Archive for: Research

Jonathan Donner is a researcher in the Technology for Emerging Markets Group at Microsoft Research India in Bangalore, which is collaborating on research around customer adoption with CGAP. Jonathan’s primary research interests concern the economic and social implications of the spread of mobile telephony in the developing world.

Jonathan sends us this note about the forthcoming “Mobile banking and economic development: Linking adoption, impact, and use,” co-authored with London School of Economics and Political Science doctoral candidate Camilo Tellez.

We share many people’s enthusiasm about the potential of m-banking and m-payments to benefit communities not traditionally reached by banks. However, since m-banking is such a new phenomenon in the developing world, there are still relatively few studies exploring this potential.

In the paper, Camilo and I take a step back to look at the current state of three approaches to researching m-banking and m-payments. We find that while there are a growing number of academic studies focused on the drivers and barriers to adoption, there are only a few studies focused on impact (CGAP’s studies notwithstanding), and even fewer studies of how m-banking and m-payments technologies are used in daily life.

We argue that the adoption, impact and ‘use’ approaches need not be separate, as they often are, but can rather can be mutually reinforcing. For example, the things an ethnographic study might reveal about whether people view their m-banking account as a ‘wallet’ or a ‘post office’ should help other researchers design better (and very different) surveys to assess why an ‘adoption’ of the technology has occurred, or what impact the technology is having on households.

Of course, this adoption/impact/use distinction is not unique to m-banking, but instead is a fixture of the interdisciplinary field of ICTD (Information Technology and Development) more generally. So, we also detail how some big themes from ICTD are resurfacing in the current discussions about m-banking.

Finally, we use some illustrative data from fieldwork Camilo carried out with small enterprise owners in Bangalore. We explored what place SMS messages might have in the mediation of the informal credit relationships they have with customers. Would they “bill” or “remind” a customer about an outstanding unpaid balance using the SMS channel? 19 of the 20 interviewees expressed varying degrees of unease with the notion of an SMS used in this way. Mostly, we think, because of the ongoing need to maintain the relationship through carefully-managed face to face interactions. We cast these interviews as examples of a study of context and daily use which can inform the design and assessment of m-banking systems.

The paper will appear in December as part of a special issue 18(4) of the Asian Journal of Communication, called “New Perspectives on Development Communication: Emerging Technologies, Shifting Paradigms”, guest edited by Mark Levy (Professor, Michigan State University).

Much has been written about how innovations go from being extraordinary and untested to becoming commonplace (Everett Rogers, Diffusion of Innovations, 2003). How can we apply the thinking that “innovation diffusion” research has come up with to mobile banking?

First, let’s identify what the innovations are in mobile banking. For someone who has a mobile phone, but doesn’t have any bank account, I would see three:

• a new concept of value – electronic, not cash or in kind
• a new financial provider – not manual exchange or through hawala or through bus driver or friends/family, but unknown / untrusted organization or some bank
• a new use of device – use existing device for new purpose (idea that phone can be used for finance is a new idea)

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Mobile banking is taking off. Or is it?  The buzz around mobile banking is matched by a recent flurry of product launches. In the US, nine banks rolled out a mobile banking platform to their customers this year. And they’re already late to the game. In Africa, Asia and elsewhere, banks and mobile phone companies have offered mobile payment and banking services for several years. Vodafone’s M-Pesa service has a half million users in just 6 months in Kenya, in a country with just over 3 million people with bank accounts.

Clients might sign up, but will they use mobile banking? Business projections, and a few careers, are likely to live and die on the answer. CGAP’s research in South Africa suggests low-income customers won’t understand the value until they use the service. Once they do, clients can become active users.

But a blizzard of studies in developed markets is clouding the picture with different answers, which has to be somewhat unsatisfying for senior bank and mobile manager deciding on whether to invest in mobile as a channel. Earlier this year, Celent argued 35 percent of online banking households will be using mobile banking by 2010, with new functionalities making mobile banking distinct from other channels.  Meanwhile, a more pessimistic Jupiter Research touts survey results showing only 8% of cell phone users who use online banking services are interested in mobile banking.  The debate in the US frames the same questions managers are asking in emerging markets. So which is it? Consumers will love it, or hate it?

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Banking agents have helped increase access to finance in Brazil. But success seems to be bringing competition among partners. The Valor Economico reports that Correios, the Brazilian postal network and Banco Bradesco, the country’s largest private bank are fighting about the postal bank they operate together. 

Banco Postal was born out of a joint venture between Branco Bradesco and Correios in 2001. Banco Bradesco bid US$90 million for the 10-year contract and beat Itaú and state bank Caixa Economica Federal.

“Before we arrived, people in São Francisco de Paula had to go 10 kilometers to the nearest town with a bank to withdraw salaries or pensions,” said André Rodrigues Cano, a former Banco Bradesco director.

This was in March 2002 when, Banco Postal’s first branch opened in remote Sao Francisco de Paula in the south of Brazil. Now it seems as if Banco Postal account holders in rural and remote Brazil may have to take the bus again to reach their branch.

Banco Bradesco did not plan on building branches; they decided to use the postal outlets as their correspondentes bancarios, banking agents that deliver financial services.

Within only five years, Banco Postal was able to turn 5,460 postal outlets into full-service banking agents at which clients could pay their bills and withdraw their salary, but also deposit money and transfer funds to a relative in for example Sao Paulo. Today, Banco Postal acquires 4,500 new clients per day, and as of May of this year had opened 5.5 million bank accounts.

But now, its existence seems to be in doubt. Early in 2007, the battle between Correios and Bradesco began in earnest. The government would like to launch its own bank through the postal network providing microcredit, pension plans, and other services. So it may cancel its agreement with Bradesco. The reason primarily being that Bradesco seems to be making too much money off the state’s distribution network. Of the newly planned financial institution, the Brazilian government would keep 51% and the other 49% would again be auctioned to banks such as Itaú, ABN Amro, and Bradesco that have shown interest.

What I’m wondering is what will happen to all the account holders?  Will they be transferred to the new financial institution? Will Bradesco have to open outlets in some very remote locations to serve them? Banking agents have been so successful in Brazil…but would clients now be left behind?

In the world of mobile telephony, Jan Chipchase needs no introduction. Suffice it to say he studies - on a global scale - how people use mobile phones. Jan’s title is “Human Behavioural Researcher” at Nokia, and CGAP and infoDev recently had the chance to host him at the World Bank to talk about his work, as well as the impact mobile phones are having in developing countries.

Jan noted that for many people the mobile phone is the first thing they see in the morning and the last thing they see at night. They wake up with it and fall asleep with it.

“That’s immensely challenging - to understand the context - the need to be able to go in there and understand how a device fits into the context of human experience,” Jan says.

As for what this has to do with increasing access to finance (that’s our focus) for some of the world’s poorest people, Jan asks this question:

“What do illiterate people and billionaires have in common?”

The answer: both groups like to delegate tasks.

“Illiterate people can do anything on a mobile phone. The way they get around tasks that they don’t understand is by asking someone else to do it for them. In a way, it’s like asking someone else to complete the design process.” He says this is especially true for text messaging.

Will illiterate people buy a phone specially designed for them? Jan Chipchase doesn’t think so - too much stigma attached.

“The biggest innovation to help the poor?- and I’m speaking for myself here - is to get phones down to a price point that poor people can afford,” Jan says.

Pakistan’s government has made expanding access to finance a key policy priority. The Consultative Group to Assist the Poor (CGAP) found policy makers already attuned to some of the ways in which information and communications technology and new branchless banking models might be used to reach massive numbers of presently unserved poor people. Moreover, they are open to regulatory change to make this possible. Industry players, too, particularly mobile network operators, see the enormous potential of branchless banking as a profitable value added service.

But the challenges to branchless banking posed by current regulation in Pakistan are also formidable. To address these, while paying due regard to the new and enhanced risks that branchless banking can carry, a committee has been assembled involving financial system and telecommunications policy makers and industry representatives. Moreover, the central bank in close consultation with the industry has started exploring legal and regulatory adaptations to facilitate branchless banking. As a result of this work, some potentially viable paths are already emerging.

Notes on Regulation of Branchless Banking in Pakistan

Here’s the Powerpoint of my presentation at a roundtable with regulators and people from the banking and telecom sectors in Karachi, Pakistan. It was a half-day event, attended by the Governor of the State Bank. CGAP’s Steve Rasmussen moderated. Stefan Staschen and I made two presentations to jumpstart discussions around the morning’s topics of (a) international experience with branchless banking, and (b) observations from CGAP’s Pakistan diagnostic.

CGAP’s Technology Program is interested in technology solutions which deliver a wide range of financial services, including credit. In many of our projects, technology helps us to automate decision making and transfer transaction data over long distances. Making credit decisions remotely using a credit score application for people without credit history, and automating the disbursement of funds is still a challenge for many financial institutions. Therefore, the CGAP’s Technology Program seeks to experiment with ways on how to extend credit to very poor unbanked clients without involving a credit officer. Read the rest of this page »

The CGAP Technology Program plans to partner with Credibanco Visa to find ways to increase access to financial services. The proposed project would focus on three banks, which would roll out a network of banking agents.

“No, I don’t want a bank account. How do I know they’re not stealing my money? And it costs too much in any case,” says Juan, a cab driver in Bogota. In Colombia, as few as one in three people have access to financial services. Reasons for this include taxation on withdrawals, stringent account-opening requirements, and high costs to open and maintain a bank account. This is not uncommon in Latin America. According to figures from the International Monetary Fund, in Sao Paulo fewer than 40% of households have access to financial services. In Mexico City, that number drops to just one in four. The Inter-American Development Bank says that only 14.4 percent of the low-income population in Latin America has access to a savings account, and only 6.4 percent of them have obtained a loan.

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Check this out: CGAP M-banking Technologies Matrix (pdf)

The explosive growth of mobile phones offers an opportunity to profitably bank large numbers of the unbanked. Fifty-nine percent of the more than 2 billion mobile users live in developing countries and many of them are among the unbanked: one-third of South Africans and Botswanans without bank accounts do have mobile phones or access to one. Conducting transactions with a mobile phone can be up to six times cheaper than processing the same transaction via teller window. Though cheaper, mobile phones alone are not sufficient - a cash handling network needs to be in place for accepting withdrawals and deposits.

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