Archive for: Innovation

Just as the M-PESA mobile money service hits 5 million registered clients in Kenya, it’s encountering a wave of attention about its regulatory status. The tide of critique has been rising, as we highlighted last month. The rub is with Safaricom’s regulatory status. Some say M-PESA’s lack of status as a bank puts customer funds are at risk. This recent article from the East African Standard concludes M-PESA “could be a disaster waiting to happen.” Kenya’s Finance Minister ordered an audit of M-PESA and is on record with the Standard saying, “I am not sure M-PESA will end well. We want to protect wananchi [citizens] from the sharks who want to make money from the misfortune of others.”

The Kenyan media contains alternate voices that are much more sanguine about M-PESA’s safety. They highlight that M-PESA is a money transfer service, rather than a bank, which implies it should be regulated differently. This article from the Business Daily recounts the widespread belief that much of the pressure being piled on Kenyan regulators originates from a banking sector which sees M-PESA as encroaching on the financial service space. As John Walbengo, an IT Lecturer at the Multimedia University College of Kenya tells the Business Daily: “The chief suspects… would obviously be the 48 commercial banks whose total and national customer base is only one-tenth of the four million M-PESA customers that Safaricom controls.”

The Business Daily also cited CGAP. The paper reported – incorrectly – the numbers of daily transactions for M-PESA and Equity Bank, Kenya’s largest commercial bank, also with a track record of reaching many ordinary Kenyans. The right numbers, as we released in December at a mobile banking roundtable, are M-PESA, 160,000 P2P transactions per day; and Equity 118,061 m-banking transactions per day.

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.

On October 29th, CGAP’s Technology Program hosted a discussion with Vodafone’s Nick Hughes, who leads this global mobile network operator’s mobile banking efforts. Vodafone is one of the biggest mobile network operators with operations in 30 countries and over 250 million subscribers worldwide.

Vodafone has been expanding its operations in emerging markets. Safaricom, Vodafone’s network operator in Kenya, M-PESA was launched 18 months ago. Since this time, it has reached nearly four million people in a country with a population of 31 million people where just 5 million people have bank accounts.

Nick presented three key aspects of the M-PESA model….

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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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As promised, here is the video and presentation from today’s webinar that Kabir Kumar and Ignacio Mas lead, based on their recent paper: Banking on Mobiles: Why, How, for Whom?

Thanks to all of you who joined us in person or online.

Presentation: CGAP Mobile Banking Webinar (881kb pdf)

Video: CGAP Mobile Banking Webinar (requires RealPlayer)

Background
The promise of mobile banking is well known; harder to find are examples of solid implementation and mass roll out beyond payments and transfers. In Banking on Mobiles: Why, How, for Whom? CGAP examines the business case and deployment options 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.

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.

Mobile phones are ingenious devices, but one thing they cannot do by themselves is convert cash into electronic value or dispense cash. They can be used only to transfer or transform value electronically. A mobile banking platform therefore needs to be supported with a cash conversion platform—whether full-blown bank branches, ATM terminals, or third-party banking agents. Remember, the whole mobile proposition is based on choice and control: if I don’t have a choice of cashing in or out of my electronic wallet, I am not likely to think mobile banking is doing much for me.

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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.

A mobile phone is, and always will be, more limited in its capabilities than either a connected personal computer or a specialized POS. But it has economics on its side. For instance, the high cost of the required dedicated broadband infrastructure and the devices themselves will hinder the spread of Internet banking in developing countries. In rural areas it is further hindered by a vicious circle: low device penetration does not warrant roll-out of appropriate broadband communications infrastructure, and while the infrastructure is not in place few customers will invest in personal computers.

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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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What do these countries have in common: Kenya, Pakistan, Mongolia, the Maldives? They share political challenges, conflict, as well as having highly dispersed populations across varied types or terrain.

They are also pioneers when it comes to mobile phone banking. Here’s why.

For financial services, there are few alternatives to cell phones. Banking infrastructure (branches, ATMs, POS at stores, internet penetration, etc.) in these markets is dismal and slow to change, but cell phone penetration is growing fast. There are four mobile operators in Mongolia, a country with the world’s lowest population density (1 person per sq km) and where 400 villages are spread across a vast geography the size of the lower 48 US states.

People incur high transaction costs to reach established banking services. Banking via cell phones at a local store can make a big difference in the lives of poor people who easily travel 20 or 30 miles just to get to a bank branch. In the Maldives, government employees and fishermen alike on one island must travel 4 hours by boat once a month to Male’, spending Euro 2.50, simply to deposit or collect their salaries.

High cost environments create demand for new ways of doing things. In countries like Kenya and Colombia, high crime and difficult geographies make it extremely expensive to move cash. In this context, technology-enabled banking channels that cut the cost in half can be game changing. Electronic means of moving cash are attractive when people are often vulnerable to theft. It is still quite common in Kenya and Philippines to hand an envelope stuffed with cash to a bus driver headed to family up-country.

Financial institutions are looking for alternatives in order to gain market share. Tameer Bank in Pakistan, Equity Bank in Kenya, and XacBank in Mongolia have staked their reputations and their business success on breaking the mould of doing business in their country. They are microfinance banks, but they want to reach millions of new clients quickly and it is not easy to do that with capital and labor intensive branch networks.

Political turmoil does not stop these companies that easily. In the past year, both Kenya and Pakistan experienced political violence. Almost a week after Tameer Bank found a telecom partner for mobile banking, two of its branches were looted and destroyed in rioting in the aftermath of Benazir Bhutto’s assassination. 72 hours later the branches were up and running again.