Archive for: Agents

Karuna Krishnaswamy works with the CGAP Technology Program.

One day each way – costing nearly US$10 total is what some Maldivians who have a bank account have to pay in order to exchange cash.   The archipelago of the Maldives is about 1,600 kilometers to the south of Mumbai. I was there recently - not for a vacation but to begin work on a nationally-representative survey of the 300,000 people who live there. Working with our partners, we want to know how people use banking services: What are the usage patterns, transaction costs, levels of mobile network penetration?

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To promote effective regulation of mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized this week’s second Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation.

The proper role of nonbanks in branchless banking bedevils regulators and industry alike. The central bank of the Philippines just released new regulations creating an e-money license. In recent months, Kenya has seen a wave of complaints from banks about the success of Safaricom’s M-PESA service and whether or not it constitutes un-regulated banking. Regulators in some countries — India, prominently — have made clear statements that banks should take the leading role (for example, see RBI’s mobile banking guidelines).

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To promote effective regulation of mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized the second Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. This week we’ll be blogging from the seminar. First up is this dispatch from Timothy Lyman, who leads CGAP’s current pioneering work on proportionate regulation of branchless banking. You can also download his presentation from the seminar.

Amid all the uncertainties of the financial crisis and resulting economic downturn, one might expect financial policy makers and regulators to be cautious about embracing novel-seeming approaches for delivering financial services to the world’s poor.  In joining in this event, leading bank supervisors, payment system regulators and other financial sector policy thinkers from 18 countries on the forefront of branchless banking are demonstrating their conviction that these new models can be implemented safely – even during a crisis of proportions we haven’t seen in generations.

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Last week was the gigantic GSM Mobile World Congress in Barcelona. At the Mobile Money Forum, optimism ran fast and deep. That tone was a refreshing break from the steady tide of gloom and doom in the financial press. Safaricom won another award for its M-PESA mobile money service, which has now signed up over 5 million Kenyans.

There was also lot of congratulations for making it possible for people the world over to buy airtime in amounts as little as 5 cents from literally millions of sellers in the smallest villages. One commentator called it “the cheapest, biggest, most powerful sales channel in human history.” The mobile industry thinks they have a huge advantage in delivering financial services cheaply.

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Olga Morawczynski is a doctoral candidate at the University of Edinburgh and a co-author with Mark Pickens of a forthcoming CGAP Focus Note on M-PESA. She has spent more than a year investigating customer adoption and usage in both urban and rural Kenya. Olga spoke at the Mobile Money Forum at the GSM World Congress in Barcelona earlier today.

Martin is a shoe-maker in Kibera, an informal settlement outside central Nairobi. He has set up a small stall along Kibera drive, the main entry point into the informal settlement. From this stall, he sells and repairs shoes to earn his “daily bread”. Martin lives alone in Kibera. His two wives and eight children live in his rural home, which is located in Western Kenya.  Martin explains that a large segment of his earnings is sent “back home” to his family. He continues that he usually transfers money on a weekly, or bi-weekly, basis.  He then holds up his mobile phone and explains that he always uses M-PESA to make such transfers.

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The global economy is sliding. The OECD predicts 2009 will be the worst year for the world economy since 1974. The mobile industry is already feeling the effects. Operator revenues grew by 5% in 2008, down nearly half from 2009, and are expected to soften further to 4.5% in 2009, according to Wireless Intelligence. And this is on top of the continual slide in ARPU (average revenue per user) which emerging market operators have seen for several years, as they pick up customers who are now disproportionately lower income.

What does mean for mobile financial services? It probably gives a boost to two opposing trends. As margins get squeezed in 2009, senior management might be less willing to take on any new, unproven projects. Instead, they’ll concentrate on keeping the core business of voice in the black.

But others will think it’s high time to boost non-voice spend from customers. It could make the difference between surviving and flourishing one or even several years of rocky returns coming up in 2009 and beyond. We think mobile financial services is still a good bet for many operators.”

In forthcoming research, CGAP and GSMA estimate that mobile payments and banking will add at least USD 0.6 in direct revenues per customer. That’s quite nice if you’re looking at revenues of USD 3 and 4 per customer. It’s been a long time since SMS, the last value added service to boost revenues in a big way. Texting was just an additive communication option on top of voice. Mobile financial services could tap a completely new pool of unserved demand among low-ARPU customers who are overwhelmingly unbanked.

The question is whether managers think they can access the right advice to successfully design, launch and grow a mobile money play in their market. That’s precisely the kind of advice CGAP and GSMA aim to offer. GSMA’s existing Mobile Money Transfer (MMT) program and new Mobile Money for the Unbanked (MMU) initiative are focused squarely on helping operators see the opportunity and exploit it. CGAP’s Technology Program continues to build on five years in the space, advising more than a dozen operators and banks, and publishing findings on the early lessons from branchless banking, understanding the unbanked customer, building viable agent networks, how small banks can approach mobile banking, and regulation in this new space.

Janine Firpo is currently living in Jakarta, Indonesia where she serving as IFC’s East Asia & Pacific (EAP) Mobile Banking Consultant.  In addition, she is President of Sevak Solutions, a nonprofit company that she co-founded to promote inclusive systems for the delivery of financial services to the world’s 1.7 billion urban and rural poor.  For the past six years, Janine has focused exclusively on the role of information and communications technologies in the extension of financial services.  She is a pioneer in the implementation of branchless banking solutions and has worked on a range of related issues in Africa, Asia, and Latin America. Janine brings over 24 years experience in technology, international development, and consortium building to her efforts.

You are currently working with IFC to advance mobile banking in East Asia and the Pacific.  Can you tell me a bit about IFC’s mobile banking program in that region? The EAP M-Banking Program will focus on three key areas:  (1) supporting Central Banks as they assess the regulatory requirements for mobile money and mobile banking, (2) working with partners to establish pilots and build the business case for m-banking, and (3) providing knowledge sharing, advocacy, and education among market players across the region.  Our initial activities will include seminars, market studies, regulatory assessments, and pilots.  Specific projects and partners will differ by country, depending on local requirements.

Why is IFC interested in advancing mobile banking? The percentage of households in East Asia and the Pacific with basic bank accounts ranges from 5 to 20 percent.  Access to bank branches and ATMs is among the lowest in the world.  In contrast, large numbers of people have access to cell phones, even in rural areas.  For instance, an estimated 40 million people have cell phones but no bank accounts in Indonesia, and about 1 million unbanked cell phone subscribers live in Cambodia.  M-banking addresses the dual problems of cost and access to financial services by transforming every cell phone into a device for performing a range of financial transactions such as depositing and withdrawing cash, transferring money, and making payments.

Most existing m-banking products (including those offered in Indonesia, China, and Vietnam) are generally limited to existing bank customers, offering an additional delivery mechanism for them to check balances, make payments, and so on.  This is referred to as the “additive” m-banking model.  IFC’s EAP M-Banking Program focuses on the “transformational” m-banking model – where m-banking technology allows banks, telcos, or technology companies to pull unbanked populations into the financial system via mobile phones.

Why is mobile banking so popular right now? The incredibly rapid acceptance of mobile phones across the world suggests that they will become the computing platform of the masses.  Although communication is the killer application that is responsible for this dynamic growth, telecom companies and other players recognize the opportunity to leverage this extensive infrastructure to deliver other services.  Financial access is one of the first product lines that has shown commercial promise.  We can expect to see other product lines delivered via mobile phones in the future.

What is driving  businesses in East Asia & the Pacific (EAP) to deliver mobile banking products?  Actually, I think they are delivering not just mobile banking, but a broader range of mobile financial services.

How would you define mobile banking? There is currently a lot of confusion in the market about the term mobile banking because it is often used interchangeably with mobile money, mobile financial services, electronic money, branchless banking and related terms.  Therefore, I would like to clarify what I mean by these terms.  Electronic money is a broad term that encompasses all forms of electronic and stored value products.  Examples could include debit and prepaid cards in addition to money stored on a mobile phone.  Mobile money or mobile financial services connote financial services delivered through a mobile phone.  These services may or may not be tied directly to a personal bank account.  Mobile banking is a more specific term referring to the delivery of banking services, such as deposits, withdrawals, and bank transfers, through a mobile phone.  A mobile bank product is often tied to an individual’s bank account. These distinctions are important.  Often when we talk about mobile banking, I think we are really referring to the broader category of mobile money.

Ok, based on those definitions, what is driving businesses in East Asia & the Pacific (EAP) to deliver mobile financial services? There are different reasons for different players in the market.  Telecom companies see an opportunity to leverage their existing infrastructure by offering value-added services.  Since the market is nascent, they also see an opportunity to promote their brand as well as to gain and retain customers.  Bigger banks that are servicing wealthier clientele also see a brand building and customer retention opportunity.  Some of the more innovative players recognize the transformative power of mobile financial services to bank unbanked populations, acquiring a new customer base.  We are also seeing technology companies that offer multi-channel, multi-bank solutions entering the market to provide interoperable infrastructures.  These solutions remind me of the payment service providers that have emerged around the world to deliver shared ATM and POS networks.

You are bringing up the concept of interoperability.  How important do you think that is in these markets? Ultimately, I think it is very important.  Although it may not be where markets start due to first-mover advantage, I do believe it is where they will eventually end up.  IFC just co-hosted an e-Money seminar with Bank Indonesia, the theme of which was efficiency.  Bank Indonesia would like to promote not only efficient mobile financial services but efficient payment systems in their country.  We might be overlooking an important opportunity if we focus on mobile financial services to the exclusion of other payment systems – and payment networks – in the countries in which we are working.

A lot of the countries in EAP have large rural populations.  What are some of the most difficult challenges you see for reaching people in poor, remote areas? From my perspective, there are three primary challenges.  First, and foremost, is an appropriate product mix that meets market demand.  Second is a strong advertising and marketing campaign to raise awareness about the benefits of mobile money, mobile banking, and financial services in general.  This may well require financial literacy training.  Third will be the presence of an extensive network of cash-in/cash-out points.  Since many rural customers still depend on cash, they will need easy, accessible ways into which to transfer cash into electronic value and back out as cash again.

Do you see any special circumstances in the EAP region? In some of the Pacific island countries, in which IFC works, people use barter instead of cash.  That reality needs to be taken into consideration across all three of these obstacles – market demand, market awareness, and cash management.

Banks have been struggling with rural outreach for decades.  Why do you think mobile financial services is a solution? A huge part of the challenge that banks have faced in the past is the high, often unsustainable, cost of establishing branches in rural areas.  CGAP has studies suggesting that a mobile access point is as little as 1/50th the cost of a branch.  Isn’t that correct?  So the entire business model shifts with mobile money.  In addition, there are new participants in the value chain – telecoms, agent networks, and technology companies.  These businesses can bear some of the cost of infrastructure.  With a branch model, banks had to absorb virtually all the costs.

What is the mindset shift that would need to happen for banks to be able to work with mobile operators, technology companies, and other entities to reach the unbanked? For one thing, the banks would need to view this customer base as a source of additional revenue.  In addition, they would need to be willing to build a part of their business that caters to this new clientele because they will not be able to use the same business practices that they use with wealthier clients on this new market.  And the banks will need to collaborate with a range of new partners to meet their goals.

Do you think the potential of mobile banking has been oversold?  Why or why not?  What will we be talking about or worried about five years from now? It is not my belief that the potential of mobile financial services have been oversold.  If there is hype, it is more likely to be around the speed at which mobile financial services will spread. What we are seeing is not that different from the fits and starts that were seen more than 40 years ago with the advent of credit cards.  Getting the business models right, identifying the key players, and growing to scale all take time.  But, in my opinion, the benefits are there.  So once we figure out some of these parameters, I believe transformative mobile banking will flourish.  In five years time, I think we will be grappling with issues related to interoperability and co-opetition, the requirement for the banks and telcos to cooperate on infrastructure and compete on product, pricing, and service.

Here in Washington D.C., it is easy to avoid owning a car (personally I haven’t owned a vehicle since 1995). We have a car-sharing service called Zipcar, where you pay by the hour to use the vehicle. The price includes the use of the car, fuel, and insurance. The city provides designated parking spaces, because officials have an interest in reducing traffic congestion and pollution. Call this a car “utility.” Like my electricity service or my water bill, I only pay for what I use. I don’t own the infrastructure (the car, the power plant, etc.). Tom Friedman at the New York Times wrote last week about a much more ambitious version of “car as utility” or what he calls car 2.0:

Under the Better Place model, consumers can either buy or lease an electric car …and then buy miles on their electric car batteries from Better Place the way you now buy an Apple cellphone and the minutes from AT&T. That way Better Place, or any car company that partners with it, benefits from each mile you drive. G.M. sells cars. Better Place is selling mobility miles.

Reading this column got me thinking about a recent paper that Ignacio Mas wrote here at CGAP. The title is a bit misleading in my own opinion - “Realizing the Potential of Branchless Banking: Challenges Ahead.” One key idea that undergirds the paper is that a payments system/network itself could be considered a utility - just like a car sharing service - where people pay for what they use. And obviously, the cheaper and more available appropriate financial services are, the more people can use them:

But for the payments network to be useful, people need to be able to transfer value through the payment network in a way that is convenient, reliable and secure, widely available, affordable, and useful. We need to understand what drives customers, make the economics work for banking agents, provide transactional accounts for all, and identify shared industry models.

What makes visioning a payments utility possible is the technology available today, which can be used to bridge distances, close information gaps, contain settlement risks, and generally reduce transaction costs. Now the challenge is to develop attractive services that engage customers and workable business models that enable decentralized, largely private, institutions to build this payments utility.

You can download the paper here.

I have been tracking the mobile banking/branchless banking space in India for a few years - since the business correspondent guidelines were issued. India drafted those guidelines in the spirit of significantly ramping-up access to finance for poor people. The guidelines put Indians in the lead on branchless banking regulation in the South Asia region. Two years have passed and we have yet to see those guidelines translate into a dramatic change in the access to financial services picture in India. There are new companies and more experimentation with correspondents and innovative solution providers but banks have simply not been aggressive about pursuing branchless channels.

The Reserve Bank of India issued final mobile banking guidelines on Wednesday and banks are again front and center. Should we expect these guidelines to dramatically alter the picture of financial access in India? Are the unbanked winners or losers? Well….

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A recent blog post running on PCWorld highlights the idea of delivering aid via mobile phones. No doubt there’s real potential – we certainly think so. Consider how social protection grants are getting to some of the world’s poorest via bank cards in South Africa, Malawi and Kenya.

Going electronic can knock down costs of getting help to people who need it. The bar isn’t set very high: 65% of USAID’s food aid budget is consumed by the cost of delivery, for example. Handing out cash grants could be much more cost-effective, while boosting demand for local farm production. Using direct deposit with a debit card can also reduce corruption - light fingered officials siphoning off funds for the poor. So branchless banking should help with the relief industry’s traditional stumbling blocks of cost and corruption.

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