Microfinance and Mobile Banking: Blurring the Lines?
A new CGAP Focus Note, Microfinance and Mobile Banking: Blurring the Lines, finds that the MFIs that have been the most successful in leveraging mobile banking are located in markets where the technology has already matured, where agents have already been established and where customers are already experienced with viable mobile banking solutions.
In January 2012, a new banking business was about to emerge in the Philippines. After being in the wholesale microfinance lending business for two years, BanKO (which is licensed as a savings and thrift bank) was ready to jump into retail microfinance by using the mobile phone as its main channel. With years of experience at Bank of the Philippine Islands (BPI), Chief Executive Officer Teresita Tan knew all too well the high cost of branch operations and recognized that leveraging the mobile phone would be critical to successfully establishing a low-cost business that was scalable. What emerged was a new microfinance bank that offered customers payment, savings, credit, and insurance products accessible primarily over the mobile phone and at BanKO’s 2,000 partner outlets. As a customer builds a savings history, she qualifies for loans that are directly disbursed into her BanKO account without any prior in-person due diligence.
BanKO represents a new business model that has emerged over the past few years since CGAP first wrote about the intersection of microfinance and mobile banking (m-banking). However, at this point, BanKO is an exception. Most microfinance institutions (MFIs) are still grappling with how best to leverage m-banking for their own operations based on their own legal and regulatory frameworks and operational contexts. This paper explores the latest evidence of how m-banking impacts the way MFIs carry out their core business and serve their customers, as well as the new business models that are emerging.
Before turning to the latest evidence from MFIs using m-banking, it is worth providing a current overview of the m-banking industry. According to the GSMA’s 2012 Mobile Money for the Unbanked Global Mobile Money Adoption Survey, there are currently 150 live mobile money deployments in 72 countries, with 41 deployments having launched in 2012 alone. Eighty-two million customers are registered globally, 30 million of which have active accounts. These services use 520,000 mobile money agents to carry out customer transactions. While 61 percent of the volume of mobile money transactions is airtime top-ups, 82 percent of the value of transactions is person-to-person transfers.
These numbers clearly demonstrate the continued growth of the mobile money industry, yet there remain key obstacles to its sustained growth and to the value it brings to the poor and unbanked. Effective agent network management continues to be difficult to operationalize. Many agents have difficulty finding a strong business case in mobile money and have unexpected costs around liquidity management. Only 63 percent of registered agents are considered active. While customers may register for the new service, many of them do not continue transacting or transact only occasionally. As a result, many deployments find themselves with a large, inactive customer base and are at a loss as to how to incentivize these customers to be more active. In fact, only six mobile money providers have managed to accumulate more than 1 million active customers.