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RBI Executive Director R B Barman said this week that a central bank committee is examining the regulatory challenges raised by mobile banking. The committee is expected to report recommendations next month, leading next to RBI drafting the requisite changes to the country’s regulatory framework.

The report is the latest or progressively more encouraging signs from RBI that it plans to provide additional guidance for mobile banking to take off. In its Financial Sector Technology Vision document, released in October, RBI indicated it sees high potential for electronic banking to increase efficiency in retail banking. But RBI is also concerned about mobile security, particularly authenticating users accessing bank accounts remotely.

RBI is also closely watching several pilot schemes using mobile connectivity to improve access to financial services among low-income Indians. As the Economist reported earlier this month, one program in Andhra Pradesh is testing how to deliver pensions and unemployment benefits to around half a million people in villages, via specially-equipped mobile phones in the hands of local payment agents and smart cards issued to recipients. A parallel POS-based system is also being tested. So far, 40,000 cards have been issued.

What’s not yet clear is whether RBI guidance on mobile phone banking will be mostly concerned with mainstream banks providing mobile as an additional channel for current customers, or whether RBI will extend permission to some more far-reaching initiatives. Will mobile operators get a window to become licensed to provide electronic wallets for international remittances, bill payments and other payment services?

The G2P pilot in Andhra Pradesh also makes extensive use of local payment agents, and we understand at least some of these to be local merchants. In rural areas, its often the local store owner who has enough liquidity to pay out cash on the government’s behalf. But so far, RBI regulation on outsourcing doesn’t provide clear permission for banks, microfinance institutions or mobile operators to follow suit and use local merchants to extend banking services in places where bank branches may otherwise be too expensive to build. Will RBI make regulatory changes on issues like this, too?

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Right after the government in 2005 had enabled banks to use banking agents, retail and postal outlets to handle transactions on behalf of banks, a number of Peruvian banks started to roll out their agent networks. One of them, Banco de Credito (BCP) with their “agentes BCP.”

Already in November 2006, Mr. Luis Almandoz, BCP’s man in charge of their agents, had presented the bank’s thorough planning of the network roll out at a conference in Colombia. Last week, newspaper El Comercio, described the bank’s success story installing more than 1,000 banking agents with lightening speed (1.5 agents per day!). Rather than the expected 300,000 transactions, the agents process today 900,000 transactions per month (i.e., around 30 transactions per day per agent).

The planning phase paid off and the bank’s learning curve was steep: “At the beginning it took us 3 days to open a new banking agent, today we need maximum 4 hours. Once we have one agent in a neighborhood, within three months, there will be three more.” said Almandoz.

The new channel, for which BCP won the 2006 Business Creativity Award (Premio Creatividad Empresarial), benefited all actors involved:

• Clients can now transact closer to their home at agents not only in urban Lima, but also in some parts of rural Peru. Almandoz also mentions reduced transaction cost: “mine workers often pay up to S/.30 (US$10) to transact in non-bank establishments.” Whereas bill payments at the BCP agents are free of charge, and account fees are low.
• Seventy percent of the agents were able to increase their sales by around 12% due to the increased foot traffic generated from their work for BCP. In addition, they earn around US$45 – US$200 per month in commissions.
• BCP was able to increase their coverage by 1,000 points and process transactions for over S/. 1m (US$ 330,000) at each agent each month.

The question is what are BCP’s secrets of success….. one is definitely their marketing (the bank’s anual marketing budget is around US$300-450k) and definitely their commitment and thorough planning. But how are they managing cash? We hope to find out….

Other banks like Interbank, Scotiabank, and Mibanco are also gearing up in Peru and the network of agents is expected to increase massively next year.

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The Hindu has a great interview with NCR’s P. P. Manjunath Rao, who leads that company’s sales efforts for India. Recently the Indian subsidiary of NCR tripled its production of ATMs to nearly 900 units a day - and with just 28 ATMs per million people (compared to 200 ATMs per million in Mexico, for example) it would seem that there’s room to run for ATM providers. Rao tells the Hindu:

Using thumbprint and voice guidance in ATMs reduces literacy requirements to a considerable extent. Thus, establishing the identity of a rural depositor through biometrics makes it possible for illiterate or barely literate people to become part of the banking user community.

A simplified menu on ATMs coupled with possible audio guidance in local language enables easy use for rural masses. So far, bank ATMs are dependent on PIN (personal identification number) verification. The fingerprint authentication method is non-PIN based, and this requires enhancements to the standard switch environment. Though identification can be via face, voice, retina or iris, fingerprinting has the advantage of being a familiar concept worldwide.

Though exciting, widespread deployment will be a challenge. How to handle cash - what about banking agents? What is required for customer adoption? With lower levels of functional literacy, what about financial literacy? These are questions we at CGAP are working on with our research collaboration with Microsoft Research India, as well as our project partners.

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An important part of effectively rolling out a banking agent network - a network of retail or postal outlets that handles transactions on behalf of financial institutions and mobile operators - is the agent location. 

Our project partner, Credibanco VISA in Colombia, is using a georeferencing tool to advise banks as to where large numbers of their target clients are located, and also which retail outlets in that area might make good “corresponsales no bancarios”, as the Colombians call their banking agents.

The process is easy. Based on the bank’s target clientele (e.g., income up to COP 250,000 per month [US$122] and “estrato 2″ reflecting the Colombian economic classification of 0-6, where 0 is poorest and 6 highest income) and preferred location (e.g. high population density, no financial infrastructure, etc.), VISA uses census data, financial infrastructure coverage, and retail information from yellow pages to develop heatmaps which combine the following:

• poverty and income levels 
• population density
• postcode boundaries
• existing financial infrastructure (e.g. branches, ATMs, etc.) and card holders
• stores and other commercial activity
• areas that generate a lot of foot traffic (e.g. bus stations, markets, hospitals, etc.)

Based on the resulting maps, the bank can see in which areas their agent would be most effective. Factors like poverty and income level, population density, and existing financial infrastructure will impact the agent’s future transaction volume; placing agents near bus stops and market areas will make them more visible and increase the likelihood that clients will repeatedly use the agent to conduct transactions.

On the picture you see the final heatmap. Red areas show neighborhoods with great opportunity to reach the bank’s target clients; the mountains refer to population density. If you would like more detail, please send me an email and I can forward you VISA’s complete analysis of Ciudad Bolivar, a poor neighborhood of Bogota, Colombia.

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CGAP and Microsoft Research India (MSRI) are collaborating on joint research to better understand the needs of people who have low levels of literacy when it comes to technology. In plain English, this means we all want to know how to design something that would be of use to an illiterate person.

In addition to the focal research on User Interface design, the MSRI-CGAP collaboration will also involve joint explorations in understanding the social and economic context and impact of mobile-banking on poor households.

What we learn will be shared with everyone. Aishwarya Ratan is with MSRI and joined us in Washington at our conference this week to talk about the work envisioned and some of the things MSR has already learned in India. Here are her thoughts.

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That was fun. What did we learn? 

We reaffirmed that small, including micro, enterprises have proven themselves to be reliable and sustainable ways to help people out of poverty and that, in that context, we have abundant proof that microfinance is a workable idea.

MFIs, although having reached increasingly impressive numbers of people, must nonetheless recognize that more than two-thirds of the inhabitants of developing countries remain to be touched by the MFI mission of bringing the advantages of banking to the unbanked and under-banked.

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We’re in the last day of the conference CGAP co-organized with IFC, sponsored by Visa. This morning, three partners of the CGAP technology program are presenting their experiences on using technology to increase access to finance.

Delivery Channels for Microfinance. Banking agents are becoming a popular way of signing up new customers and offering services outside of the branch environment. Can these agents deliver a range of products? How far from the bank branches can this model reach to serve rural areas? Moderator: William Schoch, Vice President, Consumer Products, Visa International.

• Abbas Sikander, Group Executive Director for Operations and Technology, Tameer Bank, Pakistan
• Alex Acosta, Credibanco Visa
• Rizza Maniego-Eala, President, G-Xchange, Inc.

You can watch it live here.

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Since Monday, more than 300 people from 60 countries have gathered at our Next Generation Access to Finance Conference in Washington DC.

The opening sessions covered the opportunities that technology provides, but also helped identify the areas we jointly need to tackle to unleash the power of technology to deliver financial services to people who are too poor, live too far from a traditional bank branch, or do not have a formal credit history.

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Happy Monday…this Monday is more auspicious than most because it’s the start of our three day conference looking at how technologies such as card-based networks and mobile phones could increase access to finance. IFC is a co-organizer, and Visa is a sponsor.

Want to know more? Visit here for the full agenda.

We’ll be posting presentations as we get them…and this link should take you to a live video stream of the event.

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Banking agents, retail and postal outlets handling banking transactions for financial institutions and mobile operators, are mushrooming all over! It took less than four years to cover almost all of Brazil. Colombian banks established 3,548 service points in just one year. In Peru banks manage more than 2,500 agents. Equity Bank in Kenya is piloting agents in rural areas. Xac Bank in Mongolia is planning to develop an agent channel….

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