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.
India is just one of a handful of countries that is implementing financially-linked G2P payments at scale. And of course, “scale” in India – a country with nearly 1.2 billion people – means something a bit bigger than in most countries. In India in 2008-2009, 22 welfare schemes paid out a total $65 billion to tens of millions of Indians – which doesn’t even include the substantial G2P flows for government salaries and small savings schemes. The yearly budget of the National Rural Employment Guarantee Scheme (NREGS), one of two welfare schemes that dominate the G2P payments space is $6.7 billion. And, most excitingly from our perspective, these schemes are leveraging emerging branchless banking models to disburse these payments, moving from the former branch- and cash-based distribution model to the distribution of funds into no-frills bank accounts serviced by business correspondents outside of branches.
Not surprisingly, though, this is only the start of the story. While the ambitious link of G2P payments to bank accounts is exciting and can be a source of learning and inspiration for other countries, challenges and complexities persist. We visited India this summer to learn more about G2P payments as they relate to financial inclusion. Our full overview note is available here, but here’s a summary of our key insights.
State governments exercise significant control over the management and administration of central government-mandated G2P schemes, and there is great variability in the fees paid by state governments to banks for disbursing funds to citizens – some states pay 2% of values disbursed (or more), but others refuse to pay anything. This weakens the business case for banks and fails to generate enough money to feed the many mouths in the G2P value chain.
Business correspondent network managers (BCNMs) are particularly squeezed, as they must compensate their network to keep them engaged and reliable, but the current fee structures from banks leave little money left over.
In the absence of transaction fees, many banks appear motivated to disburse G2P transfers because they view this as a “foot in the door” for future business from governments, an especially compelling prospect for private banks who have traditionally been boxed out of this business by public-sector banks.
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!
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.
In this third post in the series on Brazil, we discuss another recurring issue about the agent business in Brazil. Read our first two posts on Brazil here.
In a country where agents have existed for close to 10 years nationwide, we would expect that by now banks would have found business reasons to share agents. From a consumer perspective, it is clearly attractive to be able to access banking services for multiple providers at a single agent. Yet agents in Brazil are still exclusive to banks and branded exclusively. Regulation in some markets requires agent exclusivity, but that is not the case in Brazil which makes this largely a business decision. After all these years, why hasn’t it made business sense to banks to share agents? Why haven’t retailers and agent companies struck partnerships with multiple banks and been more aggressive as they have in Mexico?
Does the new Elo brand indicate future plans to share agent networks?
It is important to note that there is already “sharing” of agents at some level. Credit agents are already shared between the small and medium banks, like Banco Cacique and Banco BMG, which specialize in offering payroll-consigned loans. Sharing credit agents turns out to be an attractive situation for these banks which often don’t have bank branches. New regulation recently restricted tiering for these types of agents — you can only outsource one level — but that will not stop the sharing (it should decrease however, the actual number of agents). Transactional agents, on the other hand, while exclusively branded and contracted with one bank can handle transactions for multiple banks. Just as it is with interoperable ATMs, transactional agents of one bank can process boletos (see here again on background) of another bank with differential charges. At least when it comes to processing boletos, which as discussed in an earlier post cover a range of payment transactions and are most likely 70%+ of transactions at agents, there is some form of interoperability at agents. 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. You can see all our postings here for Brazil, Mexico, India, Pakistan and Ghana. Today we continue with our analysis of South Africa and share this summary note on the branchless banking industry.
South Africa has often been used as a case study by those with an interest in financial inclusion. The country has an advanced banking infrastructure with nearly 10,000 ATMs and over 100,000 POS devices deployed. The Government has for a long time been committed to expanding access to financial services to the bottom of the pyramid and around 63% of South African adults now have a bank account, higher than the other countries featured in this series. They have employed a number of policy levers that have helped to achieve this:
The “Mzansi account” – a basic entry-level bank account which has attracted 6 million customers – was launched in October 2004 by the four largest banks as well as the state owned Post Bank as part of a compact between government and the private sector. Recent evidence, however, suggests that a large number of these accounts are dormant and banks complain that the accounts are not profitable. Policy makers and banks are now looking for other approaches to advance the access frontier.
Government payments of R88 billion (USD 11 billion) are made to 14 million individuals – approximately one-quarter of all South African adults every year. Recipients can choose to be paid into a bank account which is the mechanism that has been chosen by one-third of recipients. This has been one of the primary drivers of uptake of banking services, but there is still un-tapped potential to offer financial services to beneficiaries.
The government has also made efforts to promote an enabling environment for innovation. A proportionate approach to KYC procedures for account opening has been introduced by removing the requirement for customers to give proof of address when opening low value accounts and non face-to-face account opening is permitted. The regulatory framework also allows for the use of agents to provide banking services beyond the branch network.
This is the fourth post in our series on G2P, branchless banking and financial inclusion. All the other posts can be found here. In this post, our guest bloggers look at the case of the small island country of Fiji. Matt Leonard, formerly with MicroSave, is a consultant documenting the lessons learned from Fiji DSW’s experience. Till Bruett is the Regional Technical Advisor for UNCDF in the Pacific and the Project Manager of the Pacific Financial Inclusion Programme. PFIP is a Pacific-wide programme helping provide sustainable financial services to low income households and is funded by the Australian Agency for International Development (AusAID), UNCDF, the European Union, and the UNDP’s Pacific Centre. More information can be found at www.pfip.org.
On a warm day in the first week of May, hundreds of rural Fijian social welfare recipients traveled from Fiji’s remote, interior highlands to attend what was for many an initiation to branchless banking. The recipients assembled near a small shop in the village of Vunidawa to be introduced to the new concepts by Westpac staff equipped with red bank cards and wireless point-of-sale (POS) devices. Throughout the morning they showed their new clients how to check balances and cash out benefits. Meanwhile the busy local shopkeepers rang up record numbers of receipts through electronic sales.
Since January 2011, Westpac Banking Corporation of Australia has been helping in the distribution of social welfare benefits across Fiji through its network of branches, ATMs and POS devices in their merchant network. In the process, they have also provided access to flexible, no-fee accounts to a previously unbanked population including those living in hard-to-reach areas.
The benefits consist primarily of an unconditional cash transfer averaging about US$37/month for those classified as widows, elderly, disabled, single parents or those with chronic illness. A smaller group of beneficiaries receive a semi-conditional cash transfer for taking care of orphaned, abused or neglected children.
Up until January 2011, it was a common occurrence in Fiji to see long queues of social welfare recipients suffering under a hot sun outside post offices or district social welfare offices across the country. Not only would many of the 24,000+ recipients trek many hours from the poorly connected interior each month to pick up or encash their vouchers, but many might spend FJ$ 10-20 (US$6 – $12), or 15-30% of their modest allowance on travel. It was on one of these days in January 2009 when the Pacific Financial Inclusion Programme (PFIP) decided this was an opportunity to extend the financial access frontier in Fiji – putting in motion the first major G2P project for the poor in the Pacific.
In early 2009, PFIP found a willing ally in an overwhelmed and understaffed Department of Social Welfare (DSW). Despite constitutional turmoil that contributed to high-level of turnover at DSW and its ministry among the senior ranks, PFIP and DSW staff conducted an activity-based costing analysis that laid bare the case for transformation. The process of printing and distributing benefit vouchers was time consuming (up to 2 months) and costly (upwards of FJ$ 844,000 or nearly US$500,000 per annum) and subject to fraud, error and leakage. PFIP also did a survey of the DSW beneficiaries’ perceptions and attitudes toward banks and electronic banking methods which confirmed that there seemed to be few barriers other than inertia holding back change. Indeed, these studies – together with critical support from senior staff at DSW and the Minister of Women, Social Welfare and Poverty Alleviation herself – led to Cabinet-level endorsement for the shift from the outdated voucher system to a progressive electronic-based payment system in late 2009.
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 and Mexico over the last few weeks. Today we offer a snapshot of the conditions for branchless banking in India drawn from a summary note of the Indian scene completed at the end of 2010.
POS machine used by FINO agents
India has embarked on far-reaching financial inclusion initiatives by opening up regulations to allow the use of agents (called Business Correspondents in India) since 2006. India is also building new public infrastructure which could inject a further boost. Will these conditions deliver a lasting increase in financial inclusion?
The government is making visionary investments in public infrastructure.
Allowing the use of banking agents is common today, yet India has moved even further ahead beginning to build 3 pieces of public infrastructure that could substantially accelerate financial inclusion:
A mobile payments switch: To take full advantage of the banking network across India, public-private collaboration has built the Inter-bank Mobile Payment Service (IMPS). This new switch allows mobile phone-initiated transactions to pass from the bank account in one bank to an account at another bank. If fully leveraged across the banking network, it would counteract some of the barriers posed by India’s size and regionally fractured banking presence.
Unique identification: The Unique Identification Authority of India has begun to roll out registration of the unique identification number with matching biometrics. As this becomes more widely available, it could ease KYC processes and reduce the friction of mass branchless banking operations.
Shifting government subsidies to electronic payment systems: The 2012 budget announced a plan to shift some public subsidies (such as $12.5 billion in fertilizer annually) to a system where payments will be delivered directly into the beneficiaries’ accounts. This change would funnel large payments volumes through branchless banking and, among other benefits, bring clients into a deeper banking relationship. This recent policy shift adds to ongoing state efforts to transfer National Rural Employment Guarantee Act wage payments electronically.
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.
Over the past several months, we have taken a close look at the branchless banking industry in a few key countries. We start here by presenting our learnings from Brazil and share our summary note on the industry. We will continue in the coming weeks to look at several other markets, including Mexico, India and Pakistan.
Financial inclusion in Brazil needs to now turn urban (Photo Credit: André Mantelli)
The job of financial inclusion in Brazil is arguably done. Brazil’s banks have made it a global leader in branchless banking. The underlying retail payment infrastructure is in place. There are agent locations in almost every municipality. New agent management companies from around the world regularly visit more than 30 of their counterparts in Brazil to understand how the business works. And Brazil’s Bolsa Familia program, already successful in moving beyond G2P payments to credit and savings, is considered a global flagship.
And yet, financial inclusion in Brazil still has a long way to go. CGAP has studied the branchless banking market in Brazil over the past few months and has written a country note available here. In this blog series, we discuss some of the challenges identified in that note. We start the series here on the CGAP Technology Blog, but we will continue the conversation on a joint blog to be developed by Center for Microfinance Studies at FGV (Fundação Getulio Vargas).
