Archive for: Remittances

To promote effective regulation of branchless banking, especially mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized the third Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. This week we’re blogging from the seminar.

Last fall, leaders of G-20 nations identified financial inclusion as a policy priority in a communiqué:

…we will launch a G-20 Financial Inclusion Experts Group. This group will identify lessons learned on innovative approaches to providing financial services to these groups, promote successful regulatory and policy approaches and elaborate standards on financial access, financial literacy, and consumer protection.

CGAP and AFI are working with the G-20 as it eyes increasing financial inclusion with information communication technology (ICT).  To dig deeper into this process and how it will be evaluated for success, I interviewed Paul Flanagan, co-chair of the G-20 Financial Inclusion Experts Group and General Manager, International Finance Division, Australian Treasury.

What is Australia’s interest in branchless banking and the G-20 agenda?
Australia’s interest in the Financial Inclusion Experts Group, and in particular the Access through Innovation Sub-Group, reflects Australia’s interest in ensuring the G-20 provides practical leadership on development related issues.  Korea has made it clear that development will be a major theme in the November Leader’s Summit, and our work will be an important part of this focus.  Australia is an active member of the G20 and is committed to supporting its work as the premier forum for international economic cooperation.

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Could new technologies in Bangladesh enable formal financial services to reach two-thirds of adults by 2020?

Conditions in Bangladesh offer scope for some optimism. Famous for high population density, Bangladesh may be able to deliver a larger volume of financial flows over a relatively smaller distribution network; possibly making the business case more tenable. The demand for remittance services is likely to be high.  There are large numbers of Bangladeshis remitting from overseas. There are plenty of internal migrant laborers needing to send money home – well illustrated by the the ubiquitous rickshaw drivers of Bangladesh’s capital, as one example. Other countries, notably Kenya, have seen branchless banking surge because of domestic money transfers.

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Since the official launch of GCASH in early 2004, Globe Telecom’s subsidiary GXI set-up a number of initiatives to help them arrive at a strategy for mobile banking in the Philippines. As part of those efforts, CGAP and GXI partnered to roll-out GCASH in three predominantly rural and low-income provinces of Bohol, Palawan and Surigao. Our goal was to understand how to expand the reach of GXI’s agent network into smaller towns and how customers would use the service. I am writing to share briefly what we learned in terms of customer usage and preferences in the low-income provinces that we have been working in.

In 18 months, GXI signed up 120,000 new GCASH customers in three low income provinces (Bohol, Surigao del Norte and Palawan) and set-up 200 agents to service those customers (GXI has 1.1 million GCASH customers nationally with 3,000 agents). GXI reached over half of the registered base in the first three quarters of 2009 – roughly 72,000 new GCASH accounts. About 2,000 of those customers (under 3 percent of total) have been conducting one or more GCASH transactions a month. The average transaction size was very low at USD 30, reflecting GCASH’s appeal to those looking to transact at low values. In addition, a very small number of customers have used the wallet for storage. We found a small subset (6-7 customers) maintain a monthly running balance.

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How do you get mobile banking - and branchless banking - to grow? Merchants in the Philippines are finding they have the capacity and the interest to offer financial services to consumers as a new line of business. However, in order for these new ventures to succeed, a network of providers will need to be selected, and issues such as cash management, investment levels, large loan disbursement capability, profitability, and agent network management will need to be addressed. That’s the subject of a new web feature at http://www.cgap.org/technology.

-Jim

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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Over the last few weeks on this blog, we’ve looked at M-PESA in Kenya and Tanzania (read more about this comparison at www.cgap.org/technology), Zain’s Zap product that recently launched in Tanzania, and Zantel’s launch of Z-PESA. Here are some of my concluding thoughts on mobile banking in Tanzania.

With the success of mobile banking in neighboring Kenya, many people assume that similar success would be quick to arrive in Tanzania. And indeed there are many important lessons from Safaricom’s implementation of M-PESA in Kenya for m-banking launches all over the world. Marketing must be clear and simple, targeted at the common citizen’s need for a specific service. A strategic commitment from the entire company and the specific m-banking team must be strong. A willingness to make considerable investments, such as SIM swaps, must be present. And somehow Kenya was able to get agent acquisition to an auto-catalytic level.

Yet the mobile banking landscape in Tanzania is quite different from that of Kenya and must be adjusted accordingly. In some ways, we already see that happening in a form of “m-banking 2.0” emerging.

1. Zain recognized the need to pay commissions to agents much quicker than Safaricom has done in Kenya. In fact, their business model is such that agents receive commissions immediately. In response, Vodacom has also restructured its commission payments so that agents receive commissions directly into their float account.
2. Zain created a richer product proposition than simply “send money home” like that of M-PESA Kenya. In addition to remittances, Zap is focused on micropayments and business to business transactions. This makes it attractive to banked and unbanked customers alike.
3. Zantel and Vodacom realized that initial float accounts can prove an obstacle for agents to begin offering Z-PESA or M-PESA. They are both considering financing to help these agents get started.
4. Finally, pricing has been approached differently in Tanzania, both by Zain which allows customers to negotiate directly with agents and by Vodacom which has created a more segmented price scale for transaction amounts, making it more affordable for customer to send small amounts of money.

Perhaps Kenya is more of the exception than the rule to always be followed. While there are many good lessons to be learned from the Kenyan experience, it may not always be possible to carbon copy it anywhere in the world.

These past few weeks we’ve been focused on Tanzania’s experience with mobile banking. We’re not alone. Gunnar Camner and Emil Sjöblom recently spent three months in Tanzania for their master’s thesis in Media Technology at the Royal Institute of Technology (KTH) in Stockholm, Sweden. Their study attempts to investigate mobile banking services from a user perspective. In which contexts do alternative uses, e.g. savings, become popular and why? The final report will be presented during autumn 2009 and made available at the project blog: http://valuablebits.com. Meanwhile, they sent us this dispatch.

While M-PESA in Tanzania has had a hard time competing with its sibling in Kenya in user uptake, there is one way of sending money via the mobile phone that is very popular in the country. That is by using airtime top-up vouchers. The most common way to do this is to buy an airtime voucher, scratch it in order to get the code and then text the code in an SMS to the person you want to send money to. It is then up to the recipient to go out and sell the code to people who want to buy airtime, or resellers and shops that in turn will sell it to people wanting airtime. The value of the voucher is reduced when selling it the second time, in most cases by about 10% but sometimes it is reduced by up to 40%. M-PESA and Zap are much cheaper and charge about 2-5% of the value sent.

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WING Pilots (sign-up agents) selling starter kits at an activation event at a university in Phnom Penh.

Brad Jones is Managing Director of WING Cambodia. WING is a business that has been established by ANZ, one of the top 40 global banks, to create a mobile payments capability in an emerging market. WING was launched on 21 January 2009 by ANZ Chief Executive Officer, Mike Smith, and the Deputy Governor of the National Bank of Cambodia, Her Excellency Neav Chanthana. This followed a two month pilot period, where a small number of customers completed transactional activity and WING tested systems and business processes.

Since the launch, WING has been actively increasing its customer base through a mix of marketing and sales activities. WING currently has more than 150 points of representation in Cambodia, and is represented in 16 of the nation’s 24 provinces. WING uses the USSD channel to serve customers and is currently in partnership with one mobile operator, with more to follow shortly.

Tell us a bit about your business and who you’re trying to serve.
The WING customer base is primarily the under and un-banked of Cambodia. There are however a variety of segments within this large group. WING has focused on providing a service to garment workers, and other rural-originated customers who have traveled to Phnom Penh and other urban centers for work. The WING product provides them with a safe, affordable and fast way to transfer money to their relatives who rely on this remittance flow for education, housing and other staples. In urban centers, we have focused on the large student population, as the convenience of person-to-person transfer and airtime top-up makes WING an attractive product for them. We aim to expand our services to rural communities to help educate the families of urban-based workers about the convenience for them and their families of using WING rather than informal and less secure methods of money transfer.

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To promote effective regulation of mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized this week’s second Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. The following is based on a session led by Anu Bajaj, Adviser, Financial Sector Team at DFID. You can download her presentation here.

CGAP and DFID are collaborating on work that explores how social welfare payments – government to person (G2P) transfers - could help to bring poor people into the formal financial system using branchless banking:

Until very recently, most G2P (government-to-person) payments were carried out in person and in cash. However, because such methods pose security risks and require high transaction costs for payers and beneficiaries, governments are increasingly switching to electronic delivery.

Government payment systems vary widely by country. Plan Familias in Argentina, for example, offers a debit card re-loadable only by the government. Funds must be drawn within 1 month or the beneficiary loses them, and they may not deposit additional funds into the prepaid account. In Brazil, the Ministry of Social Development is in the process of migrating 12 million recipients of Bolsa Familia, the financial program that represents 25% of Brazilian families, away from an electronic benefit card, and toward the option of a simplified account. In South Africa, several million of the country’s more than 9 million grant recipients receive their funds via a debit card from the nation’s largest bank or a smartcard from payment system provider Net1 UEPS Technologies.

While there’s been some exploration of the business case for agents and providers, we wanted to look at the implications for decision makers. Key takeaways:

• Some schemes may require specific regulatory approval or exemption to actually increase access to banking services;
• Social welfare departments may require or benefit from financial advice in designing payment elements and even appointing payment agencies (e.g. banks);
• Large scale schemes may affect payment system and financial sector through choice of standards and instruments;
• The current economic climate offers opportunities for a “big push forward” for financial inclusion with multiple developmental and economic growth spin offs;
• Financial regulators can enable and support this process through constructive engagement.

In this session we asked for a show of hands – how many banking and payment officials in the room have reached across department lines to speak with their social welfare departments to see how they could collaborate? Only a few hands went up, with this comment: “Dialogue doesn’t equal agreement.”

DFID and CGAP will have a Focus Note on this topic in the next few weeks.

Janine Firpo is currently living in Jakarta, Indonesia where she serving as IFC’s East Asia & Pacific (EAP) Mobile Banking Consultant.  In addition, she is President of Sevak Solutions, a nonprofit company that she co-founded to promote inclusive systems for the delivery of financial services to the world’s 1.7 billion urban and rural poor.  For the past six years, Janine has focused exclusively on the role of information and communications technologies in the extension of financial services.  She is a pioneer in the implementation of branchless banking solutions and has worked on a range of related issues in Africa, Asia, and Latin America. Janine brings over 24 years experience in technology, international development, and consortium building to her efforts.

You are currently working with IFC to advance mobile banking in East Asia and the Pacific.  Can you tell me a bit about IFC’s mobile banking program in that region? The EAP M-Banking Program will focus on three key areas:  (1) supporting Central Banks as they assess the regulatory requirements for mobile money and mobile banking, (2) working with partners to establish pilots and build the business case for m-banking, and (3) providing knowledge sharing, advocacy, and education among market players across the region.  Our initial activities will include seminars, market studies, regulatory assessments, and pilots.  Specific projects and partners will differ by country, depending on local requirements.

Why is IFC interested in advancing mobile banking? The percentage of households in East Asia and the Pacific with basic bank accounts ranges from 5 to 20 percent.  Access to bank branches and ATMs is among the lowest in the world.  In contrast, large numbers of people have access to cell phones, even in rural areas.  For instance, an estimated 40 million people have cell phones but no bank accounts in Indonesia, and about 1 million unbanked cell phone subscribers live in Cambodia.  M-banking addresses the dual problems of cost and access to financial services by transforming every cell phone into a device for performing a range of financial transactions such as depositing and withdrawing cash, transferring money, and making payments.

Most existing m-banking products (including those offered in Indonesia, China, and Vietnam) are generally limited to existing bank customers, offering an additional delivery mechanism for them to check balances, make payments, and so on.  This is referred to as the “additive” m-banking model.  IFC’s EAP M-Banking Program focuses on the “transformational” m-banking model – where m-banking technology allows banks, telcos, or technology companies to pull unbanked populations into the financial system via mobile phones.

Why is mobile banking so popular right now? The incredibly rapid acceptance of mobile phones across the world suggests that they will become the computing platform of the masses.  Although communication is the killer application that is responsible for this dynamic growth, telecom companies and other players recognize the opportunity to leverage this extensive infrastructure to deliver other services.  Financial access is one of the first product lines that has shown commercial promise.  We can expect to see other product lines delivered via mobile phones in the future.

What is driving  businesses in East Asia & the Pacific (EAP) to deliver mobile banking products?  Actually, I think they are delivering not just mobile banking, but a broader range of mobile financial services.

How would you define mobile banking? There is currently a lot of confusion in the market about the term mobile banking because it is often used interchangeably with mobile money, mobile financial services, electronic money, branchless banking and related terms.  Therefore, I would like to clarify what I mean by these terms.  Electronic money is a broad term that encompasses all forms of electronic and stored value products.  Examples could include debit and prepaid cards in addition to money stored on a mobile phone.  Mobile money or mobile financial services connote financial services delivered through a mobile phone.  These services may or may not be tied directly to a personal bank account.  Mobile banking is a more specific term referring to the delivery of banking services, such as deposits, withdrawals, and bank transfers, through a mobile phone.  A mobile bank product is often tied to an individual’s bank account. These distinctions are important.  Often when we talk about mobile banking, I think we are really referring to the broader category of mobile money.

Ok, based on those definitions, what is driving businesses in East Asia & the Pacific (EAP) to deliver mobile financial services? There are different reasons for different players in the market.  Telecom companies see an opportunity to leverage their existing infrastructure by offering value-added services.  Since the market is nascent, they also see an opportunity to promote their brand as well as to gain and retain customers.  Bigger banks that are servicing wealthier clientele also see a brand building and customer retention opportunity.  Some of the more innovative players recognize the transformative power of mobile financial services to bank unbanked populations, acquiring a new customer base.  We are also seeing technology companies that offer multi-channel, multi-bank solutions entering the market to provide interoperable infrastructures.  These solutions remind me of the payment service providers that have emerged around the world to deliver shared ATM and POS networks.

You are bringing up the concept of interoperability.  How important do you think that is in these markets? Ultimately, I think it is very important.  Although it may not be where markets start due to first-mover advantage, I do believe it is where they will eventually end up.  IFC just co-hosted an e-Money seminar with Bank Indonesia, the theme of which was efficiency.  Bank Indonesia would like to promote not only efficient mobile financial services but efficient payment systems in their country.  We might be overlooking an important opportunity if we focus on mobile financial services to the exclusion of other payment systems – and payment networks – in the countries in which we are working.

A lot of the countries in EAP have large rural populations.  What are some of the most difficult challenges you see for reaching people in poor, remote areas? From my perspective, there are three primary challenges.  First, and foremost, is an appropriate product mix that meets market demand.  Second is a strong advertising and marketing campaign to raise awareness about the benefits of mobile money, mobile banking, and financial services in general.  This may well require financial literacy training.  Third will be the presence of an extensive network of cash-in/cash-out points.  Since many rural customers still depend on cash, they will need easy, accessible ways into which to transfer cash into electronic value and back out as cash again.

Do you see any special circumstances in the EAP region? In some of the Pacific island countries, in which IFC works, people use barter instead of cash.  That reality needs to be taken into consideration across all three of these obstacles – market demand, market awareness, and cash management.

Banks have been struggling with rural outreach for decades.  Why do you think mobile financial services is a solution? A huge part of the challenge that banks have faced in the past is the high, often unsustainable, cost of establishing branches in rural areas.  CGAP has studies suggesting that a mobile access point is as little as 1/50th the cost of a branch.  Isn’t that correct?  So the entire business model shifts with mobile money.  In addition, there are new participants in the value chain – telecoms, agent networks, and technology companies.  These businesses can bear some of the cost of infrastructure.  With a branch model, banks had to absorb virtually all the costs.

What is the mindset shift that would need to happen for banks to be able to work with mobile operators, technology companies, and other entities to reach the unbanked? For one thing, the banks would need to view this customer base as a source of additional revenue.  In addition, they would need to be willing to build a part of their business that caters to this new clientele because they will not be able to use the same business practices that they use with wealthier clients on this new market.  And the banks will need to collaborate with a range of new partners to meet their goals.

Do you think the potential of mobile banking has been oversold?  Why or why not?  What will we be talking about or worried about five years from now? It is not my belief that the potential of mobile financial services have been oversold.  If there is hype, it is more likely to be around the speed at which mobile financial services will spread. What we are seeing is not that different from the fits and starts that were seen more than 40 years ago with the advent of credit cards.  Getting the business models right, identifying the key players, and growing to scale all take time.  But, in my opinion, the benefits are there.  So once we figure out some of these parameters, I believe transformative mobile banking will flourish.  In five years time, I think we will be grappling with issues related to interoperability and co-opetition, the requirement for the banks and telcos to cooperate on infrastructure and compete on product, pricing, and service.