• Equity launches cellphone banking
• Safaricom, PesaPoint in money transfer deal
• Juniper Forecasts $600 Billion in Mobile Payments by 2013
• Mobile operators to benefit from open ecosystems - study
• Western Union coming back to South Africa

What do these countries have in common: Kenya, Pakistan, Mongolia, the Maldives? They share political challenges, conflict, as well as having highly dispersed populations across varied types or terrain.

They are also pioneers when it comes to mobile phone banking. Here’s why.

For financial services, there are few alternatives to cell phones. Banking infrastructure (branches, ATMs, POS at stores, internet penetration, etc.) in these markets is dismal and slow to change, but cell phone penetration is growing fast. There are four mobile operators in Mongolia, a country with the world’s lowest population density (1 person per sq km) and where 400 villages are spread across a vast geography the size of the lower 48 US states.

People incur high transaction costs to reach established banking services. Banking via cell phones at a local store can make a big difference in the lives of poor people who easily travel 20 or 30 miles just to get to a bank branch. In the Maldives, government employees and fishermen alike on one island must travel 4 hours by boat once a month to Male’, spending Euro 2.50, simply to deposit or collect their salaries.

High cost environments create demand for new ways of doing things. In countries like Kenya and Colombia, high crime and difficult geographies make it extremely expensive to move cash. In this context, technology-enabled banking channels that cut the cost in half can be game changing. Electronic means of moving cash are attractive when people are often vulnerable to theft. It is still quite common in Kenya and Philippines to hand an envelope stuffed with cash to a bus driver headed to family up-country.

Financial institutions are looking for alternatives in order to gain market share. Tameer Bank in Pakistan, Equity Bank in Kenya, and XacBank in Mongolia have staked their reputations and their business success on breaking the mould of doing business in their country. They are microfinance banks, but they want to reach millions of new clients quickly and it is not easy to do that with capital and labor intensive branch networks.

Political turmoil does not stop these companies that easily. In the past year, both Kenya and Pakistan experienced political violence. Almost a week after Tameer Bank found a telecom partner for mobile banking, two of its branches were looted and destroyed in rioting in the aftermath of Benazir Bhutto’s assassination. 72 hours later the branches were up and running again.

• Branchless Banking - Proceed With Caution
• Bangladesh - Mobile banking rattles banks
• India - Mobile banking guidelines likely in a fortnight
• How mobile banking is fueled by emerging markets
• Mobile Payments and Contactless Stickers

There’s a limited (if steadily growing) list of pioneers among mobile banking implementations reaching lower income clients…GCash, M-PESA, Wizzit, etc. Most of the buzz focuses on how they differ from traditional banking. But we realized we knew very little about how these pioneers rate against each other. Pricing seemed like a good place to start, since we’ve been itching to better understand that.

Sarah Rotman and Mark Pickens of CGAP’s Technology Program pulled together a pricing table – perhaps the first of its kind publicly available – comparing the prices of 6 branchless banking pioneers: GCash and Smart Money in the Philippines, M-PESA in Kenya, WIZZIT and MTN Banking in South Africa, and Tameer Microfinance Bank’s pilot with POS terminals in Pakistan. We also put them head to head with the “big four” banks in South Africa, where good pricing data was available. We eliminate differences across countries and currencies using the World Bank’s latest purchasing power parity figures.

This is a work in progress, and comments are welcome. What we found was unexpected: at least one freemium mobile banking pricing scheme (read on to find out who). And while our research confirms the common view of these pioneers as cheaper than banks, we discovered some may not be affordable to the poor. This (a) raises some key questions about uptake among lower-income, mass market clients, (b) shows industry is still very early in understanding how to price m-banking, and (c) ought to give regulators pause if they’re considering imposing a price cap.

Read the rest of this page »

• Promueven la Banca Móvil
• New Study Analyzes 13 Mobile Banking Vendor Platforms
• Vodafone Egypt acquires digital media specialist Sarmady
• New telecom operators to pull down user revenue
• Emerging markets will be crucial for future prosperity

Mobile operators have notched some high profile successes in offering financial services to the poor. Think M-PESA in Kenya or GCash and Smart Money in the Philippines. They’ve have logged several million users for their mobile money transfer services which appear cheaper and more convenient than traditional banking products.

Will banks respond by emulating their new competitors from the mobile world? Banks have an appetite for offering multiple products to their clients, so it would be a boon to the poor if banks wanted to ramp up their offerings via new electronic channels. But the emerging picture is not always rosy.

Many banks see mobile as merely a threat, according to IFC’s Andi Dervishi, who leads investments in alternative-payments systems for the IFC. “Banks remain conservative. They don’t see this as a big opportunity. They are taking a more defensive position, rather than offensive, and not really going after the customer. Their business model needs to be changed.” Countries like India, China, Brazil and Russia now have more mobile phones than ATMs, giving rise to the notion that mobile will support the next wave of innovation in banking in emerging markets where low-revenue customers means banks need to find low-cost channels. But instead of jumping to explore, most banks are playing defense.

Read the rest of this page »

• Zain Nigeria Employing 8,000 Staff to Protect its Base Stations
• Google News launches in 9 African countries
• Banks, Cognitive Dissonance and Underserved Consumers
• FINO plans smartcards for money transfers
• Banks panic over M-Pesa, Sokotele
• Postal Payment Service Agreement to expand unbanked money transfers

A recent blog post running on PCWorld highlights the idea of delivering aid via mobile phones. No doubt there’s real potential – we certainly think so. Consider how social protection grants are getting to some of the world’s poorest via bank cards in South Africa, Malawi and Kenya.

Going electronic can knock down costs of getting help to people who need it. The bar isn’t set very high: 65% of USAID’s food aid budget is consumed by the cost of delivery, for example. Handing out cash grants could be much more cost-effective, while boosting demand for local farm production. Using direct deposit with a debit card can also reduce corruption - light fingered officials siphoning off funds for the poor. So branchless banking should help with the relief industry’s traditional stumbling blocks of cost and corruption.

Read the rest of this page »

I’ve just finished teaching a course at Boulder on the use of branchless banking channels and technology to reduce transaction costs. This was well-attended; the four-day, 10-hour course had 39 students, and a shortened single day, two-hour version had 20 students.

We had a very interesting class discussion on whether group loan repayments through branchless banking channels would undermine the group ethos, and there was surprising consensus in that it need not. Another much discussed topic was how to balance cash in and cash out at the agents, and how to promote savings on the back of electronic payments.

In terms of use of agents for deposit-taking, we know there is a very fundamental business model problem. Agents are used to taking something like 10% commission on selling a coke bottle, a mobile prepaid card, etc. So why would they do cash in/out for much less than 10% commission if that saddles them with extra security risks and extra trips to the bank? And with that sort of commission level, microsavings are dead. There are several answers to this:

• The practical solution happening out there: agents are used mostly for special transactions where someone is prepared to give them extra commission: mobile prepaid cards, international remittance termination, bill payment (if the utility wants to get out of collecting itself). But there is very little traction on savings.
• The purist solution: use product portfolio and marketing levers to balance cash in and cash out at the village level. Agents can then manage local liquidity as a ‘closed loop.’ This would need to work community by community, and there could be no universal answers. It would have more chance of working if branchless banking was a tool managed and used by local microfinance institutions with the required level of grassroots presence and understanding. But in my view it can’t work so long as branchless banking is the preserve of the larger banks and telecom operators, as today.
• Take the agent business out of stores. This gets away from high overhead and higher opportunity costs. Combine the susu collector with Wizzkids: roving people in market stalls, going door-to-door, etc., offering to buy and sell cash for electronic value. This way, you turn the agent problem into a livelihood activity.
• The shock solution: go for total cash substitution. Eliminate cash and you eliminate the cash in/out problem. Radical, but something that one colleague said could perhaps see traction in conflict areas. The security aspect can then be a powerful driver for eradicating cash by having clients express preference for electronic over cash payments.

The general feeling was one of excitement at the potential, but a realization that these channels will, at least for a while, be dominated by larger banks and mobile operators who have the wherewithal to invest in this area. MFIs should seek to share in their infrastructure rather than to try to create their own, knowing that interoperability will take a while to develop — just as it did for ATMs and POSs.

• Mobile Banking for the Poor
• Obopay, Grameen in alliance for mobile banking services
• Equity ranked top Bank
• Citibank and Octopus Team Up for Co-branded Card
• RFID Technology Comes of Age as Price is Right for Banks
• Mobile Subscribers to Hit 5.2 Billion in 2011