The insider’s guide to banking the unbanked

Many of those financial services that people in the developed nations take for granted – somewhere safe to keep your money, to receive wages or funds owed, pay utility bills or transfer money to someone else (e.g. your family back home) – aren’t available to the majority of people, because less than one third of the world’s population have bank accounts. With its huge reach, mobile has the power to make the difference, and in some developing nations such as Kenya and the Philippines, it is already changing lives by bringing financial services to underbanked communities, using technologies such as the mobile wallet. It is also a key driver of mobile financial services as a whole – a sector that is widely predicted to boom.
mobiThinking took the opportunity to pick the brains of three experts on banking the unbanked. All three are speaking at the Mobile Financial Services Summit in Singapore, May 24-26, 2010 (mobiThinking readers get a discount for this event).
• For more analysis on mobile money, read Mobile money will make the world go round.

The contributors:
• Joanne Avendano, technical group head, G-Exchange Inc. Philippines mobile operator Globe Telecom set up GXI to run its GCASH mobile wallet, that allows customers to deposit, withdraw funds, send and receive money, make purchases, pay utility bills, tuition fees, make donations to charity and top up mobile credit. Each GCASH transaction costs PH?1.00 (US$0.02). In five years the GXI has set up partnerships with 50 rural banks and 18,000 outlets (where you can recharge your wallet) across the Philippines (while also expanding into 30 other countries) and has seen more than PH?5 billion pesos (US$110 million) in transactions.
• Ichwansyah Putra, product development manager for mobile commerce, Indosat. Indonesia’s number two mobile operator launched its mobile banking services in 2003, and today it works with 34 banks, providing mobile banking to 2.5-3 million customers. After running lengthy trials, demanded by the Indonesian central bank, Indosat eventually received its license for micro-payments and in November 2009 launched Dompetku (“my wallet”), a mobile wallet, with partnerships with retailers and banks. Indosat still awaits its license for remittances (the electric transfer of money).
• Teppo Paavola, vice president and general manager for mobile financial services, Nokia. The world’s top mobile manufacturer is setting up partnerships with operators, banks, retailers, agents and local service providers to bring Nokia Money to developing countries, starting with India, where Nokia is running trials with Yes Bank. This will allow the people, including the unbanked to send money, pay bills and pay for products, services and public transport tickets.

1) Is mobile the answer to banking the unbanked?
• With more than 4.3 billion people globally already using a mobile phone and less than 2 billion people having a bank account (out of a world population of 6.8 billion), it’s clear we’re talking about a major part of the global population. Being able to do transactions in a safe and secure way, as well as over distance, is a key part for people’s life, enabling them to build and grow their own life and business. Paavola/Nokia
• Mobile wallets (m-wallets) meet the needs of cellular customer who don’t have a bank account. In developing countries there are still many people who don’t have an account. For example, in Indonesia there are only 40 million banking customers – there are many reasons for this including the fact that many people live in rural communities far from a bank – but there are 160 million mobile-phone subscribers. Of all mobile financial services (MFS), the one with the biggest potential is remittance services, particularly the sending of cash from abroad. Putra/Indosat
• Mobile will play a significant part in the quest to provide banking or banking-like services to those at the bottom of the pyramid. Mobile is fairly simple to understand and roll out; it’s also cheaper and more accessible to everyone. Avendano/GXI

The following video is a how-to guide for GCASH customers in the Philippines.
The guide to banking the unbanked continues below…

2) What are the main challenges to mobile meeting the needs of the unbanked?
• The challenge is two-fold: first is the need to educate users that there is now a way for them to access financial services; second (and more importantly), we need to achieve a level of scale so that users can see and feel, wherever they are, that they can access appropriate financial services via mobile. Avendano/GXI
• One of the biggest barriers to MFS is the slowness of regulatory institutions, such as central banks, telecom regulators and governments to adapt the old rules to suit the m-wallet business model and to enable easier collaboration between mobile and the conventional banking systems. Putra/Indosat

3) To what extent is this issue being addressed today – what examples have inspired you from around the world?
• One country that has been successful in developing and implementing the m-wallet system is the Philippines. There are many similarities between the Philippines and Indonesia, they are both developing countries with diverse population spread across many islands and with many people working overseas. Putra/Indosat
• Besides GCASH, of course, the success of M-PESA is both inspiring and encouraging. The way users embraced this new method of performing financial transactions and the pervasiveness of the product is awesome. Avendano/GXI
• mobiThinking note: M-PESA (“mobile money”) is a SIM card-based service launched by Safaricom for its subscribers in Kenya in partnership with Vodafone in March 2007. Claiming to be the world’s first commercial mobile money transfer system, it met the banking needs of people outside the formal financial system. Three years later, it is now used by 9.5 million Kenyans who collectively transfer person-to-person KSh28.59 billion (US$366.783 million) per month. Transfers can be done by cell phone, by simply by entering the amount and recipient’s phone number into the menu. Deposits, transfers and withdrawals are done via a fast-growing network of 17,652 agents. M-PESA customers pay per transaction. Fees for withdrawal via agents or ATM and to transfer cash start at KSh25 (US$0.32); paying utility bills may costs less, depending on agreements with the organization being paid. International transfer is available through agents in the UK at UK£4.00 (US$6.00). The success of M-PESA has encouraged people to look at a host of other ways it can be used, from paying wages to mobile gambling. M-PESA has since been launched in Afghanistan, Tanzania and most recently South Africa.

The following video explains how M-PESA is used in Kenya.
The guide to banking the unbanked continues below…

4) Who is best placed to address banking of the unbanked: banks, mobile operators, third-party payment providers or others?
• It is all of them working together. We need an open and interoperable ecosystem, where all players contribute their core competencies making mobile financial services happen. We have seen some early stage implementations that are done in a closed loop. This will not scale. Cash itself travels independently and the same paradigm needs to apply to mobile payments and services. One should not need to know which phone, bank or mobile network the other party is with, mobile financial services can only prosper when all those parties work together in an open way. Paavola/Nokia
• There are so many business models out there. I don’t think there’s really a one-size-fits-all solution. Banks, mobile operators, third-arty providers can all collaborate to create a better solution tapping each entity’s strengths and competencies. Avendano/GXI

5) What are the opportunities for those organizations that get involved?
• There is a multitude of new opportunities for each of those players. For banks it is about getting closer to the consumer, issuing new accounts, enabling new transactions. For mobile operators it is about customer retention, new service sales channels and new marketing opportunities. For payment service providers it is about new value chains, new revenues and new customers. Paavola/Nokia
• Depending on the business model, there are opportunities for each entity to get involved. For GXI who runs the GCASH product, it was only logical that we as a mobile operator already host the channels and the core solution, while we have partnered with several banks to provide settlement solutions. Avendano/GXI

6) What is the best model for banking the unbanked?
• The best model for banking the unbanked is the most convenient consumer experience possible depending on the capability of the consumer’s device and mobile network. Any system should provide several interaction options allowing the consumer to choose the way and method preferred. Paavola/Nokia
• The preferred method for the unbanked in Indonesia, especially in rural areas, is messaging-based, using standard messaging systems such as SMS or USSD (unstructured supplementary services data) menu browser or STK (SIM tool kit), which all encrypt transactions. Putra/Indosat

7) What are the challenges – e. g. security?
• There are many challenges depending on the risk appetite of the entities involved. There are also regulatory issues. One thing that has made GCASH a success story is our collaboration with strong networks such as rural banks and our load (re-charging) agent network, which has helped to create the largest remittance/agent networks in the Philippines. Avendano/GXI
• There is a multitude of areas being addressed. Security needs to be in balance with the associated risk and fraud management, as well as the user experience. Regulatory needs and developments need to be incorporated. Cooperation frameworks need to be established. Distribution and logistics channels for the end-user need to be implemented. Trust and brand-related perceptions need to be addressed. So in all, there is still a lot to do. That’s where the different players in the ecosystem, i.e. the banks, the mobile operators, the payment service providers and others can drive forward together. Paavola/Nokia

The following video is demonstration of Nokia Money.