Category Archives: Practitioner Perspectives

Banking beyond conventional branches for financial inclusion

Photo credit: bKash

Photo credit: bKash

This post is written by Debbie Watkins, Head Implementation, Alternative Delivery Channels at SBI (Zeist/Washington), and reposted from Upsides. 

Banks in emerging and developing countries are increasingly recognising the potential of the low-income market segment. However, setting up and running a bank branch is an expensive business. This is where branchless banking comes in. Read the first article in an insightful series of three on how banking beyond conventional branches creates financial inclusion for all.

Low-income and rural populations are often inherently ‘bankable’ – they save for a wide range of different purposes, source both short- and long-term credit for capital purchases and business building, and demonstrate (often very sophisticated) financial management skills. The fact that most of their financial interactions are with informal channels is due to a number of reasons: banks may be far away from their homes or workplaces; may not be open during the hours they are not working; or may have prohibitively high minimum balances or monthly fees.

Logistical problems
Banks are increasingly recognising the potential of the low-income market segment. However, setting up and running a bank branch is an expensive business. The net cost to a bank of conducting a single over-the-counter transaction can be more than $1, and understandably banks are somewhat reluctant to have their branches full of clients conducting small transactions – the cost/benefit ratio just does not make sense. Establishing branches in rural areas also causes significant logistical problems – ensuring the branch always has sufficient cash on hand (but not too much), connecting the branch to centralised banking systems, and of course the fact that one branch covering what may be a catchment area of many square kilometres will still result in it being out of the logistical reach of a large number of people. Continue reading →

Expanding the Boundaries of Mobile Banking: Reaching the Rural Poor

This post is written by Lee Babcock, Managing Director, Mobile Strategy for ACDI/VOCA.

Photo credit: ACDI/VOCA

Photo credit: ACDI/VOCA

I work at the intersection of mobile banking and the rural poor. For nearly 50 years my organization, ACDI/VOCA, has created market linkages for smallholder farmers to reduce poverty and expand economic opportunities. The people we work with are not usually near a city and they have few resources, often making only a subsistence living off of their crops. But increasingly, they do have a mobile phone.

For a development practitioner, the proliferation of cell phones among the rural poor is a golden ticket, a new infrastructure directly into households at the base of the pyramid. Even beyond mobile finance, cellphones can provide solutions at every link along the agricultural value chain—e-vouchers, credit scoring, SMS broadcasts of weather and prices and much more—to help lift smallholders out of poverty.

The rural poor are a huge and untapped market. ACDI/VOCA’s research on mobile finance for agriculture and our mobile banking projects are helping build this rapidly emerging body of knowledge. In Indonesia, for example, we’ve brought together a commercial bank, input suppliers (e.g., seeds and fertilizer) and a large cocoa buyer to help cocoa farmers access high-quality inputs while mitigating credit risk for the bank. The bank distributes the loan to the input supplier so the farmer can buy inputs. At harvest, the farmer delivers cocoa to the large cocoa buyer, and when accounts are reconciled, the profit is electronically transferred to the mobile wallet account the farmer has with the bank.   Continue reading →

Successful interoperability: Maintaining a long-term view

This post is written by Ali Gross, SBI Senior Business Analyst.

Photo Credit: data.gov.md

Photo Credit: data.gov.md

To encourage the development of more agent and branchless banking networks, donors and policymakers are emphasizing interoperability and institution-agnostic platforms, as opposed to a bank or MFI opting to roll out its own agent network.  They often stress the importance of avoiding duplication of efforts and of promoting interoperability as a way to increase efficiency and scale as well as customer access and convenience.

However, despite these efforts, financial institutions want to develop their own agent networks in their efforts to implement alternative delivery channels. The financial institution rationalizes that this will result in increased control over profit and agent quality and lower risk of losing existing customers to the competition.  Often, what financial institutions fail to account for is not only the amount of time, money and effort required to roll out an agent network, but also what is best for the customer.  For instance, in the U.S., most customers would prefer access to an interoperable switch that allows a Wells Fargo client, for example, to withdraw from a Bank of America ATM.  Would clients in emerging markets not prefer the ability to visit one agent that represents a variety of financial institutions resulting in greater flexibility and less confusion about which agents they can visit?  As increasing client choice and convenience of accessing financial services becomes increasingly important, the question becomes, how can financial institutions begin to look at interoperability in a way that is mutually beneficial, rather than solely competitive?  Continue reading →

Effective Agent Networks in Alternative Delivery Channels: A Practitioner Perspective

SBI Lunch and Learn on Jan 25, 2013

SBI Lunch and Learn on Jan 25, 2013

Last week, SBI hosted a “lunch and learn” in its DC office on “Effective Agent Networks” featuring SBI Agent Network Lead Gerald (Gerry) Rasugu.  Gerry Rasugu currently leads the Agent Network Group within SBI’s global Alternative Delivery Channels practice.  Gerry has a wealth of experience in the branchless banking arena, notably from the world acclaimed M-PESA where he pioneered set-up and management of the agent network in Kenya that drives the leading national m-money payment system in the world.

Gerry is also experienced in designing and building agent networks supporting financial inclusion in Uganda, Fiji Islands, India, Sri Lanka, Madagascar, and Pakistan.  In Bangladesh he supported the design and build of the bKash agent network, the leading mobile financial services initiative in the country, which is already showing great promise in its 2nd year of deployment, with over 20,000 active agents.

Gerry has worked globally with various partners including Vodafone, MTN, Orange Telecom, GSMA and other various financial institutions. He has strong experience in Sales and Distribution across East Africa, Asia and the Pacific region. He has interacted with various regulatory bodies to help formulate relevant policies for mobile financial services. Gerry has also recently published an agent training document specifically targeting financial services agents.

To watch and listen to Gerry’s presentation, please click here.

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 →

Better Than Cash?: Reflections on “The Journey Toward Cash Lite” from a Practitioner

This post is written by Jesse Fripp, SBI Vice President.

In October 2012, at a gala event in New York City, the Better Than Cash Alliance was officially launched. With a stated objective to “make the transition from cash to digital payments to achieve the shared goals of empowering people and growing emerging economies,” BTCA represents an important step forward in developing a unified industry voice for the effective deployment of new disruptive technologies. A major emphasis of the initiative is on expanding the universe of government and donor to person cash transfer programs (government to person, or G2P) as a means to enhance efficiencies, increase transparency, and ensure security and minimization of “leakage” through the use of new delivery channel technologies. While the emphasis of the BTCA’s efforts are on policy-makers and the macroeconomic advantages of a “cash lite” society, a big question still remains: is cash lite really “better than cash” for consumers?

In “The Journey Toward Cash Lite” a white paper developed by Bankable Frontier Associates for BTCA, the authors helpfully break down both the opportunity and challenge of achieving a cash lite economy for multiple groups of economic actors – government, donors, businesses, and individuals. However, there are two key areas of the conversation that merit more focused consideration – namely, the assumption that increased use of e-payments equates to financial sector “deepening” and the pivotal place assigned to the issue of “trust” as the major barrier to consumer uptake at scale. Continue reading →

Where are the “disruptive” technologies in payments?

This post is written by Ryan Falvey, SBI’s ADC Strategy & Design Group Manager.

Recently, I found myself in a heated discussion with a Silicon Valley-based venture capitalist. The catalyst of the conversation was a question put to me: “Who is going to disrupt payments?” Given that we were in San Francisco, the question had an obvious “good” answer (Square) and several “great” answers that showed real knowledge of the “disruptive” and “innovative” “future of payments” (Dwolla, WePay, Google, Apple). Naming any of these firms would have made everyone feel good – that they knew how the future would unfold.

It was, however, shockingly controversial to say that none of these companies were going to “disrupt” payments. Instead, I argued that the disruptive solution would come (as Banking Beyond Branches readers know) from emerging markets. As such, while we typically focus our writings on these markets where we work, I thought it made sense to take a stab at explaining why the real disruption is coming from abroad for our Silicon Valley readers.

First, the status quo: most payments in the world are in cash. However, in the U.S., when people say “payments” they tend to think of the status quo as using card-based solutions – Visa, Mastercard, etc. In this context the “innovation” is to eliminate the card, preferably by replacing it with smart phones. As such, most of the action involves companies that deploy data-based “mobile wallet” plays where you store your payment information with a third party and they use this to facilitate a payment. PayPal, Square, Google, Apple and others all have solutions based on this basic mechanism. Continue reading →

Diversified business models for mobile financial services [Video]

Ryan Falvey, from SBI’s Strategy and Design Group, spoke to USAID and TechChange regarding the role of banks and other diversified financial service providers in expanding access to mobile financial services. This talk was part of USAID’s recently introduced eight-week online certificate course on Mobile Money, in partnership with the Mobile Solutions team at USAID and The QED Group.

Through this course, staff from USAID and implementing partners in 10 countries are able to connect with leading experts in the mobile money space and share best practices. Participants in the course have explored issues of regulation and interoperability, as well as strategies for working effectively with MNOs, banks and governments. In addition to Ryan, participants in the course heard from guest experts such as David Porteous of Bankable Frontiers, Kabir Kumar of CGAP, Nadeem Hussain of Tameer Bank, Tomasz Smilowicz of Citigroup, Jordan Weinstock of Open Revolution, Chrissy Martin of MEDA, and others. SBI’s ADC team was thrilled to have the opportunity to draw on our global experience and discuss our perspective on the role of diversified business models, including banks and third party technology providers, in expanding access to mobile financial services.

You can watch Ryan’s talk here:

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 →

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 →