Mobile is an excellent channel for delivering life-changing financial services to poor and unbanked people, without requiring a traditional bank with a branch network. Mobile money (m-money) or banking (m-banking) has the potential to provide these people with services that many of us take for granted, such as the ability to deposit, withdraw or transfer money, pay bills, be paid wages, purchase/redeem tickets or vouchers, obtain a loan and purchase goods and services such as insurance.
The Consultative Group to Assist the Poor (CGAP) at the World Bank is dedicated to bringing financial services (known as microfinance) to the unbanked and under-banked population. Claudia McKay is CGAP’s microfinance expert specialising in m-money and branchless banking.
• You can catch Claudia McKay at AITEC Banking & Mobile Money West Africa, in Ghana, 8-9 June 2011 (win free tickets here).
Q1. What is CGAP and what role does it play in m-money?
CGAP is an independent policy and research center dedicated to advancing financial access for the world’s poor. It is supported by over 30 development agencies and private foundations which share a common mission to alleviate poverty. Housed at the World Bank, CGAP provides market intelligence, promotes standards, develops innovative solutions and offers advisory services to governments, microfinance providers, donors and investors.
The CGAP Technology Program works to expand access to financial services for the poor using mobile phones and other technologies. It is co-funded by the UK Department for International Development (DFID), CGAP and the Bill & Melinda Gates Foundation.
CGAP prefers to use the term ‘branchless banking’ instead of m-money, since other technologies such as point-of-sale devices and smartcards are also used to reduce costs and bring banking services closer to the end customer. Branchless banking is the use of information communications technology and nonbank retail agents (retail stores, gas stations, lottery kiosks etc.) to deliver financial services to low-income people who are beyond traditional banking channels.
CGAP works in a variety of ways to support the development of branchless banking around the world, including funding demonstration pilots, providing advisory services, conducting research and disseminating knowledge.
Q2. What role does m-money/branchless banking play in the reduction of poverty and financial exclusion?
Technology is rapidly changing the way people can get basic financial services. Mobile phones and other front-end technology solutions have dramatically altered the economies of bringing financial services to poor people who have been excluded from formal financial services because of geography and costs. Mobile phones are fast penetrating into low-income populations. Today, 1 billion people in the world have a mobile phone but do not have a bank account – this makes mobile phones a direct conduit to nearly half of the world’s unbanked population.
The data reveals that branchless banking can reach large numbers of the unbanked relatively quickly. The CGAP paper Branchless Banking 2010: Who’s Served? At What Price? What’s Next? (McKay/Pickens, 2010) looked at the outreach of eight branchless banking providers around the globe for which good data was available by drawing on 13 different studies – these were Banco Postal (Brazil), FINO (India), Globe GCASH (Philippines), Safaricom M-PESA (Kenya), Smart Money (Philippines), Vodacom M-PESA (Tanzania), WING (Cambodia) and WIZZIT (South Africa). These eight providers have on average 3.73 million active registered users, of which 37 percent or 1.39 million were previously unbanked. Five of the eight providers reach more previously unbanked clients than the largest microfinance institution (MFI) – organizations set up to deliver financial services to the poor and unbanked – in the same country. These five branchless banking providers grew quickly, surpassing the largest MFI’s customer numbers within three years – today they are on average 79 percent larger. It should be noted that the services offered by the MFIs and branchless banking providers can be quite different, but both groups meet a widespread need for financial services for which clients are willing to pay.
M-PESA in Kenya, the biggest success story in the world of m-banking, demonstrates that branchless banking can reach low-income and unbanked people on a grand scale and offer them access to valuable financial services. These people may not be the early adopters, but they will participate as the service takes off.
The Economics of M-PESA (Jack/Suri 2010) reveals that between 2007 and 2009 the percent of M-PESA users who were unbanked doubled (25 to 50 percent) and the number living in rural areas also increased (29 to 41 percent). M-PESA users are not just using the service to send and receive money – 81 percent of customers now use M-PESA for savings, for example. Most importantly, 91 percent of people said their lives would be impacted negatively if they no longer had access to M-PESA.
Q3. How many people use m-money/branchless banking worldwide and how many providers are there?
CGAP estimates that at the end of 2010 there were 238 million (up from 181 million in 2009) customers registered for branchless banking services – of these approximately 185 million (up from 137 million in 2009) were active users. We are currently seeing growth of 31 percent in registered users and 35 percent in active users.
The number of providers is also growing fast. At the end of 2010 there were 96 deployments around the world, of which 50 have active customers and 22 services have over 1 million registered customers. In contrast, at the end of 2009 only 30 deployments had active customers and 15 had over 1 million registered customers.
Q4. Which regions and countries are making the most progress?
As Kenya has been m-banking’s big success story, it is no surprise that there is a lot of activity in sub-Saharan Africa. In fact, there are 51 live deployments in this region – far more than in any other region. Sub-Saharan Arica has a large number of small countries and also has more permissive regulatory environments than other regions.
Apart from Kenya, the countries with the largest number of active m-money users are: Russia, where services use advanced ATMs that allow cash deposits as well as cash withdrawals; Brazil, where bill payment at agents has reached almost every municipality; and India, which is driven by the distribution of government payments.
In some countries, particularly in Latin America and South Asia, many regulators are insisting on bank-based models. It will be interesting to see how services develop in these countries compared with the m-money services set up by mobile network operators (MNOs), which have been far more common to date.
Deployments of m-money/branchless banking by region (CGAP):
• Sub-Saharan Africa: 51
• Latin America and the Caribbean: 19
• East Asia and Pacific: 15
• South Asia: 10
• Middle East & North Africa: 1
• Europe & Central Asia: 1
For detailed country information, including data on the regulatory environment, competitiveness and customer adoption of mobile banking in various countries in the world, take a look at the World Economic Forum/Boston Consulting Group World Economic Forum report: The Mobile Financial Services Development Report 2011.
Q5. What are the key barriers and challenges to m-money/branchless banking worldwide?
Despite the considerable enthusiasm surrounding branchless banking, replicating the success of M-PESA is proving difficult. Providers in other countries will need to be more innovative and tailor their approach and products to the local market.
The challenges faced in building viable branchless banking services are the following:
• Regulatory challenges – only a handful of countries have branchless banking or e-money regulations. We are still at an early stage and are trying to work out what is the appropriate level of regulation. Regulators have raised many legitimate questions and concerns on issues that seem risky, such as using retail shops to conduct banking transactions.
• Large-scale customer adoption – the number of live m-money deployments belies the small number of people in developing markets who are actually using these services. Often, only a small fraction of registered branchless banking customers are actively using the service. There is a lot of work to do on understanding customer demand and developing and marketing products effectively.
• Distribution and agent network – a well-developed agent network is essential in order to achieve scale. In addition to providing vital cash-in and cash-out services, they are important for building trust for first-time users of formal financial services. Unfortunately, the business case for agents is often weak and there are high rates of agent dropout.
• The business case – ultimately, the branchless banking provider needs to make profits out of this business. However, the business case is not obvious – often the biggest benefits will be indirect, such as an MNO that provides m-money services might experience increased customer loyalty/reduced churn among its voice customers. Branchless banking providers need to offer a greater variety of products and have other entities beside customers paying into the system (e.g. companies to pay salaries, governments to pay for social transfer payments, etc.)
CGAP is conducting research and work on all of these topics. More information can be found on the website and on the blog.
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