Archive for: Customer adoption

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 following is based on materials from a session led by CGAP’s Denise Dias and Kate McKee. You can download their presentations here: part 1 and part 2.

In recent years, a host of developing countries have issued regulations governing mobile transactions, e-money, and other aspects of branchless banking to aid in securely extending financial services to more citizens. Yet as adoption skyrockets for services ranging from smartcard-enabled agent networks to mobile phone payment systems, regulators continue to face challenges in ensuring adequate consumer protection, particularly for new users of financial services.

Challenges are intensified by the fact that many services have been widely available for only a short while. As a result, there are no “off-the-shelf” regulatory frameworks that can successfully mitigate risks and address problems in complex and far-reaching branchless banking systems. Nor is there a rich trove of historical data to use in shaping policy.

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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 following is based on a session led by Anu Bajaj, Adviser, Financial Sector Team at DFID. You can download her presentation here.

CGAP and DFID are collaborating on work that explores how social welfare payments – government to person (G2P) transfers – could help to bring poor people into the formal financial system using branchless banking:

Until very recently, most G2P (government-to-person) payments were carried out in person and in cash. However, because such methods pose security risks and require high transaction costs for payers and beneficiaries, governments are increasingly switching to electronic delivery.

Government payment systems vary widely by country. Plan Familias in Argentina, for example, offers a debit card re-loadable only by the government. Funds must be drawn within 1 month or the beneficiary loses them, and they may not deposit additional funds into the prepaid account. In Brazil, the Ministry of Social Development is in the process of migrating 12 million recipients of Bolsa Familia, the financial program that represents 25% of Brazilian families, away from an electronic benefit card, and toward the option of a simplified account. In South Africa, several million of the country’s more than 9 million grant recipients receive their funds via a debit card from the nation’s largest bank or a smartcard from payment system provider Net1 UEPS Technologies.

While there’s been some exploration of the business case for agents and providers, we wanted to look at the implications for decision makers. Key takeaways:

• Some schemes may require specific regulatory approval or exemption to actually increase access to banking services;
• Social welfare departments may require or benefit from financial advice in designing payment elements and even appointing payment agencies (e.g. banks);
• Large scale schemes may affect payment system and financial sector through choice of standards and instruments;
• The current economic climate offers opportunities for a “big push forward” for financial inclusion with multiple developmental and economic growth spin offs;
• Financial regulators can enable and support this process through constructive engagement.

In this session we asked for a show of hands – how many banking and payment officials in the room have reached across department lines to speak with their social welfare departments to see how they could collaborate? Only a few hands went up, with this comment: “Dialogue doesn’t equal agreement.”

DFID and CGAP will have a Focus Note on this topic in the next few weeks.

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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Recently, Ignacio Mas and I wrote a CGAP Focus Notes entitled Going Cashless at the Point of Sale: Hits and Misses in Developed Countries. We wanted to analyze the history of electronic money schemes in developed countries, more specifically in Europe and Asia. We thought it would prove a useful exercise as CGAP works towards sustainable branchless banking models in developing countries. As expected, our research shed light on important lessons.

In the paper, we discuss three broad approaches, and in each case we look at two providers who met different degrees of acceptance in the marketplace. Although our primary interest is with payment through mobile phones, we start with two cases that use smartcards, because these share many of the same characteristics and issues as payments through mobile phones. The last blog post looked at Mondex. Now we turn to Octopus.

In 1979, Hong Kong’s Mass Transit Railway (MTR) launched a prepaid card with a magnetic strip as a ticketing system for use with its rail services. In 1994, Creative Star (renamed Octopus Cards Ltd. in 2002) was formed as a joint venture between MTR and four other public transport operators in Hong Kong to make it an intermodal ticketing system (i.e., including buses, ferries, subway, etc.). The Octopus card, a contactless smartcard based on Sony’s FeliCa chip, was introduced in 1997, replacing the old magnetic strip cards. The card does not need to be physically inserted into a device to be read, which makes payment very convenient for users in a hurry: all they have to do to pay the exact fare is to swing their purse or handbag near the card reader.

The value is stored securely in the card itself. The card can be personalized for an extra charge with a photo, and personal data can be kept on record. If a personalized card is lost or stolen, the customer can reclaim the remaining value of the card, and the original card will be blacklisted to prevent its use.

At the time of launch, acquiring an Octopus card required a deposit of HK$50, which created widespread resentment with the new payment mechanism. However, adoption was driven by (i) very rapid conversion of all turnstiles to the new system; (ii) a short phase-out period for the old ticketing system of only 2–3 months; and (iii) a pricing scheme of the only remaining ticketing alternative—a single trip ticket—at a much higher price. This amounted to a compulsory conversion by all transport users, such that within 3 months, three million cards—a number equal to half the residents of Hong Kong—were sold (Siu 2002).

The Octopus system is now a widely used electronic cash system. By mid-2008, there were over 17 million Octopus cards in circulation (which is more than twice the population of Hong Kong), with more than 10 million transactions, worth HK$85 million, processed daily (Citi 2008). The cards are used by 95 percent of the population of Hong Kong aged 16 to 65; the average user stores around HK$63–65 on the card.

Van Hove (2005) notes that Mondex failed to take root in Hong Kong, whereas Octopus has taken root. Octopus had four distinct advantages over Mondex:

• Having signed up all the main public transport companies in the territory, Octopus had a de-facto monopoly with a large user base—mass transit users.

• Octopus focused on replacing cash in unattended POS—ticketing machines. The ability to present exact fares at all times through a smartcard at unattended machines offered a big convenience factor for users. In contrast, at least initially, Mondex attempted to replace cash in stores, where not having the exact change is much less of a bother for customers.

• Octopus’s contactless features made it extremely convenient for users—indeed, faster than using cash. The cards do not have to be inserted and, in fact, generally do not even have to be withdrawn from wallets and handbags, to be read by the card readers.

• The card’s personalization feature means that value can be retrieved by users who lose their card or have a faulty card.

You can read about the other cases we analyzed here.

Recently, Ignacio Mas and I wrote a CGAP Focus Notes entitled Going Cashless at the Point of Sale: Hits and Misses in Developed Countries. We wanted to analyze the history of electronic money schemes in developed countries, more specifically in Europe and Asia. We thought it would prove a useful exercise as CGAP works towards sustainable branchless banking models in developing countries. As expected, our research shed light on important lessons.

In the paper, we discuss three broad approaches, and in each case we look at two providers who met different degrees of acceptance in the marketplace. Although our primary interest is with payment through mobile phones, we start with two cases that use smartcards, because these share many of the same characteristics and issues as payments through mobile phones. Here is an excerpt discussing the first case, Mondex.

Mondex is electronic cash on a card. It was designed to mimic cash, particularly small notes and coins (e.g., micropayments), so transactions with Mondex had to be extremely fast and had to incur no transactions cost. Accordingly, Mondex was conceived as an offline transactional method that does not require clearing systems to support individual transactions. Mondex-type systems are generally called “e-purses.” Many such systems emerged across Europe in the late 1990s: the Proton system backed by Visa in Belgium and the Danmont system in Denmark were other early projects.

Under the Mondex system, customers are issued a smartcard, which is a plastic card with an integrated circuit or chip from which data can be read and updated by card-reading devices. The chip stores the money value, but this is not linked to any bank account, and the information is not backed up on a server. Thus, the money value is irretrievably lost if the card itself is lost, and the card provides a much higher level of anonymity for users.

Consumers load Mondex value by transferring money from their (separate) bank account using an ATM or a Mondex-enabled telephone, which has a card reader and is connected to the Mondex system. The float is kept by the Mondex issuer (a private company set up by Mondex International in each country), from whom participating banks would “buy” Mondex value to meet their customers’ requirements for Mondex value.

Extensive field tests were conducted in Swindon, in the United Kingdom, during 1995–97 and in Guelph, Canada, in 1997–98. Both involved a very strong marketing push to get a critical mass of merchants to take up the card-reading devices. In the Swindon trial, 14,000 cards had been issued by the time the trials were discontinued after 3 years, compared with the uptake of 25,000 cards that had been anticipated for the first year alone (Van Hove 2005). Use of the cards turned out to be much more disappointing. Although this service still lingers in a few countries, it never met much market success.

Mondex is one case which shows that customers will adopt (or not) a new payment service or technology when (i) it provides clear benefits relative to current alternatives and (ii) they can trust it based on a clear understanding of the risks involved. Mondex failed to convince the public on both grounds.

Read the rest of the cases we analyzed here.

I’m just back from the Mobile World Congress. Tomorrow I’ll write about banking agents and share our presentation from Barcelona. Meantime, I came home with a question: I can load any software I want onto my PC, so why can’t I do the same with my phone? Better yet, why can’t poor people?

I’d love to see a boom of cheap m-banking software, designed by people who know how poor people want to use their phones. Although lower-income, non-Western users make up 80% of the world’s new mobile consumers, the guys in Finland, Sweden and South Korea still decide how people’s phones look and feel. But for how long? I’m interested, because I expect usability to be one key in how fast poor people are willing to adopt mobile-based financial services (which CGAP believes can blow open the frontier for access to finance for the poor).

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Recently I talked about mobile banking and CGAP’s Technology Program at two events in New York. One was the “Innovation to Impact” conference hosted by the Bridge group for social entrepreneurship at the Wager School of Public Service (NYU) and the other was organized by the Financial Women’s Association in New York on mobile banking. For the latter, I was joined by panelists from Nokia, Bank of New York Mellon, and MPower Mobile.

Both sessions ended up tackling the same big question — how can banks, mobile operators, and others change their behavior to develop large-scale mobile banking services for poor people?

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Globe Telecom is a leading mobile network operator in the Philippines and is working with CGAP to create ecosystems or mini-economies with multiple locations for people to transact with GCASH, their mobile banking service, via SMS messaging. Through intensive marketing, targeted customer education, and rapid sign-up and accreditation of retailers, the project will bring mobile phone-based payments and money transfer services for the first time to three predominantly low-income rural provinces. A total of 80,000 GCASH users in the three pilot provinces are expected to be reached, with greater success than would otherwise be possible without CGAP’s support. Rizza Maniego-Eala, President of G-Xchange, Inc, Globe’s wholly-owned subsidiary running its m-commerce business with its flagship service, GCASH, explained in a recent interview that this is just the latest in a series of innovative efforts by Globe to expand financial services using mobile phones.

How far would you say GCASH has evolved in terms of developing ecosystems for mobile commerce?
Today, GCASH has over 6,000 domestic outlets in the Philippines servicing our 1.9 million GCASH subscribers.  Recently we renewed our partnership with The Rural Bankers Association of the Philippines (RBAP) to further expand existing mobile phone banking services of rural banks.  Using the GCASH payment platform and developed with RBAP’s Micro-enterprise Access to Banking Services (MABS) program, the convenience of mobile banking, many rural banks are using GCASH integrated into their operations benefiting the bank by being able to reach more clients and provide an additional channel for accessing the various financial services offered.  

We’ve also begun a pilot transfer program for Filipinos in Hawaii, Singapore, Hong Kong and the United Arab Emirates that allows them to send Western Union mobile money transfers directly to friends and family who are GCASH subscribers in the Philippines. The cross-border service supports low-principal and high-frequency remittances at much lower rates. 

Describe the importance of pricing for the lower income segment of the market.
In the Philippines, the greater portion of the population lives at or below poverty line.  In spite of this, there are over 60 million mobile phone subscribers and around 98% are on prepaid services.  GCASH benefits the lower income segments because it reduces the transaction fees and costs to send and receive money.   GCASH requires only a mobile phone and a one-time SMS-based registration, with a minimal charge of U$0.02 (P1.00) per transaction.  Subscribers can do their transactions at home instead of traveling several kilometers to rural banks to pay or do their banking transactions.

For those of us who are less familiar with the Philippines, describe the importance of remittances to the country, as well as to your business.
The Philippines received international remittances worth an estimated $16 billion (this year alone) constituting about 13% of our GDP. The continued growth of remittances to the Philippines plays an integral role in the strength of the financial sector and our economy as a whole.  The Philippine domestic remittance profile is also growing although it is quite tough to find third party data estimating the size of this market. As both international and domestic remittances form a large part of our country’s economy, we continue to look ways in which GCASH can provide low-priced, secure and easily accessible solutions for our growing merchant partner-base and various consumer segments.

What are the benefits of GCASH to your partners on the ground – banking agents?
GCASH is all about convenience and lower transaction costs.  For partner establishments, GCASH has the potential of reducing costs and promoting efficiency.  Since transactions are electronic, their processing capabilities are automated thereby reducing manual handling and potential reducing back office costs.  The reduction of operating cost could translate to increased margins, better value passed on to our partners’ customers, or both.   Utilizing GCASH to help in our partners’ automation and increased access to more customers requires almost zero capital expenditure on their part.

Recently we spoke with Naushad Contractor about India’s mobile banking trends. A payments professional with over 12 years experience across geographies, Naushad heads marketing for mobile commerce at Vodafone Essar ltd., India. He is also on the regulatory committee of the Mobile Payments Forum of India.

Part of e-Businesses success stories, he has played a key role in launching India’s first eWallet and was a member of the core team that launched and made Remit2India.com the World’s No.1 Independent Money Transfer Portal for Non Resident Indians.

Q: Is mobile banking popular or hyped?
I think Mobile Banking is increasingly becoming popular but it is much more hyped than it is popular. Everyone says “I Do” but actually not many actually do as they say. However, the factor of sheer convenience for the customer and lower transaction costs for the banks is creating a conducive pull + push environment for increasing understanding and usage of this relatively new concept. As in the early days of internet banking, most people will tend to use mobile banking just as an information tool rather than conducting too many transactions on the mobile. Even the initial transactions will be much lower in value. Once trust in mobile banking increases as a result of good user experience, both usage and transaction values will begin to normalize.

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This is an excerpt from a recent CGAP paper, Banking on Mobiles: Why, How, for Whom? In it, Kabir Kumar and Ignacio Mas examine the business case and deployment options around mobile banking for smaller banks and microfinance institutions. With effective partnerships and technical choices (which affect customer uptake), we believe there is a strong market opportunity to reach poor people with a broad range of financial services.

The technology elements embodied in a phone may not be new, but what is new may be the way customers relate to the technology. Mobile phones are personal devices. The value of the device is so high for some of us that we even decorate and personalize it like we do our cars or homes. One study indicated that mobile phone users were not without their phones for more than 30 minutes. The device gives us a sense of immediacy. It’s not so much about anytime/anywhere, it’s about here and now. It gives us a feeling of possibility, convenience, and control.

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