Archive for: Mexico

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.

- Sarah Rotman

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:

Read the rest of this page »

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.

Read the rest of this page »

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

Read the rest of this page »

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.

Read the rest of this page »

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

Mexico’s financial sector is beginning a significant transformation. It is setting the stage for a broad commercial offering through innovative products that reach lower-income segments of the population. Appetite to reach lower-income segments grew in the past decade following the notable growth of Banco Azteca and Compartamos. More recently, regulation enabling the use of non-bank correspondents (or banking agents) has expanded the possibility to increase the reach of financial institutions at a reduced cost both for banks and for potential customers. These regulations proactively reduce competitive barriers in the banking sector and open opportunities for banks to serve lower-income segments historically served by other financial service providers (financial cooperatives, MFIs, microfinance banks and retail stores-cum-banks). Large retail chains (including Telecom, the state-owned telegraph network) are developing shared correspondent networks, and most major players are adopting aggressive outreach strategies.

However, most of these strategies are still about reducing the cost to serve existing customers and much less about growing towards new lower income segments. The price points of shared channels, the lack of sensibility to poor people’s needs, and to certain extent, the mandate to banks to give away free transactions on their own ATMs are slowing the development of a meaningful offering. New partnership models and ambitious experiments involving key players may drive the market towards more efficient models and more affordable low-income offerings beyond credit, but the learning curve is uncertain and is likely to require time.

Read the rest of this page »

Rafael Mazer has recently joined CGAP’s Government and Policy team.  In this post, he shares his impressions from a recent branchless banking policy workshop in Brazil.

For regulators and policy-makers, the term “unintended consequences” is the type of phrase that can cause panic and immediate spin-control, recalling images of overlooked constituencies calling their local representatives to demand action to reverse the damage done by the new policies. But what about the other side of unintended consequences, when a policy innovation goes beyond its original intentions and provides wider benefits than anticipated?

Read the rest of this page »

Today we welcome Denise Dias as a new blogger for the CGAP Technology Blog. Denise works on policy and technology issues. Before working with CGAP, she was employed by the Central Bank of Brazil most recently as a bank examiner and previously as a senior advisor for the licensing department. –Jim

A meeting at CGAP yesterday made me think about a recent blog from Mr. Hannes von Rensburg, founder and CEO of Fundamo. He believes regulation is not a barrier for mbanking projects around the world and to bank the unbanked. Does he have a point? Yes, he does. First, the “regulatory barrier” is the easiest scapegoat for nonbanks (read mobile network operators) that are not used – or willing – to negotiate with financial services providers and deal with prudential regulators. Regulation will not be an insurmountable barrier to a variety of branchless banking models in many jurisdictions. Providers (banks AND nonbanks) will probably find a workable solution with financial regulators by agreeing upon minor regulatory changes or alterations in the proposed business model. Second, there are other major obstacles for branchless banking to take off, such as finding the balance between profitability, client adoption/usage, and security.

Read the rest of this page »

Why bother about savings and credit? News this week that remittances from the US to Mexico grew a measly one percent to $23.9 billion in 2007, compared to growth of 17 percent in 2006.  That hurts people who depend on remittances. The Mexican central bank recently cut its economic growth forecast for 2008 by half a percentage point.

Low-value remittances to some extent sit at the center of branchless banking channels both card- and mobile- based. Their significance for economies like Mexico or Philippines or Kenya and elsehwere has been a driver for new low-cost remittance solutions such as G-Cash and M-Pesa. These approaches have been the inspiration for the new banking channels that CGAP has been writing about and working on over the last year.

When it comes to branchless banking, the remittance volume helps make both the business case to financial providers and is an important part of customer adoption of branchless channels. The high volumes for some corridors ($12.8 billion in official international remittance to Philippines in 2006) make the case for banks (and telecoms and others) to possibly invest either themselves in a sprawling cash-handling infrastructure or work with gas stations, post offices and retail providers to set-up agent networks. Customers are likely to use these channels to access remittances that are an important part of their livelihood. Some would even argue that the high remittance flows and their impact on the economy serve as a motivator for regulators to encourage lower cost innovations as they have in the Philippines.

But we have yet to crack the puzzle of how remittance recipients get to savings and credit. The frequently used Brazil example is worth mentioning again: billions of dollars in government transfers to low-income people via over 90,000 points – but just one in 25 of them (based on a CGAP survey) are actually saving.