Priorities for Branchless Banking (Part 3 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.

Branchless banking is best conceived of as the construction of a network utility. In the third of three blog posts we’ve featured this week, Ignacio emphasizes the applications of this utility for poorer customers.

Priority #4: Delivering a range of financial services

The fourth priority, and from the point of view of the Bill & Melinda Gates Foundation the ultimate proof point, is the successful delivery of a range of financial services to currently unbanked poor people over these transactional platforms. Priorities #1-3 are about building efficient, ubiquitous transactional rails, which can shore up the business case for the widespread distribution of financial products on a mass scale. But still those financial products need to be appropriately designed, branded, marketed and loaded onto the rails.

There are two sets of critical issues that will determine success on the product front. The first set of issues relates to the access that banks have to the transactional platforms. On the one hand, banks can seek to control the transactional platform either by building it themselves (such as the examples of Latin American banks listed above) or in partnership with a telco (such as the Tameer/Telenor tie up in Pakistan). Alternatively, banks can negotiate access with the platform provider (such as Equity Bank in Kenya has done to offer the M-Kesho product jointly with Safaricom using the M-PESA platform as a transactional front-end). The latter approach may reduce the negotiating power of banks in front of the transactional platform owners, but on the other hand there would be efficiencies in having multiple banks hosted on a single transactional platform managed on an arms-length basis by a third party rather than having each bank invest in and develop their own.

The second set of issues relates to the practicalities of selling and servicing a range of financial products when customers are remote from the bank. It is still an open question whether the retail networks that serve as cash merchants will be appropriate to sell a range of financial services beyond basic account opening. It is likely that banks will need to figure out separate, more sophisticated cross-selling channels, which are likely to be more under their direct control than the relatively commoditized cash in/out business. And once the service is sold, customers will need to be presented with an intuitive user interface on their mobile phones so that they can effectively manage multiple products (think of several savings accounts, loans, insurance) on their own. There will need to be a lot of experimentation and innovation in user interface design.

In conclusion

Branchless banking offers a path to scalability and impact. Early successes like Bradesco and M-PESA are only the first step, but they do invite us to imagine what is possible. While we can feel comfortable about the compelling logic of branchless banking, we can expect it to be a long journey before it fulfills our vision of powering universal financial inclusion at the base of the pyramid. Given that, it is important that we be realistic in setting milestones, judging progress and calibrating policy or philanthropic interventions.

- Ignacio Mas