Agent economics: profit-per-transaction-minute
This post is written by Debbie Watkins, bKash Resident Advisor in Dhaka, Bangladesh.
One part of the Alternative Delivery Channel (ADC) financial modelling equation is paying commission to agents. When considering the share of revenue to give to agents, don’t just think about the amount they receive, but how much of their precious time they have to dedicate in order to get it. I call this the profit-per-transaction minute (PPTM) ratio, and it’s calculated in much the same way as the dollar-per-wear equation I use to justify buying a really expensive pair of shoes (but enough about that).
Here’s roughly how it works. In order to motivate an agent, they need to be offered a good ROI (return on investment), and a good ROT (return on time) – as this is how their existing business works. A small shopkeeper needs to do two things at a basic level in order to make profit: invest in stock, and invest in the time required to sell that stock. So, let’s say he’s an orange seller:
- He buys 100 kg of oranges for $50 = $0.50 per kg (comprising roughly 10 oranges)
- He sells them for $0.60 per kg = $0.10 markup per kg (or 20%)
- The average transaction (weighing the oranges, putting them in a bag, taking the money) takes 1 minute
- The average weight he sells per transaction is 2 kg
- Therefore his PPTM is $0.20
This equation changes drastically if the markup remains the same but his average sale is only a single orange – the PPTM goes right down to $0.01 (so it takes him 20 times as long to sell the same amount and make the same profit as before).
This can be one way to guide that “how do I select agents?” discussion. Here’s an example, comparing a cash-in transaction to our orange seller’s PPTM. Read more 
Moving clients from OTC transactors to branchless banking customers: The role of incentives and engagement of agents and agent network staff
This post is written by Nicole Pasricha, Director of Inclusive Rural Finance in MEDA.
Photo credit: UBL Omni
In Pakistan, UBL Omni has had measurable success in two key areas of branchless banking networks: driving usage and expanding agent points of service. By January 2012, just 21 months after the launch of the service, Omni had processed over $982 million dollars in bill payments and boasted an agent network of 6,500, of which a full 70% could be considered active.
But as a bank, usage of the system –especially through over-the-counter (OTC) transactions—was not enough. Omni wanted to encourage customers to open accounts, and move customers along a path towards more comprehensive branchless banking. Opening accounts would lead to more banked individuals, and would also help lower transaction costs for both Omni and the customer. Account usage was also important, since dormant accounts would not create any customer loyalty and wouldn’t help customers to move towards true mobile banking, in which customers perform their own transactions via mobile phone as opposed to traveling to the agent every time.
Omni identified incentives and engagement of agents and the Omni agent network staff team as the key ways to drive uptake in account opening amongst unbanked customers in Pakistan, and designed a strategy to accomplish this. The strategy has three main components: Read more
The psychology of pricing, Part 2
This post is written by Debbie Watkins, SBI’s Resident Advisor in Dhaka, Bangladesh.
Photo credit: Cengage Learning
We talked in the previous article about how pricing can encourage customer behavior to develop in a certain way – and that most people are able to spot a good deal (or a dummy) when they see one.
When we’re talking about mobile money, there are generally 3 price “events” – at cash-in, when one person transfers to another, and at cash-out. If you’re aiming to offer a true mobile wallet (a virtual “current account” as opposed to purely a money transfer service), I would argue for making person-to-person fees a very, very low, flat fee (something in the order of one US cent or its equivalent). Here’s a small scenario that explains this:
Nazmal is a security guard in Dhaka. He sends money home to his parents every month – a lump sum when he gets his salary. His parents spend the money on rent (a monthly payment); food (daily); school fees for their youngest child (weekly) and try to save a small amount in case of emergencies.
Nazmal deposits the amount he’s sending into his mobile wallet, and transfers it to his parents’ mobile wallet. They have a choice now of what to do with it, which will be driven by how the pricing you have established works best for them:
- They can withdraw the whole amount and keep it under the bed. They are more likely to do this if cash-out fees are structured on a flat or slab basis, as it works out cheaper for them to withdraw one larger amount than a number of smaller amounts.
- They can withdraw some now and some later, when they need it – this would be more expensive for them than option 1 with flat or slab pricing. If you have percentage pricing there’s no difference for them either way, except for the additional costs/time involved in visiting the cash-out agent more often.
- They can pay their expenses directly to the landlord/grocery store/school using the person-to-person feature on an ad-hoc basis, “save” the rest, and only withdraw cash when it’s necessary. Read more
A cross-market learning and exchange between South Africa and Pakistan
This post is written by Nimrah Karim, SBI Associate Consultant based in Karachi, Pakistan.
An ABSA "Entry Level & Inclusive Banking" branch, also known as 1234 branches
In late January, members of SBI’s management and ADC practice teams were joined by representatives of United Bank Limited (UBL) and the Bill and Melinda Gates Foundation in Johannesburg, South Africa for the quarterly Advisory Group meeting for the UBL Omni Branchless Banking project. As most readers may already know, UBL Omni is the largest bank-led branchless banking provider in Pakistan, and has received generous financial support from the BMGF for a two year project to develop a strategy that will cater to the poor and underserved in Pakistan. The meeting was set up in Johannesburg to provide an opportunity to stakeholders of the UBL Omni project to learn about branchless banking initiatives in South Africa, home to some of the pioneering initiatives in this space. To this end, the team visited ABSA Bank and WIZZIT to candidly share the realities, challenges, and learning from experiences in branchless banking in both South Africa and Pakistan. Some key insights are highlighted below.
Low-limit Accounts: In 2004, South African commercial banks were mandated to offer minimum know-your-customer (KYC) requirement “Mzanzi” accounts to any customer that applies for one, thereby eliminating barriers for the formerly unserved in opening a bank account. While uptake has been strikingly successful—on its own, ABSA opened accounts for 7 million people, for whom many are first time accounts—the Mzanzi Initiative has proven to be largely unprofitable due to high inactivity ratios (42% lie dormant). Similarly, in 2005 the State Bank of Pakistan (SBP) required banks to introduce “Basic Banking Accounts” with a minimum set of banking services and no limit on minimum balance. While outcomes of this national initiative are not clearly documented (and would make for an interesting study), it is clear that the objectives of the SBP were not exactly met, since the low-income masses did not avail the opportunity. In the meantime, of the 160,000 branchless banking accounts opened in Pakistan in the past two years, only a third are active. These experiences depict that promoting uptake and regular usage of accounts targeting low income groups is a common challenge. Within our forum, a consensus emerged that a heavy focus on customer education is required to address the problems of low uptake and inactivity, coupled with effective communication of the value propositions of account services, and more strategic focus on part of the providers and the regulator in shaping these initiatives. Read more
What lies ahead for Peru’s branchless banking sector?
This post is written by Ali Gross, currently an MA student at Johns Hopkins University School of Advanced International Studies and an ADC intern at SBI.
Within Latin America, Peru is generally considered a relative success with regard to expanding financial services to the poor. In addition to a strong microfinance sector, branchless banking has grown rapidly since regulation changed in 2005 to allow banks to offer financial services through third-party agents.
Spending time working in Peru’s branchless banking industry, it became apparent that banks (particularly industry leaders like BCP, BBVA and Interbank) have much larger agent networks than MFIs and cajas municipales. In addition to banks’ large agent networks, third-party platforms, such as GloboKasNet, have emerged to link various banks, MFIs and cajas to a common payment platform, meaning that one KasNet agent may offer services on behalf of multiple financial institutions.
In addition to the entry third-party platforms, the regulatory environment for branchless and mobile banking in Peru has been steadily improving, providing a huge opportunity for the expansion of financial services to the poor. Until recently, regulation required new clients to open accounts in a formal bank branch, prohibiting the creation of new accounts by agents. Recently, however, regulation changed to permit agents to open simplified accounts which have maximum account balances and low daily withdrawal limits. Read more
The environment that surrounds us creates the change: a South East Europe perspective
Albania remains a mixed market with 50% of the population outside the capital Tirana, located in secondary cities, towns and rural areas, the majority of which remain unbanked. Even the banked population can be described as under banked, meaning that they use very few banking products and prefer to withdraw their entire balance on pay day and deal in cash! This is something the banks are failing to address.
There are numerous reasons for this behavioral trait, which stem from poor civil infrastructure, little town planning, chaotic construction resulting in an unclear property system, and thus a poorly functioning postal service.
State utility companies and private utility companies struggle to deliver utility bills, resulting in poor collection and lack of revenue, which in turn results in little investment into systems and services that could improve the situation, creating an ever decreasing circle.
Typically, state utility companies do not accept bank transfers to pay utility bills, even now that the state electricity company is privatized and are encouraging direct debit payments, people remain nervous about paying through this channel as they do not trust the electricity company to recognize the payment. Consumers prefer to have an official receipt of payment from the electricity company which they can show if required. Consumers also do not trust the banks to make the payment correctly and often when problems are encountered both parties point the finger of blame at each other, resulting in the consumer having to solve the issue themselves. So what better than having that official receipt of payment stamped and signed by the utility company! The result is that cash is king.
Due to this environment the mobile communication market is predominately a pre-paid market, post paid is available but of course when it comes to issuing monthly bills they too encounter all the problems mentioned above. Thus cash remains king to consumers.
Payment card acceptance has also been slow to grow in the country, as retailers who are often small SMEs and not large international retailers refuse to accept cards and actually offer a discount to buyers that pay in cash. Interestingly, the discount is often deeper than the 2 to 3% that the bank would charge the retailer for such a transaction. The reason for this is poor tax reporting and collection. However, since the government introduced a mandatory requirement for a tax receipt to be issued to consumers, this practice has declined and rather than offer a discount, retailers simply refuse to accept cards. That said, the retail environment is changing in Albania with several large malls opening which contain international brand names who do accept cards. Consumers are quickly catching on to the convenience attached to using a card and are beginning to shun retailers that do not accept cards. This change in consumer behavior will help encourage the use of e-banking products. Read more
Alternative channels for exploitation of the poor and unbanked?
Photo credit: Bangkok Post
This post is written by Jesse Fripp, SBI Vice President.
After initial skepticism, a lot of confusion, and countless false starts, the foundations for the e-money ecosystem – or the “LiFi” world as recently described by David Porteous and Ignacio Mas – are being laid in fits and starts. Following in the pioneering footsteps of early innovators such as GCash, SMART, M-Pesa, WIZZIT, and others, over a hundred mobile and branchless platforms are being developed and rolled out in dozens of developing countries. The dual siren song of serving “the bottom of the pyramid” from an inclusion as well as mass-market commercial perspective is sounding ever more loudly across the world, with implications that are yet to be determined.
Unlike the early days of the microfinance “revolution,” in the alternative delivery revolution, major, multi-national and/or heavily capitalized players are getting involved earlier. The major card services are already moving briskly down this road, with the acquisition by Visa of the dominant back-end mobile banking platform Fundamo, and the launch of virtual pre-paid card services in certain markets. Telcos generally struggle with the challenge of understanding and addressing market demand dynamics outside of their primary air-time business, but are cash-rich, and increasingly well-positioned to transform themselves into “holdings” that can leverage the power of their core channel utilities while keeping the financial benefits “within the family” – including through acquisition of banks and financial services companies in key markets. Banks themselves are finally waking up to the potential, and are working their own angles. Primarily, this is through leveraging their specialized regulatory position and knowledge of financial services and products through the creation or acquisition of third-party service companies that can make use of the telco utilities efficiently, without being slaved (or more importantly, slaving their customers) to any single telco platform or provider. Read more
Are remittances through mobile banking the key to financial inclusion in ECA?
This post is written by Anna Fogel, SBI Associate Consultant.
Photo credit: enrin.grida.no
With more than 215 million people living outside their countries of origin, remittances play a major role in the economic development, GDP and poverty alleviation efforts of many countries. An estimated $350 million in remittances was received by developing countries last year, according to the World Bank, which is three times the amount of official development assistance and exceed foreign direct investment in many countries. The trend of increasing remittances continues to grow and is projected to reach $1.5 trillion by 2016. This impressive volume has attracted attention from mobile banking operators, whose business model depends on high-volume, low-cost transactions. CGAP’s Chris Bold, in December 2010, dubbed remittances the “final frontier” of mobile banking.
In Europe and Central Asia, remittances have a particularly prominent role in the regional economy. Many of the top remittance recipients in the world, measured as a percentage of GDP, are in this region, including Tajikistan where remittances were equal to more than 35% of GDP in 2009 and Moldova where remittances equaled 23% of GDP in 2009. According to World Bank calculations, which measure official flows and therefore are generally undercounting, remittances equal more than ten percent of GDP in six countries in the region (Tajikistan, Moldova, Kyrgyz Republic, Bosnia and Herzegovina, Serbia and Albania). IFAD estimates than 30% to 40% of remittances flow to rural areas, critical in many Eastern European and Central Asian countries which have agrarian-dominated economies and high percentages of rural populations. Read more
Build it, and they will come… but will they stay?
This post is written by Jesse Fripp, SBI Vice President.
In recent posts, we’ve prognosticated on what 2012 may hold for banking beyond branches, discussed pricing and products, the painful realities of lack of reliable power in many of the prime “beyond branches” markets, issues of pitfalls and challenges on the road to true financial inclusion, report-out on our industry discussions around the future of traditional microfinance institutions in this new era, and more. As we begin a fresh year, it is worth considering in further detail where we are, and what “banking beyond branches” really requires, primarily A) mass-market demand for products and services, B) a scalable delivery channel or platform within an appropriate regulatory framework, and C) products and services to deliver in response to defined mass-market demand.
If we consider where we are, broadly speaking, in mobile and branchless banking today, we’ve spent an enormous amount of time and energy on B, coupled with some cursory thinking around A, and comparatively little time on C. If we consider where the real energy in this space is likely going to need to be focused in the future, our bet is overwhelmingly on C, assuming we can get a much more granular and contextualized grasp on the realities of A in the meantime. The graph below attempts to capture this likely trend.
Are we cooking what the customer wants to eat?
This post is written by Nimrah Karim, SBI Associate Consultant based in Karachi, Pakistan.
Last week, a few SBI staff members visited Hala, a small town of 160,000 situated in the heart of Sindh, Pakistan. Our car
weaved through narrow passages to reach the neighborhood of one of our focus group participants. We observed donkey carts navigating puddles, a herd of cows causing a traffic jam for rickshaws and pedestrians alike, and within alleyways, rows of small stores with male shopkeepers either tending to customers or chatting casually amongst themselves. As we traversed Hala’s winding backstreets—thriving with simple trade and services activities common to small, peri-urban towns —I reflected on the purpose of our visit. We were on our way to conduct focus group discussions (FGDs) with groups of women, to understand whether local recipients of one of the largest government cash transfer programs in the world could benefit from financial services offered by way of alternative distribution channels.
The FGD participants were beneficiaries of a grant of US $12 per month, disbursed by the Benazir Income Support Program (BISP) to adult female members in Pakistan’s poorest households. BISP has used various implementing parties to deliver payments to beneficiaries. A majority of transfers have been disbursed via money order, dropped off by postmen to beneficiary households. BISP has also piloted alternative delivery mechanisms, including disbursement of funds through magnetic-stripe enabled smart cards, mobile phones, and branchless banking agents. To date, BISP has allocated cash transfers to 3.2 million families, with an aim to increase outreach by two-fold by the end of 2012.
Our research seeks to uncover whether there is a compelling value proposition to convert these one-way distribution flows into a financially inclusive account. The account in question would offer customers the ability to save and store funds safely and also afford them transactional capability—such as options for paying bills, making person-to-person fund transfers, and eventually, paying for merchandise and services through their account. A body of research on pioneering programs in Mexico, South Africa, India, and Brazil suggests that G2P payment recipients use financial services if available to them. In theory, it sounds perfect: G2P programs successfully reach millions of the poor and financially excluded through various channels. Why not go a step further and use these platforms to reach this very segment with financial services? Read more
