Archive for: M-PESA

Dr. Susan Johnson is a Senior Lecturer in International Development at the Centre for Development Studies at the University of Bath.  Her primary research interest is the means through which social and cultural factors influence the economy and in particular how these factors influence the operation of markets in developing countries.

The rapid uptake of mobile money transfer in Kenya has ignited enthusiasm globally over the potential to bank poor people via the platform of mobile phone technology. On the basis of research undertaken for Financial Sector Deepening Kenya, I argue that the evidence suggests an alternative explanation which means that formal service provision for poor people needs to be thought through in a very different way.  It means going beyond the expectation that mobile technology can adequately lower transactions costs to produce a revolution in inclusion, to recognising that managing financial resources has important social dimensions.

The research examined the reasons behind use of the whole range of services and so explores how mobile money transfer fits into the financial landscape as a whole.  For years the popularity of informal financial groups in the form of ROSCAs and ASCAs has been evident.  Indeed, many of those who are banked also use these mechanisms. Mobile money transfer has now overtaken informal financial groups as the most used service.  In our survey, based in three more rural towns and chosen to cross-cut poverty levels but particularly focus on the low-income group, some 61% were registered mobile money transfer users, 51% were using informal financial groups and 36% were using banks (higher than the last FinAccess 2009 survey figures of 22%).  So how can we explain why banks lag so far behind when from an objective perspective they appear to offer a safe and secure place to save?

The reasons people give for using mobile money transfer have now gone a long way beyond the original “send money home” remittance rationale.  Mobile money seamlessly facilitates inter-personal transfers to their close and extended family and friends for school fees, investments, celebrations and funerals, “assistance” and “help”, borrowing and so on – that is, any reason that people might need to send money to each other.

These interpersonal transfers operate within social networks that involve relationships of ‘give and take’ that can operate over long periods of time and in which resource transfers may be given in one form, for example, cash and returned in other, for example, support with resources of many different kinds or social connections to a job and so on.  Hence mobile money transfer has brought a range of financial transactions that involve a reciprocal dimension.

Informal financial groups offer, first, discipline and commitment in saving through the regularity of the contribution; second, the ability to access small but useful lumps sums; and third, proximate liquidity in the event of particular emergencies or needs. The latter is achieved through the social connections groups offer which allow people to negotiate access to funds directly from the group or indirectly from other members. These groups can also be characterised as operating through a reciprocal dimension. Hence they operate with some similar characteristics to the transfers being captured by mobile money transfer:  there is reciprocity and negotiability over how funds are borrowed (or ‘saved’ with others) and returned.

Our evidence indicates that the logic behind bank account use is often related to the need to receive payments rather than make voluntary savings and this helps explain high levels of dormancy.  Access to loans from banks is limited and they can be hard to manage when they are received.  Since interest on small amounts of savings is effectively irrelevant and loans are hard to get, putting funds in the bank secures neither access to financial support nor useful social connections. That is, banks lack an attractive reciprocal dimension and there is little negotiability involved.

Hence this argument suggests that the rise of mobile money transfer is evidence of extensive informal financial behaviour which has characteristics similar those to informal financial groups.  Hence rather than suggesting that mobile money is a short cut to formal sector financial inclusion, this analysis suggests that mobile money transfer has revealed an alternative underlying logic to which the formal sector needs to respond if it is to attract savings – it must offer an acceptable reciprocal relationship.  In order to provoke discussion an alternative approach might be for banks to pursue a “credit-led savings” strategy in which they offer easily accessible small personal finance loans in order to demonstrate that they can enter into valuable relationships with their customers.

For further information click the following links for the summary and the full report.  Also, for more information, check out Dr. Johnson’s recent post at Accion’s Centre for Financial Inclusion blog.

For those of you in Washington D.C, Susan Johnson will be discussing the challenges that formal services face in the search for financial inclusion in Kenya at an event hosted by CGAP on April 25^th.

To attend this event, please register here by April 23. 

Over the past week, the world has been commemorating the 2nd anniversary of the Haiti earthquake. Today and tomorrow we will have two guest blog posts on the mobile money sector that has emerged over the last two years in Haiti. Today’s post is written by two colleagues at USAID. 

Charley Johnson is a Presidential Management Fellow at USAID. Priya Jaisinghani is a Senior Advisor to the Administrator and Director of the Mobile Solutions team.  Prior to her work at USAID, Priya helped launch the Gates Foundation’s work in financial services from 2005-2009.  

Two years after the earthquake, Haiti is rebuilding not just brick by brick, but click by click.

The earthquake left behind a government in rubble, an economy in shambles, and a people living in makeshift camps, coping with enormous loss. Against this backdrop, the possibility of progress lives not just in the resilient spirit of the Haitian people, but also in the simple power of their mobile phones.

In June 2010, USAID and the Bill & Melinda Gates Foundation launched the Haiti Mobile Money Initiative (HMMI). This program leveraged the private sector and the ubiquity of mobile phones to bring financial services to Haitians, 90% of whom didn’t have access to a bank account before the earthquake destroyed nearly one-third of the country’s bank branches, ATMs, and money transfer stations. Put simply, mobile money gives Haitians access to banking without building a single bank.

It worked.  In January 2011, one year after the earthquake, HMMI awarded Digicel and its partner bank, Scotiabank, a “First to Market” Award of $2.5 million for “Tcho Tcho Mobile.” Five months ago, HMMI awarded mobile operator Voila and their bank partner, Unibank, $1.5 million for “T-Cash.” While verification is still underway, data reported by the industry indicate that there are nearly 800,000 registered users.  Moreover, there are over 800 agent locations now available to serve clients. In a country where there are fewer than two bank branches per 100,000 people, this represents a near doubling of accessible financial services.

These numbers are significant, but what do they mean for the people of Haiti? Why should we care about the growth of mobile money in Haiti and the rest of the developing world?

Read the rest of this page »

PayPal made news recently by launching a new report, Money: The Digital Tipping Point, which predicts that by 2016 UK consumers won’t need cash or a wallet to go shopping. I’m not sure why the UK market was the focus of this report, but I won’t tell PayPal that KPMG just came out with its own research that showed that “when it comes to mobile banking, consumers in the UK are more resistant than elsewhere. Only 27% of Brits surveyed said they had used some form of mobile banking in the past six months (globally 52%).”

But Carl Scheible, Managing Director of PayPal UK, is persistent and argues,

We’ll see a huge change over the next few years in the way we shop and pay for things. By 2016, you’ll be able to leave your wallet at home and use your mobile as the 21st century digital wallet.

I’ve been intrigued to see several recent new stories spouting off about the grandiose vision of a cashless society. To a certain extent I thought we had moved past this debate. While recognizing it as desirable, this high and mighty goal seems somewhat unattainable, at least in the short to medium term. At CGAP, a former colleague and I wrote about mostly failed attempts to go cashless in developed economies in the late 1990s and early 2000s through various mobile and electronic payment schemes. A few of us also wrote about the attempt in Singapore to dictate a cashless economy about 10 years ago, but to my knowledge I believe there’s still cash floating around Singapore.

Cashless seems a bit naive; cash lite seems more realistic, although still a big challenge despite the innovations that have happened since these initial attempts a decade ago.

Read the rest of this page »

This is the second in a five-part series on product innovation in branchless banking. In the first we described how developing products beyond payments is one part of driving scale for providers, and ultimately boosting financial inclusion.

Henry Ford famously said, “If I’d asked people what they wanted, they would have said faster horses.”

There’s two ways to understand what he meant. One is customers don’t know what they want, so why bother asking. But for every Henry Ford or Steve Jobs (Who said “It’s not the customer’s job to know what they want.”) there are 1000 businesspeople who thought they knew the next brilliant product and are now staring at a cash flow statement soaked in red. Genius is in short supply.

The rest of us mere mortals must subscribe to a second interpretation: customers often can’t or won’t tell you what they want, so you must work to dig down to what they really need. To understand this requires knowledge about not only their current use of substitute products, but also their broader life context: their household situation, their aspirations, and their worries.

A prime example of this need for deeper customer understanding is the vastly different levels of success which very similar mobile money products have encountered across markets. M-PESA Kenya’s success has spurred providers across the globe to launch services with similar functionality: a liquid wallet with an emphasis on P2P transfers (“send money home”) and bill pay functionality. As we highlighted in the first post in this series, the “send money home” proposition has not yielded as much success outside Kenya where just 1 in 15 services launched since 2007 have accumulated more than 250,000 active users. This can be explained by differences between markets that have profound effects on how consumers perceive the value of otherwise similar services.

A truly valuable service would meet two criteria: they must fill both a deeply felt and a poorly met need (see figure): Read the rest of this page »

Tanzania is one of the fastest growing mobile money markets in the world. Today mobile telephone penetration is 49% according to Wireless Intelligence as of Q3 2011. There are four active mobile money businesses, the largest of which is Vodacom’s M-PESA which has over 2 million active users.

A visit to community-based women’s savings groups in Arusha provided an opportunity to find out how people are using financial services. Savings groups are expanding rapidly in Tanzania as well as other countries in Africa. Group members save weekly, take loans as needed, and distribute profits and return share capital at the end of a year (what the experts call “time bound distributing accumulating savings and credit associations”). The groups we met had accumulated $6,000-7,000 in capital and were capable of approving loans to members that went from $100 to as high as $1,000, usually requiring repayment in three months. They had been together for almost two years and clearly knew their business well.

Twenty five percent of the more than 50 women we met with have bank accounts, and groups keep some of their accumulated capital in banks. The women live on the edge of a major city and some have salaried jobs in addition to their side businesses. Salaries might be paid into a bank account and a few individuals have personal bank accounts to accumulate larger amounts of savings than what they keep in the savings group. But what is interesting is that they do not use these bank accounts to transact any of their day-to-day business nor do they try to get loans from banks, for all the well known reasons.

The surprise came when we found out that all but one of these fifty women owns her own mobile handset and SIM connection. What was even more interesting was that two thirds have a mobile money account and many of the rest of the women want to get one. Given the fact that they are members of good, active savings groups, have access to banks if they so desire, and can even get services from MFIs if they so choose (none have so far), what exactly do they use their mobile money account for? It turns out that they use these accounts to send money to children studying or living in other towns, receive money from relatives living far away (to help them make their group payments amongst other things), load airtime for themselves and other family members, and in some cases receive payments from customers who make telephone orders for goods or services. These women took to using mobile money on their own and see it as a natural, useful addition to the value they derive from their savings groups.

Read the rest of this page »

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.

Read the rest of this page »

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

This is the fourth piece in the five-part series launching CGAP’s Agent Network Management Toolkit (available to download and highlights are on CGAP’s website). The toolkit is based on more than a year of research that yielded data on more than 16,000 agents in Brazil, India, and Kenya. In-depth interviews were conducted with 466 agents, agent network managers and providers, including mobile network operators, banks, MFIs and technology companies.

When providers are planning the launch of a branchless banking service, one of the critical decisions facing them is how to structure the agent network. As CGAP’s newly released Agent Management Toolkit describes, there are many different ways to do this. For example, half of Orange Mali’s agents were MFI branches when it first launched. EKO in India planned to use the huge distribution network offered by the largest telco in India, Airtel. And others like WING Money in Cambodia painstakingly sign up local merchants one by one to act as agents. There is no best structure for an agent network and the toolkit describes some of the implications of different network structures on factors such as network readiness (speed to go to market), reach (number and location of outlets) and control that the provider has.

Yet most agent networks that have been around for a while have one thing in common: their structure has changed dramatically over time. M-PESA in Kenya, which has seen its agent network grow from zero to over 23,000 in less than four years, has gone through three different phases in regards to agent management.

Read the rest of this page »

This is the third piece in the five-part series launching CGAP’s Agent Network Management Toolkit (available to download and highlights are on CGAP’s website). The toolkit is based on more than a year of research that yielded data on more than 16,000 agents in Brazil, India, and Kenya. In-depth interviews were conducted with 466 agents, agent network managers and providers, including mobile network operators, banks, MFIs and technology companies.

Today’s guest blogger is Jennifer Barassa, CEO of Top Image, a leading consumer outreach and promotion agency in Kenya. Jennifer founded Top Image in 1995. Today, it not only provides M-PESA with crucial services in training and monitoring agents, but also provides marketing, PR and below-the-line advertising services to clients in Kenya, Uganda and Tanzania.

In the previous post in this blog series about agents, Prakash Lal from FINO in India discussed the agent business case and how difficult this is to get right. Since there are so many different factors to consider (such as training agents and managing liquidity) most branchless banking providers enlist the help of one or more Agent Network Managers (ANMs) to help the network scale quickly while retaining consistent quality services. Each branchless banking service uses ANMs for a different configuration of roles.

I own a company in Kenya called Top Image that helps Safaricom manage its network of more than 23,000 agents.  We’ve been involved with M-PESA almost since its inception and are currently monitoring more than 80% of its agents. Although we support Safaricom on a number of different levels, our two most important roles are in training agents and monitoring agent operations. In the early days we were also involved in market identification and outlet auditing. 

Top Image helped to design the training curriculum that is used for all M-PESA agents, and developed a simple test to determine whether prospective agents are ready to serve customers. We provide hands-on training to thousands of agents each year. We also have a team of 92 Trade Development Representatives (TDRs) that monitor M-PESA agents. Every M-PESA agent we monitor is visited at least once every two weeks. You can see a TDR monitoring an M-PESA outlet in the photo above. The TDRs use a simple checklist and assess each outlet on 10 critical items including whether the outlet has enough cash and e-float and whether the log books are in good order. Back at Top Image headquarters, we aggregate all the TDR reports and are able to escalate market findings to Safaricom. All this data makes us an important resource for Safaricom and I regularly meet with M-PESA management to provide insight on trends and to make recommendations on agent selection and training, for example.

Safaricom uses several other ANMs aside from Top Image and this is one of the reasons why M-PESA has been so successful. It uses hundreds of agent aggregators to help sign up agents and manage liquidity. It has also signed up six banks with extensive branch networks in Kenya to act as ‘superagents’ and help nearby agents manage their liquidity.

As CGAP’s new Agent Management Toolkit emphasizes, managing an agent network is complicated. There are a lot of different pieces of the puzzle to get right. ANMs play an important role in helping to manage day-to-day agent operations as well as supplying the provider with strategic information. I am grateful for the role that Top Image has played in helping M-PESA agents reach almost every village in Kenya. We’re now starting to expand internationally and support branchless banking implementations throughout Africa.

- Jennifer Barassa

There’s been news of several new mobile money launches over the last few weeks. Digicel in Haiti has just launched its TchoTcho Mobile service.  Its main competitor Voila has launched its service for use by relief organizations throughout the country.

In Kenya, Orange Money, branded Iko Pesa (Swahili for “there’s money”), was recently launched in partnership with Equity Bank. Orange Money has already launched in several countries in West Africa, including Cote d’Ivoire, Senegal, Mali and Niger; as well as in Madagascar. And Equity Bank has already partnered with mobile operators to launch products like M-KESHO. Clearly given the stronghold of M-PESA in the Kenyan market, Orange needed to be creative.  So has it differentiated its product from others already in the market?

There are two ways to approach this question. First, we should ask how the Orange Money offering is different in Kenya than in other countries; and second how is the Orange-Equity Bank partnership different from the M-KESHO product that resulted from the Safaricom-Equity Bank partnership?

First, the Orange Money product in other countries offers a simple mobile wallet, similar to M-PESA. But in Kenya, there is no Orange Money wallet. The Orange Money account is a full bank account with full bank functionality. The front end of the Orange Money account is simply Equity Bank’s mobile banking platform rebranded as Orange Money. Orange (Telkom Kenya) brought the channel to the partnership in the form of a STK application loaded onto the SIM.

As a result, Iko Pesa is a classic mapped bank account where a normal account is fully integrated with a mobile channel. As such, all money transfers are account to account transfers. Because Orange Money is governed by banking rules (unlike the other mobile money services in Kenya) Orange Money has a higher initial limit of Ksh 100,000 (US$1,250) and allows multiple transactions per day. There are also plans for a cobranded Orange Money Mastercard.

Second, unlike M-KESHO customers, Orange Money customers in Kenya do not need to first transfer money into their Orange Money wallet and then subsequently transfer money into their Equity account. The M-KESHO set-up not only proves cumbersome at times, but it also adds another layer of transaction fees whereby customers first pay for a cash-in to load money into their M-PESA accounts, and then pay a transfer fee to move that cash to their M-KESHO accounts. In contrast, since technically there is no Orange Money wallet, this two-step approach between wallet and account is not necessary with Iko Pesa. That’s why some view this as the most versatile service in the market so far.

Time will tell if the Kenyan consumer will value these differentiating factors. Simply given Orange’s small market share in Kenya, it will be difficult to gain a lot of ground against M-PESA.  But Orange and Equity Bank clearly have their sights set beyond Kenya. One report indicates that Orange and Equity have already signaled their intention to launch a similar product in neighboring Uganda next month before entering the Tanzanian and Rwanda markets next year. This expansion may quickly meet the untapped market demand for safe and convenient ways to send cross-border transfers among East African countries.

Beyond this vision for East African expansion, it seems to me that the main story here is how the mobile money market in Kenya has once again produced a different business model for us all to watch and analyze.

- Sarah Rotman