Archive for: Value Chains

This is the fifth and final post in our series on remittances and branchless banking.  You can read the first four posts here.  So far, we have highlighted the emerging success factors and challenges featured in our 2012 landscaping exercise.  Paolo Baltao from Globe’s GCASH shared with us the lessons learned over a period of eight years during which time he led one of the first services to link remittances to a mobile wallet.   Subsequently, Stefan Staschen explored the untapped opportunities in leveraging the large flows of remittances between Russia and Tajikistan by linking them to other financial products.  This week, we revisit the study conducted by CGAP and Dalberg Global Development Advisors, by focusing on the role of bigger players such as Western Union and BICS Homesend in consolidating existing corridors and accelerating further adoption. 

Since we started this series, new remittance data from several countries has been released by the World Bank. This newly available dataset reveals that officially recorded remittance flows to developing countries reached $372 billion in 2011, an increase of 12.1 percent over 2010. This is higher than our earlier estimate of $351 billion. While there is clearly some market potential there, so far we have seen that uptake for mobile enabled remittances services has been anaemic to say the least.

Source: CGAP & Dalberg Global Development Advisors

As our understanding of the factors that lead to customer adoption of branchless banking expands, there is a growing consensus that for international remittances services to reach a significant level of scale, they will require an existing mobile money ecosystem that allows for downstream transactions which give users access to a wider array of cost-effective services and products such as payments and access to savings.  This will provide not only value-added for consumers but also the much needed transaction revenue for providers.  It is evident that these recalibrated strategies will no longer place remittances as the core driver for adoption, but factor them in as one of the many financial services which can be provided to a customer once a branchless banking ecosystem has reached a certain level of maturity and depth.

One thing is certain: although some new innovative models have emerged, traditional remittance providers or MTOs like Western Union still have a huge advantage through the benefits they offer to partners. These include fast access to a broad range of sending countries as well as significant brand recognition and regulatory compliance, though often at the expense of their partner’s pricing power (an expense which could end up being passed on to consumers, ultimately reducing the demand for these types of services).   Nevertheless, Western Union has already launched mobile money transfer services in nine countries: Bangladesh, Burkina Faso, Canada, Kenya, Madagascar, Malaysia, the Philippines, Tanzania and the U.S, and in the last couple of months, has announced strategic alliances with MTN Uganda, Roshan in Afghanistan and Tigo in Paraguay.  This move will allow senders to remit funds directly into the recipient’s mobile wallets from any of Western Union’s agent locations around the world.  It is evident that MNOs remain optimistic about deploying international remittances through mobile money, yet they are increasingly aware that the full benefits will only be realized in the long-term.  As mobile money ecosystems become more mature in these markets, these flows could play a pivotal role in consolidating corridors and accelerating adoption.

Alternately, hub providers such as BICS Homesend are now making it possible to integrate mobile wallets or money transfer systems of two different providers. Besides facilitating services that are mobile centric from sender to receiver, HomeSend can provide access to other service providers, such as MTOs and banks which can offer technical solutions to streamline domestic interoperability between systems and competing regulatory frameworks. Given their structure, Homesend is a cheaper alternative to giants such as Western Union and can provide a more flexible partnership without having to cede too much control from the side of the operator or bank.  However, they don’t have the same instant global reach and given their lack of direct interface with mobile wallet users, they are completely reliant on their partners to market and push transactions which make the issue of consumer education even more critical.

Nevertheless, operators seem to remain optimistic over the long-term opportunity to deploy international remittances through mobile money, and hope it will eventually contribute to the economic viability of their deployments through the added revenue opportunities for them and their agent networks.  It remains to be seen how these remittance flows are actually tied to specific financial products and services.  Only then will the real impact of mobile-enabled remittances on the unbanked be uncovered.

- Camilo Tellez

Chrissy Martin is a Senior Project Manager at MEDA, a non-profit organization that is partnering with Mobile Transactions on product development and agent network expansion, with a specific focus on reaching rural clients through services designed for the agricultural market.  Azalea Carisch is a Rural Microfinance Intern with MEDA who is currently based in Lusaka supporting Mobile Transactions on agent network monitoring and compliance. 

Mobile Transactions Zambia - courtesy of Chrissy Martin

Until recently, Mobile Transactions could have been considered the best kept secret in Africa.  Operating in Zambia on a shoe-string budget, they have been developing their own unique business model for electronic financial services slowly and with little media attention.  Now, as of February 2012, this small company has secured investments from three big investors, Omidyar Network, ACCION Frontier Investments, and Sarona Asset Management. All three are banking on the fact that Mobile Transactions’ experience and innovative approach to serving a range of consumers situates them to fill crucial gaps in the mobile money transactions and payments market in Africa.

Mobile Transactions offers services to both individuals and institutional customers.  For individuals, they offer both mobile wallet peer-to-peer transfers and over-the-counter money transfers through their agent network (a mobile wallet with a stored value is available but not compulsory.)  For institutions, they are providing e-voucher services to donors, governments and private corporations (including Dunavant, FAO and WFP).   They are also testing a variety of bulk payments products, including microfinance loan payments and utility payments.    Finally, they are working with Zambian Breweries on supplier payments, often referred to as business-to-business (B2B) payments.   These products are at a variety of different stages, with money transfers and e-vouchers reaching the most customers so far.  This product mix is extensive, but is not in and of itself enough to distinguish Mobile Transactions from the many other mobile payments start-ups.  So the question is what makes Mobile Transactions different?

• Mobile Transactions is an independent operator:  Readers of the CGAP Technology blog know that the market has developed past a simple MNO-led or bank-led model. Increasingly, the market is facilitating new business models which do not partner exclusively with any one mobile network operator or commercial bank.  Mobile Transactions is one of these independent companies, due in part to the regulatory environment, which allowed them to become an independent, certified financial transactions company.  This allows them to think creatively about their technology and go beyond the mobile phone when developing services. For example, the e-voucher service mentioned previously can by delivered to end-users either through a mobile wallet or via paper scratch-cards.  Paper-scratch cards are printed with a unique transaction code that is linked to the recipient’s identity and is redeemable at certain retailers.  The paper-based distribution method works better in rural communities in Zambia, where many people do not have a mobile phone but everyone trusts and understands scratch-cards, which are extensively used for mobile airtime top-up.  A mobile phone company, on the other hand, is interested in promoting their core business, airtime, and would not have an incentive to offer a service that does not require the end-user to make a transaction via a mobile phone.  Of course, there are drawbacks to the independent model, mainly the lack of an existing capital base, brand recognition, or distribution network, all of which are crucial to any branchless banking business.  Yet, Mobile Transactions has managed to find alternative solutions to provide quality service for people and institutions needing to move cash within Zambia.

• Mobile Transactions relies on independently owned and operated agents: Mobile Transactions’ original market-entry strategy looked much like M-Pesa in Kenya, which meant that they recruited and trained existing retail outlets to grow their agent network as quickly as possible.  However, they quickly saw that this strategy was not sufficient to drive customer acquisition.  The retail outlets weren’t motivated to act as sales people for a company with little brand recognition or to push a new product that few Zambians understood.   As a result, Mobile Transactions decided to recruit, train, and set-up their own “Champion Agents”.  Champion agents operate in much the same way as franchises do: each store is independently owned and operated by a trained individual who receives marketing and commercial support from MTZ.  This model has driven brand recognition and has provided Mobile Transactions with a backbone of core agents who are devoted entirely to selling their products and services.  Although this model is much more expensive than the retail agent model and therefore results in slower agent network growth, the benefits are accrued in the quality of the network, the customer-facing entity of any branchless banking operation.

• Mobile Transactions’ products are derived from a service-led approach. Mobile Transactions does not experience the low activity rates of many other mobile money operators.  Most other operators offer one product, the mobile wallet, and then build value-added services on top in order to drive higher customer use of the m-wallet.  Mobile Transactions, on the other hand, provides a variety of services (business to business payments, payments to farmers or microfinance loan payments) that respond to a specific customer need, and these services may leverage the mobile wallet, a paper-voucher, or simply an agent-based transaction (for example, the scratch card voucher mentioned previously.)  The commonality is in the central Mobile Transactions IT platform, where each type of transaction is processed regardless of the delivery channel. The challenge of this approach is scale, which is reliant on the agent network and the agents’ ability to adapt quickly to new services and to serve multiple customers segments.  As they deal with these challenges, Mobile Transactions is continually growing services through a learning-based approach to product development that allows it to develop services based on Zambia’s market realities, rather than success from other markets.

Mobile Transactions’ model is not without its challenges, as any member of the company’s small and dedicated staff will tell you.  However, the experience of this independent operator with a service-led approach challenges many of the commonly held assumptions about mobile money implementation, and their patience is starting to pay off.  Our guess is that it won’t be a secret for much longer.

I think it is safe to say that the financial inclusion world has started to get used to the idea of thinking about financial service providers more broadly than traditional microfinance institutions, rural banks and financial cooperatives. With the recent growth of mobile network operators, technology providers and agent network managers, it’s evident that financial inclusion encompasses a broad set of providers. But even I am sometimes surprised to learn about some private companies that seem to have a very tangential link to the unbanked financial sector taking advantage of new opportunities in branchless banking.

Take OXXO as an example. OXXO is the largest convenience store in Mexico (comparable to 7-Eleven in the US) opening a new store every 8 hours…yes that’s 8 hours!  7.5 million people come through their stores every day, most of whom are looking for things that a normal convenience store would offer…food, snacks, paper goods, etc. But OXXO is diversifying its products to offer its wide customer base the “convenience for everything you’d need in life any time of day.”

In this video, Aiko Fujimura, Manager of Financial Services for OXXO, explains how this added convenience extends now to financial services offered through the OXXO e-wallet. She admits that there are certain challenges. “It is easy to sell soda and snacks, but not as easy to sell financial services.” Training a huge network of employees and convincing people to trust the store with their money are two issues OXXO is currently facing.

Few companies have the scale of OXXO, but convenience stores and other retail outlets are still being used to build up branchless banking agent networks. In this video, Johannes Kling of the agent network company DD-DEDO talks about the role that convenience stores play in Colombia in expanding the outreach of banks. As he explains, Colombia is still very early on in the growth curve when it comes to branchless banking. But as we all know, a strong agent network is one of the early pieces of the puzzle in building a branchless banking ecosystem.

Next week, we’ll share two more videos from more traditional players – a bank and a mobile network operator – but each with an interesting take on their new business model to reach the unbanked.

- Sarah Rotman

This is the third post in our series on interoperability and related issues in branchless banking and mobile money. Read the first post that presented the overall framework for the discussion and the second post that looked at the interconnection of mobile money platforms. Today, we discuss interoperability at the agent level as it relates to agent exclusivity. We include agent exclusivity in the topic of interoperability because it raises many of the same issues as platform interoperability.

Agent exclusivity revolves around the ability of a customer of one provider to use the agent of another provider for cash-in and cash-out services related to that customer’s account. Non-exclusive agents can expand financial access by providing more access points to a greater  number of customers, while limiting the rise of a dominant actor which could ultimately reduce competition. But as with platform interoperability, regulators are cognizant that prohibiting exclusive agents could deter private actors from entering the market. What service provider would invest in identifying, training, and equipping agents if competitors can piggyback off their investment?

To be clear, when we speak of agent exclusivity, we are only referring to the cash-in and cash-out services performed by agents – not other services (where permitted) such as customer enrollment, related KYC, and processing of loan documents. Agents providing only cash-in and cash-out services are often called “cash merchants”. We distinguish the cash merchant services from other services because cash merchant functions arguably present less risk to the financial service provider since agents typically transact against their own accounts. Think human ATMs.

We identify at least four different ways to share cash merchants:

Read the rest of this page »

To commemorate the 2nd anniversary of the Haitian earthquake, we are running a few blogs on the mobile money industry that has developed in Haiti over the past two years. The consulting firm Dalberg has recently completed three pieces of research on the Haitian market as part of Haiti Mobile Money Initiative (HMMI). You can read their Haiti mobile money case study here and their research on the NGO experience of plugging into mobile money here.  

Today they release the third piece of research on the payments market, specifically on the topic of market segmentation. Our guest authors are Vicky Hausman, Yana Watson, Matt Shakhovskoy and Lorenzo Bernasconi from Dalberg.

With a year of operations under their belts, providers of mobile money services in Haiti are looking to move from a push for rapid expansion to a strategic pursuit of profitable markets. The industry’s kick-start came from a $10 million prize pool supplied by the Bill & Melinda Gates Foundation. Now as the prize mechanism nears its completion, the focus is shifting to sustainability based on supply and demand. For providers of mobile money services, we believe that a successful strategy will depend in large part on market segmentation.

The Haitian economy, though poor, is dynamic and resilient, and mobile money could fit into it in many different ways.  Establishing possible uses through research and then offering a mix of services to suit distinct groups of customers will be key to the industry’s long-term viability. Studying and prioritizing these groups through segmentation will help companies to collect the highest return on their investment.

Segmentation is particularly important in nascent industries like mobile money, since identifying early adopters and low-hanging fruit can create opportunities to grow quickly and achieve economies of scale. While it isn’t an easy process, especially in a country where data on markets are hard to come by, it can insure against wasted effort and unprofitable investments. We recommend starting by estimating the size of different segments, then prioritizing them based on the costs and rewards to serve them, and finally planning a strategy to capture the segments that present the highest returns.

To see how we prioritized the segments in Haiti and to read a profile of one of the most promising – the agricultural value chain – see our report here.

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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It’s often said mobile network operators (MNOs) have the advantage over banks in creating agent networks from their dense carpet of prepaid airtime sellers. But is this true?

As we first blogged about last year, MNOs outsource much of their airtime distribution to multiple layers of wholesalers and dealers. Do they really have much of a connection to the last mile shop owner to be able to convert him or her into a mobile money agent?  One might argue their wholesalers have the connection, but what if they balk at pushing mobile money for the MNO? This isn’t so far-fetched: a shrewd airtime wholesaler might intuit that mobile money could eventually cut them out of the picture entirely, if MNOs gain the capacity for direct sales to consumers. The virtual sales channel would kill the physical one. (This is part of why M-PESA took so long to take off in Tanzania, for example.)

And even where existing airtime wholesalers are willing to help, it’s obvious that convincing merchants to distribute mobile money is very different than airtime, which we’ve talked about in CGAP’s recently published Agent Management Toolkit. The amount of capital can be much greater: the average M-PESA agent in CGAP’s field research held USD 1200 in combined cash and e-float, nearly 10x more than the typical stock of airtime scratch cards (USD 129). Payment operates differently, too: a merchant recoups their airtime investment plus a margin as soon as they sell a scratch card, but often waits to month end to receive mobile money commissions. Even the time per transaction is dramatically different: a few seconds for scratch card and cash to change hands versus typically one minute to complete a mobile money transaction (and longer if networks are clogged). Also, being an effective agent for most mobile money implementations requires more advanced skills in selling, training and customer care than is required to sell a scratch card.

So converting an airtime distribution chain is not the same as flicking a light switch on. Unlike 2009 and even 2010, we’re now seeing MNOs put some money, muscle and thought into crafting their agent networks.

But we see radically different approaches unfolding. We can separate them into 3 categories: totally integrated into airtime distribution, bespoke management, a hybrid.

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Building a viable agent network is a critical success factor for any branchless banking service. But the industry is in a state of creative chaos with widely divergent approaches (and performance) to rapidly setting up a dense, liquid carpet of agents adhering to service quality standards.

In February, CGAP released an Agent Management Toolkit which aims to demystify the process. The toolkit is based on 500 interviews with agents, agent network managers and financial institutions in Brazil (Banco do Brasil and Banco Postal), India (EKO and FINO), and Kenya (M-PESA). All told, CGAP analyzed data on more than 16,000 agents for the Toolkit.

We’ve distilled the Toolkit into an Agent Management Training Package to enable you to train your own colleagues and service partners about key steps in building a robust agent network.

• Section 1 looks at the business case from the agent’s perspective. This includes an exercise comparing the business drivers for 3 agents from Brazil, India and Kenya.
• Section 2 looks at the role of Agent Network Managers, with a case study of a Brazilian ANM’s journey towards profitability.
• Section 3 looks at options to generate adequate revenue to satisfy all partners in the supply chain, and an exercise where participants will discuss a hypothetical branchless banking service.
• Section 4 looks at structuring an agent network, with a case study showing how the supply chain has evolved for M-PESA in Kenya.
• Section 5 looks at lessons from Brazil, India and Kenya for managing agents, with an exercise comparing training approaches in these and other markets.

The package can be used in multiple ways, from a 30 minute rapid review of key messages, a day-long training, or selecting one of the modules matching your interest. The package includes detailed notes for trainers on how to present each slide and key takeaways to highlight. Feel free to use with attribution.

I just returned from the GSM World Congress a couple weeks ago which is the annual trade gathering of the mobile phone industry. It’s an excellent place to glimpse what’s coming up next on the horizon. One topic gaining momentum fast is mHealth — mobile phone-based solutions to healthcare challenges. The GSM Association invited CGAP to talk about where mobile money fits in the mHealth universe. My presentation is here.

While most mHealth opportunities in developed countries tend to focus on reducing costs, mHealth in poor countries is often tackling the much more basic question of access. And deeply embedded in the question of access are a number of financial hurdles. mMoney might be well-placed to help. Basic payment functionality is often missing or incomplete in emerging markets. By plugging the gaps, mobile money could help with some very basic issues, like reducing absenteeism from nurses and doctors traveling to pick up their pay. Or it could enable completely new opportunities, like telemedicine.

But perhaps most of all, many poor people forgo treatment altogether or severely ration it simply because they do not have insurance and find it hard to save up for emergencies. In Kenya, 85% of women want to give birth in a formal clinic, but only 44% do so. The number one reason cited by women is the difficulty of accumulating the US$ 40 needed to pay. In other words, poor access to financial services is a big part of why there is a healthcare access problem.

Branchless banking is in a state of creative chaos. The impressive growth of a few pioneers like M-PESA in Kenya has demonstrated the potential, yet most providers are still pushing to achieve success in their own market.

We suspect a big part of the problem is located in the supply chain: by this, we mean agents. At its core, branchless banking is about having cash when and where customers want it: agents are the crucial link for cash conversion. Agents also verify client identity and protect against fraud. Agents are also literally the face of the service when clients have a problem that needs resolution.

CGAP’s Agent Management Toolkit aims to demystify the process of building a viable agent network. The toolkit is based on more than a year of research that yielded data on more than 16,000 agents with institutions in Brazil (Banco do Brasil and Banco Postal), India (EKO and FINO), and Kenya (M-PESA). CGAP conducted in-depth, in-person interviews with 466 agents, agent network managers and providers.

Here are a few highlights:

• Even the most successful branchless banking services have not yet proven the long-term business case for agents. In Kenya, smaller stores that comprise the bulk of M-PESA’s 21,000 agents saw their profits go down from more than US$ 5/day to less than US$ 4/day, largely due to growth in the number of agents outstripping growth in the number of transactions processed in the system. The ratio of transactions to agents is one of the 9 drivers of agent profitability discussed in the toolkit.
• Agent network managers (ANMs) are an oft-overlooked link in the supply chain. CGAP talked to a dozen to understand their business case. Increasingly, ANMs like EKO and FINO – and not banks or MNOs – are at the center of conceptualizing a branchless banking service and driving it to success.
• The branchless banking service must generate sufficient revenue to support all of the companies in the supply chain: the majority of services do not meet this test (yet). The toolkit includes a detailed analysis of the financials of M-PESA (Kenya) and an excel financial model readers can use to test their own business case.
• Too many providers leap straight to the operational nuts and bolts. Only after pinning down the supply chain economics should a provider dive into identifying, selecting and managing agents. Part 2 tackles these topics and the annexes include examples of contracts, commission structures, and other useful documents.

Over the next 2 weeks, CGAP’s Technology Program Blog will host a series of 4 blog posts detailing each of these points. Check back often, and in the meantime download the toolkit in its entirety, the financial model or browse the first sections of the toolkit whose highlights are on the website: 1) Overview of Branchless Banking Agents and 2) the Agent Business Case.