Archive for: Highlighted Articles

Over the past several months, we have taken a close look at the branchless banking industry in a few key countries. We have presented our learning from Brazil, Mexico, India and Pakistan. Today we continue with our analysis of Ghana and share this summary note on the branchless banking industry.

With 6 live branchless banking deployments involving 12 banks, 3 Mobile Network Operators, 2 start-ups and a government entity, the race is on in Ghana to reach the unbanked with branchless banking services. Ghana has 15 million adults and a majority of the population living on less than $2 a day, making it significantly smaller and poorer than the other countries featured in this series. It is a unique market with a regulatory focus on interoperability and interesting dynamics in the bank-MNO partnerships. As the market develops, it should yield useful lessons on the role of government, interoperability and the nature of partnerships.

In 2008, the Bank of Ghana issued Branchless Banking Guidelines that allowed for a bank-based model of branchless banking using nonbank retail agents. This is common yet the Bank of Ghana added a stipulation that makes the market different from any other we know: it also prohibited exclusive partnerships and only permitted a many-to-many model. Its reasoning was that “this model offers maximum connectivity and hence maximum outreach and is closer to the desired situation where all banks and all telcos should be able to entertain each other’s customers.”  As a result, each of the MNOs with branchless banking services has signed up at least 3 partner banks (and in one case, 9).

So, who are the main players? Of the 6 branchless banking deployments, 3 (Airtel Money, MTN Mobile Money and Tigo Cash) are run by MNOs in partnership with banks. Of these, MTN Mobile Money has been around the longest and has the highest number of registered customers. Two others (AfricXpress and eTranzact) are start-ups and one (eZwich) is actually run by a government entity, the Ghana Interbank Payment and Settlement System. Together, the deployments claim to have more than 3 million registered customers but the number of active customers is much less. This is partly due to issues within the MNO-bank partnerships as well as a combination of operational challenges around building a viable agent network, effective marketing and robust technology.

Moving forward, there are at least 4 interesting dynamics within Ghana that should yield lessons applicable to the wider branchless banking world:

• Interoperability and the Role of Government – The Bank of Ghana is actively trying to ensure that branchless banking services are interoperable from the inception of the industry. In addition, it is pushing its own interoperable card and POS solution in the market. Many governments are interested in interoperability and the Ghana market will provide useful lessons on the pros and cons of direct government support for this.
• Bank-MNO Partnerships – Around the world, banks and MNOs are forming often uneasy alliances, acknowledging that each needs the other but struggling to bring two very different cultures together. In Ghana, these dynamics are exacerbated as each MNO is working with multiple banks. Not only is there disagreement between the MNO and the banks on roles and responsibility (and corresponding remuneration) but the banks are asked to invest in a service that will also directly benefit their competitors.
• Customer Adoption and Product Development – The current deployments have struggled to gain traction with customers when pushing domestic remittances. The market to ‘send money home’ seems to be limited and there is a big opportunity for creative product development in areas such as micro insurance (exciting pilots are underway) and even savings (Susu collectors are widespread in Ghana).
• Agent Networks – The MNOs in Ghana are taking very different approaches to building networks of agents. MTN has built a completely independent network of cash-in/out agents as airtime distributors were initially reluctant to get involved in mobile money. However, other MNOs are attempting to completely leverage their existing airtime staff and distributors. It will be interesting to see how these two different approaches work in the same market.

There will be much to learn from Ghana as the market develops. For more detailed information on branchless banking in Ghana, read our country note here.

- Claudia McKay

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.

In this mini-series we explore new evidence from three countries on whether branchless banking is reaching poor people starting today with Pakistan.

Proponents of branchless banking, including CGAP, have for some time made the case that branchless banking has the potential to transform the lives of poor customers and in some instances is doing so already. With many more access points across the country and without the cost of expensive branch infrastructure, branchless banking – the theory goes – should be able to reach many more people and at a much cheaper cost. Financial services will be accessible and affordable to many poor people for the first time. But it is quite possible that in the first instance at least it will be richer customers and those who already have bank accounts that will make use of services that are cheaper and more convenient.

Until recently there has been very little data on the income levels of the users of branchless banking. CGAP commissioned Coffey International Development to carry out studies of customers of several branchless banking services. The first study to take place was with EasyPaisa customers in Pakistan. With over 10,000 agents across the country, EasyPaisa already has more access points than the entire banking sector of Pakistan combined, and allows customers to send and receive money to friends and family, to pay their bills and, more recently, to open an account on their Telenor phone. We wanted to find out whether poor customers and those that were previously unbanked were using the service.

327 interviews were carried out with EasyPaisa customers at 10 locations across both rural/semi-urban and urban Pakistan between January and February 2011. Customers answered questions about both their use of EasyPaisa, but also about their homes and their household that allowed us to work out their approximate income level by comparing their answers to a nationally representative household survey.

What did we find?

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This is the fourth post in our series on G2P, branchless banking and financial inclusion. All the other posts can be found here. In this post, our guest bloggers look at the case of the small island country of Fiji. Matt Leonard, formerly with MicroSave, is a consultant documenting the lessons learned from Fiji DSW’s experience.  Till Bruett is the Regional Technical Advisor for UNCDF in the Pacific and the Project Manager of the Pacific Financial Inclusion Programme.  PFIP is a Pacific-wide programme helping provide sustainable financial services to low income households and is funded by the Australian Agency for International Development (AusAID), UNCDF, the European Union, and the UNDP’s Pacific Centre.  More information can be found at www.pfip.org.

On a warm day in the first week of May, hundreds of rural Fijian social welfare recipients traveled from Fiji’s remote, interior highlands to attend what was for many an initiation to branchless banking. The recipients assembled near a small shop in the village of Vunidawa to be introduced to the new concepts by Westpac staff equipped with red bank cards and wireless point-of-sale (POS) devices.  Throughout the morning they showed their new clients how to check balances and cash out benefits. Meanwhile the busy local shopkeepers rang up record numbers of receipts through electronic sales.

Since January 2011, Westpac Banking Corporation of Australia has been helping in the distribution of social welfare benefits across Fiji through its network of branches, ATMs and POS devices in their merchant network. In the process, they have also provided access to flexible, no-fee accounts to a previously unbanked population including those living in hard-to-reach areas.

The benefits consist primarily of an unconditional cash transfer averaging about US$37/month for those classified as widows, elderly, disabled, single parents or those with chronic illness. A smaller group of beneficiaries receive a semi-conditional cash transfer for taking care of orphaned, abused or neglected children.

Up until January 2011, it was a common occurrence in Fiji to see long queues of social welfare recipients suffering under a hot sun outside post offices or district social welfare offices across the country. Not only would many of the 24,000+ recipients trek many hours from the poorly connected interior each month to pick up or encash their vouchers, but many might spend FJ$ 10-20 (US$6 – $12), or 15-30% of their modest allowance on travel. It was on one of these days in January 2009 when the Pacific Financial Inclusion Programme (PFIP) decided this was an opportunity to extend the financial access frontier in Fiji –  putting in motion the first major G2P project for the poor in the Pacific.

In early 2009, PFIP found a willing ally in an overwhelmed and understaffed Department of Social Welfare (DSW). Despite constitutional turmoil that contributed to high-level of turnover at DSW and its ministry among the senior ranks, PFIP and DSW staff conducted an activity-based costing analysis that laid bare the case for transformation. The process of printing and distributing benefit vouchers was time consuming (up to 2 months) and costly (upwards of FJ$  844,000 or nearly US$500,000 per annum) and subject to fraud, error and leakage. PFIP also did a survey of the DSW beneficiaries’ perceptions and attitudes toward banks and electronic banking methods which confirmed that there seemed to be few barriers other than inertia holding back change.  Indeed, these studies – together with critical support from senior staff at DSW and the Minister of Women, Social Welfare and Poverty Alleviation herself – led to Cabinet-level endorsement for the shift from the outdated voucher system to a progressive electronic-based payment system in late 2009.

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Over the past several months, we have taken a close look at the branchless banking industry in a few key countries. We have presented our learning from Brazil, Mexico and India over the last few weeks. Today we continue with our analysis of Pakistan and share this summary note on the branchless banking industry.

Pakistan might not be the first country that springs to mind as fertile ground for branchless banking. The country is certainly facing enormous challenges: from the fragile state of the economy to the rise of religious extremists. Pakistan has one of the lowest proportions of the population who are financially included of all the countries that we are featuring in this series with just 12% having access to formal financial services. But the huge numbers of people who are not currently being served represent a huge opportunity for branchless banking providers. Pakistan also benefits from a very competitive mobile telecommunications sector with low average-revenue-per-user (ARPU) and players hungry to look for additional revenue sources.

Pakistan’s branchless banking story started back in April 2008, when the Central Bank issued specific regulation on branchless banking which laid out the rules clearly: low value accounts with reduced KYC requirements were introduced, but only regulated banks would be allowed to hold the accounts and sign agreements with networks of agents to service these customers. Some 18 months after the regulation was passed the first branchless banking service was launched. Six months later their first competitor entered the market and several others have advanced plans to launch services during 2011.

So, who are the runners and riders in Pakistan’s branchless banking race and what makes them interesting?

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In this final post in the series “Five Business Case Insights on Mobile Money,” we explore how making mobile money “free” could lead to greater profits.

“Free” doesn’t mean no one pays.

CGAP wants the financially excluded to get access to mobile financial services. To suggest that MNOs make mobile money “free” may then come across as self-serving. On the contrary, making money in mobile money and making it “free” are compatible.

“Free” is a business model. In his book, Chris Anderson describes different “free” models including:  (1) direct cross subsidies where one product sold to the customer subsidizes another sold to the same customer; (2) the three-party or “two-sided” market where the service itself is free and a third-party such as an advertiser pays; and (3) freemium where most customers get the basic product for free but some customers pay more for premium features or as frequent or “power” users. Some people have compared freemium to airline pricing: everybody is going to the same place but some people pay more to do more while they travel  (see here, here and here for more on freemium among internet and Web 2.0 businesses).

How would “Free” work with mobile money?

Freemium makes most sense for network effect businesses. Offering a basic service for free drives scale and, as many use it, the value of the service to existing and new users goes up. While network effects are less important for domestic transfers, they matter for a wide variety of commercial and personal payments which MNOs ultimately want for mobile money but cannot capture easily in a direct way.

MNOs can follow a freemium model where they capture value from those customers who transact more or use premium services — including more commercial, institutional and bulk payment users — while allowing everyday small value transacting users, both commercial and personal, to transact for free below a certain daily limit.

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This blog is written by Xavier Faz, CGAP & Denise Dias, independent consultant; with contributions from Carlos Lopez-Moctezuma & Brenda Samaniego, both from CNBV.

Regulators around the world today are beginning to realize that the chances of expanding access through branchless banking can be very limited without reducing the account-opening requirements through agents and mobile phones. The challenge is to strike the right balance between reducing account-opening requirements while maintaining basic controls for AML/CFT.

Enforcing full account-opening procedures often excludes important segments of the population from formal financial services, keeping them “operating” in the informal economy.  There are countries where many people (particularly among lower income segments) lack formal identity mechanisms, and other cases where people do have identity documents, but the requirements to fulfill KYC procedures make it too cumbersome and/or expensive to effectively carry out. In either case, the risk is to inadvertently push these services beyond the reach of the poor (even if geographical reach exists). Therefore, maintaining the same level of KYC requirements as for bank branches supports the prevalence of informal financial systems which in turn acts against the AML objective that was sought in the first place.

Most regulators would agree that some middle ground would be needed, but striking the right balance is not an easy thing. Early examples of this are regulations in South Africa and Colombia, which established exemptions to enable opening of deposit accounts at agents or by the individual themselves through their mobile, relying on broadly adopted national ID mechanisms and population registries that could be checked online at the time of account opening. The BCEAO in West Africa allows the use of anonymous electronic money accounts with caps in the balances.  The actual implementation of these schemes have varied in practice.

Financial sector authorities in Mexico have gone a step further in adopting an approach that addresses the challenges above.  Authorities followed a ‘tiered’ approach that implements flexible account opening requirements for low-value, low-risk accounts that are subject to increasing caps and restrictions on permitted transactions. Opening requirements increase progressively as such restrictions on transactions are eased.  This incorporates several innovative aspects:

• Five different types of deposit accounts, targeting different market segments and income brackets, with varying KYC requirements
• At the “lowest” tier (Level 1), an anonymous account enabling e-wallets as a substitute for small amounts of cash
• Non face-to-face account opening
• Paperless record keeping for the four lower levels
• Outsourcing of KYC to third parties

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MTN Mobile Money ad in Cote d'Ivoire

Many branchless banking implementations have struggled with low customer uptake and high levels of inactivity. Inadequate investment in marketing, especially advertising, has come under the spotlight as a key culprit. However, several high-profile deployments that made huge initial investments in marketing have re-tooled their strategy after disappointing results. Marketing a new product like mobile money – especially to an unbanked, mostly rural population – requires more than flashy ads and blanketing every agent shop with the right shade of green or red. Beyond brand awareness, customers need to understand what the product is, why they should use it and how they can get started.

We’ve collected examples of branchless banking advertisements from around the world and interviewed providers about the lessons they’ve learned and how they’ve adapted their marketing strategies. The results – including case studies and examples of marketing collateral – are in this compilation deck. Some of the things we’ve learned are:

• Mass media marketing is important to build the brand, but not enough – While a heavy investment in above the line marketing (TV, radio and other mass media) is important to raise awareness and establish the brand and product as legitimate, it is not sufficient. Increasingly, branchless banking providers are shifting resources into below the line marketing.
• Education-based marketing, preferably done face-to-face, is increasingly seen as critical to customer adoption – Below the line marketing (especially face-to-face interaction) has been critical in many markets, especially those with low literacy rates. Some providers believe it takes 15-30 minutes of personal interaction before a customer understands a branchless banking or mobile money offering. Until a critical mass of customers is reached (when they start teaching one another), providers need to find a way to do education-based marketing.
• Keep the messages simple and use scenarios that are relevant to the average customer – M-PESA’s simple yet effective ‘Send Money Home’ advertisement is well known and conveyed a simple solution to a problem faced by many Kenyans. However, many implementations since then have tried to market multiple messages or more complex functionalities. These ads were not only confusing to unbanked people but seemed to advertise a premium service for high-end users. Successful ads have used simple messages and are relevant to the average (often unbanked and rural) potential customer.

Check out our deck to see many marketing examples ranging from M-PESA’s classic ‘Send Money Home’ (and the strikingly similar ads it inspired) to Haiti’s TchoTcho Mobile ad featuring a grandmother using TchoTcho Mobile to keep her money away from the prying hands of her family.

- Claudia McKay & Paul Breloff

Over the past several months, we have taken a close look at the branchless banking industry in a few key countries. We have presented our learning from Brazil and Mexico over the last few weeks. Today we offer a snapshot of the conditions for branchless banking in India drawn from a summary note of the Indian scene completed at the end of 2010.

POS machine used by FINO agents

India has embarked on far-reaching financial inclusion initiatives by opening up regulations to allow the use of agents (called Business Correspondents in India) since 2006. India is also building new public infrastructure which could inject a further boost. Will these conditions deliver a lasting increase in financial inclusion?

The government is making visionary investments in public infrastructure.

Allowing the use of banking agents is common today, yet India has moved even further ahead beginning to build 3 pieces of public infrastructure that could substantially accelerate financial inclusion:

1. A mobile payments switch: To take full advantage of the banking network across India, public-private collaboration has built the Inter-bank Mobile Payment Service (IMPS). This new switch allows mobile phone-initiated transactions to pass from the bank account in one bank to an account at another bank. If fully leveraged across the banking network, it would counteract some of the barriers posed by India’s size and regionally fractured banking presence.
2. Unique identification: The Unique Identification Authority of India has begun to roll out registration of the unique identification number with matching biometrics. As this becomes more widely available, it could ease KYC processes and reduce the friction of mass branchless banking operations.
3. Shifting government subsidies to electronic payment systems: The 2012 budget announced a plan to shift some public subsidies (such as $12.5 billion in fertilizer annually) to a system where payments will be delivered directly into the beneficiaries’ accounts. This change would funnel large payments volumes through branchless banking and, among other benefits, bring clients into a deeper banking relationship. This recent policy shift adds to ongoing state efforts to transfer National Rural Employment Guarantee Act wage payments electronically.

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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.

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