Category Archives: Ecosystem

Delivering social program benefits using mobile financial services

This post is written by Muhymin Chowdhury, the Deputy Project Manager for the bKash Mobile Money project in Bangladesh.

Photo credit: Raisa Chowdhury

Photo credit: Raisa Chowdhury

On a recent work trip I had the opportunity to visit Chars Livelihood Programme (CLP) beneficiaries in the northern part of Bangladesh. ‘Chars’ are riverine islands created and destroyed by floods and erosion. These islands are located in very remote areas, requiring a minimum of twelve hours (via bus, car, motorbikes, boat and motorbikes again) to get to the nearest island from the capital city, Dhaka. The project beneficiaries receive a monthly stipend of Tk 350 (equivalent to $ 4.38), which is delivered to them in cash. In order to reduce the hassle of travel and carrying cash, CLP has started using bKash (a mobile financial services company) to transfer the stipend directly to their project beneficiaries. Our main motivation for the trip was to:

  • Observe how the service is rolling out
  • Understand whether people start using bKash for other purposes (e.g. savings, money, domestic money transfer)
  • Identify spillover effects of the service to non-project beneficiaries. Continue reading →

Mobile banking and microfinance: Lessons from Pakistan

This post is written by Afsheen Shakoor, SBI-Pakistan Resident Advisor for an MFI branchless banking project. This post also appears on SBI’s blog.

Photo credit: ASASAH

Photo credit: ASASAH

Convenience.

It’s one of the greatest requests and laments of Pakistan’s microfinance clients. In surveys and informal interviews, clients say they want closer offices and quicker meetings. In this environment, little wonder that microfinance institutions (MFIs) are experimenting with mobile banking. But is mobile banking really the answer to clients’ prayers?

Well, maybe.

With mobile banking, instead of going to a branch office to make repayments, clients pay through designated agents of the partner bank or MFI. These agents may be local shopkeepers, pharmacists, or mobile retailers, and are ideally closer to the client than the MFI branch.

But in the case of Pakistan, agents haven’t been closer to the clients. Instead, they’ve clustered near the MFI and bank branches. So the gains in terms of speed and convenience have been modest, averaging as little as ten rupees. Continue reading →

Muddied waters in India’s financial inclusion sector – will innovative BC models bring clarity?

Photo credit: Dinodia

This post is written by Shital Shah, SBI ADC Consultant and Veena Krishnamoorthy, SBI India Country Representative.

The monsoon season in India brings both joy and disturbance.  The downpours promise abundant growth in agriculture, while at the same time, come crashing down on weak infrastructure.  Muddiness and chaos is a common scene in urban India during and after the rains, and electricity may become even more intermittent, causing further disturbance to daily life.  In a very similar way, the business correspondent (BC) industry is pointing its way to both promise and confusion in the Indian financial inclusion sector.

Continue reading →

Creating brand and product loyalty among those who really matter

This post is written by Khurram Sikander, SBI Resident Advisor for UBL Omni in Pakistan.

During the last couple of months, the SBI Pakistan team has had the opportunity of meeting various stakeholders in the branchless banking arena in Pakistan. A lot of interesting conversations took place about the roadmap of the industry and how new players entering the market would shape the path of financial inclusion for the 90% unbanked population. From our experience of working with different initiatives in Pakistan and analyzing the State Bank of Pakistan’s branchless banking quarterly reports, we have observed that over the counter (OTC) transactions remain the most popular service used by customers. OTC domestic remittances and bill payments form a major chunk of the branchless banking business and are a source of consistent revenue for agents, as well as service providers.

The State Bank data as of December 2011 shows that 80% of the transactions are being conducted OTC. Agents favor OTC over account-based transactions since they view the former as sustainable revenue on top of their core business.

In the present environment, branchless banking service providers have been discovering that when a walk-in customer requests to pay a bill or transfer money, the agent chooses the platform that provides them the best commission. This theme has resonated in numerous agent surveys we have conducted over the last 18 months. The revenue earned through walk-in customers may provide existing service providers a false sense of security that the agent network can be sustained around OTC payments. As new service providers start offering OTC services through organically built agent networks or start cannibalizing agents, institutions will realize that the agents are as loyal to the brand as the next best incentive. Continue reading →

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. Continue reading →

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.  Continue reading →

The environment that surrounds us creates the change: a South East Europe perspective

This post is written by Paul Wild, the owner of Mobile Money Sh.p.k, a consultancy company focused on e-commerce, financial services, SME and management consultancy. Paul has worked in the banking and commercial sector for over 20 years and is based in Tirana, Albania.

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. Continue reading →

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. Continue reading →

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. Continue reading →

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.

Continue reading →