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Tuesday, May 20, 2008

New CGAP Study: Known Knowns And Known Unknowns About Branchless Banking

By Manuel Bueno

Front Page CGAP reportThis weekend I had the chance to read CGAP?s new report about branchless banking. The report is a short summary about the current state of the branchless banking market. To those readers who do not know anything of the market it is an easy introduction. To those readers who have been following the sector in recent months, it offers a good peek into the future of what branchless banking may become and what it needs to get done.

The paper lists off seven key observations about the current state of the market, in addition to four uncertainties about how the market will develop and four predictions. In my opinion, most of the seven observations are already well-known. Still, these known knowns are nicely and succinctly explained. Many of these observations were brought up during my interview (see part 1 and part 2) with CGAP?s Mark Pickens.In my opinion, the most important observation of all corrects the common misconception about poor unbanked people being offered this service. CGAP estimates that in fact less than 10% of branchless banking customers are poor and unbanked. However, CGAP also predicts that poor people will end up using mobile banking more than rich people in about three years, when the market matures and competition increases.

Furthermore, the report emphasizes the importance of developing a dense agent network (one of the reasons why mobile operators have led most mobile banking projects) and how shared agent networks between different banking providers will be crucial for increased savings and to start focusing more on the product offering rather than how to access additional customers.

This is, in my opinion, also related to interoperability between payment platforms. It all basically comes down to a customer being able to use a mobile phone to send money from account in Bank A to account in Bank B.

The key uncertainties or known unknowns are the most interesting part of the report and ask questions that even enthusiastic people like me do not think through enough. Will branchless banking be able to substitute the human touch? How to balance customer convenience and security measures? What about Know Your Customer (KYC) requirements and identity checks? These are all issues that will need to be solved at some point and the way each country deals with them will affect how branchless banking coverage will develop.

The final page of the report has a small list of the most important branchless banking projects to date. A country that is likely to come up in the future is Indonesia, a country with 225 million people which is about to experience an explosion in mobile phone usage. While Indonesia currently has 11 mobile operators and the industry is still in a learning process, the government has decided to push current operators to enable greater network expansion and improve the quality of service. Indonesia?s telecom sector could be currently undergoing a shift in its business model from high tariffs - low usage to low tariffs - high usage. What does this mean? Price will become a more marginal advantage and mobile operators will have to start offering more value-added services. Will financial services be among them? We will see.

On a similar note MTN, one of the most important mobile operators in South Africa and a pioneer in the branchless banking arena has received an informal offer for a controlling stake from Bharti Airtel, India?s largest wireless operator. Vodafone, also an important player in the South African market through its 50% ownership of Vodacom, has also appeared as a possible bidder for the company. Etisalat, a leading Middle East telecoms company, has expressed interest in China Mobile as another potential suitor. Notice that three of these four possibilities would create a mobile powerhouse in emerging economies.
For the time being, Bharti Airtel seems to be on first place and has already discussed with MTN a possible management structure. A merger would create a firm with more than 120 million customers in 22 countries across South Asia, Africa and the Middle East.
Check back with the News section in the coming days to hear the latest?!

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