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Branchless Banking 101
 

Branchless Banking 101

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Sarah Rotman of CGAP was kind enough to present on the basics of branchless banking to NetHope's Payment Innovations Working Group in March 2012, which is open to all NetHope members. Please contact ...

Sarah Rotman of CGAP was kind enough to present on the basics of branchless banking to NetHope's Payment Innovations Working Group in March 2012, which is open to all NetHope members. Please contact hamilton.mcnutt@nethope.org for more information.

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    Branchless Banking 101 Branchless Banking 101 Presentation Transcript

    • Branchless Banking 101:Technology & Business Model Innovationin Financial InclusionSarah RotmanMarch 29, 2012
    • Agenda1. The basis of branchless banking2.  The state of the industry3.  Areas of focus moving forward4.  Q&A: of Role NGOs 2
    • What are the factors that limit access? Long  distances  &  low  pop  density   High  bank  costs  rela7ve  to  income   Low  educa7on  &  illiteracy   Poor  product/  channel  design   3
    • Financial inclusion requires scale and presence•  Traditional banks havescale, but lackpresence in the placeswhere poor people live.•  MFIs have a presencein poor communities,but lack the scale. 4
    • Achieving scale and presence with technology Reducing Channel Cost of Banking Infrastructure $250k Traditional branch $50k In-store branch $10k ATM $2k Agent with POS terminal $400 Agent with mobile1.7 billion people worldwide have a mobile phone but no bank account. $0k No agent (cashless) 5
    • Branchless Banking: What do we mean? Branchless banking makes financial services available outside of traditional bank branches through the use of available technologies: cell phones, magnetic stripe or chip cards, and biometric applications. These new business models rely on a widespread network of agents, often retail locations, where customers can go to transact. Agent   Client  MNO  Bank   6
    • Branchless Banking: Cash-in Bank   Agent  opens   bank  account   Client  opens   1 (accessible  by   1 bank  account   (accessible  by   mobile  phone)   mobile  phone)     4 - Agent  account  debited   + Client  account  credited     2 Cash-­‐in   Agent   Client   Electronic   3 value  sent   7
    • Agenda1. The basis of branchless banking2.  The state of the industry3.  Areas of focus moving forward4.  Q&A: Role of NGOs 8
    • Mobile penetration Mobile ownership has boomed in poor countries since 2000 High-­‐income  countries   Low-­‐income  countries   5.0   4.5   4.0   3.5   3.0   Billions   3.3 bil unique mobile owners 2.5   2.0   1.5   1.0   1.4 bil 0.5   0.0   Sources: CGAP, Wireless Intelligence 9
    • Mobile penetration vs. banking penetration But emerging market consumers are still far from well-connected financially 60%   50%   52%   40%   2x   30%   20%   26%   10%   0%   People  who  have  a  mobile   People  with  bank  account   Sources: CGAP, Wireless Intelligence 10
    • Provider costs Branchless channels can slash provider costs, enabling them to reach new clients $1.00   Average cost per withdrawal transaction for 4 Mexican and Colombian $0.80    $0.88     banks 51%   $0.60   $0.40    $0.43     $0.20   $0.00   Source: CGAP analysis Teller  window   Agent   11
    • Customer costs Still room to experiment with pricing to drive initial uptake, intensive use 50%   40%   30%   Axis  Title   Branchless  banking  38%   cheaper,  on  average   20%   10%   0%   $0   $100   $200   $300   $400   Axis  Title   BB  Price  as  %  of  PPP  of  value  transferred   Bank  Price  as  %  of  PPP  of  value  transferred   Source: CGAP analysis; PPP=purchasing power parity 12
    • Regulation Regulatory openness and certainty is increasing for branchless banking 50%   40%   30%   40%   36%   20%   10%   0%   Countries  permiRng  banks  to  contract  agents   Countries  making  reforms  to  branchless   Source: CGAP Financial Access (2010, 2009) banking  regulaRon   13
    • Business model is complex Spread of 2 to 11 years to achieve major revenue (3 African MNOs with major mobile money services) MNO  1   MNO  2   MNO  3   0   2   4   6   8   10   12   Years  to  pass  SMS  revenue   Years  to  deliver  10%  of  revenue   Source: CGAP analysis, company financial statements 2009 & 2010 14
    • Customer insight is critical Understand customer pain points moving money over time, not just distance 100%   $120   90%   $100   80%    $113     70%   $80   60%   50%   $60   40%   $40   30%   20%   27%   $20   10%   0%   $0   Sources: BFA and CGAP Lost  money  via  informal  instruments   Avg.  amount  lost   15
    • Agent management is local But a universal requirement is understanding the agent’s business case Vincent Denise Hasita KENYA BRAZIL INDIA $4.11 $0.32 $0.91 Source: CGAP analysis Daily Agent Profits (USD) Source: CGAP analysis 16
    • Agenda1. The basis of branchless banking2.  The state of the industry3.  Areas of focus moving forward4.  Q&A: Role of NGOs 17
    • Key areas on learning agenda 1. Consumer Insight & Product Innovation 2. Business Models Ø  Agents Ø  Activating Customers 3. Government-to-Person Payments (G2P) 4. Policy & Regulation 5. Interoperation 6. Market Ecosystem International Remittances 18
    • Consumers: Mobile money use by the poor Kenya: Broad adoption across all levels of the population 19 Source: Jack & Suri, 2012; http://www.slate.com/blogs/future_tense/2012/02/27/m_pesa_ict4d_and_mobile_banking_for_the_poor_.html
    • Consumers: Improvements in user experienceDistribution of transactions at a Mexican Bank’s affiliated agents by day of the week and hour1Percent of total transactions within a sample of agents Business hours at branch network Mon Tue Wed 1.2% 40.2% 36.0% Thu Fri Sat 22.6% Sun 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Business hours at Agent Partner 1.  Based on sample of 3,961 transactions 20
    • Innovation: Over 20 financial institutions linked to M-PESAMicrofinance Start-upsBanks Insurance Companies Commercial Banks 21
    • Activation: Majority of registered customers are notactively transacting Most branchless banking providers struggle with high rates of inactive customers 140 120 120 100 80 While 120 branchless banking 60 implementations have 1 in 6 been launched since 1 in 11 2007 only 11 of those 40 21 have reached 200k 20 11 active users 0 Implementations launched after Implementations with >1 million "Confirmed" implementations 2007 registered with >200k active usersIn a CGAP survey, 64% of managers said less than 30% of their registered customers wereactive, and active rates of less than 10% are not uncommon 22 Source: CGAP and Coffey International, data as of Q1 2012.
    • G2P: Changes over time towards electronic payments 23Source: CGAP Research
    • Regulation: Agent liability •  Kenya:  mobile  network   operator  expressly   disavows  liability  for  the   agent  but          .  .  .  since  May  2010,   banks  are  liable  for  their   agents       •  Brazil:  banks  legally  liable   for  agents       24
    • Interoperability: Three levels Branchless banking services can be connected or un-connected at three different levels: 1 Platforms 2 Agents 3 CustomerCustomers of one account can send money to Agents of one service serve Customers can access their customers of another account customers of another service account through any SIM (cross-network, not off-network transactions) 3 1 2 25
    • Agenda1. The basis of branchless banking2.  The state of the industry3.  Areas of focus moving forward4.  Q&A: Role of NGOs 26
    • Advancing financial access for the world’s poor www.cgap.org www.microfinancegateway.org