Archive for: Innovation

A few weeks ago in Washington, DC, we hosted many of our partners who are implementing branchless banking products and services around the world. This was a chance not only for us to learn about the state of play of the industry at a global level, but also to allow the partners themselves to share learnings and experiences with each other.

Is there something that a nonbank electronic money issuer in Burkina Faso can learn from a state-owned commercial bank in India? Is there cross-learning between a mobile network operator in Pakistan and a large retail chain in Mexico? We think so. Chances are these businesses have more in common than we might think at first glance, especially if their overall objective is to reach the unbanked through innovative uses of technologies and new business models.

One of the topics we discussed together was the keys to building powerful partnerships. No one can launch a branchless banking service alone. Either an MNO must partner with a bank to hold the float, or an agent network company must partner with an MNO to provide the transaction channel, or a bank must partner with an MNO to build an agent network, or… the list could go on and on. If one thing is crystal clear in branchless banking, it is that partnerships are critical and yet partnerships are difficult.

So we asked our partners to brainstorm together and give us their top 10 list of recommendations for building powerful partnerships based on their experiences that we could share with the global industry (that’s you!). Here’s what they came up with, organized in three loose categories:

Broad strategy and vision:

1. Ensure that there is a long-term strategic alignment among partners with a shared common vision.

2. Align specific incentives and expectations on financial returns among partners.

3. Focus not only on commitment from top management but from the entire staff of an organization.

4. Do not ignore the soft factors like cultural fit among partners.

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This is the first post in a five-part series about product innovation in branchless banking.

The promise of branchless banking is increased access to finance for the poor and new revenues for providers of all stripes. That’s not happening yet.

CGAP counted 22 branchless banking services with more than 1 million registered users; we also counted more than 70 others which have not reached that threshold (as of Q1 2011). That’s about a 1 in 4 “hit rate”. If we look at services which have launched since 2007 (i.e. since M-PESA got everyone excited) and acquired more than 250,000 active users (a better indicator of traction in the market than registrations), success rate drops to 1 in 15. Not so hot.

This might just be the growing pains of firms still figuring out how to operate in this new space at the intersect of several industries (mobile, banking). Some providers have fallen into regulatory ruts, some are finding it hard to build robust agent networks, while still others are struggling to make technology platforms stable (often wrestling with vendors who provided them in the first place). In short, there is a lot of worthwhile work going on laying the rails for branchless banking.

But all this supply-side effort seems to have crowded out the demand-side question of whether consumers actually want the products on offer. Why are we so certain that a liquid wallet with P2P and bill pay functionality is the “killer app”? Partially because people saw it succeed in Kenya (though nowhere else yet). Partially because most telcos don’t want to take the lead on more complex financial services, and they’ve convinced themselves they don’t have to. And partially because it seems the question is just not getting asked.

Despite this, the data seems to beg the question: With nearly 100 live branchless banking implementations worldwide but so few gaining traction with consumers, could the product be the problem?

Some higher income clients can be captured by convenience and the cool factor of easier money movement. But the mass market of low-income, unbanked consumers is different.  The microfinance sector has known for some time that these consumers have a range of financial service needs which are deeply felt but often poorly met (even by the microfinance industry itself). CGAP has called for more attention to consumer wants and deeper thinking about converting the inactive to active. There are certainly some innovative products out there. These include Mobile Venture Kenya’s adaptation to mobile phones of Stuart Rutherford’s P9 product, which blurs the lines between credit and savings. We’re also intrigued by the airtime-based life insurance with MicroEnsure and Tigo in Ghana.

Unfortunately we don’t see enough of this happening. There are three main reasons:

1. Firms are firing on all cylinders just to get a basic offering to market. It can be an all-consuming process. But why kill yourself pushing to launch without devoting adequate thinking to whether your offering will be attractive to clients?

2. Many managers struggle to source meaningful insights about consumers.  This is especially true for new products (where traditional focus groups or quick-hit surveys may not surface underlying needs) or for companies moving across sectors (either MNOs into financial services or banks extending their customer base to the bottom of the pyramid). Managers need better tools to understand consumers and convert insights into product ideas.

3. Existing product development processes often make launching new products a high-stakes game for the manager pushing it. New products often aren’t really tested until commercial launch, by which time it is costly to make changes. Many firms would benefit from a rapid prototyping process that puts product concepts to the test early and often in the hands of real consumers. Building out new products would be much less risky and expensive.

CGAP’s Technology and Business Model Innovation Program is partnering with at least 3 providers to launch Product Labs that demonstrate new ways of understanding clients, testing ideas and designing breakthrough products. This blog series will say more about what the Labs will look like, explain what we’ve learned about product innovation in other industries, and in the final post have a guest blogger announce the first Product Lab.

- Sarah Fathallah, Toru Mino, Mark Pickens

As we look globally for innovative business models and technologies, it’s a shame how little we (as two Americans) focus on our backyard in the U.S. Despite our comfort drawing similarities and lessons across markets as different as Brazil, India, and Kenya, we seem to assume that the U.S., with its technology and banking infrastructure, relative wealth, and uniquely complex regulatory context, is truly different. To test this and see what we might uncover “locally,” we attended the 6th Annual Underbanked Financial Services Forum in June to learn more about the state of the art in the domestic financial inclusion world and look for ways where global and local conversations overlap and can be integrated.

We were not disappointed. The event, terrifically organized by the Center for Financial Services Innovation (CFSI) and sponsored by the American Banker, played host to hundreds of participants representing banks, nonbank financial service providers, retailers, regulators, and other policymakers and researchers. Some of our takeaways:

• Prepaid is the talk of the town. Prepaid instruments, particularly the general purpose reloadable (GPR) card, seemed to be one of the most talked-about innovations in the domestic market. The general feeling (particularly among the various prepaid vendors in the crowd) was that prepaid has a number of characteristics that make it better for the underserved – lower cost structure, more accessible reload points, less intimidating, easier to open, and lower/more transparent fees. Certainly the recent IPOs of prepaid giants NetSpend and GreenDot help fuel excitement around these business models.
• “Mobile” may not be as exciting in the U.S. Given the strong build-out of various types of channels and infrastructure in the U.S., many were skeptical that mobile phones hold the kind of transformative potential we’ve seen realized in markets like Kenya – at least when it comes to banking the underbanked. The biggest topic within mobile is near field communications, but NFC’s potential value seems to lie more in convenience and marketing tie-ins (particularly for data collection and in connection with location-based and loyalty services) and has limited potential to deliver significant access benefits for the financially underserved. Read the rest of this page »

We need to start treating willpower as a scarce and important resource. That’s the point pushed in a recent New Republic piece on “What can’t more poor people escape poverty?” And it’s a product opportunity for those designing financial services for the poor.

The article is worth reading start to end, but I might summarize it this way. An increasing number of psychologists believe humans have finite stocks of willpower and “spending” it one place leaves us with less to push ahead in another area of our lives. Ever come home from a tough day full of difficult work decisions and interactions and slide right into a bag of crisps you wish you hadn’t opened? (For slightly more rigorously academic examples proving the point, take a look at this experiment by Dean Spears from Princeton. Also check out the clever work on behavioral economics by ideas42 at Harvard.)

For the rich, most of our choices boil down to whether we want something. For the poor it almost always involves a tradeoff, and their choices are often depressing and emotionally depleting: Do I pay rent, or buy lamp oil so the kids can study at night? And given their low income, even small purchases involve potentially stark tradeoffs that, the school of thought says, cumulatively saps willpower and emotional energy.

This is where financial services comes in. We know low-income people are active money managers, but the informal instruments they use are not very good. If the psychologists are right, anything we do to make it easier for the poor to manage their finances with less stress will leave low-income consumers more willpower for other tasks, challenges and goals.

For example, we could make it much safer and reliable to save than via the mattress by convincing employers to pay wages via mobile money and then offering clients the option of automatic deduction into an illiquid savings account geared to some savings goal (e.g. buying a new motorcycle, or Christmas gifts for the children). By making it almost automatic to save, might the saver then have more willpower to “spend” on ideas that lead to increased income? Maybe. It certainly depends on the person. But it’s also a laudable goal in and of itself to reduce the stress people feel from managing their finances (or feeling like their finances are beyond their control).

There are business opportunities in any service that makes people’s lives feel more in-control and headed towards their hopes… if one can figure out how to productize the initial insight. Product innovation is where a lot of firms fall down. It’s hard. And that’s why CGAP is ramping up its work in this domain. We’re not product design experts: but we hope to aggregate the wisdom of people who are, and direct it toward designing financial services for the poor. We’ll be reaching out to potential partners, and you’ll hear more from the Technology & Business Model Innovation Program about designing new branchless banking products.

- Mark Pickens

In previous blogs Mark Pickens has lamented the lack of innovation by branchless banking providers in products that go beyond payments. But there are some green-shoots of innovation. In this blog we take a look at some examples of early experiments that we have seen involving in micro-insurance.

It could be argued that micro-insurance is the ideal financial product to be offered via branchless banking. Insurance requires a large base of customers: the larger the base, the more diversified the risk for the insurer, and the cheaper the insurer is able to offer the product. And branchless banking, we have long argued, is a business built on high volumes and low margins.

It seems that several others share this view. Here’s a quick summary of three of the most exciting examples that we have come across around the world that pair micro-insurance with branchless banking channels:

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Having just returned from 2 weeks in West Africa looking at the branchless banking market, one thing became quite clear to me: most African commercial banks have a very small retail banking business. As a Reuters Africa News blog post recently wrote:

Retail banking is not a high margin business. It is one where you have to earn a little from lots of customers, know them well and serve them well – not easy when you have many millions spread over a large area who may not be worth much individually even if they are better off than they have ever been before.  

But the post goes on to make reference to a report by Bain & Company indicating that the financial services industy in Africa could grow by 15% a year until 2020, with the biggest growth area coming from retail banking.  So what’s changed? 

Mobile banking in particular is seen as being a powerful driving force after the success of the M-PESA mobile money transfer service in Kenya and others elsewhere.

Speaking of M-PESA (when are we not, right?), there’s been some interesting discussions lately around interoperability in the Kenyan market. An article in the Business Daily bemoans the fact that a proposal has gone to the Prime Minister’s office asking the Central Bank of Kenya to “establish a form of clearing house that will process all transactions from all four mobile money platforms.”  The article goes on to say:

The small print [behind this proposal] reveals that some kind of market imbalance is being hatched in the quest to level what some believe is an uneven playing field. The success [of M-PESA] did not come easy to its creators. It was a hard fought battle against regulators as well as an expensive exercise for Safaricom who had to spend million – perhaps billions – educating its agent network, and indeed the world on a previously untested product. The proposal will effectively hand M-PESA’s rivals access to over four years experience in crafting that working eco-system - at no cost.

This topic also came up at the AITEC Banking & Mobile Money COMESA conference in Nairobi last week where Paynet Groups’ CEO in Kenya Bernard Matthewman said that there were 24 bank switches and credit management systems with multiple mobile banking platforms across the country. He continued on to say:

There is efficiency to be gained by not replicating infrastructure – you reduce costs and reap greater margins. You are in a much better position to go to places with less economic activity. Competition is increasing and CEOs are recognising that critical mass and volumes are needed to compete in the retail space. They are realising that they cannot reach competitive scale on their own.

Interestingly, the article includes similar quotes from representatives from Equity Bank and Orange, but not from Safaricom. Instead, in another article from the Business Daily describing the proposal before the Prime Minister, Claire Ruto, Safaricom’s corporate affairs officer said that:

Although consumers may initially enjoy the resulting price cuts, such a move bears the risk of killing innovations in the money transfer market. This is proprietary innovation and we don’t understand why our competitors should want to ride on it yet they too have theirs.

But to finish up, let’s switch from the supply side of the discussion to the demand side. We’ve blogged a lot over the last couple months about the launch of mobile money in Haiti. But one wonders how it is actually being used by people now that it’s in the market. A grant from USAID/HIFIVE has allowed a pilot of 100 beneficiaires to receive their unconditional cash transfers through the mobile phone, supported by Mercy Corps Haiti’s Economic Recovery Team. Here’s an update from Mercy Corps about how the first mobile money disbursement went:

When Marie first attended mobile money training, she didn’t understand how the money could be on the phone and would have preferred to be given cash directly. Now that she has seen mobile money in action, she believes that buying things is ‘very easy with the phone.’

- Sarah Rotman

I just returned from the GSM World Congress a couple weeks ago which is the annual trade gathering of the mobile phone industry. It’s an excellent place to glimpse what’s coming up next on the horizon. One topic gaining momentum fast is mHealth — mobile phone-based solutions to healthcare challenges. The GSM Association invited CGAP to talk about where mobile money fits in the mHealth universe. My presentation is here.

While most mHealth opportunities in developed countries tend to focus on reducing costs, mHealth in poor countries is often tackling the much more basic question of access. And deeply embedded in the question of access are a number of financial hurdles. mMoney might be well-placed to help. Basic payment functionality is often missing or incomplete in emerging markets. By plugging the gaps, mobile money could help with some very basic issues, like reducing absenteeism from nurses and doctors traveling to pick up their pay. Or it could enable completely new opportunities, like telemedicine.

But perhaps most of all, many poor people forgo treatment altogether or severely ration it simply because they do not have insurance and find it hard to save up for emergencies. In Kenya, 85% of women want to give birth in a formal clinic, but only 44% do so. The number one reason cited by women is the difficulty of accumulating the US$ 40 needed to pay. In other words, poor access to financial services is a big part of why there is a healthcare access problem.

This is a guest blog by Mireya Almazán & Ignacio Mas from the Bill & Melinda Gates Foundation. The GSMA Mobile Money for the Unbanked also recently posted a blog from Mireya and Ignacio about their new initiative discussed here.

Who would have expected only three years ago that banking beyond branches would be receiving so much attention across the financial services and development industries? New deployments are popping up globally—over 30 were launched last year alone. While this level of attention and pace of activity is very welcome, keeping track of them all and identifying the promising ones is getting difficult. Part of our job at the Financial Services for the Poor (FSP) team at the Bill & Melinda Gates Foundation is to promote industry leaders and spread good practices. Rather than falling into the trap of only talking about those that we know about, or those that are getting the most press, we thought we’d be explicit about what is our vision of success, and have you tell us whether you are already there. The Bill & Melinda Gates Foundation wants to showcase you.

What’s particularly exciting for us is to see so many different approaches being employed, leveraging partnerships between a wide range of players. While mobile network operators have introduced mobile money services that are proving to be game-changing for financial services in many countries, banks are also taking bold steps to redefine themselves, introducing new business models that can work for poor people at scale. Increasingly, we are seeing banks move away from traditional float- and credit-based revenue models to transaction-based schemes that are more appropriate for the cash flows of poor people. Moreover, banks are shifting the bulk of low-value transactions to a much lower-cost and more ubiquitous retail channel, which adds much convenience to customers and makes for a significantly more compelling business case to serve poor people with savings services. Banking beyond branches will not just involve competition between institutions, but also competition between partnership and business models.

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This is a guest blog by Ignacio Mas from the Bill & Melinda Gates Foundation.

It’s always hard for competitors to decide to work together on some key aspects of their business. It usually comes down to whether the players involved opt to maximize the total size of the pie or just their slice of the pie. In networked businesses, in general, the more the players work together to grow the pie, the larger the slice each one will get. That’s why mobile operators have a tradition –of which they are rightly proud— of interconnecting their voice and data bearer services. They long since discovered that their customers are best served by making sure they can send and receive messages to/from anyone, even if they are on a different network.

But we haven’t yet seen this logic extend to mobile money. In most countries, mobile money providers working together is probably less a matter of if and more about when, just like it has been for banks with sharing ATMs and mobile operators with sharing towers. And it’s probably not even about when but about how.

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Tomorrow will mark the one year anniversary of the terrible earthquake that struck Port-au-Prince, the capital of Haiti. While much of the global aid community was focused on disaster response and establishing humanitarian camps for the displaced, there was also a desire to start putting in place financial systems that could be used to help both the immediate aid efforts as well as to establish sustainable long-term financial services for all Haitians. 

As part of this longer-term response to the disaster, the Bill & Melinda Gates Foundation, in coordination with USAID, made $10 million available for the Haiti Mobile Money Initiative (HMMI) to encourage mobile operators and banks to launch mobile money services. Yesterday the first prize, for $2.5 million, was awarded to mobile operator Digicel and their partner bank ScotiaBank.

I caught up with Greta Greathouse, Chief of Party for the USAID funded Haiti Integrated Finance for Value Chains and Enterprises project (HIFIVE), which is responsible for running the HMMI.

1. Chris Bold: How long had HIFIVE been working in Haiti before the earthquake?

Greta Greathouse:  HIFIVE opened its doors for business on July 20, 2009. The project had completed the “start up” phase and was making progress towards its objectives on January 12 when the earthquake struck.  A number of the senior technical people from HIFIVE were with me that afternoon at the Central Bank to discuss one of the key HIFIVE initiatives; the encouragement of the use of ICT solutions to expand financial inclusion.  We had a long discussion with a number of the Central Bank’s directors and senior staff on the role that a positive regulatory environment could play in facilitating the creation of sustainable mobile money services.  Minutes after leaving the Central Bank, while we were driving through downtown Port au Prince, the earthquake struck, changing Haiti and the lives of its people in a few seconds.

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