That number looks poised to rise dramatically, however, as more governments adopt electronic payment programs in an effort to cut costs, reduce fraud, and promote inclusion in the banking system.

In Brazil, the Ministry of Social Development is in the process of migrating 12 million recipients of Bolsa Familia, the financial aid program that represents a quarter of Brazilian families, away from an electronic benefit card and towards the option of a simplified account. In Russia, Argentina and South Africa, benefits recipients can use debit cards to collect and spend government payments, and, in some cases, to access banking services.

These are all welcome developments for proponents of financial inclusion, as access to bank accounts helps poor people to save, build assets, and cover emergency expenses. Nonetheless, providers of electronic benefit payment programs still face challenges that, left unaddressed, could stymie efforts to expand access to financial services. One issue is that banks and governments have not yet determined the full expenses associated with operating electronic payment programs. Another lingering question is whether benefits recipients will continue to access financial services if they are no longer receiving government payments.

Over the course of three days (November 18-20), participants will share their experiences and insights and discuss how to respond to upcoming challenges. The Virtual Conference will focus on microfinance institutions and their clients, and on donors and investors.

To register for this conference, please click here, or copy and paste the following URL in a new browser window: http://nutshellurl.com/24c.

Ahead of the conference, we encourage all participants to complete a short survey to help guide our discussion. Results will be compiled and shared with all participants during the conference.

Vodafone has been expanding its operations in emerging markets. Safaricom, Vodafone’s network operator in Kenya, M-PESA was launched 18 months ago. Since this time, it has reached nearly four million people in a country with a population of 31 million people where just 5 million people have bank accounts.

Nick presented three key aspects of the M-PESA model….

M-PESA offers a very simple and secure customer proposition. Simple: The product that Vodafone piloted prior to formally launching M-PESA looked very different from the one they now offer to customers. This former product was much more complex, including features such as group lending models, group products, and treasurer accounts. During the pilot, they learned that much of this complexity had to be stripped away to meet a very specific, narrow demand from the customer: person to person money transfers.

In addition, the user experience has been simplified. There are no signing-up fees and no minimum balances to confuse the customer with hidden fees or conditions. M-PESA’s user interface is intuitive. It works on very basic handsets, and does not require a smart phone. Since 90% of the mobile phones in the Kenyan market are not smart phones, it was imperative that M-PESA work on the simple devices that customers already had.

Simply put, Vodafone has taken the business proposition which they know best, namely pay-as-you-go, high-volume mobile transactions, and has introduced this into the financial services space through the simple payment service of M-PESA.

Secure: Vodafone has also established a secure system that gives customers a sense of confidence. Transactions are completed within 15-30 seconds and customers receive an SMS confirmation that the money has been sent. Vodafone has a back-office system that tracks every transaction and makes it possible to correct any errors and respond to customer concerns. The entire platform is data-rich and transactions leave a long paper trail making the platform an unconducive place for money launderers to operate. Overall, M-PESA has high visibility and Vodafone realizes that trust must be at the heart of their business model.

M-PESA reaches customers through its network of agents. Safaricom has leveraged its existing retail distribution channels to serve as cash-in and cash-out points for M-PESA customers. In addition to this network, it has also signed up other retail stores that wish to include M-PESA services in their product offerings. Vodafone has properly aligned the incentives for these agents to participate, mainly through its commission payments for transactions, but also through benefits such as the increased foot traffic into their stores. With over 3,500 agents throughout the country, M-PESA’s presence has expanded into rural areas, increasing customer adoption.

During the Q&A discussion, a participant asked a question regarding the challenge for agents to manage their cash flow since deposits and withdrawals often do not match. Nick said that one initiative that addresses this problem establishes partnerships with those institutions that are receiving many of the payments in the village. Since customers tend to convert their M-PESA credit into cash to pay school fees, for example, the cash conversion can be avoided by enabling the schools to accept electronic school fee payments directly into a fund. Nick recognized, however, that there will always be operational challenges like these to confront.

M-PESA had the support of the Kenyan central bank from the start. According to Nick, the Kenyan central bank was open to discussions with Vodafone concerning its M-PESA project from the very beginning. Unlike some central banks in other countries, Kenya was willing to see how this new innovation would evolve. The central bank also liked the fact that Vodafone would not invest customer funds that were placed in M-PESA electronic wallets. Instead, Vodafone established a holding company that owns the accounts such that the float remains the property of the customers at all times. Because Vodafone did not become a deposit-taking institution, the central bank was more comfortable with its activities.

These three points summarize the broad lessons that Nick Hughes shared during his talk. There are many more details of M-PESA’s operations that were discussed, which you can view on the webcast archive. In conclusion, Nick stressed the point that M-PESA has been transformational because the technology itself is not what is driving the success. Instead, customer adoption and usage drive M-PESA and its use of technology.

Mobile Banking for Poor People: Pioneer Perspectives
a CGAP roundtable and webinar

Dec. 11, 2008 | 2:00pm – 5:00pm followed by a networking reception
World Bank Headquarters, Washington DC | online at http://technology.cgap.org

Join CGAP for a lively discussion on how mobile phone banking can deliver a range of financial services to poor people and change lives for the better.

By the end of 2008, the UN says there will be four billion mobile phone connections globally. Millions of air-time resellers and retail agents in developing countries make it possible to distribute financial services at far lower cost than through traditional channels.

Yet in many ways, it is still early days for mobile phone banking. Examples of successful large-scale implementations that target poor customers, and deliver products other than payments and transfers are rare. CGAP, with support from the Bill and Melinda Gates Foundation, is working to increase the numbers of such successful m-banking projects. CGAP has provided technical advice, market research and funding to the following organizations. The goal is to increase the reach and scale of financial services for poor people worldwide.

Panelists
-Nick Hughes, Vodafone Group
-Rizza Maniego-Eala, Globe Telecom (Philippines)
-Sam Kamiti, Equity Bank (Kenya)
-Ali Abbas Sikander, Tameer Bank (Pakistan)
-Ganhuyag Ch. Hutagt, XacBank (Mongolia)
-Brian Richardson, Wizzit (South Africa)
-Maldives Monetary Authority (Maldives)

Hear real-world experiences with implementing mobile banking solutions at scale, in multiple markets, with a diverse range of clients.

Please rsvp no later than Nov. 30. To do so, please send an email with ‘rsvp’ in the subject line to technology@cgap.org.

We will confirm your participation via email.

Since posting the table, we have heard from many of you, covering a wide range of actors in the mobile banking space (both from comments on this blog and also from direct  interaction with our team). Several of you have used the pricing table to benchmark your own operations. For example, a commercial bank launching an m-banking service for low-income clients’ domestic remittances plugged in its pricing numbers to compare itself with the others. A donor has used the pricing model to analyze the offerings in the Tanzanian market, where m-banking is just taking off. If other organizations are willing to send us their pricing data, we would welcome the opportunity to expand the table for greater comparison.

Here’s a summary of what we’ve learned and what you’ve told us:

First, pricing clearly has an effect on the clients who end up using m-banking and the ways in which they use it. While this may seem quite obvious, the implications of pricing differences cannot be overstated. For example, the greatest cost for M-PESA clients is incurred when initiating a transfer. M-PESA’s pricing scheme is optimized for remittances, but not for smaller transfers like microloan payments. As a result, M-PESA is not marketing itself toward MFI clients. In contrast, GCash clients pay a 1% flat fee when they convert cash to or from electronic value. This leads us to conclude that while there is not one optimal pricing model for everyone, it may even be hard for individual providers to determine what their own optimal pricing should be. Our research shows a lot of diversity in approaches and therefore individual providers cannot simply borrow a model off the shelf. Different customer groups in different environments will warrant different pricing models. And different pricing models will impact the way m-banking is used.

Second, what interests us at CGAP is to always think of how such pricing could increase access to finance for poor, underserved people, not just the general population. We observed that many of the pricing schemes still did not cross the threshold of affordability as defined by 2% of household income. Yet as one reader commented, it is also important to not only compare prices to those of banks (as we did with our comparison to the 4 major banks in South Africa), but also to compare these prices to the non-bank alternatives that have traditionally been used, such as taxi drivers. This type of comparison may be harder to accurately carry out given the lack of concrete data sources, but the comparison would be worthwhile nonetheless.

Third, as we observed and as various comments reinforced, pricing clearly isn’t the only component driving customer uptake. If that were the case, the freemium pricing model presented by GCash should have led to record-breaking usage numbers. Instead, we must conclude that customers value other elements, such as face-to-face interaction with a banking representative. If they do value this contact, they may be forced to pay for it in many instances. For example, MTN Banking in South Africa charges 1% of the cash-out amount made at a Standard Bank branch, but has placed a minimum fee of 20 ZAR (2.58 USD). This fee is significantly higher than its other minimum fees of 3-5 ZAR for transactions made at ATMs or retail outlets.

We continue to be interested in your comments on this topic. To what extent do you think pricing affects customer uptake and based on what you know, do you think customer segmentation is happening in a way that benefits poor people?

Webcast archive:

real media video

windows media video