South Africa

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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South Africa’s mobile money
Unisys Identifies Five Security Issues Likely to Emerge Across Multiple Industries in 2008
Microfinance firms could avail of i-banking services
Even simple tech helps reduce poverty
Pakistan ends 2007 with 76.6 million mobile users
Econet sells stake to Essar to finance Kenya roll-out

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FMO’s UPsides magazine this month has a whole set of stories that look at how branchless banking (such as mobile banking) and remittances can help fight poverty. Two CGAP partners, G-Xchange Inc. (Philippines) and XacBank (Mongolia) are featured in this issue:

We are dead set on proving a hypothesis: good return to our shareholders can go together with reaching the poor.
-Riza Maniego-Eala, President of G-Xchange, Inc.

Our market research shows that 50% are keen to have mobile banking services made available through local grocery stores, post offices and gas stations. But getting the service out is proving to be a challenge.
-Ganhuyag Chuluun Hutagt, CEO, XacBank

Download the pdf here.

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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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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.

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There is burgeoning demand for mobile banking among users, though this is tempered by concerns about security and lack of awareness. This from industry analyst Sybase 365, who surveyed potential mobile banking customers in the Americas, Europe and Asia-Pacific regions.

Underlying the worldwide enthusiasm for mobile banking is a trend that has been coined by the survey as ‘nano-economics,’ or a near obsession by consumers with managing their finances to the cent and by the minute. 

But what about customers who are completely unbanked, who want first-time access to financial services? For many of the world’s 2 billion living on USD 2 or less, that means a secure way to save and affordable means to pay and make transfers. Those are typically services associated with transaction fees and unlike with credit, providers will need high volumes to make money off of low margin clients.

Interestingly, though, poor people have the same questions as the comparatively rich people Sybase surveyed: is it safe, and can I find out more? CGAP’s research with WIZZIT, which targets low-income South Africans with a mobile- and debit card-based service, found poor people had lots of questions about WIZZIT’s safety, convenience and affordability. Less than half were familiar with WIZZIT or mobile banking.

But it looks like the trick is getting people to try it. Low-income people who used WIZZIT were enthusiastic about the value. Three out of four said it was closer to their ideal way of doing banking than branches and ATMs, because of affordability, safety and ease of use.

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Mobile banking is taking off. Or is it?  The buzz around mobile banking is matched by a recent flurry of product launches. In the US, nine banks rolled out a mobile banking platform to their customers this year. And they’re already late to the game. In Africa, Asia and elsewhere, banks and mobile phone companies have offered mobile payment and banking services for several years. Vodafone’s M-Pesa service has a half million users in just 6 months in Kenya, in a country with just over 3 million people with bank accounts.

Clients might sign up, but will they use mobile banking? Business projections, and a few careers, are likely to live and die on the answer. CGAP’s research in South Africa suggests low-income customers won’t understand the value until they use the service. Once they do, clients can become active users.

But a blizzard of studies in developed markets is clouding the picture with different answers, which has to be somewhat unsatisfying for senior bank and mobile manager deciding on whether to invest in mobile as a channel. Earlier this year, Celent argued 35 percent of online banking households will be using mobile banking by 2010, with new functionalities making mobile banking distinct from other channels.  Meanwhile, a more pessimistic Jupiter Research touts survey results showing only 8% of cell phone users who use online banking services are interested in mobile banking.  The debate in the US frames the same questions managers are asking in emerging markets. So which is it? Consumers will love it, or hate it?

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That was fun. What did we learn? 

We reaffirmed that small, including micro, enterprises have proven themselves to be reliable and sustainable ways to help people out of poverty and that, in that context, we have abundant proof that microfinance is a workable idea.

MFIs, although having reached increasingly impressive numbers of people, must nonetheless recognize that more than two-thirds of the inhabitants of developing countries remain to be touched by the MFI mission of bringing the advantages of banking to the unbanked and under-banked.

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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.

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Sci-fi seer William Gibson said “The future is already here: it’s just unevenly distributed.” If that’s true, then the future of mobile is already happening in places like Kenya, the Philippines and South Africa. And two numbers released this month by Wireless Intelligence tell us why mobile payments and banking is much more likely to happen in poor countries than rich ones.

August saw the world’s three billionth mobile phone connection made. The first billion mobile connections took a dozen years, and the second just two and a half years, with 82 percent of new subscribers coming from developing countries. The third billion: just under two years. The growth of mobile is centered squarely in places like Mumbai, not Munich, Lagos, not London.

Meanwhile, ARPU, or average revenue per user, continues its downward trend, sliding another 12 percent globally. This means mobile operators are earning less per customer. The trend is most pronounced in poorer countries. In Africa, blended ARPU has declined by a quarter from 2005, down to 13.9 Euros, compared to the world average of 22.6. ARPUs look even less enticing if you also factor in churn (percentage of customers lost), which increases customer acquisition costs.

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