients could pay their bills and withdraw their salary, but also deposit money and transfer funds to a relative in for example Sao Paulo. Today, Banco Postal acquires 4,500 new clients per day, and as of May of this year had opened 5.5 million bank accounts.

But now, its existence seems to be in doubt. Early in 2007, the battle between Correios and Bradesco began in earnest. The government would like to launch its own bank through the postal network providing microcredit, pension plans, and other services. So it may cancel its agreement with Bradesco. The reason primarily being that Bradesco seems to be making too much money off the state’s distribution network. Of the newly planned financial institution, the Brazilian government would keep 51% and the other 49% would again be auctioned to banks such as Itaú, ABN Amro, and Bradesco that have shown interest.

What I’m wondering is what will happen to all the account holders?  Will they be transferred to the new financial institution? Will Bradesco have to open outlets in some very remote locations to serve them? Banking agents have been so successful in Brazil…but would clients now be left behind?