1. Branchless Banking 101:
Technology & Business Model Innovation
in Financial Inclusion
Sarah Rotman
March 29, 2012

2. Agenda
1. The basis of branchless banking
2. The state of the industry
3. Areas of focus moving forward
4. Q&A: of Role NGOs
2

3. 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

4. Financial inclusion requires scale and presence
• Traditional banks have
scale, but lack
presence in the places
where poor people live.
• MFIs have a presence
in poor communities,
but lack the scale.
4

5. 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 mobile
1.7 billion people worldwide have a mobile phone but no bank account.
$0k No agent (cashless)
5

6. 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

7. 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

8. Agenda
1. The basis of branchless banking
2. The state of the industry
3. Areas of focus moving forward
4. Q&A: Role of NGOs
8

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. Agenda
1. The basis of branchless banking
2. The state of the industry
3. Areas of focus moving forward
4. Q&A: Role of NGOs
17

18. 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

19. 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

20. Consumers: Improvements in user experience
Distribution of transactions at a Mexican Bank’s affiliated agents by day of the week and hour1
Percent 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

21. Innovation: Over 20 financial institutions linked to M-PESA
Microfinance Start-ups
Banks
Insurance
Companies
Commercial
Banks
21

22. Activation: Majority of registered customers are not
actively 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 users
In a CGAP survey, 64% of managers said less than 30% of their registered customers were
active, and active rates of less than 10% are not uncommon
22
Source: CGAP and Coffey International, data as of Q1 2012.

23. G2P: Changes over time towards electronic payments
23
Source: CGAP Research

24. 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

25. Interoperability: Three levels
Branchless banking services can be connected or un-connected at three different
levels:
1 Platforms 2 Agents 3 Customer
Customers 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

26. Agenda
1. The basis of branchless banking
2. The state of the industry
3. Areas of focus moving forward
4. Q&A: Role of NGOs
26

27. Advancing financial access for the world’s poor
www.cgap.org
www.microfinancegateway.org