Archive for: Mobile Banking

Today, we share with you a presentation that describes in detail five ways mobile network operators (MNOs) can think about the mobile money business case. MNOs across the globe are investing millions to develop and market mobile money. Estimates claim at least 30 implementations in Africa where MNO-driven financial services are an important part of the financial inclusion landscape. Despite the bets being placed by MNOs, the business case remains uncertain in almost every implementation.

Last year we surveyed MNOs to assess their expectations of the business case. Since then we have done analysis of two implementations (with the help of Dalberg and a major mobile money service in Africa) and taken a few steps further to understand the relationship between the business case and market structure (with the help of Bankable Frontier Associates).

Our analysis resulted in the following five insights which are backed by data in the presentation and which we expand on in subsequent posts:

How to think about the overall revenue potential?

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This is the second post in our series on G2P, branchless banking and financial inclusion. Our first post on Pakistan can be found here.

A mother receives her family’s CCT cash grant from a GCASH REMIT representative in Burdeos, Quezon

Globe Telecom is a leading telecommunications company in the Philippines that runs the GCASH mobile money service. We asked Paolo Baltao, the newly appointed President of G-Xchange, Globe’s wholly-owned subsidiary running its m-commerce business, to tell us about Globe’s recent efforts to support the Philippine government’s poverty alleviation programs using the GCASH REMIT platform.

1. Can you explain a little about how the pilot works?

The Conditional Cash Transfer (CCT) Program, also known as Pantawid Pamilyang Pilipino Program (4Ps), is a vital component of the Philippine government’s poverty alleviation agenda. It aims to help the country’s poorest families through cash assistance in order to enable family members to pay for health care, nutrition and education, provided they comply with certain conditions such as keeping children in school, attending regular health check-ups, and vaccinating their children. Grants are currently delivered by the LandBank of the Philippines as over-the-counter payments via cash cards that can be used at ATMs or through off-site payments.

Previously, the Department of Social Welfare and Development (DSWD) and LandBank had to hire helicopters to physically bring the cash to participating beneficiaries in especially remote areas. This was of course very costly. The program organizers looked for means to bring down the cost of grant distribution.

GCASH REMIT, the domestic cash pick-up remittance service of GXI was initially tapped to distribute CCT grants to 10,000 beneficiries in 3 areas. GCASH REMIT partner outlets are already part of the community and these partner outlets need only a mobile phone to process and validate the disbursements. DSWD and LandBank in turn can monitor all these disbursements online and in real-time through the GCASH platform.

2. How did you get involved in the pilot?

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There was much movement in 2010 at the intersect of technology and access to finance for the poor. CGAP’s new Branchless Banking Database synthesizes a mass of data into a short 12-image “story” about what branchless banking is and the key hurdles we face in 2011. The focus is on mobile phones, but we quickly add that some of the most interesting work is still being done with debit cards and even simpler technologies, such as bar codes.

Today’s blog starts a three-part series. We first present the latest data about the explosion of mobile ownership in emerging markets and how that converts into an opportunity to boost financial access. The second and third posts will look at performance to date: are we really reaching the poor? Is this proving to be a profitable business for industry? What are the key challenges around products, pricing and channel to pay attention to in the coming year?

Mobile ownership has grown explosively in poor countries over the past decade. In 2005 the mobile phone became the 1st communications device in history to have more users in poor countries than rich. In 2010, mobile phone owners in poor countries accounted for two-thirds of the world’s 4.77 billion phones.

But while people in poor countries became increasingly well-connected via mobile, they remained much less well-connected financially. An emerging market consumer is 2x less likely to have a bank account in their name than own a mobile phone. Access to financial services enables consumers to smooth unpredictable income, acquire productive assets, invest in health and education, and make other purchases that enrich their lives. Fortunately, the explosive pace of mobile connectivity might be leveraged to also fuel financial inclusion.

Providers can reap substantial cost savings from channels that replace branches with “branchless banking” (technology paired with agents, typically merchants who handle deposits and withdrawals and are connected via mobile or card-swipe POS terminals). The figure at left shows the cost reduction for 4 Mexican and Colombian banks from moving deposit transactions from teller to agent. Cost savings will vary by institution, driven by inter alia the fixed cost of branch depreciation on one side and variable cost of agent commissions on the other. CGAP estimates most banks will see 50% cost savings or greater. This enables them to reach low-income clients who were previously uneconomical to serve. Other providers — mobile operators, tech firms — which want to enter financial services for the first time can also employ agents to cost-effectively roll out.

Increasingly, financial sector regulators have established enabling regulation for branchless banking. CGAP’s latest analysis is available in two recently published Focus Notes, which build on the scene-setting “Regulating Transformational Branchless Banking”, jointly produced by CGAP and DFID.

CGAP’s Branchless Banking Database is available here. It marshals data from our 2010 field work on agents, business models, customer adoption, and regulation, and combines it with data on banking access, mobile penetration, population, and income in 168 countries. Graphics are easily imported into your own presentations, and the data is presented in Excel, enabling you to manipulate it for your needs.

- Mark Pickens

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 fifth and final 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.

The previous four blogs in this series have focused on the agent and the critical role he/she plays in registering customers and helping them transact. However, agents are only one of a number of links in the branchless banking supply chain. Each link plays a critical and coordinated role to deliver services to the customer. Typically, MNOs, banks, technology companies, agents and agent network managers all play some role.  At the end of the day, everyone in the supply chain has to make money somehow.  In the M-PESA implementation, Kenyan customers made enough transactions and paid enough fees for money transfers to generate enough revenue for every company in the supply chain.  Unfortunately, early evidence demonstrates that this business model has been the exception to what has happened in most implementations in the world.  Most implementations are still trying to figure out how to generate sufficient revenue to sustain everyone in the supply chain.  Most importantly, in many cases the end customers themselves will not provide adequate revenue for the entire chain.

The Agent Network Management toolkit comes with a financial model to help providers project the revenues generated in a branchless banking implementation for each member of the supply chain.  The financial model is based on user-defined assumptions about the number of active account holders and the average number and type of transactions they conduct in a month. The financial model outputs a set of tables and graphs that demonstrate the basic business model of each company, showing revenue sources according to the transaction volume in the entire system.  The model can be used to analyze the financial flows at current levels and tariff structures, and all of the variables can be changed to assess alternative scenarios.

In testing the model on different implementations around the world, we learned a great deal about the wide range of business models in play.  Successful implementations will increase revenues through some combination of increasing the transaction volume and by the supply chain companies increasing their own core business benefits.  In Brazil, for example, bank’s cost savings and increased foot traffic in agent stores drive the business model.  In many implementations, MNOs may well find that they generate enough revenue from lower commissions and increases in airtime sales to justify distributing most of the revenue from their mobile money implementation to other members of the supply chain.  And in all implementations, third parties such as governments, utility companies, merchants and employers may be willing to pay significant fees to use the channel to make or receive payments.

The branchless banking industry is still early stage but gaining momentum.  We think that the Agent Network Financial Model will help providers gain a clearer picture about how to combine different business models into a supply chain, and that this will facilitate innovative partnerships between the players.

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.

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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

This is a guest blog post by Dalberg Global Development Advisors Vicky Hausman, Matt Daggett, Lorenzo Bernasconi and Daniel Altman.

Last year, three partnerships involving all of Haiti’s mobile phone operators and some of the country’s biggest banks announced their intention to launch mobile money services.  So began the competition for shares of a $10m incentive fund created by the Bill & Melinda Gates Foundation’s Haiti Mobile Money Initiative (HMMI). In December, Digicel-Scotiabank and Voila-Unibank both launched mobile money services in Haiti, and on January 10th Digicel-Scotiabank won the ‘First to Market’ prize – $2.5m for having completed 10,000 transactions spread across 100 agents.  The incentive fund will continue to draw attention to this fast-growing industry, offering a unique opportunity to learn about the benefits and challenges for companies launching services in a multi-competitor, multi-industry market.

During the next two years, Dalberg Global Development Advisors, with funding from the Gates Foundation, will be analyzing the market’s growth and dynamics.  Among the questions we will ask are these: What will be the most effective strategies for competing in this market? Will parallel marketing efforts by multiple mobile money services lead to faster uptake? What role will international remittances play in the industry, given the country’s dependence on these flows?

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The news wires have been busy with the recent announcement of partnerships and joint ventures in the Indian branchless banking market.  India’s largest public sector bank, the State Bank of India, announced a joint venture with the mobile operator Bharti Airtel to offer mobile banking. Meanwhile, India’s largest private sector bank, ICICI Bank Ltd, announced its tie-up with Vodafone Essar to bank the unbanked via the mobile phone. As the Hindu Business Line writes:

These two initiatives take mobile banking services to a whole new level. While Vodafone manages over 1.5 million retail points for acquiring customers and servicing them, Airtel is present across 5,101 towns and more than 500,000 villages.  That’s a big deal considering that The National Sample Survey data reveal that 51.4% of nearly 89.3 million farmer households do not have access to any credit from institutional or non-institutional sources…Only 13% are availing loans from the banks in the income bracket of less than Rs 50,000.

The Pakistani media was also abuzz with the pronouncement of the State Bank of Pakistan Governor that:

Branchless banking is the future of the country’s financial sector as it opens up opportunities for bringing unbanked segments of society into the financial system.

Governor Kardar made this address at the signing ceremony between United Bank Limited (UBL) and Shore Bank International for UBL’s branchless banking initiative, Omni banking. Meanwhile, easypaisa, launched by Tameer Microfinance Bank and Telenor in October 2009, reports carrying out 10 million transactions valuing Rs. 17 billion in 15 months since launch.

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In the past year, several high-profile branchless banking deployments have publicized the fact that they’ve reached more than one million users. Yet what is never publicized in press releases or speeches is the very low number of active users in most deployments. In a recent CGAP survey, 64% of mobile money managers indicated that less than 30% of their registered users are active, and active rates of less than 10% are not uncommon.

This is a problem for several reasons. First and foremost, since it costs money to acquire customers, low activity rates greatly drive up the cost of acquiring each active customer. The figure here shows the acquisition cost per active customer based on a $5 customer acquisition cost. This covers the commission bonus to agents, fulfilling back-office KYC requirements and a starter kit for customers available with some services.  If a deployment has a healthy 50% activity rate, the acquisition cost is a reasonable $10 per active customer. However, if the activity rate drops to 10%, the cost per active customer increases dramatically to $50. Some deployments have activity rates as low as 1% – and they are paying $500 for every active customer, an investment that may never be recouped.

Since the issue at hand is low customer usage, it’s easy to simply think of this as a problem related to customer perception of the service’s value for money, leading to tweaks in pricing or higher investment in marketing and financial education. Read the rest of this page »