“The improvement of data on financial inclusion is undoubtedly the most immediate challenge to overcome. This must be accompanied by the analysis of the needs and expectations of the population.”
We recently spoke with Elvira Cruvinel, head of a new Brazilian Central Bank team coordinating financial inclusion efforts. Only a handful of countries globally have created such financial inclusion teams at central banks. Elvira is part of this small pioneering group of leaders looking to effect major changes to the financial access landscape.
1. What is the Brazilian Central Bank’s vision of financial inclusion?
In recent years, the Central Bank of Brazil has determined that the promotion of financial inclusion is a strategic contribution to the development of the Brazilian economy. We believe that adequate financial inclusion helps reduce poverty, since meeting the demand for financial services can improve quality of life and the development of the financial industry can spur economic growth. We also believe that financial inclusion is beneficial to economic stability, financial system efficiency and the effectiveness of monetary policy instruments.
2. Your team was created in 2009. What have you been able to do since then?
In 2009, we created the Financial Inclusion Project at the Central Bank, after realizing that it was necessary to integrate various stakeholders to develop effective policies for financial inclusion. This required a great deal of interdepartmental coordination and collaboration with other institutions, both national and international. Another major part of our effort was the collection, organization and analysis of data and research on various issues related to the subject. At the end of that first year, we published the book “Perspectives and Challenges for Financial Inclusion in Brazil: a view of different actors.”
Through our efforts that first year, we were able to solidify the Central Bank’s role on this issue in Brazil. In my opinion, our role in pulling stakeholders together showed clearly in Brazil’s first Forum on Financial Inclusion in 2009, which was organized by the Central Bank but involved multiple ministries and hundreds of participants across industry and policy circles. The second Forum, held in 2010, also shed light on regulatory issues, allowing for the definition of a financial inclusion agenda in Brazil. The third Forum, carried out in November 2011, shed light on ways to measure financial access, the quality of inclusion and products.
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.
I think it is safe to say that the financial inclusion world has started to get used to the idea of thinking about financial service providers more broadly than traditional microfinance institutions, rural banks and financial cooperatives. With the recent growth of mobile network operators, technology providers and agent network managers, it’s evident that financial inclusion encompasses a broad set of providers. But even I am sometimes surprised to learn about some private companies that seem to have a very tangential link to the unbanked financial sector taking advantage of new opportunities in branchless banking.
Take OXXO as an example. OXXO is the largest convenience store in Mexico (comparable to 7-Eleven in the US) opening a new store every 8 hours…yes that’s 8 hours! 7.5 million people come through their stores every day, most of whom are looking for things that a normal convenience store would offer…food, snacks, paper goods, etc. But OXXO is diversifying its products to offer its wide customer base the “convenience for everything you’d need in life any time of day.”
In this video, Aiko Fujimura, Manager of Financial Services for OXXO, explains how this added convenience extends now to financial services offered through the OXXO e-wallet. She admits that there are certain challenges. “It is easy to sell soda and snacks, but not as easy to sell financial services.” Training a huge network of employees and convincing people to trust the store with their money are two issues OXXO is currently facing.
Few companies have the scale of OXXO, but convenience stores and other retail outlets are still being used to build up branchless banking agent networks. In this video, Johannes Kling of the agent network company DD-DEDO talks about the role that convenience stores play in Colombia in expanding the outreach of banks. As he explains, Colombia is still very early on in the growth curve when it comes to branchless banking. But as we all know, a strong agent network is one of the early pieces of the puzzle in building a branchless banking ecosystem.
Next week, we’ll share two more videos from more traditional players – a bank and a mobile network operator – but each with an interesting take on their new business model to reach the unbanked.
To commemorate the 2nd anniversary of the Haitian earthquake, we are running a few blogs on the mobile money industry that has developed in Haiti over the past two years. The consulting firm Dalberg has recently completed three pieces of research on the Haitian market as part of Haiti Mobile Money Initiative (HMMI). You can read their Haiti mobile money case study here and their research on the NGO experience of plugging into mobile money here.
Today they release the third piece of research on the payments market, specifically on the topic of market segmentation. Our guest authors are Vicky Hausman, Yana Watson, Matt Shakhovskoy and Lorenzo Bernasconi from Dalberg.
With a year of operations under their belts, providers of mobile money services in Haiti are looking to move from a push for rapid expansion to a strategic pursuit of profitable markets. The industry’s kick-start came from a $10 million prize pool supplied by the Bill & Melinda Gates Foundation. Now as the prize mechanism nears its completion, the focus is shifting to sustainability based on supply and demand. For providers of mobile money services, we believe that a successful strategy will depend in large part on market segmentation.
The Haitian economy, though poor, is dynamic and resilient, and mobile money could fit into it in many different ways. Establishing possible uses through research and then offering a mix of services to suit distinct groups of customers will be key to the industry’s long-term viability. Studying and prioritizing these groups through segmentation will help companies to collect the highest return on their investment.
Segmentation is particularly important in nascent industries like mobile money, since identifying early adopters and low-hanging fruit can create opportunities to grow quickly and achieve economies of scale. While it isn’t an easy process, especially in a country where data on markets are hard to come by, it can insure against wasted effort and unprofitable investments. We recommend starting by estimating the size of different segments, then prioritizing them based on the costs and rewards to serve them, and finally planning a strategy to capture the segments that present the highest returns.
To see how we prioritized the segments in Haiti and to read a profile of one of the most promising – the agricultural value chain – see our report here.
Over the past week, the world has been commemorating the 2nd anniversary of the Haiti earthquake. Today and tomorrow we will have two guest blog posts on the mobile money sector that has emerged over the last two years in Haiti. Today’s post is written by two colleagues at USAID.
Charley Johnson is a Presidential Management Fellow at USAID. Priya Jaisinghani is a Senior Advisor to the Administrator and Director of the Mobile Solutions team. Prior to her work at USAID, Priya helped launch the Gates Foundation’s work in financial services from 2005-2009.
Two years after the earthquake, Haiti is rebuilding not just brick by brick, but click by click.
The earthquake left behind a government in rubble, an economy in shambles, and a people living in makeshift camps, coping with enormous loss. Against this backdrop, the possibility of progress lives not just in the resilient spirit of the Haitian people, but also in the simple power of their mobile phones.
In June 2010, USAID and the Bill & Melinda Gates Foundation launched the Haiti Mobile Money Initiative (HMMI). This program leveraged the private sector and the ubiquity of mobile phones to bring financial services to Haitians, 90% of whom didn’t have access to a bank account before the earthquake destroyed nearly one-third of the country’s bank branches, ATMs, and money transfer stations. Put simply, mobile money gives Haitians access to banking without building a single bank.
It worked. In January 2011, one year after the earthquake, HMMI awarded Digicel and its partner bank, Scotiabank, a “First to Market” Award of $2.5 million for “Tcho Tcho Mobile.” Five months ago, HMMI awarded mobile operator Voila and their bank partner, Unibank, $1.5 million for “T-Cash.” While verification is still underway, data reported by the industry indicate that there are nearly 800,000 registered users. Moreover, there are over 800 agent locations now available to serve clients. In a country where there are fewer than two bank branches per 100,000 people, this represents a near doubling of accessible financial services.
These numbers are significant, but what do they mean for the people of Haiti? Why should we care about the growth of mobile money in Haiti and the rest of the developing world?
This is a guest post by Peter Goldstein and Caldwell Bishop of InterMedia. Peter is Director of Communications for InterMedia and Project Director of AudienceScapes, an African research program and online knowledge center for the global development field funded by the Bill & Melinda Gates Foundation. Caldwell is a communications intern at InterMedia and is currently pursuing a Masters in International Development at George Washington University.
We all remember the devastating 7.0 earthquake that struck Haiti in January 2010 reportedly destroying about one-third of the country’s bricks-and-mortar bank branches, limiting Haitians’ ability to send and receive money transfers, cash checks, or simply access much-needed cash resources.
In June 2010, the Financial Services for the Poor initiative at the Bill & Melinda Gates Foundation partnered with USAID on the Haiti Mobile Money Initiative (HMMI), featuring a $10 million fund to provide incentives to mobile service providers to quickly launch and expand m-money services. Notably, Digicel, Haiti’s leading mobile provider, won the first-to-market prize of $2.5 million in January 2011 after launching its Tcho Tcho Mobile service. Soon thereafter, Voila, Haiti’s second largest mobile provider, released its T-Cash m-money service and received a $1.5 million USD second-to-market award. The CGAP Technology Blog has had several posts on this initiative (here, here, here, here, and here).
To help monitor the impact of the HMMI as well as m-money service use and financial access in general, the Gates Foundation commissioned InterMedia to design and conduct a series of household surveys of Haitian adults (aged 18+). The first Haiti Mobile Money Tracker (HMMT) survey was conducted in March 2011, in the early days of m-money usage, and sampled all ten Haitian administrative departments based on figures from the latest census in 2003. Follow-up surveys will be conducted to establish usage trends – hopefully based on a more up-to-date 2011 census.
InterMedia’s HMMT Online Data Analysis Tool allows financial access practitioners and stakeholders to dive into the survey data themselves in a user-friendly way. The combinations of financial, mobile and demographic data are easily cross-referenced to support project planning and analysis.
Meanwhile, the first survey yielded some helpful insights and provided rare baseline data for a mobile money deployment. Here are some of the highlights:
This is the third post in a five-part series about product innovation in branchless banking. Read the first and second posts. This post includes a detailed presentation of CGAP’s analysis of 23 firms from banking, microfinance, mobile, fast moving consumer goods, and Silicon Valley. It also describes the key features of three Product Labs which will be established by CGAP’s bank, telco and other partners.
Some managers just aren’t interested in innovation. They see being on the leading edge as being on the bleeding edge. “Let someone else fail and then I’ll copy the successes.” Quite reasonable, if you can afford to be second.
For those who cannot, where can they turn for help crafting breakthrough products and services? Standard market research tools and data mining often fail to deliver the kind of unique insights needed to identify new growth opportunities. Several new approaches are in pilot in the microfinance field: randomized controlled trials, financial diaries, behavioral economics. These have already expanded our foundational knowledge about the financial lives of the poor. But they’ll need adaptation to fit the rapid timeframes preferred by the private sector.
To find better tools we looked at 5 industries that overlap with branchless banking: either they sell financial services (traditional banking, the microfinance sector), have low-income consumers as a target segment (microfinance, fast moving consumer goods), or use electronic channels (the mobile industry, Silicon Valley). We looked at 23 firms in total. The powerpoint here includes further details.
The common connection across most success stories was observing consumers rather than asking them. In interviews or focus group discussions consumers aren’t always honest, don’t remember accurately, may believe one thing but actually do otherwise, or may simply be of several minds about a topic but only tell you one facet of their viewpoint. Observing their lives and behavior allows us to pierce the fog cloaking unstated opinions and deeply-felt needs. That’s the space where breakthrough products evolve from. We’ll give an example:
Reaching the poor with a range of useful, convenient, and affordable financial services is challenging for all the reasons we know. In the context of Mexico, access has increased significantly in the past few years (nearly 60% of all households), and changes in regulation enabling correspondent banking are likely to bring the access barrier down even further. However, the challenge of delivering a relevant offering, tailored to the needs of the lower-income population still remains. This may be one of the reasons why many people who have access to formal financial services are not using them.
While consumer goods companies have developed an understanding of these segments, few actors in the financial services space have a deep knowledge of how “bottom of the pyramid” (BoP) customers use money and financial products, and what sort of products these customers may want in the future.
We conducted a study (available in both English and Spanish) in collaboration with McKinsey and Company, seeking to provide a closer look at the financial habits, needs, and wants of low-income customers in Mexico. The goal is to provide the kind of information that will enable financial service providers to design better products (i.e. products that reach more people and solve felt needs) and to implement products and business models with a greater chance of success.
We hope this study will help orient assumptions about customer behavior that can lead to improved product design and less risk in business models. Even though the study is intended to serve the Mexican market, we intend it to be useful and applicable to other markets.
Here are the key findings:
Segments at the BoP save significantly. Deposits (both short term and long term) represent an amount equivalent to 20.4% of these segments’ annual aggregate income. If these deposits were to be held in formal financial institutions, the current deposit base in the formal financial sector would increase by 23.4%. Read the rest of this page »
A "Red Cerca" agent location of Banco AV Villas in Colombia
CGAP, in partnership with the Inter-American Development Bank and Akya, a banking consultancy, recently completed some analysis on the business case for banks in branchless banking. Our findings, which we share with you in a series of posts, starting with today’s, are based on interviews with over 20 banks that play some role in a branchless banking deployment. We also looked closely at the financials of a few banks that have been involved in branchless banking for five or more years, running agent channels for payment products or as a way to reach unbanked customers.
Our findings should bring some good news to the banking industry that is quite beleaguered and battered by crisis, competition and alleged illegalities. These are not the best of times for banks globally. In one part of the world, banks are barely recovering from a crisis. While elsewhere, especially in markets across Africa, new actors, such as mobile operators or technology companies are making forays into the banking business. From Brazil to India, banks are struggling to innovate to develop services for the unbanked or reach new segments and keep up with demographic changes.
As we have done with other pieces of research, we detail our findings in this presentation. We make the following five main points:
(1) Agents are the most economical channel available at low transaction volumes. Banks that have all three channels – networks of agents, branches and remotely-managed ATMs (the closest equivalent to agents) — see the lowest transaction costs at their agent channel. Transaction costs at agents range roughly from 0.27 to 0.58 USD per transaction and are 50% the transaction costs at branches and ATMs (see slide 10). However, at higher transaction volumes, fixed cost infrastructure like ATMs, is of course more economical for banks for basic transactions (slide 13).
(2) Banks provide three main reasons for doing branchless banking. In our analysis, we identified at least seven different roles for banks in branchless banking, from holding float to running their own independent payment business (slides 15-18). But based on surveys and interviews, banks are involved in branchless banking for three main reasons where there are major business case implications: (1) as an additional, efficient channel; (2) to grow faster or reach unbanked segments; (3) for payments-led banking proposition. There is evidence that banks benefit in all three cases.
Chrissy Martin is currently a Senior Consultant at MEDA. Previously, she worked for 12 months as the Product Manager for Digicel in Haiti, which has rolled out a mobile money service called TchoTcho Mobile. Through both Digicel and MEDA, Chrissy has worked with several NGOs that are interested in mobile money services to make payments to beneficiaries of cash-for-work programs. She outlines some of practical challenges that have to be overcome to make this a reality.
Mobile Money in Haiti
There are many reasons to be excited about mobile phones as a way to distribute cash transfers, such as government payments or NGO cash-for-work programs. First, cash transfers are often sent to groups of people in multiple locations, and it can be easier to reach them via mobile than to bring them together in one place. It is also easier to track payments if they are sent electronically, which can reduce corruption and increase confidence that the right amount of money ends up with the right individuals. A third possible benefit is that relying on a network of mobile money agents who already handle cash will increase security over creating new systems for transporting cash. This was the situation in Haiti, where cash-for-work payments were made on-site at camps, which created a security risk for the bank employees who had to stand with and distribute large amounts of cash in crowded, outdoor locations. For these reasons – the potential to have a more convenient, secure, and traceable method to distribute payments – mobile cash transfers have been attempted in multiple countries from Pakistan to Niger.
Unfortunately, implementation on the ground often proves to be far more difficult than it seems at first glance. The first and most obvious challenge: not everyone has a mobile phone, let alone an account linked to their phone which can accept fund transfers. Despite all of the justified excitement over the rapid growth of mobile phones worldwide, in any given developing country a large minority of people may still not own a phone, and these people are likely the marginalized populations that are often targeted by social cash transfers. In this case, an organization (NGO or government entity) planning to implement such a program has a few choices:
