Archive for: Mobile Banking

When it comes to regulating branchless banking, some regulators believe they need to spend a lot of time and energy in developing a comprehensive framework. But putting in place extensive regulations without first observing and understanding how the market is developing can often result in a regulatory framework that is ill-tailored to the risks involved.  A more effective approach is to “test and see” – permitting branchless banking business schemes on an ad hoc basis, conditional on measures addressing identified risks. As the market develops and risks are further clarified, regulators will be better positioned to issue more detailed and effective regulation.

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6 months + 200 technology and finance leaders from 30 countries = four scenarios of branchless banking for poor people in 2020.

In 2009, CGAP and DFID talked with over 200 technology and finance leaders from 30 countries to determine how branchless banking, including mobile banking, might look in the year 2020. The work culminated in the CGAP/DFID Branchless Banking Scenarios 2020 Focus Note. A video discussion with the authors and some of the leaders in mobile and branchless banking was held in Washington in December; you can watch the archived video here. To help frame the scenarios process, we identified four forces and four uncertainties that are shaping the industry.

Force 2. Governments will become more activist in this space by:

• extending the safety net through cash transfers or cash for work
• increasing the intensity of regulation on already regulated financial institutions
• encouraging availability of low-cost banking and financial infrastructure

Pushed by the crisis, governments will be increasingly active in three domains that affect the viability of branchless banking: extending the social safety net, regulating more intensively, and at the same time pushing for formal financial inclusion. However, government actions will likely be driven from a variety of motives and different agencies, not necessarily guided by a coherent strategy to support the extension of branchless banking. Some of these motives will be related to the desire of governments to serve (or be seen to serve) poorer citizens through redistribution to mitigate the most dire poverty; others to use the regulatory power of the state to manage risks in financial markets; and still others related to government interest in encouraging or requiring providers to make basic products and services widely available.

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I would be pretty annoyed if my bank started to charge me for putting money in to my bank account. What strategy would CGAP’s partner in Pakistan, Tameer Microfinance Bank consider with their “mobile wallet”?  I spent a week in Pakistan with Ali Abbas Sikander and the Easypaisa team who have been thinking about their pricing strategy for the past three months.

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As world leaders in business, finance and politics congregated in Davos last week for the 40th Annual Meeting of the World Economic Forum, two topics dominated public discussions: (i) how to avoid a “double-dip” of a still vulnerable global economy and (ii) how to support disaster relief for Haiti while implementing a longer term strategy for that country’s reconstruction and development.

But more was going on behind the scenes – and branchless banking was the topic of one by-invitation- only session attended by approximately 50 leaders from the banking, telecommunications and technology sectors. Participants included the CEOs of Vodafone, Bharti Airtel, Telecom Egypt, and India’s ICICI Bank.

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6 months + 200 technology and finance leaders from 30 countries = four scenarios of branchless banking for poor people in 2020.

In 2009, CGAP and DFID talked with over 200 technology and finance leaders from 30 countries to determine how branchless banking, including mobile banking, might look in the year 2020. The work culminated in the CGAP/DFID Branchless Banking Scenarios 2020 Focus Note. A video discussion with the authors and some of the leaders in mobile and branchless banking was held in Washington in December; you can watch the archived video here. To help frame the scenarios process, we identified four forces and four uncertainties that are shaping the industry.

Force 1. Demography is changing such that

• there will be a greater number of younger consumers in most developing countries
• there will be more people moving to cities and across countries

Demography is an ever-present force in most scenarios—with high impact and certainty. After all, users of branchless banking in 2020 are already alive today. Clients in 2020 will include a large number of today’s youth. Young people have limited capacity to spend on new services, but a higher propensity to adopt new technology.

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Some of you probably saw a snippet on the nightly news about Secretary Clinton’s speech on Thursday about freedom of the internet and other technology. If you read CGAP’s recent focus note on the future of branchless banking in 2020, you’d know we also think the internet is going to have a deep qualitative impact.

It turns out Secretary Clinton had a lot to say about mobile banking. I found three parts particularly relevant for the work we do on banking the unbanked.

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It’s been an interesting week in Kenya, with several high profile announcements between banks and mobile operators:

• The second largest mobile money service — Zap — tied up with Housing Finance bank.
• Safaricom and Equity Bank announced a tie-up which enables M-PESA’s 8.5 million users to withdraw funds at Equity’s 550 ATMs (the largest ATM network in the country), which may help relieve some problems of agents not having cash.
• Equity made a tie-up in Dec. with Essar, who bought the 4th mobile license in Kenya last year and recently launched the 3rd mobile banking service in the country. Equity’s branches will serve as agents for its service YU. However, this is all one way to withdraw from a mobile wallet at a bank’s ATMs. Bank customers can’t yet go to an agent and withdraw money from their bank account. But that’s coming soon….

It’s not just banks and telecom firms in the headlines. This week, the Central Bank of Kenya plans to distribute for comment draft regulations which will finally enable banks to use agents (about 3 years since Safaricom started using agents for its M-PESA service).

-Mark Pickens

Recently we caught up with Damdinjav Dorjdamba, the Director of the E-banking Department at XacBank. Based in Mongolia’s capital Ulaanbaatar, XacBank is a community development bank and microfinance institution working to extend financial services to poor and underserved people, including nomadic groups, in both remote and urban areas in Mongolia.  It is providing electronic banking and payment services through a combination of cellphones and cash-handling agents. XacBank is also aiming to create the first nationwide payment system using mobile phones in Mongolia.

How is your mobile banking service faring?
In February 2009, we began piloting mobile banking and payment services in three locations and, the following month, we expanded into more places, including Ulaanbaatar. These pilots, along with several stress tests and focus group discussions with the first users of the mobile banking services, have contributed to the development of the m-banking platform. We went fully live with the commercial launch of our m-banking service AMAR (EASY in Mongolian) in July. By the end of September, the Bank had reached 11,200 clients served via around 1,000 agents.

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Today we welcome Chris Bold as a new blogger for CGAP. Recently, Chris joined CGAP’s Technology Team on leave from the UK Department for International Development where he worked in their Financial Sector Team and, for the last year and a half, was based in Kabul managing DFID’s private sector development programs in Afghanistan. Chris will be providing additional support to CGAP’s portfolio of projects and exploring how large flows of money such as government payments and remittances can be harnessed to bring financial services to the unbanked.

It’s hard to think of a tougher environment in which to test the potential of mobile banking than Afghanistan. With a population of 30 million people, 36% of whom live below the government defined poverty line and 74% of whom are illiterate; Afghanistan is the poorest country in the world outside Africa. But bringing banking services to Afghanistan is exactly the challenge that Roshan, an MNO majority owned by the Aga Khan Fund for Economic Development, is taking on. We met with Zahir Khoja, Roshan’s Executive Director for M-Paisa, on a recent visit to Afghanistan to discuss the roll-out.

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This post is based on a workshop led by Jan Chipchase of Nokia and me at the recent MMT conference in Dubai.

“Ecosystem” seems to be a big buzzword in the mobile money space. Many mobile network operators (MNOs) are extending their focus beyond what they consider to be the  killer applications – storing and transferring money and cultivating strategies to offer financial services at scale.

The cornerstones of a viable network are trust and ubiquity, but this is no easy task. MNOs not only need to find the appropriate partners, they also need to make the ecosystem relevant to the daily lives of their users. This can be done by capturing the various financial practices that constitute daily life, and by monitoring so-called unintended uses. One of the clearest examples of this – the use of M-PESA for the safe-storage of money suggests a latent demand for particular types of services, such as savings. By capturing and integrating these practices, MNOs increase the likelihood that their ecosystem will sustainable.

There are other ways to ensure sustainability. That is, through education initiatives targeting financial literacy. In the context of the mobile ecosystems this term has several meanings. At a more basic level, it could mean providing users with information regarding the various features of the application and could also mean explaining how these features can be navigated. Such initiatives are beneficial because they take some of the burden for education away from the retail agents handling cash-in and cash-out transactions. But financial education can be taken beyond lessons of simple usability, and involve those of better money management. These projects could teach the poor how to initiate savings plans, make strategic investment decisions, or seek out credit from formal financial institutions. If done properly, they could raise financial awareness and, in some cases, have positive implications for the livelihoods of poor users.

Achieving a sufficient level of financial literacy is not an easy task - what to teach, and how to teach it, takes both time and money and whilst the onus of providing (consumer) education leans towards the service provider the boundaries of this responsibility are not clear. As such MNOs may not always be interested in such an investment, especially at earlier stages of ecosystem development. However our position is, that by raising the level of financial and service literacy such initiatives will have substantial benefits for the MNO in the long run: on a personal level people are more willing to invest time and effort in using a wide range of services because there is a clear benefit; and within the broader society – that people are aware of the kinds of services that are available to them. Remember that banking is often seen as something that is ‘for others’ rather than for themselves.

An increase in service use will not without its consequences - the integration of financial practices into the ecosystem makes them both more visible and more traceable, especially in countries where the majority of economic activity is currently informal. For governments, this provides new opportunities for the exploitation of financial information – ranging from  the monitoring and prosecution of criminals to the stricter enforcement of taxation. As such it raises some interesting questions regarding the content of financial education projects. In particular, to what extent should the providers of such projects make clear these potential risks clear, especially given that they may not themselves have a clear idea of how their services will evolve? The actual and perceived mishandling of this issue threatens to marginalize the use of mobile money services, and as such all players in the ecosystem need to clearly communicate where they stand.

-Jan Chipchase and Olga Morawczynski