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.
Likely offering an even larger opportunity, however, are the changes in regulations regarding e-money and MNOs currently underway. While e-money isn’t currently prohibited in Peru, regulation surrounding it is still largely undefined implying that expanding financial services to the poor through mobile phones hasn’t yet taken off. Instead, branchless banking has taken the form of third-party agents, generally small business owners, offering cash-in cash-out services, and utility and (micro)loan payments. Rather than customers using mobile phones, agents transact through a POS device which communicates with the financial institution through a satellite chip or internet connection.
However, with banking penetration at only about one quarter of the population and mobile phone penetration near 70% and growing, mobile money presents a big opportunity for increasing the ease and reach of financial transactions. Additionally, because more than 80% of agent networks are currently located in Lima and other major cities, the use of mobile phones could significantly expand financial access to rural populations in the future, provided that construction of required telecomm infrastructure is also undertaken. While Yellow Pepper, a mobile financial services provider, has partnered with MNOs to offer SMS and top-ups, it doesn’t yet offer mobile financial services in Peru as it does in other Latin American countries. In fact, there are currently no mobile money financial services in Peru, though it is likely that existing MNOs such as Movistar, Claro or Nextel will soon move into the space. The question then becomes which MNOs and financial institutions will partner to enter into the mobile money space and when regulation will allow this to happen.