Archive for: Technology

In this fourth post in our series on interoperability, we describe interoperability at the customer-level. Read the first three posts here.

One agent. Five mobile money services (Photo taken by Ben Lyon of Kopo Kopo near Geomaps Centre in Nairobi)

In our work on interoperability, we find that there are some questions that we are unable to adequately address at the platform and agent levels alone. For instance, the opening of USSD gateways by mobile operators may allow customers of one operator to access services of another operator without either platform interconnection or agent sharing.

We identify two interoperability scenarios related to the mobile handset:

1. Customers can access their account through any SIM on the same network. For instance, one service in East Africa allows its customers to access their service from any handset as long as it is on their network.

2. Customers can access multiple accounts on one SIM. For instance, SMART in the Philippines allows customers to access SMART Money on their SMART SIM, as well as access accounts with various banks through different enabled interfaces.

Allowing customers to access their account via other SIMs or other accounts via one SIM increases the potential size of the market and increases customer convenience. In the latter case, providers may fear that customers will readily switch to another provider. MNOs run the risk that another service accessible to their subscribers will cannibalize their own service. Providers with large market share, in particular, may be less inclined to allow customers of other services to access their accounts. In addition, number portability has made it easier for customers to switch telecom providers.

Mobile money and the link between the mobile phone number and mobile financial services are supposed to help retain customers. Even if providers permit access to other services, they may use pricing, marketing and other features to try to keep customers from churning (e.g., make it hard to find the other service on the menu).

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Today we post a guest blog by Ignacio Mas and David Porteous, both of whom need no introduction. But just in case…Ignacio is an independent consultant, associated with Bankable Frontier Associates. He is former Senior Advisor with the Financial Services for the Poor team at the Bill & Melinda Gates Foundation and at the Technology and Business Model Innovation Program at CGAP. David is Managing Director of Bankable Frontier Associates.

Sarah Rotman blogged recently about yet another breathless announcement about the imminent arrival of the cashless society. She said and we agree that “cashless seems a bit naïve; cash lite seems more realistic although still a big challenge.” The very first part of the challenge is actually to visualize what a “cash lite” world looks like. Is it simply an ill-defined way station on the road to cashlessness, or is there a meaningful state or goal that goes with it?

We think the latter, and for us the defining characteristic is not the amount of cash (let cash do what it will!), but the availability of alternatives for the bulk of the population. It’s freedom from cash, not absence of cash. We have coined a word which encapsulates key elements of a cash lite society: LiFi (see baptismal paper here). Like WiFi, which provides retail connectivity at the edge of the internet cloud, LiFi is about connecting people to an electronic payments grid which provides Liquidity with Fidelity. WiFi is open, general-purpose broadband; LiFi is secure, special-purpose narrowband.

A LiFi world is therefore one in which every person has an electronic store of value which they can easily use to make and receive payments in real time. Just like in places with reliable on-grid electricity, we can turn on a light on-demand, knowing that it will work and that the cost of flicking the switch will be small in relation to the benefits.

Because there is no precedent for cashlessness by fiat and cash can be counted on to still be an option for a long time to come, the key challenge of LiFi is getting people to trust and want to use the LiFi payment mechanism…because it is robust, because it is safe and because it is useful. All these attributes take time to demonstrate to the satisfaction of risk- (and change-) averse users. A LiFi approach recognizes that in two ways.

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Our discussions on branchless banking on this blog do not often touch on the role of microfinance institutions (MFIs). The main actors in this space seem to be mobile network operators, commercial banks, larger microfinance banks and technology companies. We have done a bit of thinking on microfinance and mobile banking, notably in this Focus Note and at this Virtual Conference.

In our last post of the year, we bring the discussion squarely back to the role technology can play for MFIs. Our guest author is Leo Tobias, Grameen Foundation’s Technology Program Manager of the Solutions for the Poorest Microsavings Initiative. 

Cashpor Officer processing loan payments on mobile

Grameen Foundation’s Microsavings Initiative is a three-year project funded by the Bill & Melinda Gates Foundation. It was launched in November 2009 with a goal of reaching 1.45 million new savers across 3 MFIs in the Philippines, India and Ethiopia.

Offering voluntary savings is demanding. Financial institutions compete with the alternatives that exist to formal savings accounts (home, relatives, neighbors, etc.). A common theme in our savings market research is the customer’s desire to have easy and convenient access to their funds. To deliver on those desires, our MFI partners face common technology challenges.

Here are two major challenges:

1. Front End Technologies 

To meet customer demands, financial institutions must develop delivery channels that offer accessibility and close proximity to the end client.

Selecting the right technology is an important first step. The 3 MFIs are at various stages of investigating or implementing mobile technology. In India, CASHPOR (CASHPOR Micro Credit) incorporated mobile in both their credit and savings processes. In the Philippines, CARD Bank (Center for Agricultural and Rural Development) implemented an SMS system for an on-demand savings deposit pickup service. The use of mobile phones is clearly a powerful venue for bringing the transaction closer to customers. However, it is not the only technology to be considered.

In Ethiopia, ACSI (Amhara Credit and Saving Institution) is planning to use cards (most likely smart cards) and POS devices as their first front end technology implementation. With only approximately 14% mobile penetration in the country, all indicators point to the fact that the majority of the rural poor will not have access to mobile phones in the next couple of years. In the Philippines, the majority of microfinance customers are in provinces classified as “urban” or “semi-urban”. In many of these areas, ATM machines are accessible. CARD Bank chose to provide access to the national and international network of ATMs as a feature of its voluntary savings product in addition to the use of mobile phones.

Integrating all the sophisticated technology requires the help of external providers who can bring a wide array of specialized expertise to the organization.  However, managing relationships with outside technical providers can be new and difficult since most of the technical needs of MFIs had previously been met by in-house expertise.

The MFIs are ultimately responsible for the relationship with their customers.  The MFIs therefore have to provide the training and support needed to make sure members are comfortable with and trust the technology. A component of our holistic program has been to recognize this need and to develop educational programs to introduce not only the savings products but the technology associated with them.

2. Core Infrastructure Upgrades

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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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On a recent visit to Bangladesh Sarah Rotman and I met with Post Office Director General, Mobasherur Rahman, at his office in the middle of busy downtown Dhaka to hear about his foray into the world of branchless banking.

Rahman escorts us through winding corridors, deep into the heart of the Bangladesh Post Office headquarters, to a room unlike any other in the enormous building. Outside an innocuous looking door are about twenty pairs of shoes watched over by a small security camera. We were politely asked to remove our shoes and were shown into the room.

The Post Office now offers two branchless banking services. The longest established service, which was launched in March 2010, is the Electronic Money Transfer Service (EMTS) which allows customers to instantly send money from one branch to a friend or relative who can pick up the funds at 2,000 of the 10,000 post office branches. EMTS, it is envisaged, will soon replace the traditional money order. Post office staff use either a web interface, for those with internet connectivity, or a menu on a specially equipped mobile phone to key in information about the sender and receiver. There is also an option for a free text to be sent to the recipient notifying them of the transfer.

As we enter we are greeted by a blast of icy air from a room where the environment is carefully controlled – other post office staff have to brave the Dhaka heat and humidity with only the aid of a fan. In front of us is a small call center where half a dozen people are answering questions from post office staff and customers about the service. The other half of the room is taken up with huge server racks and we watch as transactions are processed, flashing up on the screen for a few seconds before the next transaction takes its place. Over two million transfers have now been carried out and the system now processes 14,000 transactions per day. As if to answer our questions about what happens in the event of a power cut, the lights momentarily dim and we hear a generator automatically start up in the background. The servers keep humming throughout and there is no let-up in the transactions popping up on the screen.

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We’ve been profiling the state of play of the branchless banking industry in various countries over the last few weeks. Today we look at a region of the world that is in many ways in a class by itself. The West African Economic and Monetary Union (WAEMU), or UEMOA in French, is a customs and monetary union of the republics of Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Mali, Niger, Senegal, and Togo. The Central Bank of West African States (BCEAO) is the common central bank of the eight member states. Here is our summary note on the branchless banking industry in WAEMU. Et voici la version en français.*

The other country notes we’ve released are for countries that are already considered middle-income or are very near to reaching this status (Brazil, Mexico, Pakistan, India, Ghana, South Africa). I would argue that WAEMU is the most challenging of the countries/regions from this list for the development of branchless banking. The 8 countries in WAEMU have a total population of 95 million and include many of the poorest countries in the world. 74% of the region’s population lives on less than $2 per day, and all countries in the region rank in the bottom 12% of countries in the human development index.

Access to finance in WAEMU is very low, even by comparison to other regions of Africa.  The rate of bancarization announced by the BCEAO in December 2010 was 9.5% and 12.7% of the population had an account with an MFI.

Yet the WAEMU region has recently seen a significant amount of private sector activity in branchless banking (see a summary chart of activities). The single overarching regulatory framework in the BCEAO enables private actors to leverage regional investments at lower costs. This regional diversity also provides the opportunity to understand the impact that market aspects have on branchless banking in an environment where the regulation is constant. For these reasons, WAEMU is a unique place to push branchless banking and a region where the need for increased access to financial services is one of the greatest in the world.

Opportunities for branchless banking in WAEMU:

• Regulation allows for nonbank e-money issuers leading to different and unique business models. The BCEAO was one of the first regulators globally to pass regulation expressly permitting nonbank e-money issuers in 2006, and it remains one of a few central banks that allow this role by nonbanks. Interestingly, none of the MNOs have opted for this license, while MNOs in other parts of the world long to have this option. Three nonbank institutions have received the e-money issuer licenses from the BCEAO. This regulation expands the realm of possibility in terms of the actors that can get involved in branchless banking and the types of services that can be offered. Read the rest of this page »

This is the fourth post in our series on G2P, branchless banking and financial inclusion. All the other posts can be found here. In this post, our guest bloggers look at the case of the small island country of Fiji. Matt Leonard, formerly with MicroSave, is a consultant documenting the lessons learned from Fiji DSW’s experience.  Till Bruett is the Regional Technical Advisor for UNCDF in the Pacific and the Project Manager of the Pacific Financial Inclusion Programme.  PFIP is a Pacific-wide programme helping provide sustainable financial services to low income households and is funded by the Australian Agency for International Development (AusAID), UNCDF, the European Union, and the UNDP’s Pacific Centre.  More information can be found at www.pfip.org.

On a warm day in the first week of May, hundreds of rural Fijian social welfare recipients traveled from Fiji’s remote, interior highlands to attend what was for many an initiation to branchless banking. The recipients assembled near a small shop in the village of Vunidawa to be introduced to the new concepts by Westpac staff equipped with red bank cards and wireless point-of-sale (POS) devices.  Throughout the morning they showed their new clients how to check balances and cash out benefits. Meanwhile the busy local shopkeepers rang up record numbers of receipts through electronic sales.

Since January 2011, Westpac Banking Corporation of Australia has been helping in the distribution of social welfare benefits across Fiji through its network of branches, ATMs and POS devices in their merchant network. In the process, they have also provided access to flexible, no-fee accounts to a previously unbanked population including those living in hard-to-reach areas.

The benefits consist primarily of an unconditional cash transfer averaging about US$37/month for those classified as widows, elderly, disabled, single parents or those with chronic illness. A smaller group of beneficiaries receive a semi-conditional cash transfer for taking care of orphaned, abused or neglected children.

Up until January 2011, it was a common occurrence in Fiji to see long queues of social welfare recipients suffering under a hot sun outside post offices or district social welfare offices across the country. Not only would many of the 24,000+ recipients trek many hours from the poorly connected interior each month to pick up or encash their vouchers, but many might spend FJ$ 10-20 (US$6 – $12), or 15-30% of their modest allowance on travel. It was on one of these days in January 2009 when the Pacific Financial Inclusion Programme (PFIP) decided this was an opportunity to extend the financial access frontier in Fiji –  putting in motion the first major G2P project for the poor in the Pacific.

In early 2009, PFIP found a willing ally in an overwhelmed and understaffed Department of Social Welfare (DSW). Despite constitutional turmoil that contributed to high-level of turnover at DSW and its ministry among the senior ranks, PFIP and DSW staff conducted an activity-based costing analysis that laid bare the case for transformation. The process of printing and distributing benefit vouchers was time consuming (up to 2 months) and costly (upwards of FJ$  844,000 or nearly US$500,000 per annum) and subject to fraud, error and leakage. PFIP also did a survey of the DSW beneficiaries’ perceptions and attitudes toward banks and electronic banking methods which confirmed that there seemed to be few barriers other than inertia holding back change.  Indeed, these studies – together with critical support from senior staff at DSW and the Minister of Women, Social Welfare and Poverty Alleviation herself – led to Cabinet-level endorsement for the shift from the outdated voucher system to a progressive electronic-based payment system in late 2009.

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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, Mexico and India over the last few weeks. Today we continue with our analysis of Pakistan and share this summary note on the branchless banking industry.

Pakistan might not be the first country that springs to mind as fertile ground for branchless banking. The country is certainly facing enormous challenges: from the fragile state of the economy to the rise of religious extremists. Pakistan has one of the lowest proportions of the population who are financially included of all the countries that we are featuring in this series with just 12% having access to formal financial services. But the huge numbers of people who are not currently being served represent a huge opportunity for branchless banking providers. Pakistan also benefits from a very competitive mobile telecommunications sector with low average-revenue-per-user (ARPU) and players hungry to look for additional revenue sources.

Pakistan’s branchless banking story started back in April 2008, when the Central Bank issued specific regulation on branchless banking which laid out the rules clearly: low value accounts with reduced KYC requirements were introduced, but only regulated banks would be allowed to hold the accounts and sign agreements with networks of agents to service these customers. Some 18 months after the regulation was passed the first branchless banking service was launched. Six months later their first competitor entered the market and several others have advanced plans to launch services during 2011.

So, who are the runners and riders in Pakistan’s branchless banking race and what makes them interesting?

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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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