That said, who will pay for interoperability? If I am a service provider, why should I subsidize/pay for the infrastructure that could benefit my competition?  Visa/Mastercard and the like were not interoperable at first, and we might well expect the same in the mobile banking space. So initially, it makes sense that the field of mobile banking is developing the way it is.

This week our team has been in Cairo for the first ever Mobile Money Summit. Organized by CGAP, DFID, IFC and the GSM Association, 429 delegates from 67 countries gathered to hear from telecom CEOs, banks, microfinance organizations, solution providers, and regulators. GSMA tells us that delegates were more or less evenly comprised of these four groups: telecoms, financial service providers, vendors, and the NGO/government/donor community.

In between powerpoints and conversations in the exhibition hall, some common threads have emerged:
-an awareness of the need for developing domestic financial services and systems, not just international remittances;
-a real emphasis on the vital role played by banking agents, who conduct the cash-in and cash-out function on behalf of a service provider;
-seeing poorer customers as a big opportunity.

As noted in a recent CGAP Focus Note, mobile banking won’t automatically benefit poorer people. There’s a need for the development of interoperable payments platforms, practical and risk-based approaches to regulation, as well as shared networks of cash-handling agents. There is also a need for product development that overcomes the lack of human interaction and reliability concerns that may hinder customer adoption today.

Those challenges are evident in places such as Kenya. Andy Chung of Vodafone spoke about M-PESA, which today boasts 2.3 million customers and is expanding in Afghanistan and would like to expand into even more markets. But are those customers poor people? Would M-PESA automatically reach poor people?

“Any new product penetrates from the top-down. This is the early adopter model that we see with all technologies,” said Chung.  Only with active engagement and perhaps subsidy from development organizations would the people making less than $2 a day begin to take on such services.

Is this discouraging? No. It just means that for mobile banking, it is really early days. The  Mobile Money Summit has been billed as the world’s first global mobile banking conference, and that’s true. It would have been difficult to convene a gathering of this size and shape even one year ago. Now seems to be just the right time to convene this sort of gathering.

What is next? Will industry momentum continue? Will poor people be served by ever
more providers? What will the status of industry be one year from now?

Watch this space.

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“Ugandans are using prepaid airtime as a way of transferring money from place to place, something that’s especially important to those who do not use banks. Someone working in Kampala, for instance, who wishes to send the equivalent of $5 back to his mother in a village will buy a $5 prepaid airtime card, but rather than entering the code into his own phone, he will call the village phone operator (“phone ladies” often run their businesses from small kiosks) and read the code to her. She then uses the airtime for her phone and completes the transaction by giving the man’s mother the money, minus a small commission.”

We’ve seen this in many countries, such as DRC (several reports on this as far back as 2005) and more recently stories of overseas Kenyans using airtime to send value home to family members in need during the post-election turmoil.

While undeniably innovative, it also shows how sub-par other money transfer options are which the poor have available to them. Prepaid airtime as a currency substitute is quite costly in percentage terms, due to VAT (while a prepaid scratchcard is bought at fave value, VAT represents a hidden increase to the cost of minutes), operator’s discount (again, built into the cost of airtime), and a commission for whoever turns it back into cash (in the Uganda example).  We estimate the all-in cost from the Uganda example at at least 25% of the value sent. That’s quite high, and not all that far off from the high fees Western Union has been lambasted for charging with small value transfers.

Still, other options could be even more costly, especially if risk-adjusted, e.g. to account for the possibility of money lost when sending money with people. And other means also come with the hard-to-quantify but very real “worry factor” of waiting days or even weeks to know if the money arrived.

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Early registration closes April 1. CGAP encourages you to register with a discount code: CGAPMMSVIP to receive a $100 discount. For questions, contact Jim Rosenberg, CGAP Communications Officer.

Mobile Money Summit 2008 is two-day conference designed for senior executives from financial services institutions, mobile network operators, development organizations, solutions vendors and regulatory and policy makers. The inaugural event will provide for the first time a comprehensive demonstration of the addressable markets, showcase new solutions, and share key success factors and learnings from around the world. The goal of the Summit is to stimulate greater understanding and collaboration between all stakeholders — globally, regionally and locally. Most importantly, Mobile Money Summit 2008 will better equip participants to develop and deploy their own Mobile Money portfolio effectively, efficiently and at scale.

At this highly interactive event, you will learn:

• How Mobile Money can drive top-line growth and customer value in both financial services and telecommunications
• How Mobile Money solutions can drive economic growth and financial inclusion for individuals, communities and countries
• Best practices in the market today, and key innovations coming to market
• Strategic, operational, regulatory and market challenges to effective deployment and scale
• Key propositions for various customer segments in different markets.
• Rationales for partnership between financial services institutions and telecom companies to deliver converged mass market Mobile Money.
• Where and how to kick-start activity most effectively.

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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.�

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But the equation can radically change in emerging markets, making cash unduly expensive for financial service providers and clients alike.

Up to 70% of the 2000 ATMs installed in Pakistan are reportedly unable to dispense cash accurately. Pakistan’s has two Rs 1,000 notes in circulation, and the quality of the notes themselves can vary dramatically. As a result, ATMs routinely jam, or fail to accurately count notes dispensed. Branch-housed machines are repaired more quickly, but even there the error rate is reportedly 30%, according to a study by ShoreBank International. Consumers shy away from using ATMs, and banks’ investment in ATMs yields a diminished return, rather than cost savings they may have hoped for as customers are reluctant to give up the teller window for ATMs.

In Kenya, cash represents risk for ordinary people sending money home. Friends and bus companies are the preferred way to send money to family in other parts of the country, according to FinAccess, a nationwide survey of financial service behavior. However, Kenyans are quick to cite neither is perfect: money can too easily go “missing” with friends, and though bus companies are more reliable, the transit times are still long (often days). By contrast, clients of M-PESA, Safaricom’s mobile wallet service, say its cheaper for both them and their family, as there is often a Safaricom agent close by which will receive or dispense cash.

Cash can be costly for providers and clients alike. Moving transactions into electronic channels could make services more affordable to offer and use.

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Mobile banking and other technologies need a balanced regulatory approach

Washington D.C. (January 31, 2008) – Basic, everyday financial services are out of reach for more than two billion people in developing countries. But the rapid growth of branchless banking – including mobile phone banking – is reducing the cost and expanding the availability of such services.

“All of this innovation presents challenges and opportunities for regulators,” says Elizabeth Littlefield, CEO of CGAP. “Policy will determine not only where branchless banking is allowed, but also which business models turn out to make economic sense - and how far they will go in reaching poor people.”

Regulating Transformational Branchless Banking is a product of collaboration between CGAP and the UK’s Department for International Development (DFID), in partnership with the GSM Association, the global trade association for over 700 mobile phone operators. The authors also benefited from conducting three of seven diagnostic missions with the World Bank’s Financial Markets Integrity Unit.

Download the Focus Note at http://www.cgap.org/policy/branchlessbanking

While much of the current buzz is around mobile phones, other branchless banking applications are gaining traction as well. Brazil’s increase in access to finance has been accomplished largely through the more than 95,000 banking “correspondents”—local merchants and post offices that act as agents for banks, equipped with card-swipe and barcode-reading point-of-sale (POS) terminals. In Russia, a broad network of bank ATMs, POS terminals, and online e-money providers offer transaction services outside of traditional branch offices.
In the past five years, technology has brought 13 million people in Brazil into the banking system. In the Philippines, people would rather pay one percent to remit money via their mobile phone network than the 3-18 percent they are often charged by others.

“The market is changing, and that creates an opportunity for regulators to adapt the rules to increase the availability of financial services for the poor while maintaining a safe and sound banking system,” says Catherine Martin, Team Leader of the Financial Sector Team at DFID. “The willingness to change is a good sign for poor people who need access to formal financial services.”

A new CGAP/DFID Focus Note addresses the policy implications of branchless banking. Regulating Transformational Branchless Banking: Mobile Phones and Other Technology to Increase Access to Finance is based on assessments of policy and regulation in seven key countries, including interviews with more than 500 people from governments, the private sector, and international organizations in Brazil, India, Kenya, Pakistan, the Philippines, Russia and South Africa. Read the full report and access country-by-country information at http://www.cgap.org/policy/branchlessbanking.

“For regulators, it’s not viable to simply do nothing. Current regulation tends to be both over- and under- protective,” says Tim Lyman, CGAP’s Senior Policy Adviser and co-author of the Focus Note. “Being too restrictive can mean fewer people in the formal financial system, and higher costs to access services. But policy makers also need to be aware of potential protection gaps.”

Among the countries studied, a surprising consensus surrounds the short list of most critical topics policy makers and regulators should address to formulate proportionate regulatory policy for transformational branchless banking. These include:

• Allowing third parties, such as local merchants to conduct “cash in/cash out” transactions and interact directly with customers;
• Risk-based anti-money laundering (AML) rules, as well as rules for combating the financing of terrorism (CFT) adapted to the realities of remote transactions conducted through agents;
• Appropriate regulatory space for the issuance of e-money and other stored-value instruments (particularly when issued by parties other than fully prudentially licensed and supervised banks);
• Effective consumer protection (on a variety of fronts);
• Inclusive payment system regulation and effective payment system oversight as branchless banking reaches scale;
• Policies governing competition among providers (which balance incentives for pioneers to get into the branchless banking business against the risk of establishing or reinforcing customer-unfriendly monopolies and which promote interoperability).

“In all these areas, regulators are best guided by balancing the costs and benefits against the objectives, a proportionate approach to regulation,” says David Porteous of Bankable Frontier Associates, who was commissioned by DFID as a co-author of the Focus Note.

For branchless banking to reach its potential, consumer protection is essential. Issues include problems with retail agents, redress of grievances, price transparency, and consumer data privacy. Regulators should aim for policy that fosters, rather than inhibits, innovation so market participants are not unduly restricted from launching new financial products and services.

“Based on our research, regulators should avoid limiting the range of possible branchless banking models. They should dialogue with industry, but the private sector ought to have answers on how they’ll ensure services are safe and sound,” says Mark Pickens, CGAP microfinance analyst and co-author of the Focus Note.

About CGAP
CGAP (the Consultative Group to Assist the Poor) is a consortium of 33 bilateral and multilateral development agencies and private foundations committed to building financial systems that work for the poor in developing countries. Headquartered in Washington, D.C., and housed at the World Bank, CGAP is a global resource center for the microfinance industry, setting standards, offering technical and advisory services, training, and information on best practices, in addition to providing funding for innovative projects. CGAP’s Technology Program, co-funded by the Bill and Melinda Gates Foundation, seeks technology approaches that help provide a variety of financial services to poor and excluded people, at large scale and in a viable way, within a regulatory system that encourages their development. For more information, please visit http://technology.cgap.org/.

About DFID
DFID, the Department for International Development, leads the British Government’s fight against world poverty. DFID supports long-term programs to help eliminate the underlying causes of poverty. DFID also responds to emergencies, both natural and man-made. Its work forms part of the global goal to attain the eight ‘Millennium Development Goals’ by 2015. DFID works directly in over 150 countries worldwide, with a budget of some £5.9 billion in 2006. For more information, please visit http://www.dfid.gov.uk.

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Mobilink registers 30 mln customers

Migration: Send me a number

Nokia Siemens deploys IVR platform for Airtel

Uganda’s first credit reference bureau to open in mid 2008

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Mobile-based financial services “could lead to a fundamental shift in what we’re calling the ‘access frontier’ for low-income people looking to get banking services,” says Pickens. This would allow them to “manage their affairs better and put a safety net under their family, maybe build assets for the future, and possibly even start new businesses and grow their income.”

Read the full story here.

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Mexican telecoms sector sees 31.1% growth in Q3
The Mexican telecommunications sector saw 31.1 percent growth in Q3 2007 vs the year-earlier period, according to figures from Cofetel, Mexican telecommunications regulator. The growth is the highest for seven years. The growth is 10 percentage points higher than in Q2 2007 vs the year-earlier.

Full-spectrum dominance - Telecoms in India
India has met its ambitious target, set two years ago, of 250m fixed and mobile-phone connections. But the government is sadly unprepared. It has not given India’s mobile operators enough space on the radio spectrum to carry calls crisply and reliably. India, the operators complain, faces a “spectrum crunch”.

Tanzania reaches 7.7 mln phone subscribers in Q3
The number of mobile phone users in Tanzania reached 7.562 million at the end of September, up from 6.720 million at the end of June. The fixed-line user base at TTCL fell to 160,964 from 169,135 three months earlier, according to figures from the Tanzania Communications Authority. 

Indian Bank pacts with NCR for e-ticket, portable ATM¼br> Indian Bank today said it has partnered with NCR Corporation, engaged in design and deployment of portable ATM centres for many Indian banks, for launching its first e-ticket kiosk and portable ATM centre.

Dabbawallas, postmen helping banks extend access to services
Across India, and notably in Mumbai, banks are using “correspondents”, or people who effectively serve as extensions of branches, in an effort to reach out to people who do not have access to banks and banking services. One such bank, the Corporation Bank, is using the city’s famed dabbawallas, the men who ferry hot lunches to office goers across the city, as its correspondents.

Bharti to tie-up with Barclays for mobile banking
Bharti Telesoft, software arm of telecom major Bharti Enterprises, is close to signing a deal with UK-based Barclays Bank for providing mobile banking services to the latter’s customers.

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

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

Download the pdf here.

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