Global Findex 2014: does access to mobile money = financial inclusion?

Written by Paul Newall

Last week, the World Bank released their Global Findex for 2014, a self-described “bonanza of data on financial inclusion.”[1] The Findex report offers impressive scope and depth of information, and interestingly chronicles the progress of financial inclusion on a global scale. Upon its release, the World Bank pointed to several key findings, highlighting the progress of financial inclusion since their last report in 2011. These points include:

  • The number of people worldwide having an account grew by 700 million between 2011 and 2014. 62 percent of the world’s adult population has an account; up from 51 percent in 2011. Three years ago, 2.5 billion adults were unbanked. Today, 2 billion adults remain without an account. This represents a 20 percent decrease.
  • While just 1 percent of adults globally say they use a mobile money account and nothing else, in Sub-Saharan Africa, 12 percent of adults (64 million adults) have mobile money accounts (compared to just 2 percent worldwide); 45 percent of them have only a mobile money account.
  • 28 percent of adults —1.2 billion adults—in developing countries report they would use their savings in case of an emergency. Yet 56 percent of these adults do not save at a financial institution.

A new aspect of the 2014 Findex was the specific reporting on mobile money accounts, where there was impressive growth, as noted above. The increase in mobile money accounts has positively impacted account penetration around the world, according to Findex. However, as the below image shows, there is much more work to be done.

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A new aspect of the 2014 survey, Findex asked respondents about their use of specific mobile money services that are available in their country, such as M-Pesa, MTN Mobile Money, and Airtel Money. The survey defined a mobile money account as “services that can be used without an account at a financial institution” – those using a mobile money account linked to a financial institution are considered to have an account at a financial institution. In Sub-Saharan Africa, the survey found that about 12% of all adults reported having a mobile money account. Within that, about half reported only having a mobile money account. The details are provided in the below image.

However, this designation has brought up an interesting discussion in the Enclude office: Does ownership of a basic mobile money account mean that you’re ‘financially included’?2

An important designation when considering the above question, according to Enclude’s Global Lead on Digital Payments, Khurram Sikander, is the set-up of the mobile money ecosystem: “Is it bank-led, like India, or is it non-bank/third-party led, such as Kenya? While a mobile money account in a bank-led environment makes it easier for regulators to count it as an account in the formal financial system, the accounts or value in a non-bank led environment are hosted outside the formal financial system – even if they are backed in an escrow account at a bank. These clarifications are important as they fundamentally impact the mobile money account’s linkage to formal financial institutions.”

To be considered linked to formal financial services, customers need access to typical services: savings, credit, and insurance, among others. However, Mr. Sikander is highlighting the difference in product offerings from mobile money providers in the different environments. In markets where a customer is able to access some services on their mobile money account – money transfer, cash-in/cash-out, bill payments, using their m-wallet to top-up airtime, basic payments services – but are often precluded from more traditional financial products, such as savings and credit, it is hard to claim these accounts as part of the formal financial system.

On the other hand, products like M-Shwari, a savings product product offered by Safaricom’s M-Pesa and Commercial Bank of Africa to M-Pesa’s Mobile Money customers, can be considered access to the formal financial system. “According to the 2014 GSMA State of the Industry Report, there are approximately 28 million mobile money customers with access to insurance, savings, and credit products,” Mr. Sikander added, “that is maybe a better indicator of inclusion.”

From data compiled by GSMA in their 2014 report, we are able to assess the usage of mobile money products that are available globally. Of all the products used, 62.3% was use of m-wallet for airtime top-up, 25% was P2P transfer, and 8.9% was bill payment. In addition, by value, P2P transfers make up approximately 73% of the value passed through all mobile money products, followed by bill payment at 11.7%. While the numbers may have improved in the time since the analysis was conducted, the numbers still highlight the gaps between mobile money deployments and access to formal financial services.

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Enclude’s Managing Director for Capacity Solutions, Roland Person, believes that increased amounts in mobile wallets cannot be seen as mission accomplished: “We recognize financial inclusion as the linking of populations to formal financial services. Mobile money is a suitable channel to reach the un(der)served, but it presently does not offer all the characteristics of full inclusion. That can only be done with linking the person with formal financial institutions and them being able to access the products/services that most benefit their day-to-day lives.”

In the future, perhaps mobile money deployments will expand to offer more formal services, services that we often equate to being offered by banks. However, until they do, mobile money should be seen as a rail to reach the underserved, not an end goal in financial inclusion.

[1] NB: all data and quotes from the below blog are taken from the World Bank’s Global Findex 2014, unless stated otherwise.

What drives usage of branchless banking and mobile financial services? Three lessons from the field

Written by Vanina Vincensini

Digital financial services, or services which use electronic platforms to expand the reach of banking, have shown promise to contribute to financial inclusion in emerging markets. However, not all initiatives are met with the level of success seen as deployments like M-PESA in Kenya or bKash in Bangladesh. Finding customers who make usage of the service, and, in particular, regular usage of the service, is the goal of every provider in this business that relies on large transaction volumes to be sustainable. There are some barriers to usage that can and cannot be lifted by the providers. With our recent work in different regions of the world, we have learned a few key lessons which, despite being simple, are often overlooked by providers.

  1.  Addressing a customer need or solving a customer pain will yield greater usage

Easier said than done! Too often, we’ve seen providers replicate a model that they have seen elsewhere without conducting proper analysis of the local environment and customer behavior. Actually, the local environment is generally well known by the provider (e.g. what the regulator allows them to do or not), but what the customers do with their finances, or what they like and dislike about a current service, is not always studied in dept1h. One of the success factors of M-PESA was to listen to its customers during a pilot phase and really understand the behavior and value they saw with respect to the original service that was proposed to them, which led to recognize that there was a bigger opportunity with a virtual money transfer service than the original concept. Similarly, bKash in Bangladesh incorporated in-depth market and customer understanding throughout the product development cycle, before launch, post launch, and regularly since then, in order to always stay abreast of behavioral developments and attitudes towards the service amongst Bangladeshis. Thus, launching a “copy paste” money transfer service in a country where the population is not used to sending money to family members will likely not take up. Encouraging formal savings amongst a group that has never saved before will take time, awareness raising campaigns, and a good incentive for the customer to change behaviors. On the other hand, focusing on a habit, and improving the experience of comparable alternatives is often more successful than trying to create a new habit or a need. In essence, placing the customer at the center of the product development process is a winning strategy for our partners.

  1. Proper customer segmentation is key

Whether they are urban or rural, young or older, male or female, customers of digital financial services will have different attitudes and usage patterns of the service. Oftentimes, the customer segmentation considered by providers is limited to these basic demographic characteristics, while there are many more dimensions influencing the behavior of customers. After all, does separating customers amongst males and females create homogenous groups? Not necessarily. Segmenting customers in terms of behaviors and attitudes, as opposed to simply along demographic characteristics, can make a lot more sense to understand the different profiles of customers (super users, influencers, receivers, senders, etc.) and target them with offers that are meaningful to them. Looking at one dimension of the customer is rarely the best way to understand their behavior. In a recent project, our client asked whether gender was an important factor that would differentiate customers’ usage of the mobile money service. In fact, it is a common belief that women will be worse off than men with technology or financial services. When we concluded our analysis, we actually disproved this hypothesis by showing that there was not much difference in behavior and usage between men and women. Other elements characterizing customers can be much more important to explain their level of engagement with the service, in particular how they receive their main source of income (in cash or on a bank account), whether they are senders or receivers of money transfers, and whether they have their own business or not. Data mining of the customer database can yield precious information to better understand the drivers of usage and barriers to more frequent usage of the service.

  1. Trust in the channel plays an important role

Whether it is the agent, the ATM, or the mobile phone, the issue of trust is very important in driving usage of branchless banking and mobile financial services. It is common that banks are perceived by the banked and unbanked as trustworthy institutions where the money is safe. However, their agents, the mobile phone, and other means of electronic transaction are less favorably perceived. In Brazil, where banked and unbanked can make payments in cash at ATMs, customers who prefer to stand in line at the bank branch to perform the same transaction say they are afraid the machine will “eat” the bills and not confirm the transaction. Others mention they fear that the person in charge of counting the bills will not be as supervised as the teller is, and could easily steal a few bills. In Nigeria, customers prefer to transact at the bank even though they enroll in a mobile money program, because they feel it is safer than at the agent. The agent, or the shopkeeper who represents the bank, does not always offer the same privacy as a bank branch, for example. Therefore, providers should endeavor to build more trust and explain more clearly to their customers where the money goes after it is deposited at one of the available alternative channels.

Although there are many more lessons from the field that we could present here, these three lessons all have to do with the way in which the customer makes decisions to use a service or not. Providers should pay more attention to the different kinds of customers they are dealing with, and focus on customers’ habits and what can be improved compared to their current experience. Thus, understanding and listening to your customer is a central strategy to drive usage of branchless and mobile financial services up.  We’d be interested to read your experience with drivers of service usage in the comments to this blog post.

A ‘local’ answer to financial inclusion

Written by Santhosh Thiruthimana

A small ‘local area’ bank and a Business Correspondent (BC) company in India may be showing the way forward in using agent channels to provide savings services to low-income clients.

Around the world, policy makers are talking about financial inclusion and how, through connecting people to the formal banking system, it is a tool to end poPicverty. The G20, World Bank, and UN agencies are all working towards bringing access to finance to low-income populations. However, in our work, we often hear about the lack of a business case for the provision of low value savings, or other services by banks to low-income people – not only in India, but all over the world. Yet, our work has also shown that the path towards financial inclusion can be profitable for those willing to travel it.

Most mobile financial services (MFS)/ branchless banking (BB) service providers make profits on remittances and bill pay products that they facilitate, earning money per transaction. On the other hand, savings products are generally considered as a ‘push’ product, for which a lot of additional investments, in terms of financial education and below the line (BTL) marketing, is required to drive adoption. This has been proven through  many initiatives by banks and mobile network operators (MNOs) and other payments service providers.

However, KBS bank in India, a Local Area Bank that works only in two states of India, Andhra Pradesh and Karnataka, may be proving that with the right mix of agent channel, products, marketing, and customer service, savings products can be successfully delivered to low-income people, while also generating revenue for the bank as well as the payments service provider – in this case, Sub-K, a company that uses mobile technology and agent networks to provide branchless banking services to low-income people.

As can be seen from the chart below, KBS bank’s deposits grew from Rs. 140M ($2.3M) to Rs. 210M ($3.5 M) through the agent channel provided by Sub-K in 2013-2014. This is a huge growth of Rs. 70m ($1.2M) in savings for the bank, which is helping the bank to fund all its assets from its own funds, thereby lowering cost of funds and increasing its profitability. For any agent network or bank, generating Rs. 70m in deposits within a year is a substantial amount, but for a bank that is limited to very few districts and two states, and focusing only on low-income people, as the achievement is quite significant. It is interesting to note that the steady growth in outstanding savings portfolio is not a short term ‘bump’ due to focused marketing activities for a short period, but rather a steady and sustained growth that can be observed over a year-long period. For reference, the total deposits of KBS is at Rs. 1.46 billion. [1]

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How did KBS and Sub-K achieve this? Enclude assisted KBS to develop new savings products and expand BB channels through a project from 2009 to 2011 – channels that the bank have been nurturing and further developing after the close of the project. Since the bank has a core focus on providing services to low-income people, it developed savings products that match the cash flows of low-income people, allowing people to save on a daily, weekly, or monthly basis. The bank also made sure that people do not have to travel long distances and spend time to save at the bank by providing field agents (now Sub-k agents) where customers live and work.

To  enable this expansion, the bank had to invest heavily in technology and agent network development using own capital and a grant from Bill and Melinda Gates Foundation, managed by Enclude (formerly ShoreBank International). All those investments in technology, products and channels are generating dividends, in the form of profits and customer satisfaction, and the bank is now able to serve a larger population of low-income clients that are not served by other banks.

The key learning for Enclude and the Sub-K team was that it is possible to provide access to savings and other services profitably to low-income people, and that a DFS or BC company can make money in this business as well. To expand in new markets or customer segments the key ingredients for providers are a long term view, focus, risk appetite and patience.

[1] The bars indicate total amounts, in Lakhs of Rupees. One Lakh is 100,000 Rupees.

Branchless Banking in India: Ready for Take-off?

Written by Sachin Bansal

Customers in India using branchless banking

Financial inclusion seems a top priority for the newly elected Government of India (GoI). The Reserve Bank of India (RBI) recently announced the establishment of Payments Banks to provide payment services and deposit products to small businesses and low-income households, and it allowed non-banking financial companies (NBFCs) to function as Business Correspondents (BC) – a move that was long awaited. The Prime Minister, on the other hand, has announced the ambitious ‘Jan Dhan Yojana’ (PMJDY, or ‘Prime Minister’s People Money Scheme’), which aims to bring financially-excluded people into the banking system by providing them with bank accounts that have integrated insurance cards and debit cards.

Mobile companies have also been persuaded by the government to share their infrastructure to facilitate basic banking services through cell phones. Fund transfer, balance inquiry, change of PIN, mini statement, cheque book request, and other account services can now be initiated with simple text messages from ordinary handsets and without accessing the internet. Most of the telecom companies have signed an agreement with National Payments Corporation of India (NPCI) to facilitate the service. It will operate on Unstructured Supplementary Service Data (USSD) channel of telcos — a simple interactive messaging system. As such, the National Unified USSD Platform (NUUP) was successfully launched by NPCI recently.

Nonetheless, the journey towards full financial inclusion in India will not be easy. There is a big push by the government and the banking regulator to expand the traditional boundaries of banking in India to make financial services available to un(der)banked people. With a view to achieving greater financial inclusion, the RBI has been taking various initiatives to provide access to financial services for as many people as possible. In November 2005, banks were advised to make available a basic banking ‘no-frills’ account, either with ‘nil’ (0) or very low minimum balance, as well as very low or no service charges.

As per the Mor committee report (from the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, set up by the RBI in September 2013), only 36% of the adult population in India holds a bank account (the figure for urban India is 45% and while in rural India it is 32%).

It is alarming that this is the state of financial inclusion in India, the country that hosts 17.5 % of the world’s total population. Highlighting the problem, studies show that close to 50% of the existing bank accounts in India remain dormant. A major chunk of these dormant accounts include the No Frills Accounts (NFA), where dormancy is as high as 80%, suggesting that many low-income customers aren’t making use of their accounts.

There has been considerable growth in developing alternative delivery channels for financial services in past eight years. The framework for the BC model was created in 2006, helping to accelerate a gradual shift from traditional branch banking models to branchless banking options, such as BC outlets, Ultra Small Branches, ATMs and Kiosks operated by private players. The latest in these efforts is the RBI’s decision to allow two special classes of banks: “payments banks” and “small finance banks”. Released guidelines allow telcos, payments service providers and pre-paid card issuers to apply for payments bank status while existing NBFCs or MFIs can apply for Small Finance Bank license. Both of these initiatives are keeping financial inclusion as the core objective and it is believed that this new class of banks may provide the needed boost to financial inclusion in India.

There are some encouraging signs of progress. According to RBI statistics up to March 31, 2014, the number of banking outlets in villages has increased to nearly 384,000 (at least one outlet for every two villages); the total number of BC outlets in urban locations has increased to 60,730; the total Number of Basic Savings Bank Deposit Accounts (BSBDAs) stand at 243 million, and; nearly 328 million transactions were carried out through BSBDAs during the last year.

In the current regulatory scenario, it is not difficult to open a basic bank account with the relaxed Know Your Customer (KYC ) guidelines for low-income customers. India’s system for providing a unique government ID, called Aadhar, has also played a key role in overcoming KYC challenges. Customers can now open a bank account through a BC at any agent outlet in their neighbourhood. Such accounts are not only serviced by banks but also by BC companies like Sub-K, FINO, Eko, and others.

The biggest challenge now is to encourage people to use this huge network created over past 8 or 9 years. There are a lot of challenges but there are signs that India is on the road to financial inclusion. What we now need now is to leverage the existing infrastructure, along with financial education, to make this network realise its full potential.

Transformation of NGO models – Footprint Expansion through Branchless Banking

Written by Ali Akram

Marketplace in Tharparkar

Branchless Banking (BB), in its different forms and configurations, holds promise for expanding access of financial services. It has enabled financial institutions to break free from the conventional brick-and-mortar branch setup and has provided convenient access to financial services for those at the bottom-of-the-pyramid.

Pakistan has one of the highest per bank populations in the world, with roughly 15,000 persons per branch. At the same time, the limited banking network of 10,600 branches has greatly marginalised the rural population. Conventionally, Microfinance Institutions (MFIs) and Non-Governmental Organization (NGOs) have anchored their branches to those of commercial banks, which provide them essential services such as security, liquidity, and cash management support for micro-loan disbursements and repayments. Hence, the banks’ limited branch networks are also limiting the expansion of NGOs and MFI working for the uplift of communities in rural areas.

MFIs and NGOs in Pakistan started leveraging BB agents in 2011 and presently ten NGOs and MFI’s are utilizing the agent networks for disbursing and collecting micro-loan repayments. Transferring cash-handling out of their branches has allowed these institutions to improve transparency and reduce operating costs, freeing up resources to grow their deposit portfolios.

Footprint Expansion through Branchless Banking

A recent assignment took me to Tharparkar, one of the most desolate and impoverished districts of the Sindh province in Pakistan. Largely a desert, it is ranked as the most food-insecure district in the country by the World Food Program, with hundreds of lives being lost each year to disease, drought and famine. It is there that I witnessed branchless banking not only holding true to its promise of delivering financial services efficiently in a remote, underdeveloped rural area, but also aptly transforming the scaling model of NGOs and MFIs.

A MFI in Tharparkar had succeeded in breaking the barrier of the bank-branch centric operating model by leveraging BB agents to expand its operational footprint. Working with BB providers, the MFI has cultivated a sustainable network of agents that provide it with vital cash management services, thereby allowing the MFI to expand its operations beyond the reach of conventional banks.

Previously, clients would deposit loan repayments at the MFI’s branches and a manual receipt was issued to the client by the branch account officer. The officer would deposit the collected cash in the nearest bank the same day and prepare a recovery sheet which was sent to the MFI’s area office along with the bank deposit slip. These were consolidated, reconciled and entered in the MIS every day by a dedicated staff person at the area office.

MFI’s New Branch, Independent of Bank Branch

Having diverted 98% of all collections and disbursements to BB agents, the MFI has eliminated cash-handling, and digitization has eliminated the manual preparation and entry of daily collection records. By converting to branchless banking, the MFI does not require account officers at its branches and has reduced its operational costs to 12-14%, from a previous high of 22-24%.Cost savings were achieved primarily through reduced administration and personnel expenditures. Relying solely on BB agents for disbursements and repayments, the MFI has not only removed cash-handling at its branches, but also its existential dependency on bank branches. This change in practice is allowing the MFI to scale-up and extend the reach of its micro-finance activities into areas which were previously unserviceable. The agents have become an essential component of MFIs’ distribution channels and this transformation has also led to reduced risks thanks to the efficiency and transparency BB embodies.

Needless to say, the use of agents has immensely benefited clients as well. Enabling them to transact at the nearest agent location outside of normal banking hours provides them convenience and efficiency through reduced travel time and costs. One of the MFI’s clients professed:

“Almost a whole day would be wasted every month as I would have to walk fifteen kilometres to get to the nearest bank to make the loan repayment, now I do it at the merchant within my village on the way home after grazing my goats.”

Witnessing this transformation has greatly strengthened my belief in the potential for spurring development through this new model of banking, particularly in rural and remote areas. Meeting at the crossroads of finance and technology, banks, telco operators, merchants, and NGOs/MFIs are leveraging the best of what each has to offer through branchless banking. The service is allowing NGOs and MFIs to accomplish more with fewer resources and to increase outreach, providing them scale required for meaningful impact.