India is undergoing a significant expansion in the use of agents (Business Correspondents) to offer a range of financial services. There are many questions about whether this present expansion can be sustained. A new publication from MicroSave highlights reasons for optimism. To understand this perspective, Greg Chen, CGAP’s Regional Representative for South Asia, asked Graham A. N. Wright, the founding Director of MicroSave, a series of questions about branchless banking in India (note: MicroSave uses the term electronic/mobile-banking or “e/m-banking” to describe this field, while we at CGAP tend to use “branchless banking”). MicroSave has a large presence in India with over 80 staff and a large practice focusing on: e/m-banking; microfinance; SME; private sector development and responsible finance.
Graham Wright, MicroSave: India has huge opportunity to leverage the potential of e/m-banking and build a cash-light economy. In addition to its cutting edge information technology industry and relatively dense population, the Government of India is clearly determined to achieve financial inclusion through digital money and is taking aggressive steps to see this happen.
The gradual regulatory evolution to support business correspondent network managers (BCNMs) and banks in their outreach efforts continues – and the results are beginning to emerge. While the emphasis continues to be on numbers, the targets are such that large scale outreach infrastructure is being built in a short time frame, with an agent covering every village with a population greater than 2,000. This, coupled with the government’s resolve to move to cash-based subsidy transfer and social security payments systems, will ensure transactions. Institutions such as the Unique Identification Authority of India (UIDAI) could greatly ease customer KYC and authentication, and the National Payments Corporation of India (NCPI) has already built a national switch for inter-bank mobile transactions. This infrastructure could play expanded roles as systemic back-bones that support different players and bring about interoperability.
Question: The services necessary for financial inclusion are much broader and so what are the anchor or lead products for building agent-based branchless banking systems in India?
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.
Our discussions on branchless banking on this blog do not often touch on the role of microfinance institutions (MFIs). The main actors in this space seem to be mobile network operators, commercial banks, larger microfinance banks and technology companies. We have done a bit of thinking on microfinance and mobile banking, notably in this Focus Note and at this Virtual Conference.
In our last post of the year, we bring the discussion squarely back to the role technology can play for MFIs. Our guest author is Leo Tobias, Grameen Foundation’s Technology Program Manager of the Solutions for the Poorest Microsavings Initiative.
Cashpor Officer processing loan payments on mobile
Grameen Foundation’s Microsavings Initiative is a three-year project funded by the Bill & Melinda Gates Foundation. It was launched in November 2009 with a goal of reaching 1.45 million new savers across 3 MFIs in the Philippines, India and Ethiopia.
Offering voluntary savings is demanding. Financial institutions compete with the alternatives that exist to formal savings accounts (home, relatives, neighbors, etc.). A common theme in our savings market research is the customer’s desire to have easy and convenient access to their funds. To deliver on those desires, our MFI partners face common technology challenges.
Here are two major challenges:
1. Front End Technologies
To meet customer demands, financial institutions must develop delivery channels that offer accessibility and close proximity to the end client.
Selecting the right technology is an important first step. The 3 MFIs are at various stages of investigating or implementing mobile technology. In India, CASHPOR (CASHPOR Micro Credit) incorporated mobile in both their credit and savings processes. In the Philippines, CARD Bank (Center for Agricultural and Rural Development) implemented an SMS system for an on-demand savings deposit pickup service. The use of mobile phones is clearly a powerful venue for bringing the transaction closer to customers. However, it is not the only technology to be considered.
In Ethiopia, ACSI (Amhara Credit and Saving Institution) is planning to use cards (most likely smart cards) and POS devices as their first front end technology implementation. With only approximately 14% mobile penetration in the country, all indicators point to the fact that the majority of the rural poor will not have access to mobile phones in the next couple of years. In the Philippines, the majority of microfinance customers are in provinces classified as “urban” or “semi-urban”. In many of these areas, ATM machines are accessible. CARD Bank chose to provide access to the national and international network of ATMs as a feature of its voluntary savings product in addition to the use of mobile phones.
Integrating all the sophisticated technology requires the help of external providers who can bring a wide array of specialized expertise to the organization. However, managing relationships with outside technical providers can be new and difficult since most of the technical needs of MFIs had previously been met by in-house expertise.
The MFIs are ultimately responsible for the relationship with their customers. The MFIs therefore have to provide the training and support needed to make sure members are comfortable with and trust the technology. A component of our holistic program has been to recognize this need and to develop educational programs to introduce not only the savings products but the technology associated with them.
PayPal made news recently by launching a new report, Money: The Digital Tipping Point, which predicts that by 2016 UK consumers won’t need cash or a wallet to go shopping. I’m not sure why the UK market was the focus of this report, but I won’t tell PayPal that KPMG just came out with its own research that showed that “when it comes to mobile banking, consumers in the UK are more resistant than elsewhere. Only 27% of Brits surveyed said they had used some form of mobile banking in the past six months (globally 52%).”
But Carl Scheible, Managing Director of PayPal UK, is persistent and argues,
We’ll see a huge change over the next few years in the way we shop and pay for things. By 2016, you’ll be able to leave your wallet at home and use your mobile as the 21st century digital wallet.
I’ve been intrigued to see several recent new stories spouting off about the grandiose vision of a cashless society. To a certain extent I thought we had moved past this debate. While recognizing it as desirable, this high and mighty goal seems somewhat unattainable, at least in the short to medium term. At CGAP, a former colleague and I wrote about mostly failed attempts to go cashless in developed economies in the late 1990s and early 2000s through various mobile and electronic payment schemes. A few of us also wrote about the attempt in Singapore to dictate a cashless economy about 10 years ago, but to my knowledge I believe there’s still cash floating around Singapore.
Cashless seems a bit naive; cash lite seems more realistic, although still a big challenge despite the innovations that have happened since these initial attempts a decade ago.
Everyone is always talking about trying to move the branchless banking industry beyond just payments. Those of us concerned with accelerating “real financial inclusion” long to see credit, savings and insurance products pushed over new delivery channels. But is it possible that there’s still work to be done within the payments space itself, just diversifying a bit beyond simple P2P transfers?
For example, I’ve been hearing a lot of talk recently about really trying to crack the nut on merchant payments. Branchless banking providers see this as a huge opportunity not only for increased transactions (and therefore revenue), but also as a way to solve some of the tricky problems around liquidity management at agent locations when more people use electronic value for direct purchases instead of just cashing in and out. But how do small merchants respond to the possibility of being brought into the formal economy through using a traceable payments service? Will merchants and customers be willing to pay a fee to transact electronically instead of in cash? These are just a couple of the open questions that still need to be answered.
I ran across the organization Venture Capital for Africa (VC4A) at a recent conference in Ethiopia. One of their recently profiled ventures is addressing some of these questions around moving past person-to-person transfers to merchant payments and other business transactions. The start-up Yo! Payments in Uganda is trying to connect the ecosystem and facilitate mobile money as a real “medium of exchange.” Read about some other pretty cool startups in the African mobile market here.
What about even fancier transactions than just merchant payments, like investments? At a recent African bonds market workshop in Nairobi, discussions involved the possibility of allowing mobile phone users to buy Treasury bonds through mobile money transfers. I wouldn’t bank your investments on this yet though, as the article was clear that “details are yet to be worked out” and this seems to be the sort of transaction where the devil is indeed in the details.
As regular readers of this blog will know, we are excited about the developments that we’re seeing in branchless banking in Pakistan, which have led us to call it a “laboratory” for innovation. Most recently I interviewed Mansoor Hassan Siddiqui, the Director for Banking Policy and Regulations at the State Bank of Pakistan about the recent changes to the Branchless Banking Regulations that, among other things, removed the need to capture biometric information at the time of account opening.
These changes to the regulation seem to have unleashed yet more activity. Easypaisa, the longest-established service in the market launched by Tameer Microfinance Bank and their parent company, mobile network operator Telenor, now claims over half a million mobile accounts following a major campaign. The mobile account will complement their over-the-counter bill payment and domestic money transfer services which together have processed a total of Rs 43 billion (US$500 million).
The other major player in the market is UBL, which launched their Omni service in April last year, only six months after easypaisa’s debut. UBL is supporting a number of government and NGO programs in the distribution of cash transfers to nearly two million beneficiaries through their network of 5,000 agents. Recently, UBL started accepting loan repayments for microfinance institutions (MFIs) and providing cash management facilities for businesses.
Two other players, First Microfinance Bank and MCB have already been granted branchless banking licenses under which they are running pilots. The State Bank of Pakistan last month issued a microfinance bank license to Waseela, a subsidiary of Orascom – who also own Pakistan’s largest mobile operator. The move was seen by many industry analysts as a necessary step towards getting a branchless banking license which will allow Mobilink to launch a service to compete with easypaisa.
There are several other banks that are also considering applying for branchless banking licenses and many non-banks such as the courier firm TCS. Other mobile operators are also looking for suitable banking partners that will allow them to launch their own services.
This CGAP Brief released today summarizes the latest developments and offers a commentary on the biggest challenges facing the branchless banking sector in Pakistan.
India is just one of a handful of countries that is implementing financially-linked G2P payments at scale. And of course, “scale” in India – a country with nearly 1.2 billion people – means something a bit bigger than in most countries. In India in 2008-2009, 22 welfare schemes paid out a total $65 billion to tens of millions of Indians – which doesn’t even include the substantial G2P flows for government salaries and small savings schemes. The yearly budget of the National Rural Employment Guarantee Scheme (NREGS), one of two welfare schemes that dominate the G2P payments space is $6.7 billion. And, most excitingly from our perspective, these schemes are leveraging emerging branchless banking models to disburse these payments, moving from the former branch- and cash-based distribution model to the distribution of funds into no-frills bank accounts serviced by business correspondents outside of branches.
Not surprisingly, though, this is only the start of the story. While the ambitious link of G2P payments to bank accounts is exciting and can be a source of learning and inspiration for other countries, challenges and complexities persist. We visited India this summer to learn more about G2P payments as they relate to financial inclusion. Our full overview note is available here, but here’s a summary of our key insights.
State governments exercise significant control over the management and administration of central government-mandated G2P schemes, and there is great variability in the fees paid by state governments to banks for disbursing funds to citizens – some states pay 2% of values disbursed (or more), but others refuse to pay anything. This weakens the business case for banks and fails to generate enough money to feed the many mouths in the G2P value chain.
Business correspondent network managers (BCNMs) are particularly squeezed, as they must compensate their network to keep them engaged and reliable, but the current fee structures from banks leave little money left over.
In the absence of transaction fees, many banks appear motivated to disburse G2P transfers because they view this as a “foot in the door” for future business from governments, an especially compelling prospect for private banks who have traditionally been boxed out of this business by public-sector banks.
One of many Brazilian agents that move people outside of bank branches
I’m blogging from Dakar, Senegal where I had a stark reminder of why innovation in financial services is so necessary. A colleague of mine had a check to cash, so after one of our meetings we made our way to a “to-remain-unnamed” bank in the city center. Good thing I decided not to wait in the car because this relatively simple transaction took well over an hour to complete. First we had to wait about 30 minutes for our number to be called behind all the people waiting ahead of us. But once he was at the teller, it still took my colleague about 45 minutes to finally walk away with his cash.
My intention is by no means to bash banks…the computer system seemed to be running slowly and the check was for a couple thousand dollars, so he was sent to another desk for some sort of extra authorization. But it was a good, and admittedly frustrating, reminder of the potential of branchless banking, technology and innovative business models to transform the way people, especially the unbanked, access financial services…outside of bank branches.
This experience aside, the Senegalese market is full of exciting initiatives and inspiring energy from banks, MFIs, mobile network operators, technology companies, various government institutions and the central bank. In perusing my Google feed of news on branchless and mobile banking, there are plenty of things around the world to get excited about. Here are just a few that caught my eye:
One of the banks that has a regional presence in the West African Economic and Monetary Union (WAEMU – of which Senegal is a part) is Morroccan-based Attijariwafa Bank. Wafacash, a specialized subsidiary of Attijariwafa and leader in international money transfers, announced the launch of a new mobile money transfer corridor in partnership with Belgacom subsidiary BICS between Belgium and Morocco.
A new study reports on the first randomized evaluation of a cash transfer program delivered via the mobile phone – Zain’s Zap service in Niger (now Airtel’s Airtel Money). The report highlights several benefits of this new delivery mechanism and we’ll be profiling this experience in more depth on our blog in the coming weeks.
Also related to cash transfers, a new report by UNCDF examines Fiji’s experience in leveraging government-to-person (G2P) payments as a mechanism to enhance financial inclusion and provide savings to government and social welfare recipients via a savings-linked electronic payment system.
In Bangladesh, the Bangladesh Bank has just published new guidelines on mobile financial services and the Financial Express reports that nearly a dozen banks are preparing to introduce such services, in addition to those services that are already in the market.
In Pakistan, the largest mobile network operator Mobilink, a subsidiary of Orascom Telecom, was recently granted a license by the State Bank of Pakistan to initiate microfinance activities, seen as their foray into branchless banking.
But I admit that what excited me the most when I looked through my Google feed was the fact that I read more than 20 headlines before finding a story that mentioned M-PESA. The rest of the world is catching up!
On a recent visit to Bangladesh Sarah Rotman and I met with Post Office Director General, Mobasherur Rahman, at his office in the middle of busy downtown Dhaka to hear about his foray into the world of branchless banking.
Rahman escorts us through winding corridors, deep into the heart of the Bangladesh Post Office headquarters, to a room unlike any other in the enormous building. Outside an innocuous looking door are about twenty pairs of shoes watched over by a small security camera. We were politely asked to remove our shoes and were shown into the room.
The Post Office now offers two branchless banking services. The longest established service, which was launched in March 2010, is the Electronic Money Transfer Service (EMTS) which allows customers to instantly send money from one branch to a friend or relative who can pick up the funds at 2,000 of the 10,000 post office branches. EMTS, it is envisaged, will soon replace the traditional money order. Post office staff use either a web interface, for those with internet connectivity, or a menu on a specially equipped mobile phone to key in information about the sender and receiver. There is also an option for a free text to be sent to the recipient notifying them of the transfer.
As we enter we are greeted by a blast of icy air from a room where the environment is carefully controlled – other post office staff have to brave the Dhaka heat and humidity with only the aid of a fan. In front of us is a small call center where half a dozen people are answering questions from post office staff and customers about the service. The other half of the room is taken up with huge server racks and we watch as transactions are processed, flashing up on the screen for a few seconds before the next transaction takes its place. Over two million transfers have now been carried out and the system now processes 14,000 transactions per day. As if to answer our questions about what happens in the event of a power cut, the lights momentarily dim and we hear a generator automatically start up in the background. The servers keep humming throughout and there is no let-up in the transactions popping up on the screen.
This is a guest blog by Loretta Michaels, an independent consultant who has worked on mobile money implementations in Afghanistan and Haiti, among other places.
A mobile money user in Afghanistan
As everyone who reads this blog knows, there’s been a great deal of excitement over the last few years regarding the potential for mobile money to solve a host of development problems. And as we’ve all learned over that same period of time, it’s not as easy as it looks, or at least as easy as Kenya made it look. Countries like Afghanistan, Iraq, Haiti, the Democratic Republic of the Congo, even the newly minted South Sudan are all experimenting with or thinking about mobile money implementations. In addition to the normal issues and challenges facing policymakers and service providers, post-conflict and post-disaster countries face additional problems that merely serve to exacerbate the overall challenges with mobile money.
Skilled resources are scarce commodities in a post-conflict region. Finding experienced staff that can implement and/or regulate mobile money services is hard enough in most places, but finding those people and convincing them to go live and work in high-risk locations is proving almost impossible for service providers, governments and donors alike. Recruitment and hiring can take many months, and even when good people are found, at high cost, many leave early, deeming the stress, danger and distance from family not worth the price. What usually results is a procession of short-term consultants (like me) coming in to dispense advice but not sticking around to help get it implemented, meaning things take twice as long to do and often achieve half as much.
Introducing innovative mobile financial services in a country that is struggling to form a stable government can embroil a new market in larger coordination problems, especially when private enterprise and government services are both involved. Mobile money is a new area of regulation and may require coordination between different parts of government, which can be hard in markets where governments are newly formed or struggling to manage disaster recovery. In the absence of clear direction, you could end up with situations where regulators act hastily and unilaterally, which may lead to turf battles with other ministries. For example, in a couple of markets, the telecommunications ministry has demanded – and charged a fee for – a “letter of no objection” for a mobile operator to offer mobile money services. In others, the regulator will ask for a specific identification document for account opening when another part of the government is still struggling to even implement such identification. Haiti is a good example of this where many people either never had particular identification documents or they lost them in last year’s earthquake. Read the rest of this page »
