Archive for: Publications

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

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.

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.

In developed countries, bank customers have access to several channels, each supporting a range of services. Bank cards offer convenient cash dispensing where ATM deployment is widespread. The Internet offers convenient access to more complex bill paying or remittance services. Checks can be deposited by mail. Telephone banking provides instant access to account balances and recent transaction histories. Customers also can do all of this with a more personal, higher touch service at a branch. Therefore, mobile banking struggles to achieve customer relevance, beyond simple informational services (e.g., balance inquiry), notifications (SMS alerts), and, once phones have “contactless” card capabilities, micropayments for public transport or vending machines.

The situation is, a priori, very different in developing countries, where there is less deployed infrastructure (fewer branches, ATMs generally co-located to relieve branches, low broadband penetration). For many customers in these countries, the mobile channel with banking agent sin principle could offer a much clearer convenience advantage over alternatives (travel and queuing at branches or cash-based savings). Hence, there is more reason to believe that mobile banking will find more than a niche application and could, in fact, become the primary banking channel for large segments of the population. For this to happen, some of the key uncertainties mentioned earlier would need to be resolved favorably.

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.

Know your customer (KYC) requirements on financial institutions have received increasing attention by governments in their anti-money laundering and combating the financing of terrorism (AML/CFT) initiatives. AML/CFT regulations introduce specific obligations on account opening, including, at the very least, checking the customer’s identity. This poses a particular challenge to branchless banking for two reasons. First, the absence of branches means that banks need to find alternative ways of conducting face-to-face interviews or identity checks, where those are required. Regulations may allow banks to “outsource” this function to a third party (perhaps the cash-in/cash-out agents) , but it remains the bank’s responsibility to ensure KYC procedures are performed adequately. In the Philippines, the growth of rural agent networks has been limited because all agents need to take a Central Bank-supervised training course in Manila before they are allowed to operate. Many agents find this required training to be too costly and disruptive. Second, to the extent that branchless banking targets poorer and more remote customers, it may be more difficult for these customers to show proof of identity at all.

On the other hand, AML/CFT risks associated with branchless banking initiatives can be mitigated by capping account sizes, account functionality, and transaction volumes. As governments’ interest in access to finance grows, they are becoming increasingly pragmatic about KYC requirements, allowing for simplified procedures where risk is limited. In South Africa, the Reserve Bank permits remote account opening for certain types of accounts; this has allowed WIZZIT to undertake KYC procedures through a network of roving “WIZZkids”—often previously unemployed youths.

For branchless banking to develop, governments need to continue to work with providers to find flexible solutions that meet policy and business requirements. It is unlikely that there will be a one-size-fits-all solution. Instead, governments will need to be responsive to proposals coming from providers and to evaluate these proposals based on the risks involved.

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.

Mobile banking raises security concerns. In principle, security concerns over mobile banking are more manage able than that of Internet banking, because they happen on a more trusted—or at least a more tightly controlled—network. On the other hand, security concerns over mobile banking are bigger than for traditional ATM or POS devices, which are more directly specified and controlled by the provider.

We still do not know the tolerance threshold for errors and fraud for both users and providers in the mobile banking context. Because the mobile banking service is intangible, it is likely that customers will react negatively to (real or perceived) security risks of mobile banking more quickly than to the risk of loss or theft of physical cash. We suspect that customers will not be very tolerant of security lapses, and therefore the security track record must be impeccable.

Security can always be tightened, but that often results in higher demands on the user (more complicated password procedures) or a less favorable customer experience (reentry of PINs, SIM swap). We do not know the extent to which the benefits of mobile banking will be sufficiently appealing to cause customers to put up with increasingly frustrating security measures or, indeed, to develop a higher tolerance for errors or fraud. The industry will need to find ways to offer sufficient security to manage risk.

Of fraud or violation of privacy, without making what is already a precarious customer experience (because of very limited user interface capabilities of mobile phones) a hopelessly frustrating one.

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.

In principle, one would expect open, interoperable payments platforms to be easier to market and more successful than closed ones. Some early ventures have indeed tried to work seamlessly with existing systems, offering bank cards alongside mobile phone capability (SmartMoney, WIZZIT).

Yet other ventures have involved closed systems, through which users can transfer funds only to other members of the “club” (G-Cash, M-Pesa). Promoters of closed systems may be able to seize time-to-market advantages by not having to engage in lengthy negotiations with partners. Particularly in a context where many customers may not trust financial institutions to begin with, creating a vertically integrated end-to-end model maybe a reasonable market entry strategy rather than outsourcing key functions, such as cash handling or sales and marketing, to third-party agents or even large retail chains.

But whatever market entry strategies are used, in the long run customers will benefit more and pay less if interoperable networks allow them to transact with anyone, at any time.

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.
MFI loan officers who visit customers periodically, as well as tellers and representatives at bank branches, are likely to provide greater personal service than branchless banking at an agent or through a mobile phone. The informal financial service providers that many poor people use are also largely founded on human interaction and personal or community relationships.

In a survey CGAP conducted in South Africa, roughly half of those surveyed said they preferred to deal face-to-face with a person rather than with an electronic device, even if the device is quicker. Interestingly, the responses were similar between WIZZIT customers and people who have a mobile phone but do not use it to conduct transactions.

Despite being satisfied with the mobile banking service, users still missed the human touch. Customer research conducted in South Africa pointed at a likely reason for this: having to deal with machine interfaces undermines people’s sense of control over the process. Indeed, a larger proportion of WIZZIT customers than nonmobile-enabled bank customers felt that they had insufficient control over their finances. Similarly, in one anecdote from South Africa, customers using ATMs for the first time checked their balances so frequently that they lost their entire balances to ATM fees.

The same research in South Africa also highlights the need to improve customer awareness of branchless banking and to educate customers about how it works and what it costs. Not understanding the technology is the single most frequent reason given for WIZZIT customers who have stopped using the service. Nonusers thought the cost of the service was on average 14 times more expensive than it really is.

These results demonstrate the importance of marketing and of balancing technology with human interfaces, both to improve awareness and understanding, as well as to improve perceptions of the service. Achieving this through a branchless model will be a challenge.

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.

Having examined several branchless banking ventures around the world, it appears that less than 10 percent of all branchless banking customers are poor, and new to banking, and are using these channels for financial services (or activities other than paying bills, purchasing air time, or withdrawing government cash benefits). In its study in Pernambuco (a particularly poor state in Brazil), CGAP found that only about 5 percent used a banking agent at least once a month for anything more than paying bills or receiving government payments, were previously unbanked, and were considered poor by Brazil’s standards. Similarly, of about one million mobile banking customers in South Africa, CGAP estimates that fewer than 100,000 fall below South Africa’s poverty line, did not have a bank account earlier, and now use mobile banking for more than payments or transfers. And in Colombia, typical cash transactions through agents are in the range of US$100–200, which suggests that they are not being used by the poorest.

While disappointing to organizations that aim to expand access to finance, this is a fairly natural outcome in the early stages of development of a market following a major innovation. Providers experimenting with a new technology or business model typically seek to reduce risk by focusing on known markets (avoiding the “double gamble” of new business model and new customer segments), and within those on likely “early adopter” subsegments (i.e., those more naturally predisposed to try the new offering).

Indeed, a provider that focuses branchless banking on customer segments it already understands and knows how to market to will find it easier to try out services, assess customer and service profitability, and tailor propositions and market communications messages. For instance, in the Philippines, SMART and Globe Telecom originally advertised their mobile banking services mainly to up-market consumers. SMART combined its mobile prepaid account with a Maestro debit card that can be used at any store that accepts a traditional debitor credit card. SMART’s customer base at year-end 2006 mainly included segments it knew well: four million subscribers had signed up for SmartMoney, and of the 900,000 active users, nearly all were businesses distributing SMART’s prepaid air time.12

Globe Telecom’s GXI Inc., which offers the G-Cash mobile wallet service, estimates that nearly all of its 500,000 active users are individual subscribers in urban areas.13 In fact, the company moved beyond the pilot phase of registering outlets to accept or dispense G-Cash in rural are as late as early 2007. To date, just over 100 agents are registered in rural provinces, compared to the 3,000 air time resellers that Globe Telecom has signed up nationwide directly and the 700,000 airtime resellers hat buy and resell Globe air time.

Most customers are also just dipping their toes in the water. In 2006, CGAP conducted a survey of 515 people in areas served by WIZZIT. Even within the more directly enabled markets—among people who have both a mobile phone and a bank account—the study found, not surprisingly, that those who took up WIZZIT’s mobile banking service on average had a higher income and higher education levels and were more often formally employed, urban, and older. Early adopters were, in general, customers with more sophisticated banking requirements.

That poor people are not usually early adopters of technology can be explained by personal experience (they are likely to have had less exposure to technology and have less access to information about new offerings) as well as the fact that they are less attractive to providers.

This makes the job of governments and donors who are targeting poor people with financial services much harder. Government programs in India, Russia, Malawi, South Africa, and Brazil distribute social protection payments to customers through branchless banking channels. These have been found successful at opening bank accounts for millions of poor customers in some cases (notably Brazil), but have not led to regular use of those accounts to spread expenditure over time—balances tend to be withdrawn in full as soon as payments are received. More research is needed on how poor and excluded clients view their relationship with banking agents and their willingness to trust providers.