Priorities for Branchless Banking (Part 2 of 3)

Ignacio Mas is Deputy Director in the Financial Services for the Poor program at the Bill & Melinda Gates Foundation. Ignacio has been a Senior Adviser in the Technology Program at CGAP, Director of Global Business Strategy at Vodafone Group, Senior Manager Intel Capital, and visiting professor of International Business at the Graduate School of Business at the University of Chicago. He is the author of many articles on branchless banking, which are available here.

In order for branchless banking to prove to be transformational, it needs to demonstrate not only that it can be scalable (priority #1), but also that it can work for a range of providers and for a range of customer segments – including the poor. These are the two next priorities for branchless banking.

Priority #2: Proving a range of partnership models

Going beyond the number of deployments, the second priority is to demonstrate a variety of models, and in particular a variety of scheme structures and partnership arrangements between banks, telcos and retail networks. The Kenyan M-PESA success is tempered by the 85% market share enjoyed by Safaricom in the mobile voice market. That circumstance is simply not there in most countries, and even where it is, it is by no means desirable to leave the market of financial services for the poor in the hands of a single player. There needs to be a level playing field where multiple players can reasonably contest the market, and where success is not premised on a single operator exerting its dominant position in the adjacent telco market to the exclusion of others.

Alongside the dominant telco scenario, we would ideally demonstrate viability of two further types of models. One is a telco-independent mobile money solution, where non-banks –whether banks, retail chains or independent third parties—can leverage deployed mobile technologies (networks and phones) without having to enter into specific partnership agreements with telcos. In this fashion they could build a branchless banking solution without having to go through the expense of rolling out large numbers of cards and point of sale terminals – which telcos don’t need to do. A telco-independent solution would need to circumvent ‘bottleneck assets’ controlled by telcos which are not offered on standard commercial terms, namely access to the SIM card and to the USSD communications channel. This requires the scheme promoter to develop an alternative security and user interface presentation mechanism.

The second type of model we would like to see happening is a multi-operator one, where a number of telcos with smaller market share decide to work together to create a new interoperable market for mobile money. This would be particularly desirable in countries like India or Tanzania where no operator has a commanding control of the market. This need not mean necessarily creating a single co-owned solution across operators. Instead, each operator’s mobile money platform could be interconnected to allow money transfers between wallets in different schemes, and they could share the cash merchant network in order to consolidate their transaction volumes at the store level.

Priority #3: Making it work for the poor

The third priority is to drive mobile money services into poorer population segments and to service smaller transactions. That is largely not happening today for most schemes, including M-PESA in Kenya for which the smallest round-trip person-to-person (P2P) transfer costs the equivalent of 72¢. Eventually we would like to see mobile money working commercially for providers and affordably for poor customers for transactions of as little as $1 or $2.

There are two key requirements to open up the low-denomination transaction market profitably. First, there needs to be sufficient volume of transactions to be able to amortize operating costs over a larger transaction pool. Thus, there is benefit in schemes broadening the usage base to include P2P, bill payment (C2P), salary disbursements (B2P), government welfare payments (G2P), etc.

Second, there needs to be a more segmented and diverse cash merchant channel. There is a limit to how small (and cheap) store-based transactions can be, before they start placing an unreasonable burden on the store. Poorer customers, especially those in rural areas, will need to be served through alternative channels, be they roving collectors, market-based resellers, or leaders of community-based organizations. There is a tantalizing possibility of savings-led groups providing a transaction consolidation and cash aggregation point from which it becomes efficient to connect the poorest people with mobile money systems. In this fashion, mobile money would leverage not only existing physical infrastructure but established social capital as well.

Tomorrow I’ll discuss my 4th priority for branchless banking.

- Ignacio Mas