Can Branchless Banking Be Profitable?

This is the fifth and final piece in the five-part series launching CGAP’s Agent Network Management Toolkit (available to download and highlights are on CGAP’s website). The toolkit is based on more than a year of research that yielded data on more than 16,000 agents in Brazil, India, and Kenya. In-depth interviews were conducted with 466 agents, agent network managers and providers, including mobile network operators, banks, MFIs and technology companies.

The previous four blogs in this series have focused on the agent and the critical role he/she plays in registering customers and helping them transact. However, agents are only one of a number of links in the branchless banking supply chain. Each link plays a critical and coordinated role to deliver services to the customer. Typically, MNOs, banks, technology companies, agents and agent network managers all play some role. At the end of the day, everyone in the supply chain has to make money somehow. In the M-PESA implementation, Kenyan customers made enough transactions and paid enough fees for money transfers to generate enough revenue for every company in the supply chain. Unfortunately, early evidence demonstrates that this business model has been the exception to what has happened in most implementations in the world. Most implementations are still trying to figure out how to generate sufficient revenue to sustain everyone in the supply chain. Most importantly, in many cases the end customers themselves will not provide adequate revenue for the entire chain.

The Agent Network Management toolkit comes with a financial model to help providers project the revenues generated in a branchless banking implementation for each member of the supply chain. The financial model is based on user-defined assumptions about the number of active account holders and the average number and type of transactions they conduct in a month. The financial model outputs a set of tables and graphs that demonstrate the basic business model of each company, showing revenue sources according to the transaction volume in the entire system. The model can be used to analyze the financial flows at current levels and tariff structures, and all of the variables can be changed to assess alternative scenarios.

In testing the model on different implementations around the world, we learned a great deal about the wide range of business models in play. Successful implementations will increase revenues through some combination of increasing the transaction volume and by the supply chain companies increasing their own core business benefits. In Brazil, for example, bank’s cost savings and increased foot traffic in agent stores drive the business model. In many implementations, MNOs may well find that they generate enough revenue from lower commissions and increases in airtime sales to justify distributing most of the revenue from their mobile money implementation to other members of the supply chain. And in all implementations, third parties such as governments, utility companies, merchants and employers may be willing to pay significant fees to use the channel to make or receive payments.

The branchless banking industry is still early stage but gaining momentum. We think that the Agent Network Financial Model will help providers gain a clearer picture about how to combine different business models into a supply chain, and that this will facilitate innovative partnerships between the players.

- Mark Flaming