Archive for: POS

ASHAs (Accredited State Health Activists) in Bihar receiving their incentive payments through Eko's mobile money transfer service

We often write on this blog about the potential to link government-to-person (G2P) payments to financial services. We also closely follow branchless banking developments in India and have recently shared our take on the market. So imagine our excitement when we can talk about both together!

India is just one of a handful of countries that is implementing financially-linked G2P payments at scale. And of course, “scale” in India – a country with nearly 1.2 billion people – means something a bit bigger than in most countries. In India in 2008-2009, 22 welfare schemes paid out a total $65 billion to tens of millions of Indians – which doesn’t even include the substantial G2P flows for government salaries and small savings schemes. The yearly budget of the National Rural Employment Guarantee Scheme (NREGS), one of two welfare schemes that dominate the G2P payments space is $6.7 billion. And, most excitingly from our perspective, these schemes are leveraging emerging branchless banking models to disburse these payments, moving from the former branch- and cash-based distribution model to the distribution of funds into no-frills bank accounts serviced by business correspondents outside of branches.

Not surprisingly, though, this is only the start of the story. While the ambitious link of G2P payments to bank accounts is exciting and can be a source of learning and inspiration for other countries, challenges and complexities persist. We visited India this summer to learn more about G2P payments as they relate to financial inclusion. Our full overview note is available here, but here’s a summary of our key insights.

• State governments exercise significant control over the management and administration of central government-mandated G2P schemes, and there is great variability in the fees paid by state governments to banks for disbursing funds to citizens – some states pay 2% of values disbursed (or more), but others refuse to pay anything. This weakens the business case for banks and fails to generate enough money to feed the many mouths in the G2P value chain.
• Business correspondent network managers (BCNMs) are particularly squeezed, as they must compensate their network to keep them engaged and reliable, but the current fee structures from banks leave little money left over.
• In the absence of transaction fees, many banks appear motivated to disburse G2P transfers because they view this as a “foot in the door” for future business from governments, an especially compelling prospect for private banks who have traditionally been boxed out of this business by public-sector banks.

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Fiji G2P payments (courtesy of UNCDF's Pacific Financial Inclusion Programme)

Over the last couple months, we’ve run a series profiling different government payments programs that have innovated on their payment mechanisms and in some cases linked payments to financial services. We looked at the case of UBL in Pakistan making payments to flood victims. We profiled GCASH using GCASH REMIT to make payments on behalf of LandBank to rural beneficiaries of the 4Ps program in the Philippines. We featured Colombia’s Familias en Accion program that has contributed to the build out of banking correspondents in the country and is testing interesting ways to incentivize savings. We discussed the HSN Programme in Kenya and how Equity Bank is making payments to a very rural area in northern Kenya via smart cards and agents. Finally, we looked at the new G2P program in Fiji offering payments to beneficiaries through accounts offered by Westpac. Of course, we could have profiled many more schemes in countries like India, Mexico, South Africa, Dominican Republic, and others.

These examples are diverse as much as they are similar. Some of them are still in a pilot phase (such as GCCASH), while others are at a national scale (such as Familias en Accion). Some of them are using card-based solutions (such as the HSN Programme and Familias en Accion), while others are experimenting with mobile phones (such as GCASH). Some of them are distributing a payment based on certain conditionalities (such as the 4Ps program in the Philippines and Familias en Accion), while others are distributing unconditional cash transfers (such as in Fiji and the HSN Programme). What are some observations and lessons we can gather from these examples and from others around the world?

1. The link to financial inclusion is one that can often get forgotten in the quest for payment efficiency. Social protection programs rightly have the objective of making payments in a timely, efficient and cost-effective manner. While they often appreciate the link that financial services can offer to the beneficiaries, when push comes to shove, this will get sidelined if it becomes too complicated or costly to implement. Therefore we see that while the schemes in Pakistan and the Philippines have done an excellent job getting payments (and in Pakistan emergency payments no less) to poor beneficiaries, there is not yet a link to financial services. While this may be an added feature in the future, these examples should encourage all of us with a specific interest in financial inclusion to be deliberate and clear in our interaction with G2P partners about our real goals. Read the rest of this page »

Over the past several months, we have taken a close look at the branchless banking industry in a few key countries. We have presented our learning from Brazil and Mexico over the last few weeks. Today we offer a snapshot of the conditions for branchless banking in India drawn from a summary note of the Indian scene completed at the end of 2010.

POS machine used by FINO agents

India has embarked on far-reaching financial inclusion initiatives by opening up regulations to allow the use of agents (called Business Correspondents in India) since 2006. India is also building new public infrastructure which could inject a further boost. Will these conditions deliver a lasting increase in financial inclusion?

The government is making visionary investments in public infrastructure.

Allowing the use of banking agents is common today, yet India has moved even further ahead beginning to build 3 pieces of public infrastructure that could substantially accelerate financial inclusion:

1. A mobile payments switch: To take full advantage of the banking network across India, public-private collaboration has built the Inter-bank Mobile Payment Service (IMPS). This new switch allows mobile phone-initiated transactions to pass from the bank account in one bank to an account at another bank. If fully leveraged across the banking network, it would counteract some of the barriers posed by India’s size and regionally fractured banking presence.
2. Unique identification: The Unique Identification Authority of India has begun to roll out registration of the unique identification number with matching biometrics. As this becomes more widely available, it could ease KYC processes and reduce the friction of mass branchless banking operations.
3. Shifting government subsidies to electronic payment systems: The 2012 budget announced a plan to shift some public subsidies (such as $12.5 billion in fertilizer annually) to a system where payments will be delivered directly into the beneficiaries’ accounts. This change would funnel large payments volumes through branchless banking and, among other benefits, bring clients into a deeper banking relationship. This recent policy shift adds to ongoing state efforts to transfer National Rural Employment Guarantee Act wage payments electronically.

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This is the fourth post in our series on G2P, branchless banking and financial inclusion. Our first post on Pakistan can be found here, our second post on the Philippines can be found here, and our third post on Colombia can be found here. Our guest blogger for this post is John Ratichek from Bankable Frontier Associates. John leads the development of BFA’s work in social transfer payments.  He has done work on the use of technology in mobile phone banking and has written and supervised case studies on the development of financial services in rural Africa.

Mama Cash and her husband at their shop in Turkwell, Turkana district

Forty kilometers east of Lodwar, through the sand and river beds of arid Turkana district in northern Kenya, is the settlement of Turkwell. In the middle of this unforgiving landscape that can hardly support a few goats, “Mama Cash” and her husband run a thriving shop.

Her success is primarily a result of her participation in the Kenyan government’s pilot cash transfer program known as the Hunger Safety Nets Programme (HSNP). But she’s not a beneficiary.  Rather, she is one of the two agents in Turkwell who pay cash to the programme’s 250 local recipients. For that service, she receives a commission from Equity Bank who is the administrator of the payment service; and she gleans some additional business from the beneficiaries who often buy goods from her store. Plus, the community has bestowed on her the title she now proudly posts on her storefront.

Mama Cash is one of 120 merchant agents who are being hired and trained by Equity Bank to distribute the HSNP funds. The pilot programme has now been underway for 24 months.

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1. PlaNet Finance and Oliver Wyman published a joint report called Beyond payments – Next generation Mobile Banking for the Masses. Sponsored by the Bill & Melinda Gates Foundation, the report looks at distribution strategies and second generation mobile microfinance products via pilots in West Africa and Southeast Asia. Two distinct innovative models were explored through the pilots: 1) the distribution of microfinance through mobile money via existing microfinance banks; and 2) the distribution of microfinance through a virtual microfinance bank operating as a pure mobile player. You can download the full report here or here.
2. Colleagues at the World Bank recently published the book Protecting Mobile Money against Financial Crimes: Global Policy Challenges and Solutions. Given the boom in the mobile money industry, the authors are responding to the fact that regulators often struggle to craft a regulatory regime that expands access to financial services to the poor through the development of mobile phone financial services, while at the same time being compliant with AML/CFT standards. The paper 1) takes stock of new AML/CFT regulations relevant to mobile money; 2) designs guidelines for drafting AML/CFT regulations that cover mobile money; and 3) proposes examples of best practices for the industry to include AML/CFT in their own business model. The book is available for sale at http://publications.worldbank.org. Read the rest of this page »

Over the past several months, we have taken a close look at the branchless banking industry in a few key countries. We start here by presenting our learnings from Brazil and share our summary note on the industry. We will continue in the coming weeks to look at several other markets, including Mexico, India and Pakistan.

Financial inclusion in Brazil needs to now turn urban (Photo Credit: André Mantelli)

The job of financial inclusion in Brazil is arguably done. Brazil’s banks have made it a global leader in branchless banking. The underlying retail payment infrastructure is in place. There are agent locations in almost every municipality. New agent management companies from around the world regularly visit more than 30 of their counterparts in Brazil to understand how the business works. And Brazil’s Bolsa Familia program, already successful in moving beyond G2P payments to credit and savings, is considered a global flagship.

And yet, financial inclusion in Brazil still has a long way to go. CGAP has studied the branchless banking market in Brazil over the past few months and has written a country note available here. In this blog series, we discuss some of the challenges identified in that note. We start the series here on the CGAP Technology Blog, but we will continue the conversation on a joint blog to be developed by Center for Microfinance Studies at FGV (Fundação Getulio Vargas).

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I’ve been part of a CGAP team working on a three-country study of agent networks over the last several months.  We blogged about our time in Brazil earlier this year, and you can download the deck with our analysis of agents here. We also did some analysis of M-PESA agents last year, and we will be updating this information in the coming weeks.

More recently, however, I was joined by colleagues Karuna Krishnaswamy, Claudia McKay, Mark Pickens in India talking to FINO and Eko, along with other companies involved in different forms of branchless banking. Over the next few weeks, we’ll be blogging about various aspects of our time there. You can see our overall analysis of agent networks in India in this deck.

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The agent economics around branchless banking can be a complicated subject. As we highlighted in the M-PESA research we did last year, liquidity management can be difficult and costly. But in general, M-PESA agents were making enough profit to compensate for these inconveniences. Two colleagues and I were in Brazil in December to understand how the agent network (termed “banking correspondents” in Brazil) worked there. We partnered with the Center for Microfinance Studies at FGV (Fundação Getulio Vargas) and PlaNet Finance. In previous posts, Claudia McKay discussed the impact of branchless banking in Brazil at the community and customer levels. Now I’m going to discuss the impact on the merchants/agents themselves.

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We’ve written before about how government-to-person (G2P) transfers could be a conduit for increasing access to financial services. But how do you connect the world of cash with the electronic systems that deliver benefits? The U.S. government has successfully operated its Electronic Benefit Transfer (EBT) program across all of its states and territories since 2004. Rather than receiving paper benefits, participants open an EBT account – not affiliated with a bank – and receive a debit card that can be used for in-store purchases or ATM cash withdrawals at specially branded terminals. State governments provide electronic transfer for benefits, such as Supplementary Nutrition Assistance and Temporary Assistance for Needy Families, and vendors, such as JP Morgan Chase and Affiliated Computer Services, manage account information.

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