MICROCAPITAL PAPER WRAP-UP: Scenarios for Branchless Banking in 2020, by Mark Pickens, David Porteous, and Sarah Rotman

Written by Mark Pickens, David Porteous, and Sarah Rotman, published by CGAP (Consultive Group to Assist the Poor) and the United Kingdom’s Department for International Development (DFID) in November 2009, 28 pages, available at: http://www.cgap.org/gm/document-1.9.40599/FN57.pdf

For this paper, CGAP (Consultive Group to Assist the Poor) and the United Kingdom’s Department for International Development (DFID) consulted 200 experts from more than 30 countries to ask “How can government and private sector most affect the uptake and usage of branchless banking among the unserved majority by 2020?” To answer this, the study identifies four important forces that seem poised to effect branchless banking:

• The changing demographics of users
• The actions of increasingly activist governments
• Rising crime
• The spread of Internet access via data-enabled phones even in poor countries and communities

The study also identifies four uncertainties related to branchless banking:

• Which types of entities will be allowed to provide branchless financial services?
• Will providers craft viable business models for services beyond payments?
• How will competition play out?
• How will consumer, business, and regulator confidence be affected by the inevitable failures that will happen?

Using these lists, the study imagines four scenarios involving fictional countries and organizations in which the forces and uncertainties combine to create four divergent outcomes by 2020:

1. “Bharatia: New generation linkages for traditional microfinance?”
Bharatia Services Limited (BSL) is a microfinance institution (MFI) that uses branchless payment services. The firm faces rising commissions for agents at bill pay points. BSL, therefore, is searching for an untapped market. The MFI begins to offer flexible savings and loan options for members of self-help groups (SHG), village-based savings and loan cooperatives. By this time, the SHG members have easy cell phone access. The offering is very popular with the members. They value the flexibility and simplicity. Prior, they could only get loans of a set size, interest rate, and tenor. Now they use their mobile phones to enter data about the SHG and the loan desired, and they are able access competitive pricing from a range of institutions. BSL praises the ease and low cost of implementing the technology and the large SHG market for potential expansion.

2. “Telmar: Leapfrogging to scale in a small, marginal market in the Pacific?”
The government of a post-conflict country, Telmar, offers a bank and a mobile network operator (MNO) an incentive to form a joint venture to enter unserved markets. The firms are, at first, not interested. Then, the deal improves in three ways: the incentive scheme is extended beyond Telmar to the entire Pacific region (presumably with cooperation from other governments), the venture is given exclusive rights to deliver social transfers (such as veterans’ payments), and an international donor agency creates a fund to support the venture. In the end, scaling back of regulation by the government leads to increased innovation which contributes to the success of the program.

3. “Ballooning branches and data-enabled phones in Amazonia?”
There is a court decision to mandate higher pay for non-bank agents. Banco Federal, a state-owned bank, is forced to focus on building branches and ATMs to meet a state financial inclusion goal, while many of the non-bank locations have closed because Banco Federal cannot afford to pay the court-mandated fees. Security is also a large cost for the bank, as crime makes it difficult to get cash to remote branches and ATMs. Meanwhile, PeerPay, an electronic commerce business, is taking customers from Banco Federal by allowing payments to be made via the Internet. PeerPay was not effected by the court ruling because “their touch points were deemed to be merchants, who acquired transactions, not agents who handled cash.” Banco Federal is under criticism for losing customers.

4. “MpayZ: Victims of success in the transition to less cash?”
MpayZ is a mobile payment company that has become successful. However, it is beginning to find that many of its agents are inactive, and will be terminated soon if they have not been already. This is because there has been a decreased need for customers to convert to cash via agents. Deregulation has allowed MpayZ to increase cashless functionality by, for example, allowing customers to use their balances to buy goods and services and to load MpayZ accounts directly from bank accounts, thus lessening agent activity.

By Christopher Maggio, Research Assistant

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