Branchless Banking 101:

Technology & Business Model Innovation in Financial Inclusion Sarah Rotman March 29, 2012

1. The basis of branchless banking

Agenda

2

2.  The state of the industry 3.  Areas of focus moving forward

4.  Q&A: of Role NGOs

What are the factors that limit access?

Long  distances  &  low  pop  density   High  bank  costs  rela7ve  to  income  

Low  educa7on  &  illiteracy   Poor  product/  channel  design  

3

Financial inclusion requires scale and presence

•  Traditional banks have scale, but lack presence in the places where poor people live.

•  MFIs have a presence in poor communities, but lack the scale.

4

Reducing Channel Cost of Banking Infrastructure

$250k Traditional branch

$50k In-store branch

$10k ATM

$2k Agent with POS terminal

$400 Agent with mobile

$0k No agent (cashless)

1.7 billion people worldwide have a mobile phone but no bank account.

Achieving scale and presence with technology

5

Bank  

Agen

t  

Client  

Branchless Banking: What do we mean?

Branchless banking makes financial services available outside of traditional bank branches through the use of available technologies: cell phones, magnetic stripe or chip cards, and

biometric applications. These new business models rely on a widespread network of agents, often retail locations, where customers can go to transact.

MNO  

6

Bank  

Client  

Branchless Banking: Cash-in

Client  opens  bank  account  (accessible  by  mobile  phone)  

Agent  opens  bank  account  (accessible  by  mobile  phone)    

2 Cash-­‐in  

3 Electronic  value  sent  

4 Agent  account  debited  

Client  account  credited    

1 1

- +

Agen

t  

7

1. The basis of branchless banking

Agenda

2.  The state of the industry 3.  Areas of focus moving forward

4.  Q&A: Role of NGOs

8

Mobile penetration

0.0  

0.5  

1.0  

1.5  

2.0  

2.5  

3.0  

3.5  

4.0  

4.5  

5.0  

Billion

s  Mobile ownership has boomed in poor countries since 2000

High-­‐income  countries   Low-­‐income  countries  

Sources: CGAP, Wireless Intelligence

3.3 bil unique mobile owners

1.4 bil

9

Mobile penetration vs. banking penetration

52%  

26%  

0%  

10%  

20%  

30%  

40%  

50%  

60%  

People  who  have  a  mobile   People  with  bank  account  

But emerging market consumers are still far from well-connected financially

2x  

Sources: CGAP, Wireless Intelligence

10

Provider costs

 $0.88    

 $0.43    

$0.00  

$0.20  

$0.40  

$0.60  

$0.80  

$1.00  

Teller  window   Agent  

Branchless channels can slash provider costs, enabling them to reach new clients

51%  

Average cost per withdrawal transaction for 4 Mexican and Colombian banks

Source: CGAP analysis

11

Customer costs

0%  

10%  

20%  

30%  

40%  

50%  

$0   $100   $200   $300   $400  

Axis  Title  

Axis  Title  

Still room to experiment with pricing to drive initial uptake, intensive use

BB  Price  as  %  of  PPP  of  value  transferred  

Bank  Price  as  %  of  PPP  of  value  transferred  

Branchless  banking  38%  cheaper,  on  average  

Source: CGAP analysis; PPP=purchasing power parity

12

Regulation

0%  

10%  

20%  

30%  

40%  

50%  

Countries  permiRng  banks  to  contract  agents   Countries  making  reforms  to  branchless  banking  regulaRon  

Regulatory openness and certainty is increasing for branchless banking

40%   36%  

Source: CGAP Financial Access (2010, 2009)

13

Business model is complex

0   2   4   6   8   10   12  

MNO  3  

MNO  2  

MNO  1  

Spread of 2 to 11 years to achieve major revenue (3 African MNOs with major mobile money services)

Years  to  pass  SMS  revenue   Years  to  deliver  10%  of  revenue  Source: CGAP analysis, company financial statements 2009 & 2010

14

Customer insight is critical

27%  

0%  

10%  

20%  

30%  

40%  

50%  

60%  

70%  

80%  

90%  

100%  

Lost  money  via  informal  instruments  

 $113    

$0  

$20  

$40  

$60  

$80  

$100  

$120  

Avg.  amount  lost  

Understand customer pain points moving money over time, not just distance

Sources: BFA and CGAP

15

Agent management is local

Hasita INDIA

$0.91 $0.32 $4.11

Vincent KENYA

Denise BRAZIL

Source: CGAP analysis Daily Agent Profits (USD)

Source: CGAP analysis

But a universal requirement is understanding the agent’s business case

16

1. The basis of branchless banking

Agenda

2.  The state of the industry 3.  Areas of focus moving forward

4.  Q&A: Role of NGOs

17

Key areas on learning agenda

1. Consumer Insight & Product Innovation

5. Interoperation

6. Market Ecosystem

4. Policy & Regulation

2. Business Models Ø  Agents Ø  Activating Customers

3. Government-to-Person Payments (G2P)

International Remittances

18

Consumers: Mobile money use by the poor

Kenya: Broad adoption across all levels of the population

Source: Jack & Suri, 2012; http://www.slate.com/blogs/future_tense/2012/02/27/m_pesa_ict4d_and_mobile_banking_for_the_poor_.html 19

Distribution of transactions at a Mexican Bank’s affiliated agents by day of the week and hour1 Percent of total transactions within a sample of agents

1.  Based on sample of 3,961 transactions

Mon

Tue

Wed

Thu

Fri

Sat

Sun

1 0 2 3 4 5 6 10 8 12 14 16 18 20 22 21 23 9 7 11 13 15 17 19

22.6%

36.0% 1.2% 40.2%

Business hours at Agent Partner

Business hours at branch network

Consumers: Improvements in user experience

20

Innovation: Over 20 financial institutions linked to M-PESA

Microfinance Banks

Start-ups

Commercial Banks

Insurance Companies

21

Most branchless banking providers struggle with high rates of inactive customers

Activation: Majority of registered customers are not actively transacting

120

21 11

0

20

40

60

80

100

120

140

Implementations launched after 2007

Implementations with >1 million registered

"Confirmed" implementations with >200k active users

1 in 11

1 in 6

While 120 branchless banking implementations have been launched since 2007 only 11 of those have reached 200k active users

In a CGAP survey, 64% of managers said less than 30% of their registered customers were active, and active rates of less than 10% are not uncommon

Source: CGAP and Coffey International, data as of Q1 2012. 22

G2P: Changes over time towards electronic payments

Source: CGAP Research 23

Regulation: Agent liability

•  Kenya:  mobile  network  

operator  expressly  disavows  liability  for  the  

agent  but          .  .  .  since  May  2010,  banks  are  liable  for  their  

agents      •  Brazil:  banks  legally  liable  for  agents  

   

24

Interoperability: Three levels

Branchless banking services can be connected or un-connected at three different levels:

Platforms Agents Customer 1 2 3

Customers of one account can send money to customers of another account

(cross-network, not off-network transactions)

Agents of one service serve customers of another service

Customers can access their account through any SIM

1

2

3

25

1. The basis of branchless banking

Agenda

2.  The state of the industry 3.  Areas of focus moving forward

4.  Q&A: Role of NGOs

26

Advancing financial access for the world’s poor

www.cgap.org www.microfinancegateway.org