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.
PayPal made news recently by launching a new report, Money: The Digital Tipping Point, which predicts that by 2016 UK consumers won’t need cash or a wallet to go shopping. I’m not sure why the UK market was the focus of this report, but I won’t tell PayPal that KPMG just came out with its own research that showed that “when it comes to mobile banking, consumers in the UK are more resistant than elsewhere. Only 27% of Brits surveyed said they had used some form of mobile banking in the past six months (globally 52%).”
But Carl Scheible, Managing Director of PayPal UK, is persistent and argues,
We’ll see a huge change over the next few years in the way we shop and pay for things. By 2016, you’ll be able to leave your wallet at home and use your mobile as the 21st century digital wallet.
I’ve been intrigued to see several recent new stories spouting off about the grandiose vision of a cashless society. To a certain extent I thought we had moved past this debate. While recognizing it as desirable, this high and mighty goal seems somewhat unattainable, at least in the short to medium term. At CGAP, a former colleague and I wrote about mostly failed attempts to go cashless in developed economies in the late 1990s and early 2000s through various mobile and electronic payment schemes. A few of us also wrote about the attempt in Singapore to dictate a cashless economy about 10 years ago, but to my knowledge I believe there’s still cash floating around Singapore.
Cashless seems a bit naive; cash lite seems more realistic, although still a big challenge despite the innovations that have happened since these initial attempts a decade ago.
As regular readers of this blog will know, we are excited about the developments that we’re seeing in branchless banking in Pakistan, which have led us to call it a “laboratory” for innovation. Most recently I interviewed Mansoor Hassan Siddiqui, the Director for Banking Policy and Regulations at the State Bank of Pakistan about the recent changes to the Branchless Banking Regulations that, among other things, removed the need to capture biometric information at the time of account opening.
These changes to the regulation seem to have unleashed yet more activity. Easypaisa, the longest-established service in the market launched by Tameer Microfinance Bank and their parent company, mobile network operator Telenor, now claims over half a million mobile accounts following a major campaign. The mobile account will complement their over-the-counter bill payment and domestic money transfer services which together have processed a total of Rs 43 billion (US$500 million).
The other major player in the market is UBL, which launched their Omni service in April last year, only six months after easypaisa’s debut. UBL is supporting a number of government and NGO programs in the distribution of cash transfers to nearly two million beneficiaries through their network of 5,000 agents. Recently, UBL started accepting loan repayments for microfinance institutions (MFIs) and providing cash management facilities for businesses.
Two other players, First Microfinance Bank and MCB have already been granted branchless banking licenses under which they are running pilots. The State Bank of Pakistan last month issued a microfinance bank license to Waseela, a subsidiary of Orascom – who also own Pakistan’s largest mobile operator. The move was seen by many industry analysts as a necessary step towards getting a branchless banking license which will allow Mobilink to launch a service to compete with easypaisa.
There are several other banks that are also considering applying for branchless banking licenses and many non-banks such as the courier firm TCS. Other mobile operators are also looking for suitable banking partners that will allow them to launch their own services.
This CGAP Brief released today summarizes the latest developments and offers a commentary on the biggest challenges facing the branchless banking sector in Pakistan.
One of many Brazilian agents that move people outside of bank branches
I’m blogging from Dakar, Senegal where I had a stark reminder of why innovation in financial services is so necessary. A colleague of mine had a check to cash, so after one of our meetings we made our way to a “to-remain-unnamed” bank in the city center. Good thing I decided not to wait in the car because this relatively simple transaction took well over an hour to complete. First we had to wait about 30 minutes for our number to be called behind all the people waiting ahead of us. But once he was at the teller, it still took my colleague about 45 minutes to finally walk away with his cash.
My intention is by no means to bash banks…the computer system seemed to be running slowly and the check was for a couple thousand dollars, so he was sent to another desk for some sort of extra authorization. But it was a good, and admittedly frustrating, reminder of the potential of branchless banking, technology and innovative business models to transform the way people, especially the unbanked, access financial services…outside of bank branches.
This experience aside, the Senegalese market is full of exciting initiatives and inspiring energy from banks, MFIs, mobile network operators, technology companies, various government institutions and the central bank. In perusing my Google feed of news on branchless and mobile banking, there are plenty of things around the world to get excited about. Here are just a few that caught my eye:
One of the banks that has a regional presence in the West African Economic and Monetary Union (WAEMU – of which Senegal is a part) is Morroccan-based Attijariwafa Bank. Wafacash, a specialized subsidiary of Attijariwafa and leader in international money transfers, announced the launch of a new mobile money transfer corridor in partnership with Belgacom subsidiary BICS between Belgium and Morocco.
A new study reports on the first randomized evaluation of a cash transfer program delivered via the mobile phone – Zain’s Zap service in Niger (now Airtel’s Airtel Money). The report highlights several benefits of this new delivery mechanism and we’ll be profiling this experience in more depth on our blog in the coming weeks.
Also related to cash transfers, a new report by UNCDF examines Fiji’s experience in leveraging government-to-person (G2P) payments as a mechanism to enhance financial inclusion and provide savings to government and social welfare recipients via a savings-linked electronic payment system.
In Bangladesh, the Bangladesh Bank has just published new guidelines on mobile financial services and the Financial Express reports that nearly a dozen banks are preparing to introduce such services, in addition to those services that are already in the market.
In Pakistan, the largest mobile network operator Mobilink, a subsidiary of Orascom Telecom, was recently granted a license by the State Bank of Pakistan to initiate microfinance activities, seen as their foray into branchless banking.
But I admit that what excited me the most when I looked through my Google feed was the fact that I read more than 20 headlines before finding a story that mentioned M-PESA. The rest of the world is catching up!
Fiji G2P payments (courtesy of UNCDF's Pacific Financial Inclusion Programme)
Over the last couple months, we’ve run a series profiling different government payments programs that have innovated on their payment mechanisms and in some cases linked payments to financial services. We looked at the case of UBL in Pakistan making payments to flood victims. We profiled GCASH using GCASH REMIT to make payments on behalf of LandBank to rural beneficiaries of the 4Ps program in the Philippines. We featured Colombia’s Familias en Accion program that has contributed to the build out of banking correspondents in the country and is testing interesting ways to incentivize savings. We discussed the HSN Programme in Kenya and how Equity Bank is making payments to a very rural area in northern Kenya via smart cards and agents. Finally, we looked at the new G2P program in Fiji offering payments to beneficiaries through accounts offered by Westpac. Of course, we could have profiled many more schemes in countries like India, Mexico, South Africa, Dominican Republic, and others.
These examples are diverse as much as they are similar. Some of them are still in a pilot phase (such as GCCASH), while others are at a national scale (such as Familias en Accion). Some of them are using card-based solutions (such as the HSN Programme and Familias en Accion), while others are experimenting with mobile phones (such as GCASH). Some of them are distributing a payment based on certain conditionalities (such as the 4Ps program in the Philippines and Familias en Accion), while others are distributing unconditional cash transfers (such as in Fiji and the HSN Programme). What are some observations and lessons we can gather from these examples and from others around the world?
The link to financial inclusion is one that can often get forgotten in the quest for payment efficiency. Social protection programs rightly have the objective of making payments in a timely, efficient and cost-effective manner. While they often appreciate the link that financial services can offer to the beneficiaries, when push comes to shove, this will get sidelined if it becomes too complicated or costly to implement. Therefore we see that while the schemes in Pakistan and the Philippines have done an excellent job getting payments (and in Pakistan emergency payments no less) to poor beneficiaries, there is not yet a link to financial services. While this may be an added feature in the future, these examples should encourage all of us with a specific interest in financial inclusion to be deliberate and clear in our interaction with G2P partners about our real goals. Read the rest of this page »
On June 20, 2011 the State Bank of Pakistan (SBP) introduced a new circular that significantly modifies the regulation for branchless banking in Pakistan. We talked to Mr. Mansoor Hassan Siddiqui, the Director for Banking Policy and Regulations Department at SBP about why they made these changes and the impact that they expect to see as a result.
Photo courtesy of Craig Kilfoil, ExactConsult
In March 2008, the State Bank of Pakistan introduced some of the first regulations anywhere in the world designed specifically to encourage branchless banking. The regulations allowed a number of different business models and permitted agents to deliver financial services on behalf of banks. Three years later the State Bank has significantly amended the regulations. Among the changes are:
Rationalization of account opening process and requirements by removing the need to capture biometric fingerprint information at the time of account opening for the lowest value accounts. The requirement to capture a digital image of the account holder (which can be done at far cheaper cost with a low cost camera-phone) remains to ensure the physical presence of the customer at the time of account opening.
Substantial increases in the transaction limits and elimination of the maximum balance, which remedies the situation that previously existed where a customer could perform more transactions “Over-the-Counter” than they could through their own account. Bill payments are no longer included in the transaction limits.
Introduction of a new “Level 0″ account with the lowest transaction limits which can be opened electronically with no physical paperwork required.
We asked Mr. Mansoor Siddiqui, the recently appointed Director for Banking Policy & Regulations Department at SBP, about the reasons for introducing these modifications and their expectations for what this will mean in terms of the take-up of branchless banking in Pakistan.
1. Why did the State Bank of Pakistan think that the branchless banking regulations that were only introduced in 2008 needed to be updated?
Well, as we are all aware, branchless banking is rapidly evolving as a major arena for financial inclusion and the regulators around the world have to keep abreast of the fast paced changes in this area. After issuance of initial branchless banking regulations in 2008, we have been constantly encouraging the banks to enter into this business field. At the same time, we have also been monitoring the progress of branchless banking service providers by getting regular market feedback. This two pronged approach helped us in developing an insight of the problems that the customers faced while opening and running the branchless banking accounts. These obstacles to some extent were limiting the quick take-up of branchless banking in the country. Despite a couple of successful branchless banking deployments with significant agent/merchant networks, we were witnessing very slow take-up of financial services. The total number of branchless banking accounts was only about half a million. Given the widespread financial exclusion and very low visible success of branchless banking deployments, SBP considered it necessary to review of the branchless banking regulations in line with the industry’s feedback and international best practices. Therefore the updated branchless banking regulations have been issued to tackle the bottle necks in the take-up of branchless banking through accelerated account opening and ease of operations of these accounts.
This is the third posting in a mini-series in which we present new evidence from three countries on whether branchless banking is reaching poor people. This post looks at Orange Money in Mali. Previous posts looked at India and Pakistan.
Orange Money agent in Timbuktu, Mali
This is the final survey in the recent round of research conducted by Coffey International Development. 813 branchless banking customers of Orange Money in Mali were interviewed at 13 agent locations in and around Bamako. Due to logistical difficulties in reaching some of the more remote areas, some of the interviews in this case were conducted over the phone. As with the other surveys in Pakistan and India customers were asked about the use of the service and also about their household living conditions to enable an estimation to be made of their likely income levels.
Below are the main results from Orange Money customers:
Around two-fifths (41%) of active branchless banking customers in Mali are poor (defined as living on less than US $2.50 per day). Only 6% of customers were living on less than $1.25 per day.
62% of Orange Money customers were already using some other form of financial services. 40% had a bank account and 34% were customers of a microfinance institution. Just below a third also used the services of informal money lenders. 28% had not previously used any alternative source of finance.
More than three quarters of users felt the service has a positive impact on their lives and two thirds of users ranked the service to be very effective.
After depositing money, the most common transaction type in Mali was purchasing airtime which was used by 62% of respondents.
When we compare across all three services we see a surprising level of consistency around the characteristics of the customers they serve (see table).
Pakistan
EasyPaisa
India
Eko
Mali
Orange Money
Income levels
% of customers living below $2.5/day
41 %
-
41%
% of customers living below $2/day
-
46.4 %
-
% of customers living below $1.25/day
5 %
13.8 %
6%
Access to other financial services
% of customers previously banked
45%
48%
40%
% of customers accessing formal financial services
62%
61%
62%
In each of the three cases we find over two-fifths of customers living on less than US $2.5 per day. The figure for India may be considerably higher than this and Eko is the only service that is reaching significant numbers of customers living on less than $1.25/day. In all three services around two-fifths of customers lacked access to any formal financial services and over half did not have a bank account.
These studies when taken together do not give statistically significant evidence that branchless banking is reaching poor people across the world since the sample size is only three, but they may give us the most helpful indication yet.
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.
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?
Within just a few weeks this past fall, United Bank Limited (UBL) in Pakistan was able to design, procure, and distribute over one million VISA debit cards to the flood-affected citizens of Pakistan following the devastating flood. In a country that previously only had 5 million debit and credit cards combined, this was no easy feat. To kick off our series on government payments and branchless banking, Nicole Pasricha, a former member of the CGAP Technology Team now working with MEDA, sat down with Abrar Mir, EVP of branchless banking at UBL, to find out how they made it happen.
Nicole Pasricha (NP): Maybe we could start from the beginning. How did the idea of using debit cards and a branchless network for aid to flood victims even come about?
Abrar Mir (AM): It happened very suddenly actually. When the question arose of how to get cash aid to the flood-affected families in a quick and transparent manner, the government called UBL and the rest of the banking industry to present our solutions. Previously, we had worked with the government to facilitate cash aid disbursements to another set of internally displaced persons—albeit at a smaller scale—and the government requested a similar technology-based solution. All of the banks were asked to make formal presentations on a plan to manage the card and cash disbursement for four affected provinces and 70 affected districts of Pakistan, reaching up to 1.6 million displaced families.
NP: That is a daunting request. How did the government decide which bank to work with?
