Branchless Banking 101
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Transcript of Branchless Banking 101
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Branchless Banking 101:
Technology & Business Model Innovation in Financial Inclusion Sarah Rotman March 29, 2012
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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)
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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
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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
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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
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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
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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
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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
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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
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Innovation: Over 20 financial institutions linked to M-PESA
Microfinance Banks
Start-ups
Commercial Banks
Insurance Companies
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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
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G2P: Changes over time towards electronic payments
Source: CGAP Research 23
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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
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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
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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
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Advancing financial access for the world’s poor
www.cgap.org www.microfinancegateway.org