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Sarah Rotman_CGAP_Branchless Banking 101

Hamilton McNutt
April 25, 2012
150

Sarah Rotman_CGAP_Branchless Banking 101

Sarah Rotman of CGAP was kind enough to present her fantastic slide deck on the basics of branchless banking to NetHope's Payment Innovations Working Group in March 2012.

Hamilton McNutt

April 25, 2012
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Transcript

  1. 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
  2. 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   3
  3. 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. 4
  4. 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 5
  5. Bank   Agent   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   6
  6. 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 - + Agent   7
  7. 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 8
  8. Mobile penetration 0.0   0.5   1.0   1.5  

    2.0   2.5   3.0   3.5   4.0   4.5   5.0   Billions   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 9
  9. 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 10
  10. 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 11
  11. 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 12
  12. 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) 13
  13. 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 14
  14. 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 15
  15. 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 16
  16. 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 17
  17. 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 18
  18. 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
  19. 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 20
  20. Innovation: Over 20 financial institutions linked to M-PESA Microfinance Banks

    Start-ups Commercial Banks Insurance Companies 21
  21. 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
  22. 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       24
  23. 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 25
  24. 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