Archive for: CGAP

• Zain Nigeria Employing 8,000 Staff to Protect its Base Stations
• Google News launches in 9 African countries
• Banks, Cognitive Dissonance and Underserved Consumers
• FINO plans smartcards for money transfers
• Banks panic over M-Pesa, Sokotele
• Postal Payment Service Agreement to expand unbanked money transfers

• Open Standards - It’s Not Just Good for the Internet
• Getting ready for chip and PIN
• HP, Intel, Yahoo Join Government, Academia In Cloud Computing Research
• What If Obopay Cannot Provide An API?
• Grameen, Bakrie, Qualcomm enable telecom access in Indonesia
• Visa Says Money Transfer Service Gaining Global Adoption

• Pakistan: PM briefed on SBP’s initiatives on agri credit
• Absa launches new prepaid debit card
• Bangladesh’s Grameenphone to raise 300 mln dollar IPO
• Is Barclay’s Hello Money secure?
• MasterCard to Enable P-to-P Mobile Payments by Cell Phone

Thanks to our colleagues at IFC for looking after this great summary of last May’s Mobile Money Summit in Cairo. Excerpt:

As GSMA CEO Robert G. Conway stated in his opening remarks, “The ubiquity and convenience of the mobile phone is bringing new value, opportunities that no one foresaw before in the delivery of financial services.” For businesses, the opportunities include reaching vast numbers of new customers and providing better service to existing customers. For customers, the opportunities include increased affordability, convenience, and security. The mobile phone may even open access to financial services for many who are currently excluded from the market altogether – the majority of the population in many developing countries. “

Related: Mobile Banking Needs Standardized Innovation

Why do so few people have accounts with formal institutions? One key constraint is the sheer cost to banks of building and maintaining branch networks to reach dispersed or low-income populations.

On July 22 at a CGAP lunchtime event in Washington, Ignacio Mas talked about how networks of agents can be used to optimize access for poor clients, basing his presentation on the recent CGAP Focus Note “Banking Through Networks of Retail Agents.” He began the discussion by drawing an analogy with Coca-Cola. Why is Coke sold in every tiny village around the world, while financial services are not? The obvious response is that Coke leverages retail stores in these locations to distribute and sell its product on its behalf. In a similar way, the logic of branchless banking as a low-cost transactional channel is to use existing retail infrastructure to provide financial services everywhere, literally. By deploying technology that already exists in SIM cards and mobile telephones, transactions can be made at retail agents that then clear with a customer’s bank.

There are various objectives of agent networks from a bank’s perspective. They can be used to simply offload transactions from branches; they can target a different customer profile such as low-income people; they can serve as a branch substitute to extend geographic coverage; and finally they can serve as a branchless banking mechanism to minimize fixed costs and accelerate scale.

Globally, the use of banking agents is still in its early stages. Brazil is a leader with about 55,000 agents nationwide, followed by South Africa with 6,500 agents. In all, fewer than a dozen countries have begun using retail agents for banking services.

This low uptake may be explained by the three biggest challenges with branchless banking. First, the “perfect” business model is still being worked out. How can agents be sufficiently incentivized to carry out cash transactions? How can transaction volume, which has so far been quite low, be increased? Second, while most banks do not seem very interested in using agent networks to cater to new customer segments, most microfinance institutions do not have the capacity to take advantage of technology-based channels. Third, branchless banking presents new challenges in regards to regulation.

None of these challenges are insurmountable. With a bit of innovation and creativity, the potential for banking through networks of retail agents remains strong.

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.

Early movers with a disruptive business model can afford to be picky about the segments they address. Emboldened by a dramatic cost advantage over established players, they are able to focus on the most attractive customer segments. As long as these constitute a sufficiently large pool of people to meet their growth aspirations, they have little incentive to expand into others. They will concentrate on building defensive barriers through scale (growing quickly) and depth of retail network, rather than on expanding into new segments and service offerings. Thus it is, as explained above, that early branchless banking projects have not addressed the currently unserved population.

However, the benefits of the cost advantage will be eroded overtime as their own success induces new entrants or the adaptation of existing players to the new cost structure. With greater competition, the focus of new entrants will be on expanding the market so as to avoid head-to-head competition for market share with early movers who will have secured a strong position through scale. Hence, we can expect targeting of currently unserved customers to come not with the innovation but with the competition phase of branchless banking.

One should not underestimate the market-transforming potential of solutions that cut the cost of service provision at least 50 percent or so. What is less clear is how long it will take for the competitive dynamics to play out for the benefit of currently underserved populations.

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.
The opportunities presented by branchless banking in broadening access to banking services across the population are limited by two factors. First, assembling a proprietary retail network of agents is time consuming and implicates financial service providers in agency operational risks they may find difficult to manage. Second, because customers are able to convert their savings to/from cash only at designated agents, financial service providers are generally compelled to support the liquidity position of their agents, which exposes them to additional credit risks. Indeed, proprietary agent networks continue imposing a significant burden on banks that want to expand.

The alternative is to develop branchless banking models based on shared agent networks. This would allow financial service providers to be “liberated” from location constraints and able to compete for customers anywhere purely on the basis of product design, marketing, and branding. And rather than rely only on exclusive agents to handle customer liquidity needs, the liquidity at all agents in a given location would be pooled to serve any customer and, hence, can be used most effectively and with minimal credit support.

Without this added layer of benefits underpinning the branchless banking model, providers are not likely to find branchless banking viable, particularly in rural areas where agents are few and cash transportation is costly. Making this a possibility will require changes in bank regulation, industry business models, and commercial strategies by individual financial service providers.

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.
Two thorny problems for bankers and regulators considering branchless banking have been to ensure that customers are not defrauded by agents and that agents have sufficient cash on hand when customers want to make withdrawals. The concern is that customers will mistrust the financial institution and even lose confidence in the banking system if they are victims of fraud or if they cannot get money out of the agent.

But preliminary unpublished ethnographic research in Kenya on M-Pesa suggests that customers will do neither: in several instances, M-Pesa customers continued to use agents for cash withdrawals that earlier had insufficient cash to dispense. Anecdotal evidence suggests that customers’ trust of Safaricom, the entity ultimately holding customers’ funds, is what is leading them to continue using these agents.

Although the evidence on how customers respond to cash shortfalls at agents is limited, by and large customers seem to appreciate there is no guarantee of cash availability. Indeed, the agent’s key role is less about maintaining large cash balances to meet all eventualities, as much as undertaking trips to the bank on behalf of customers when liquidity runs out. Customers will understand that when cash runs out at an agent, all it requires is a trip by the agent to the bank to get more. And now only one person need make that trip rather than each customer of the bank. The open questions are how many trips to the branch will be required, and will agents be paid enough through commissions to make those trips. Also, how can cash be balanced to reduce the time between these trips in places far away from bank branches? In the end, branchless banking through agents may not be a solution for very remote locations until the predominance of cash is replaced by a predominance of electronic payments and transfers.

We are still looking into how much customers save by making branchless banking transactions. But overall, poor and unbanked customers, in particular, have been accustomed to skipping work and traveling hours to open a bank account or make a withdrawal, and receiving altogether abysmal service from many of the formal financial services poor people use. In this context, local banking agents are well-known community members bringing low-cost, hitherto unavailable services to places where no services—utilities, mobile phone coverage, government services—work reliably.

Information technology can help microfinance institutions reduce costs, improve efficiency, and increase outreach. So why do so many MFIs either end up sinking funds into poor technology investments or simply not investing in technology at all? We’re conducting a survey to find out, and we’d like your input. The survey results will help MFIs understand their strengths and weaknesses relative to other MFIs and will identify opportunities for vendors, donors, investors, and MFIs in the microfinance technology market.

Whether you’re in a small MFI with just a few dozen clients, or a big organization, your responses will help build a picture and create greater awareness of what’s going on around information technology for the industry. To be eligible for the raffle to win up to $15,000 in free consulting services, please take part before our deadline of September 15, 2008. The survey is available both online and offline in English, French, and Spanish, and offline in Arabic. Thanks for your help.

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