Archive for: Remittances

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.

Read the rest of this page »

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.

Here in Washington D.C., it is easy to avoid owning a car (personally I haven’t owned a vehicle since 1995). We have a car-sharing service called Zipcar, where you pay by the hour to use the vehicle. The price includes the use of the car, fuel, and insurance. The city provides designated parking spaces, because officials have an interest in reducing traffic congestion and pollution. Call this a car “utility.” Like my electricity service or my water bill, I only pay for what I use. I don’t own the infrastructure (the car, the power plant, etc.). Tom Friedman at the New York Times wrote last week about a much more ambitious version of “car as utility” or what he calls car 2.0:

Under the Better Place model, consumers can either buy or lease an electric car …and then buy miles on their electric car batteries from Better Place the way you now buy an Apple cellphone and the minutes from AT&T. That way Better Place, or any car company that partners with it, benefits from each mile you drive. G.M. sells cars. Better Place is selling mobility miles.

Reading this column got me thinking about a recent paper that Ignacio Mas wrote here at CGAP. The title is a bit misleading in my own opinion - “Realizing the Potential of Branchless Banking: Challenges Ahead.” One key idea that undergirds the paper is that a payments system/network itself could be considered a utility - just like a car sharing service - where people pay for what they use. And obviously, the cheaper and more available appropriate financial services are, the more people can use them:

But for the payments network to be useful, people need to be able to transfer value through the payment network in a way that is convenient, reliable and secure, widely available, affordable, and useful. We need to understand what drives customers, make the economics work for banking agents, provide transactional accounts for all, and identify shared industry models.

What makes visioning a payments utility possible is the technology available today, which can be used to bridge distances, close information gaps, contain settlement risks, and generally reduce transaction costs. Now the challenge is to develop attractive services that engage customers and workable business models that enable decentralized, largely private, institutions to build this payments utility.

You can download the paper here.

Vodafone’s M-PESA service continues to stir up attention, launching international remittances and stirring up questions about regulating nonbanks offering financial services.

Last Monday, Vodafone announced a tie-up with Western Union to enable customers to use mobile phones to initiate and receive international remittances between the UK and Kenya.

The service has two anchors. It uses Western Union’s existing remittance systems ($64 billion in cross-border remittances last year) to provide the connection between the UK and Kenya. Delivery will happen via the more than 4,000 merchants who already act as cash-handling agents for M-PESA. M-PESA is the successful domestic mobile payment service operated by Vodafone’s Kenyan affiliate ( Safaricom). In less than 2 years, more than 4 million Kenyans have signed up for M-PESA. Safaricom processes transactions worth approx. USD  120 million per month.

Vodafone’s partnership with Western Union could become one of the first successful mobile remittance services aimed at clients who are lower-income, unbanked or have poor access to affordable, secure, convenient financial services. GCash and Smart Money in the Philippines have offered remittances via mobile phone for several years, trying to tap into the USD 15 billion per year sent home by overseas Filipino workers. Kenya receives USD 1.3 billion per year. Orange, Zain, MTN and other mobile operators are exploring the potential to tie into the global remittance business, which the World Bank estimates will total USD 283 billion in 2008.

But just three days after the Western Union announcement, Kenya’s Minister of Finance announced plans to audit M-PESA.  Mr. Michuki said the audit will allay concerns about the safety of customer funds held in M-PESA wallets.

The genesis of the decision to audit M-PESA is still unclear. The announcement marked a complete about turn by Mr. Michuki, who two weeks ago defended M-PESA in Parliament. Safaricom says it welcomes the opportunity to satisfy regulators about safeguards in place.

This could be the latest sign of a growing backlash against new entrants – like mobile network operators – into traditional banking space. Banks have put pressure on the Central Bank of Kenya for the past year to put a heavier regulatory yoke on M-PESA. We’ve seen a similar trend in other countries where mobile operators are eager to offer mobile financial services.

Then today, Prof. Njuguna Ndung’u, the central bank Governor said the audit will be limited and mobile money transfer is valuable in spreading access to better payment services to rural areas. Further, he said the central bank will approve Zain – Safaricom’s chief competitor – to offer a mobile money transfer facility, once it receives the request. CBK has waited for parliament to pass a long-awaited payment system act which will give regulators clear authority to oversee new payment services, such as M-PESA.

I attended SWIFT’s SIBOS conference last week. This event couldn’t have been scheduled for a more exciting time – it opened with the fresh news of the turmoil on Wall Street. There was much talk about that.

As for the issues we are focused on, there was a panel discussion on mobile banking. A Western Union representative said that their average remittance size is $350. But in mobile trials (from Hawaii and UAE to the Philippines, using both Philippine telecom services Smart and G-Cash) the average remittance size was less than $100. So that’s evidence that there is demand to send lower amounts, if only the commission structure permits it. A Wells Fargo speaker said their average remittance size is closer to $500.

From India, ICICI explained their mobile remittance product. Essentially, the recipient gets notified by SMS, and then punches the code he gets on his SMS into a specially-enabled ATM to withdraw the cash. So the mobile is used purely for notification purposes, not for fulfillment.

As for some of the more cutting edge technologies, estimates on NFC-capable phones by 2011 or so ranged from 10% to 30% of installed base. So either way, it is not likely to reach poor people in developing markets in sufficient volumes any time soon.

SWIFT is creating a new messaging type especially for international remittances. Their main messaging business is related to inter-bank transactions, whereas they want to support person-to-person transfers. This was deemed by all banks to be essential to make it easier for each bank to set up bilateral relationships with other banks along remittance corridors, without having to agree a separate set of messaging syntax, rules and contracts. SWIFT would standardize all that and carry the messages too, in return for a commission. A dozen or so banks are now piloting this new product.

This is an excerpt from a recent CGAP paper, The Early Experience with Branchless Banking. The paper synthesizes the observations and research of the CGAP Technology Program. Gautam Ivatury and Ignacio Mas wrote the paper, with substantial input from the entire program team. This blog series will cover seven observations, four uncertainties and four predictions for branchless banking - what we call mobile banking and other technology-enabled banking solutions.

Customers primarily make payments and send transfers through branchless banking channels, even when most branchless banking channels offer a broader range of services, including account opening, cash deposits, and cash withdrawals. Most customers either time their deposits to coincide with bill payments or cash withdrawals, leaving a near-zero balance in their accounts, or they do not open a savings account at all. Consider the following experiences:

• In Brazil, bill payments and the payments of government benefits to individuals comprised 78 percent of the 1.53 billion transactions conducted at the country’s more than 95,000 agents in 2006. CGAP research in Brazil found that, of the 750 people who responded to a survey in Pernambuco State, 90 percent reported using banking agents to pay utility and other bills, only 5 percent reported opening a bank account at the agent, and less than 5 percent said they had made a cash deposit in to their bank account at an agent.7 Indeed, 87 percent of those who had opened an account stated that they had done so just to receive welfare or salary payments.

• In Russia, more than 100,000 automated payment terminals have sprung up in the larger cities in recent years. One provider, CyberPlat, claims to have processed 1.2 billion transactions worth US$4.7 billion through the first three quarters of 2007 via its 70,000 “cash acceptance” points, mostly for prepaid air time, television, Internet, and other utilities.

• The average mobile banking customer of WIZZIT (a mobile phone banking provider in South Africa) bought air time with WIZZIT twice as often (2.6 times) as they withdrew funds from a branch or ATM (1.3 times), and five times as often as they made a money transfer (0.5 times).

Customers use payments and transfers rather than banking services in part because providers focus their marketing efforts on payments and transfers. M-Pesa advertises its service as “an affordable, fast, convenient, and safe way to transfer money by SMS any where in Kenya,” and WIZZIT’s slogan is “the easy way to pay.” Mobile operators, in particular, prefer marketing payments services rather than the ability to store value because payments services are a closer fit with their traditional revenue model (e.g., per minute or per SMS). Some mobile operators argue that if they did advertise the ability of their mobile banking services to take deposits, they would run afoul of the approvals they’ve received from banking regulators.

The predominance of payments services over savings also likely reflects the perceived relative value that each service brings to the economic lives of the poor. Using banking agents and electronic payments to pay utility bills takes less time than traveling to and queuing in a range of utility offices, thereby bringing very tangible benefits. Similarly, collecting a pension, remittance receipt, and welfare or salary payment is a strong driver for opening accounts.

On the other hand, the value proposition of saving money, particularly in electronic form, appears to be less strong. The former head of Banco Postal in Brazil reported that, in rural areas in particular, his team spent considerable effort trying to explain to customers why they should have a bank account at all.10 It seems that although branchless banking has brought formal banking services physically closer to many unbanked people, it hasn’t changed their perceptions of the value proposition of saving in formal financial institutions. When they receive a payment or a remittance, an overwhelming majority of people go to the agent to withdraw the full amount received.

We believe that, over time, as customers increase their use of branchless channels to make a broader range of payments, they will start to find more value in maintaining transactional or savings balances in their account. In the meantime, more research must be done to distinguish how customers feel about savings in general, about the benefits of saving in banks, and about the branch and branchless channels available to them.

The success of agents in Brazil—achieving 100 percent coverage of municipalities—hinged in no small degree on the fact that utility bill paying is considered a banking service and cannot be done at nonbank outlets. This created a natural captive market of transactions for new correspondents opening up in towns without prior bank presence, where previously residents had no choice but to travel to nearby towns to pay their utility bills. In other countries, such as Colombia, local stores may have collection contracts with utilities, and it has proven much harder for correspondents to seize the utility payments business upon entering the market.

This Focus Note considers the issues, challenges, and opportunities of banking through networks of retail agents. It addresses the idea that, to achieve universal access, banks will need to adapt their systems to a low-value, high-volume transactional environment and to build more flexible, scalable retail networks of points at which people can conveniently pay into or cash out from their transactional accounts.

Olga Morawczynski is a doctoral candidate at the University of Edinburgh. She has spent over 9 months investigating customer adoption and usage in both urban and rural Kenya. Below are some of her observations from the field.

It is early morning in Bukura, a small village in Western Kenya. The shop-keeper and his wife are preparing to open their small store, which sells household commodities such as flour and cooking oil. They also offer M-PESA services. There is already a queue outside. A group of about twenty villagers are crowding the entrance. “It is always like this,” the shop-keeper complains while pointing to the crowd. “Since we have become M-PESA agents we have no time to rest. This thing has even over-run our other business”. He then holds up a packet of sugar. “We have not sold any sugar in months. They only want M-PESA”. Not just the Bukura agent has seen a great demand for M-PESA services. Since its introduction in March of 2007, the M-PESA application has had great success all over Kenya. There are currently over 2.3 million registered users. Over 18 Billion Ksh had been moved through the system, via person-to-person transfers.

Some of the work that I have been doing makes several arguments as to why M-PESA has become so popular. Firstly, it is the young, male, urban migrants who are driving the uptake of services – customer adoption. These migrants are what innovation researchers call ‘early adopters’ of a technology. They are usually better educated and earn higher incomes than those in the village. Because these migrants are the senders, they can choose the channel for money transfer. They then influence recipients in the rural area—who are usually female, less educated and poorer—to also use M-PESA. This segment is referred to as the ‘technology laggards’. They are usually the last, and often the least likely, to adopt an innovation.

This research also notes some barriers to adoption. Both agents and customers complain of cash float problems, especially in the rural areas. Because the majority of transactions in the village are withdrawals, agents must maintain their cash float. They do this by making frequent trips to the bank. This can be problematic if the agent is not close to an urban centre, where most banks in Kenya are located. An agent in Malaha, a small village in Western Kenya, commented, “almost every day I ride my bicycle to Kakamega to top-up my float. This takes me almost three hours. I have to leave at 6am because I want to be there when the bank opens. I must then come back again and serve my customers”. When asked if there was any other means of transport to Kakamega, the agent shook his head. He said that he was several kilometres away from the main road. He also said that he could not afford to pay the 200 ksh fee for the matatu (shared taxi).

Despite these cash float problems, the majority of customers in both the urban and rural areas assert that they prefer M-PESA over other money transfer services. This means that M-PESA must be offering them some kind of substantial benefit. In Bukura, this benefit comes in the form of savings on transport. Customers do not need to travel into Kakamega, the nearest town, to access the service. One elderly farmer commented that “I can just walk from my shamba (farm) and get money. I don’t have to spend and go into town. If the agent does not have cash today, then I will come back tomorrow. It is cheaper to wait”. Finding strategies to manage the cash float problem will undoubtedly be one of the greatest challenges for Safaricom. For now, however, it seems like customers are willing to accept the inefficiencies of the service. It is, after all, cheaper to wait.

“Standardized innovation” is the phrase used by Dialog Telekom’s (Sri Lanka) Dr. Hans Wijayasuriya at the Mobile Money Summit in Cairo today. In a phrase I think is quite useful, he was summarizing the need to have mobile banking standards, interoperability, worldwide. Right now we are observing many proprietary systems taking shape – most notably, M-PESA in Kenya, Smart Communications, and as they move further into the m-banking space, Western Union. Imagine having hundreds of transaction networks – Visas, Mastercards – that don’t talk to each other. Hopefully, that’s not the direction in which mobile banking is headed. Proprietary is fine, interoperable is essential.

Read the rest of this page »