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Technology In Microfinance   June 30 2009
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Technology In Microfinance June 30 2009






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  • -still going upwards. Same pioneers. Though cgap/gsma survey of industry says 120+ implementations coming by end of 2009.
  • …are we climbing towards the peak?
  • Mobile Banking in Tanzania: Can Kenya’s success be replicated next door? Introduction  The web is full of stories singing the praises of Safaricom’s M-PESA which allows Kenyans to safely and cheaply send money to family and friends throughout the country through a mobile wallet. Safaricom would be the first to admit that they were even surprised by the rapid uptake and overwhelming numbers of Kenyans, both banked and unbanked, who have flocked to the sign up for M-PESA. Next door in Tanzania, M-PESA has been in the market for over a year. Yet media stories about this service have not been filling the blogs like its neighbor to the north. The mobile banking landscape in Tanzania is actually quite different from that of Kenya.  With no fewer than three mobile network operators (MNOs) angling to tap into the market for mobile banking, the development of a mobile payments system is certainly up and running in Tanzania. CGAP recently visited the country to see just what’s happening on the ground, not only in terms of how Tanzania’s new M-PESA service is faring compared to Kenya’s M-PESA, but more importantly how it compares to the other mobile payments services with which it competes in the Tanzanian market.  Vodacom’s M-PESA Vodacom is the leading MNO in Tanzania with 39% market share as of Q1 2009. It launched M-PESA in April 2008, and one year later is has approximately 280,000 users with 2,500 new registrations per day. In May 2009, customers carried out 200,000 M-PESA transactions totaling 5.7 million USD (7.5 billion TZS) in value. M-PESA agents now number 930, of which 900 are independent stores and 30 are Vodashops.  But perhaps the easiest way to become more acquainted with M-PESA in Tanzania is to compare it to its counterpart in Kenya. While most people may assume that what happened in Kenya could be easily replicated in neighboring Tanzania, there are important differences in country demographics and cultures, market structures, business models and strategic implementations that make these two cases quite distinct. And while Kenya should serve as a useful guide for other implementations around the world, a carbon copy replication is impossible, even next door.  Kenya vs. Tanzania Geography and culture Tanzania is almost twice the size of Kenya and less densely populated (43 people/km2 vs. 66 people/km2). It only has three main urban centers: Dar es Salaam, Arusha and Mwanza, which are significantly smaller than the three main urban centers in Kenya: Nairobi, Mombasa and Kisumu. In addition, Tanzania’s population is spread thinly around the interior of the country. These geographic differences mean that in some respects Kenya’s geography lends itself much more readily to establishing agent networks than Tanzania’s. And as we have seen in implementations all over the world, agent networks must work in order for a mobile payment product to take off. While both Kenya and Tanzania have largely similar ethnic communities, some interesting cultural differences exist between the two societies. Tanzania became a socialist country after its independence under its first President, Julius Nyerere. As a result, there is a stronger culture of social cohesion and support among families and communities and more expectations of assistance from the government. Money transfer services have traditionally been delivered more at the social level. For example, in addition to the bus transfer system that is also present in Kenya, people use friends and the church network in Tanzania to send money to family members. Not only is this a secure money transfer service, it is also free. This last point reconfirms the importance of any provider, whether bank, operator or 3rd party, to fully understand the alternative means people have at their disposal to transfer money.   Market and competition  Another critical difference between the two markets is that Vodacom is not nearly as dominant in the Tanzanian market as Safaricom is in Kenya; its market share is 39 percent in 2009 (down from 45 percent in 2008), whereas Safaricom holds 79% market share as of Q1 2009. When M-PESA Kenya launched, most of the potential market for mobile payments already subscribed to Safaricom. And in terms of sheer numbers, Vodacom has far fewer subscribers than Safaricom: 5.2 million vs. 12.5 million.  The competitive landscape is also quite distinct. When M-PESA Kenya launched, it did not have any other competitors in the market. In Tanzania, on the other hand, M-PESA is facing stiff competition: two other mobile payments systems have launched within the last year. While one could argue that more products in the market could help familiarize clients with a new service like mobile payments, it nonetheless makes the market conditions for success very different. The first product, and M-PESA’s toughest competition, is offered by Zain, the second-largest mobile operator in Tanzania after Vodacom. Launched simultaneously in Tanzania and Kenya in February 2009, Zain’s new Zap product aims to link micropayments to merchants, thereby circumventing the need to convert money into cash. As DeogratiasTarimo, Product Manager at Zain explains, “the Zap product intends to remove the cash flow from the village to the city and back to the village by going directly to merchants.”  The second product, Z-PESA, is offered by Zantel, the fourth operator in Tanzania. Like M-PESA, Z-PESA got off to a rocky start when it launched in April 2008. But Zantel is currently re-evaluating its strategy, and is by no means out of the picture.   Agent networks The agent network is one of the most critical elements of any mobile banking implementation. If the places where final cash conversion takes place are not convenient to customers, uptake will not follow. If an agent does not understand the potential profit he could earn from offering a product like M-PESA, he will not sign up. Usually, MNOs are seen to have an advantage over banks in establishing large agent networks since they already have a distribution network in place for airtime. Yet the way in which different MNOs manage their airtime distribution networks can vary a great deal, and this can subsequently affect the way in which they leverage the network for an m-payments service.  Like most operators, Vodacom works directly with the wholesalers of its airtime. Vodacom currently has relationships with six such dealers, whereas Safaricom has roughly 300 such relationships. What this means is that Safaricom had more points of direct control within the distribution channels for the purposes of presenting and offering M-PESA as a new product line. Vodacom only had six such contacts. Perhaps as a result, Vodacom has not had the same opportunity to directly transform its airtime resellers into M-PESA agents, and has had to be more involved in directly signing up agents outside of its airtime network. Regardless of the degree of direct contact an operator has with its wholesalers, the question will always come back to agent commissions and agent liquidity management costs. Vodacom admits that they underestimated the costs incurred by new M-PESA agents. These costs include traveling long distances to deposit cash into the M-PESA bank account and the costs incurred to bank cash. Just to qualify as an agent, certain financial requirements have to be met. Vodacom requires start-up capital (in the form of e-money float) of 745 USD (1 million TZS). To put this is perspective, the GNI per capita in Tanzania is estimated by the World Bank to be 400 USD as of 2007. (We will add similar data here from Kenya for comparison.) In response, Vodacom has recently increased its commissions to agents, specifically giving higher commissions for new client registration. Average gross commission is now 0.6% for withdrawals and 0.4% for deposits and transfers. Agents receive 500 TZS per registration, with a bonus of 1,500 TZS (1.13 USD) if the registration is followed by a deposit exceeding 2,000 TZS (1.51 USD). For customers who use M-PESA to recharge airtime, agents receive 5% per transaction. Also, agents can now opt to have commissions immediately paid into their float account, thereby receiving their commission within a few days (as opposed to up to one or two months as it was structured previously). This adjustment makes them more competitive with Zain where Zap agents receive commissions immediately after each transaction.   Marketing & Strategy Unfortunately, Vodacom’s initial marketing campaign in Tanzania seemed to target the wrong audience by featuring situations that were foreign to most Tanzanians. For example, one advertisement showed images of people buying textbooks in city bookstores. In contrast, Kenyan ads featured urban workers sending money to their families back on the farm. As a result, M-PESA Tanzania has been perceived as a service for the upper class.  In response, Vodacom has adjusted its marketing to make it more relevant to the average customer, focusing the campaign on being more educational and highlighting cases where “M-PESA is easy, affordable and for everyone”. There are other differences in the strategic approach taken by Vodacom vs. Safaricom. For example, M-PESA in Tanzania is a USSD-based application whereas M-PESA in Kenya uses SIM Application Toolkit (STK). While they both have their advantages and disadvantages, STK is known to be easier to maneuver, an especially important characteristic when targeting an often illiterate customer base. Safaricom made quite a large investment when it first launched M-PESA by switching out all SIMs to have STK installed. Vodacom has not followed a similar approach. As we will discuss in more detail later, Zain is using STK for Zap and carrying out SIM swaps. Pricing The main difference between the pricing schemes of M-PESA in Kenya and Tanzania is the sliding scale used for transfers in Tanzania as opposed to the flat fee in Kenya. Also, the scale for transaction amounts is more segmented in Tanzania, which means that while it is more affordable for customers to send small amounts of money in Tanzania than in Kenya, it quickly scales up to prices higher than that in Kenya for larger amounts.   Prices M-PESA Kenya  Prices M-PESA Tanzania  KESUSD  TZSUSDCash-in00.00 Cash-in00.00       Cash-out   Cash-out  By registered M-PESA user:   By registered M-PESA user:  100-2,500 (1.27-31.79 USD)250.32 2,000-4,999 (1.48-3.71 USD)1500.112,501-5,000 (31.80-63.57 USD)450.57 5,000-9,999 (3.71-7.42 USD)2500.195,001-10,000 (63.59-127.15 USD)750.95 10,000-19,999 (7.42-14.85 USD)4000.3010,001-20,000 (127.16-254.29 USD)1451.84 20,000-49,999 (14.85-37.12 USD)6000.4520,001-35,000 (254.30-445.01 USD)1702.16 50,000-99,999 (37.12-74.24 USD)9000.67    100,000-199,999 (74.24-148.48 USD)1,4001.04    200,000-299,999 (148.48-222.72 USD)1,9001.41    300,000-399,999 (222.72-296.96 USD)2,9002.15    400,000-500,000 (296.96-371.20 USD)3,6002.67       By non M-PESA user00.00 By non M-PESA user00.00              P2P transfer   P2P transfer  To registered M-PESA user300.38 To registered M-PESA user      2,000-4,999 (1.48-3.71 USD)1500.11    5,000-9,999 (3.71-7.42 USD)2500.19    10,000-19,999 (7.42-14.85 USD)4000.30    20,000-49,999 (14.85-37.12 USD)6000.45    50,000-99,999 (37.12-74.24 USD)9000.67    100,000-199,999 (74.24-148.48 USD)1,4001.04    200,000-299,999 (148.48-222.72 USD)1,9001.41    300,000-399,999 (222.72-296.96 USD)2,9002.15    400,000-500,000 (296.96-371.20 USD)3,6002.67       To non M-PESA user:   To non M-PESA user:  100-2,500 (1.27-31.79 USD)750.95 2,000-4,999 (1.48-3.71 USD)6000.452,501-5,000 (31.80-63.57 USD)1001.27 5,000-9,999 (3.71-7.42 USD)1,0000.745,001-10,000 (63.59-127.15 USD)1752.23 10,000-19,999 (7.42-14.85 USD)1,6001.1910,001-20,000 (127.16-254.29 USD)3504.45 20,000-49,999 (14.85-37.12 USD)2,4001.7820,001-35,000 (254.30-445.01 USD)4005.09 50,000-99,999 (37.12-74.24 USD)3,6002.67    100,000-199,999 (74.24-148.48 USD)5,6004.16Exchange rate as of April 25, 2009   200,000-299,999 (148.48-222.72 USD)7,6005.641 USD =78.65KES 300,000-399,999 (222.72-296.96 USD)9,6007.131 USD =1347TZS 400,000-500,000 (296.96-371.20 USD)11,6008.61    2002 census: Dar es Salaam: 2,497,940; Mwanza: 476,646; Arusha: 270,485. 1999 census: Nairobi: 3.1 million; Mombasa: 891,594; Kisumu: 574,280.According to Wireless Intelligence, market share as of Q1 2009 is: Vodacom 39%, Zain 27%, Tigo 18%, Zantel 13%. This is in contrast to Q1 2008: Vodacom 45%, Zain 28%, Tigo 15%, Zantel 10%. 
  • Indian Mobile Banking Stephen RasmussenSenior Microfinance Advisor& Manager,CGAP, Microfinance and Technology Program, USA Over the past decade, far more people in India have gained access to mobile phones than to banking services. It’s estimated that more than 400 million Indians have mobile telephone connections today and from the beginning of 2009 close to 15 million new mobile users have been added every month. In just the past 6-7 years mobile phones have become trusted and accepted by a large section of society as a means to exchange of information verbally as well as through text menus and messages. The Telecommunications Regulatory Authority of India (TRAI) estimates that while more than 70% of Indians have access to mobile telephone networks, outreach to the rest is happening quickly. The formal financial system has been built over the past 150 years and by contrast reaches a smaller portion of India’s 1.15 billion people. Nationwide there are approximately 55 million bank accounts, 14 million customers of microfinance institutions, 42 million members of village-based self-help groups with links to banks, and an estimated 100+ million members of cooperatives that offer financial services. India has 850 million people who live on less than $2 per day. At the same time it is emerging as one of the world’s most influential countries. There is strong government interest in expanding financial services, an active microfinance sector, and fast-evolving business and technology sectors. India has all the ingredients for making mobile banking work: a government committed to increasing access; a central bank cognizant of the potential andthe risks posed by branchless banking models; a large, sophisticated banking sector; a dynamic and competitive mobile phone industry; and no lack of cutting-edge technology providers. In addition, the relative ease and low cost of getting connected means that mobile telephones have rapidly become more accessible to poorer people than any other service provider network. All over India mobile telephones are being used by poor and rich alike. However, the potential of mobile banking is still largely unrealized. Financial inclusion regulations put banks at center The Reserve Bank of India (RBI) has consistently expressed a strong interest to improve access to financial services for poor people. Three years ago the RBI was amongst the first regulators to issue agent (business correspondent) guidelines in an effort to create space to provide financial services outside bank branches, along the lines of what Brazil and South Africa had previously done. Since then three areas of particular concern - promoting access to finance, protecting customers, and banking sector stability - have shaped RBI’s thinking on branchless banking and mobile banking in particular. But progress has been slow so far. Despite the proliferation of business correspondent organizations that have signed on several million customers, regulatory restrictions on the BC model means that it is difficult to make it profitable. Banks largely regard the use of business correspondents as a corporate social responsibility rather than a business opportunity. As a result, no viable models for the use of business correspondents have yet emerged. Reaching out to the hundreds of millions of un-banked people with financial services does not appear to be happening. The regulator can play a greater role in expanding access by pursuing policies that both make it easier to roll out services and that provide standards to ensure mobile banking is both broadly available and secure. In general, the regulator has taken a bank-centric approach to mobile commerce. In October 2008, RBI issued mobile banking guidelines that permit only licensed banks with a physical bank presence in India to launch mobile banking.The guidelines follow previous directives on the use of business correspondents and technologyto extend basic banking to the poor, both of which also assign a central role to licensed banks. The October guidelines state that banks offering mobile banking must ensure that customers with mobile phones from any network operator can use the service. Additionally, only domestic Indian rupee transactions are permitted and are capped at Rs 5,000 (US$104) per customer per day for fund transfers and Rs 10,000 (US$208) for purchases. Current regulations for e-money clearly do not permit issuance of e-money (or other similar stored-value instruments) by non-banks. As a result, non-banks, such as mobile telecommunications providers and e-payment service providers interested in branchless banking, have had to negotiate partnering arrangements with banks – this could be an expensive and complex proposition that will limit the potential for outreach. Banks often comfortable with their existing client segments show little serious effort to expand their mobile banking offerings. Banks move gingerly into mobile services To date, several banks have shown interest in mobile phone-based services, though none yet sees it as a part of its core business offerings. One of the earliest offerings was introduced in 2004. ICICI, India’s second largest bank, launched a service in conjunction with Reliance Communication (R-Com), India’s third-largest mobile provider. The service enabled an ICICI Bank customer who also subscribed to R-Com to send to and receive money from another ICICI customer (up to a maximum of Rs 5,000 in any one day). Today, the mobile banking service is also accessible through four other mobile providers: Airtel, Vodafone, Tata Indicom and Idea. More recently, Airtel, India’s largest mobile provider, launched a range of mobile commerce services in partnership with India’s HDFC Bank, ICICI, SBI, Corporation Bank, and VISA. The services, launched early last year, include mobile money transfer, bill payment, and prepaid recharge. Also last year, Barclays India introduced an offering called Hello Money that lets customers perform tasks such as checking balances, paying bills, transferring money, and adding prepaid minutes.  Meanwhile, public sector banks are rolling out their own mobile banking solutions. Union Bank of India recently rolled out UMobile, a mobile service for account inquiries and fund transfers. And State Bank of India, the country’s largest commercial bank, now offers the first rendition of a service called SBI FreedoM, which provides fund transfers, account inquires, bill payment, and top-ups. Technology intermediaries lead the way Technology companies that provide backend functions for mobile commerce are taking the lead in rolling out new services that involve banks and mobile network operators. But while they are driving ideas, technology providers need partnerships to carry them out. Banks hold the accounts and mobile network operators have the channels and large agent networks. To date, technology providers like Oxigen, mChek, Obopay, FINO, and A Little World have developed m-payment platforms and business models that are ready to be rolled out to un-banked customers via agent networks. The future growth of these depends on both creating partnerships with banks and agent networks (often organized under a non-profit business correspondent company). Recently, Airtel partnered with mChek, an Indian provider of mobile security and payment technology, to provide the means to operate its mobile commerce platform. mChek says that currently morethan 1 million users are accessing its technology. Another technology provider, FINO, is developing a solution combining the use of smart cards, biometrics, and electronic capability that will enable ICICI to see all transactions with partner microfinance institutions within 24 hours, thus addressing the difficulty in complying with know-your-customer requirements. FINO is experimenting with similar technology with a dozen other banks as well. A Little World is another technology vendor which has made an initial foray by providing the technology which has enabled banks to open thousands of accounts quickly. For example, teaming with the State Bank of India in the state of Andhra Pradesh over the last two years has enabled the bank to open 1.8 million accounts, each attached to a basic no frills account and magnetic swipe card. The state government processes some of its social payments through this newly developed channel increasing efficiency and removing opportunities for corruption. This early progress though still faces an uphill task in generating enough revenue to cover the costs. Estimates indicate it has cost the bank 50 rupees to open each account but it has earned only 5 rupees per account thus far. All must remain hopeful that the new channel adds more business to become fully viable, Some action, no breakthroughs Still, while banks, mobile network operators, and technology providers are rolling out a number of initiatives to extend cell phone banking, uptake has been slow. Banks are not well placed to take the lead nor are they enthusiastic to do so, technology providers are limited to complex partnership-based business models that are still unproven, and mobile network operators have the scale, appetite, and networks but are restricted by regulation. The potential for payment and m-banking services to be provided by mobile network operators and other non-banks has not yet been realized due in part to restrictions on e-money issuance by non-banks. There have been indications, however, that change is on the horizon. International experience suggests that it is not necessary to subject non-bank e-money issuers to the full panoply of licensing and prudential requirements applicable to banks. The risks of non-banks issuing e-money can be minimized by stipulating certain specific regulatory requirements, such as limiting investment of the e-money float to low-risk/ highly liquid instruments, and limits on per-customer transactions and maximum e-money balances. In addition, to minimize risk of loss of customers’ funds, operators can be subjected to enhanced security requirements and risk-appropriate market entry requirements. The RBI to its credit is also taking initiatives to open up more regulatory space. The new Governor has publicly noted the potential of technology to extend banking services. And in recent months the RBI has taken some steps to further open up some of the initial restrictions placed on the use of business correspondents by extending the distance they can be opened from bank branches. A new working group has been formed to consider what kinds of people and organizations can be used as business correspondents. To date, prominent players in India’s telecommunications, technology, and financial sectors have invested substantial time and resources into developing mobile banking services and infrastructure. It is time to think about how these investments will make a greater contribution to financial inclusion for the unbanked.Consultative Group to Assist the Poor, http://www.cgap.orgMicrofinance India: State of the Sector Report 2008. N Srinivasan. http://www.uk.sagepub.com/booksProdDesc.nav?prodId=Book233917Reserve Bank of India. Mobile Banking transactions in India - Operative Guidelines for Banks. http://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4524&Mode=0 Oct 8, 2008.
  • What are the issuesNeed clarity on agents, including level playing field on for banks (Kenya)Need clarity on nonbank providers (MNOs, but not only – e.g. Eko, WIZZIT, Fino roles). EU not necessarily a useful model to follow. History is being written on this topic in poor countries. Like the mobile phone becoming history’s 1st communication technology used more by the poor than rich, this could mark a shift in regulation of innovative new approaches to banking. The Rift Valley could be the Silicon Valley of branchless banking regulation (or death valley – we commend Kenya for allowing things to happen, but Kenya is playing out differently than India and Philippines, without clarity on agents).
  • What are the issuesNeed clarity on agents, including level playing field on for banks (Kenya)Need clarity on nonbank providers (MNOs, but not only – e.g. Eko, WIZZIT, Fino roles). EU not necessarily a useful model to follow. History is being written on this topic in poor countries. Like the mobile phone becoming history’s 1st communication technology used more by the poor than rich, this could mark a shift in regulation of innovative new approaches to banking. The Rift Valley could be the Silicon Valley of branchless banking regulation (or death valley – we commend Kenya for allowing things to happen, but Kenya is playing out differently than India and Philippines, without clarity on agents).
  • A year ago, my colleagues GautamIvatury and Ignacio Mas estimated that fewer than one in ten mobile phone banking customers are poor, new to banking, or doing anything more than payments and transfers.As you’ve been hearing and will hear more about shortly, survey results from the work we did with GSMA and FSD Keyna show that poor people want and need a broader range of financial services delivered through mobiles. So what’s next? This thing will take off. 6. Does this deliver some returns on higher ARPU and loyalty?Yes, and if that’s all you want, stop listening now.But if you want the kind of product which will get into customers’ lives the way voice has, you must address more than just one aspect of their financial needsCustomer Adoption: Some providers have successfully identified the value proposition that drives large-scale adoption and usage such that poor people have a range of services which deliver value for them. What product characteristics make it appealing?Services: Domestic money transfers and bill payments are key services that facilitate adoption.In certain markets (i.e. mostly emerging economies), remittances and bill payments can provide a significant foothold to introduce the use of cell-phones for financial transactions among the poor but services can still be bundled. Both Tameer and Eko are using a basic savings account as the main landing account even if remittance may drive the adoption the account more than straitlaced savings.However, that does not mean there will have to be a long lag time before consumer demand evolves to encompass other services Up to 20% of M-PESA customers are using the wallet for funds storage, even though Safaricom has never marketed this functionality. (ethnographic research on M-PESA users). Features: A valuable feature is how the service is configured to facilitate entering recurring transactions and how the service integrates with other features of the phone (i.e. being able to access the phone directory). (GXI, M-PESA ethnographic research)Usability: The assumption that low pricing beats usability issues is not necessarily true. Some M-PESA customers in Kenya are willing to pay “M-PESA boys” up to twice the average fee to perform transactions on their behalf. (M-PESA ethnographic research)Adoption: Low pricing facilitates adoptionRemittance originators say they send home smaller amounts of money more frequently (given the reduced cost of transaction). (M-PESA ethnographic research). Saving pattern: Users of mobile transfer services do use the cell phone to store value as a means of saving. 20% of unbanked M-PESA customers say that they use M-PESA as a substitute for informal ways to save. (M-PESA ethnographic research)More than 30% of banked M-PESA users say they use they now use M-PESA as a way to save, because money is easily accessed. What price characteristics make it affordable?Pricing: A product priced competitively against the prevailing market offering has good chances for accelerated uptake. M-PESA in Kenya (low price compared to market, fast/high adoption rate) G-Cash in Philippines (GXI) (high price compared to market, slow adoption rate)
  • But won’t be successful with even payments if you don’t get the distribution right. MNOs know a lot about airtime distribution, but that’s not the same thing. Different game for what you are asking merchants to do. You don’t know what you’re asking them to do.-being a cash handling agent is not the same thing as selling airtime top ups.(arpu, 1.1 market sizing. Mark has an inferred arpu gain from mpesa).-more servicesBusiness Models: Under what conditions would providers find sufficient incentives to offer branchless banking services to large numbers of low-income people? What value do different business models produce for each participant?Agent’s perception of risk in handling cash can be a determinant factor in willingness to operate as agent (Tameer)Increased, open competition in the telecomm market can promote telco incursion into branchless banking (seeking opportunities to increase ARPU). (Tameer)Small microfinance banks in these types of markets represent a good investment opportunity for telcos seeking to enter the branchless banking space: these banks already target BOP segments and there are no branding issues at stake. (Tameer)There seems to be an appetite in large corporations to explore bb opportunities, however, seed capital is of essence to demonstrate the feasibility of bb in particular markets. (Tameer)In countries where fundamental financial market infrastructure is missing (i.e. central clearinghouse, payments switch, RTGS), it is advisable to address these issues before setting up agent networks (Maldives)Tradeoffs made in favor of technical simplicity may bear an effect in usability and commercial impact of the mobile service platform (Maldives). As an example, the model adopted to provide mobile access to bank accounts implements an mWallet that requires additional steps to move money to and from a bank account.  What makes the business case viable for agents?In Kenya, M-PESA brings in 3x the revenue of airtime sales, resulting on average in $6 profit / day for the typical mom and pop store. This equates to over 200% annual return on investment. Volume drives the business case, with such stores doing 89 M-PESA transactions/day. (Agent research)However, liquidity management is usually the number one cost for mom-and-pop M-PESA agents, amounting to 30% of expenses. (Agent research)When using the Telco’s agent network, the airtime distribution business represents a “baseline”. The fee/incentive structure for mWallets and similar products needs to provide sufficient incentives to make scheme attractive for agents compared to airtime reselling. (GXI) 

Technology In Microfinance   June 30 2009 Technology In Microfinance June 30 2009 Presentation Transcript

  • Trends in Branchless Banking:
    Technology & Financial Inclusion
    Mark Pickens
    June 30, 2009
    Summer Fellows
  • Improves on current, informal options used by the unserved majority in emerging markets
    Tata Nano
    Branchless Banking
    What do these have in common?
  • Huge potential
    Out of scope
    No known deployments
    1 known deployment
    2 known deployments
    3 known deployments
    More than 3 known deployments
    120 mobile money services this year in emerging markets
    1.7 billion unbanked customers with mobile phones by 2012
    US $5 billion in direct revenues for mobile operators by 2012
    CGAP-GSMA Mobile Money Market Sizing Study
  • Branchless Banking: what do we mean?
    Branchless banking: Delivery of financial services beyond traditional bank branches using technology and cash-handling agents
    Make serving the unbanked
    profitable for providers and
    more affordable for clients.
  • Branchless banking: how does it work?
    2. KYC
    1. Agent
    4. Settle
    3. Cash +
    Payment technology (mobile, point of sale terminal) is paired with a retail outlet which acts as agent of provider for account opening and cash-in / cash-out
    Sample withdrawal
  • Benefits along the value chain
    - Comfort of dealing with
    corner merchant
    • Proximity of service point
    saves time and cost
    - Change economics of serving
    low-income clients
    • Leverage agent infrastructure
    to reduce capex to expand
    • Enable rapid drive to volume
    - Increase walk-in business
    - Decrease cash-on hand
    - Fee revenue from bank
    - Differentiated service offer
    Brazil: 90% of people use
    banking agents
    Brazil: 54% of clients who
    do banking also buy goods
    Brazil banks: 6 mil new
    clients via agents in 6 yrs
    Sources: CGAP analysis, CGAP representative study of banking correspondent usage, Pernambuco state, 2006
  • A technology roller coaster?
  • Where are we now?
    CGAP’s experience
    2006: “This is cool!”
    2008: “But how do we do it?”
    2010: “Oh, this is harder than it looks and it takes longer than we thought.”
  • “This is cool!” – Brazil
    13.000 POS-equipped merchants acting as agents of 2nd largest bank
    Pension & social payments, utilities, savings, purchases all enabled
    Operates under 3 central bank circulars and supervision
    Market impact
    • Brazilian banks reach all 5561 municipalities with agents
    • 12 mil accounts opened ’02-’05
    • US$ 940 mil in transactions
    • Replaced branches as #1 service pt
    Sources: Caixa, Banco Central do Brasil, CGAP June 2007 regulatory diagnostic
  • “This is cool!” – Kenya
    Current numbers:
    • 6.3 million customers
    • 9000 agents
    • US$170 million P2P in Feb. 2009
    Customer satisfaction:
    • Users say it is faster (98%), more convenient (97%), and safer (98%) than alternatives
    • 4 out of 5 say not having it would have a “large negative impact” on their lives
    • It is the main means of sending money for 50% of Kenyans
  • “But how do we do it?” – Tanzania
    Scale in May 2009 – a year after launch:
    • 280,000 customers
    • 930 agents
    • US$5.7 million in value in May 2009
    Differences with Kenya: what counts?
    Geography: Tanzania twice the size of Kenya.
    Market share: 39% Vodacom vs. 79% Safaricom.
    Agent network: Vodacom has 6 wholesale dealers to tap for agents vs. Safaricom’s300.
    Marketing: Vodacom targeted better off customers in the beginning. Changed to “M-PESA is easy, affordable and for everyone” later on.
    Technology: Vodacom uses USSD while Safaricom uses STK.
  • “But how do we do it?” – India
  • Three key areas to be addressed to avoid the “trough of disillusionment”
    1. Regulation
    2. Customer Needs
    3. Distribution Networks
  • 1. Regulation
    Regulation is sometimes a constraint but not the only obstacle and often not the primary challenge
    Number of countries where nonbanks have found accommodation is larger than where it has been prohibited
    Globally, 4 in 10 countries permit banks to use agents
    Of these countries, a majority permit agents to handle deposits (65%) and a sizable minority permit them to do KYC to open accounts (32%)
    Countries where regulation restricts MNOs to carrying data and where agent restrictions stunt viability are the exception
    There is more to be done but regulators are learning quickly and many are in the process of making adjustments to open space
  • 2. Customer Needs: reaching deeper
    More can be done to reach unbanked and poorer customers
    70% of M-PESA customers are existing bank customers who are mostly employed and relatively better off people. While there are more than 2 million were previously unbanked customers, many more unbanked people remain to be reached.
    An estimated 158 million families worldwide receive G2P payments from governments. Mobile money businesses serve a small percentage of these people in only a few countries.
  • 2. Customer Needs: payments +
    Customers want more than payments and try to fit services to meet their needs
    M-PESA is not designed (or regulated) as a savings product
    • But more than 30% of banked M-PESA users say they now use M-PESA as a way to “store” because money is easily accessible. And almost 60% of Philippines customers want savings services
    • Customers clearly want more than payments
    • How do we offer customers the services that actually meet their needs?
  • Customers: latent demand, poor options
    Culture of maintaining strong ties with village
    76% have sent / received money or goods in 12 mo (Owuor 2004)
    35% sent money every month
  • M-banking affordability
    • 1 Cash-in
    • 1 P2P transfer
    • 1 Airtime top-up
    • 1 Balance inquiry
  • 3. Distribution Networks
    Being a cash-handling agent is not the same thing as selling airtime top-ups. This is harder to do than most anticipate.
    Areas to address:
    • Agent costs to get started and keep going
    • Agent incentives for customer sign-up vs. customer use
    • Who should drive the business? MNOs, banks, 3rd parties, partnerships?
    • What role do “superagents” or aggregators play
  • Kenya: Agent Business Case
    • Capital investment for M-PESA is much higher
    • Transaction amounts are the key to higher revenues for M-PESA even though % margin is lower
    • Costs are higher for M-PESA. The cost maintaining liquidity is the single highest cost (30%)
    • Bottom line: the M-PESA business generates more profit
  • Philippines: Identification of Agents
    Different kinds of stores vary in terms of:
    • Surplus cash at end of day - hardware stores seem to handle twice as much as rest of stores
    • Number of additional customers who might be served per day (without adding more personnel) - varies between 12 and 23
    • Number of bank trips per week to manage liquidity of core business - hardware stores and pharmacies go to the bank between 3 to 4 times a week
  • Branchless Banking Scenarios: 2020
    Driving question: How can government and private sector most affect the
    uptake and usage of branchless banking among the unserved majority by
    • 1999: Global mobile penetration 8% and no mobile money
    • 2009: Global mobile penetration 50% and mobile money taking off
    • Where will we be in 2020?