by Denise Dias: Thursday, March 5, 2009
Today we welcome Denise Dias as a new blogger for the CGAP Technology Blog. Denise works on policy and technology issues. Before working with CGAP, she was employed by the Central Bank of Brazil most recently as a bank examiner and previously as a senior advisor for the licensing department. –Jim
A meeting at CGAP yesterday made me think about a recent blog from Mr. Hannes von Rensburg, founder and CEO of Fundamo. He believes regulation is not a barrier for mbanking projects around the world and to bank the unbanked. Does he have a point? Yes, he does. First, the “regulatory barrier” is the easiest scapegoat for nonbanks (read mobile network operators) that are not used – or willing – to negotiate with financial services providers and deal with prudential regulators. Regulation will not be an insurmountable barrier to a variety of branchless banking models in many jurisdictions. Providers (banks AND nonbanks) will probably find a workable solution with financial regulators by agreeing upon minor regulatory changes or alterations in the proposed business model. Second, there are other major obstacles for branchless banking to take off, such as finding the balance between profitability, client adoption/usage, and security.
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by Sarah Rotman: Tuesday, March 3, 2009
Recently, Ignacio Mas and I wrote a CGAP Focus Notes entitled Going Cashless at the Point of Sale: Hits and Misses in Developed Countries. We wanted to analyze the history of electronic money schemes in developed countries, more specifically in Europe and Asia. We thought it would prove a useful exercise as CGAP works towards sustainable branchless banking models in developing countries. As expected, our research shed light on important lessons.
In the paper, we discuss three broad approaches, and in each case we look at two providers who met different degrees of acceptance in the marketplace. Although our primary interest is with payment through mobile phones, we start with two cases that use smartcards, because these share many of the same characteristics and issues as payments through mobile phones. The last blog post looked at Mondex. Now we turn to Octopus.
In 1979, Hong Kong’s Mass Transit Railway (MTR) launched a prepaid card with a magnetic strip as a ticketing system for use with its rail services. In 1994, Creative Star (renamed Octopus Cards Ltd. in 2002) was formed as a joint venture between MTR and four other public transport operators in Hong Kong to make it an intermodal ticketing system (i.e., including buses, ferries, subway, etc.). The Octopus card, a contactless smartcard based on Sony’s FeliCa chip, was introduced in 1997, replacing the old magnetic strip cards. The card does not need to be physically inserted into a device to be read, which makes payment very convenient for users in a hurry: all they have to do to pay the exact fare is to swing their purse or handbag near the card reader.
The value is stored securely in the card itself. The card can be personalized for an extra charge with a photo, and personal data can be kept on record. If a personalized card is lost or stolen, the customer can reclaim the remaining value of the card, and the original card will be blacklisted to prevent its use.
At the time of launch, acquiring an Octopus card required a deposit of HK$50, which created widespread resentment with the new payment mechanism. However, adoption was driven by (i) very rapid conversion of all turnstiles to the new system; (ii) a short phase-out period for the old ticketing system of only 2–3 months; and (iii) a pricing scheme of the only remaining ticketing alternative—a single trip ticket—at a much higher price. This amounted to a compulsory conversion by all transport users, such that within 3 months, three million cards—a number equal to half the residents of Hong Kong—were sold (Siu 2002).
The Octopus system is now a widely used electronic cash system. By mid-2008, there were over 17 million Octopus cards in circulation (which is more than twice the population of Hong Kong), with more than 10 million transactions, worth HK$85 million, processed daily (Citi 2008). The cards are used by 95 percent of the population of Hong Kong aged 16 to 65; the average user stores around HK$63–65 on the card.
Van Hove (2005) notes that Mondex failed to take root in Hong Kong, whereas Octopus has taken root. Octopus had four distinct advantages over Mondex:
• Having signed up all the main public transport companies in the territory, Octopus had a de-facto monopoly with a large user base—mass transit users.
• Octopus focused on replacing cash in unattended POS—ticketing machines. The ability to present exact fares at all times through a smartcard at unattended machines offered a big convenience factor for users. In contrast, at least initially, Mondex attempted to replace cash in stores, where not having the exact change is much less of a bother for customers.
• Octopus’s contactless features made it extremely convenient for users—indeed, faster than using cash. The cards do not have to be inserted and, in fact, generally do not even have to be withdrawn from wallets and handbags, to be read by the card readers.
• The card’s personalization feature means that value can be retrieved by users who lose their card or have a faulty card.
You can read about the other cases we analyzed here.
by Jim Rosenberg: Wednesday, February 25, 2009
On the CGAP Microfinance Blog, my colleague Richard Rosenberg (alas, no relation to me) writes:
High microfinance interest rates is a hotly debated topic in a lot of places. Obviously, the answer for a given MFI depends on its particular circumstances–see for example the CGAP study of the controversial Mexican MFI Compartamos. Now, can we say anything about the overall picture worldwide? CGAP has published a new study based on data from the Microfinance Information Exchange. Individual observers will have their own criteria for judging what is excessive, but empirical data do shed important light on the question.
Read Rich’s post here.
Around the globe, mobile banking can bring low-cost financial services to millions of people, especially in developing countries where banking services are not readily available. It also has enormous potential to open new markets and business opportunities for organizations that can facilitate and advance it. The GSMA Mobile Money Summit 2009 will provide the insights, solutions and connections to make the most of this global phenomenon.
The second annual GSMA Mobile Money Summit will be held at Fira Montjuïc in Barcelona, Spain on 22-25 June 2009. The event will bring together senior executives from financial services institutions, mobile network operators, development organizations and solutions vendors, as well as regulatory and policy makers. The program will provide a comprehensive demonstration of the addressable markets, a showcase for new solutions, and a forum for sharing key success factors and lessons learned from around the world. The GSMA Mobile Money Summit 2009 will stimulate greater understanding and collaboration between all mobile money stakeholders globally, regionally and locally.
Recently, Ignacio Mas and I wrote a CGAP Focus Notes entitled Going Cashless at the Point of Sale: Hits and Misses in Developed Countries. We wanted to analyze the history of electronic money schemes in developed countries, more specifically in Europe and Asia. We thought it would prove a useful exercise as CGAP works towards sustainable branchless banking models in developing countries. As expected, our research shed light on important lessons.
In the paper, we discuss three broad approaches, and in each case we look at two providers who met different degrees of acceptance in the marketplace. Although our primary interest is with payment through mobile phones, we start with two cases that use smartcards, because these share many of the same characteristics and issues as payments through mobile phones. Here is an excerpt discussing the first case, Mondex.
Mondex is electronic cash on a card. It was designed to mimic cash, particularly small notes and coins (e.g., micropayments), so transactions with Mondex had to be extremely fast and had to incur no transactions cost. Accordingly, Mondex was conceived as an offline transactional method that does not require clearing systems to support individual transactions. Mondex-type systems are generally called “e-purses.” Many such systems emerged across Europe in the late 1990s: the Proton system backed by Visa in Belgium and the Danmont system in Denmark were other early projects.
Under the Mondex system, customers are issued a smartcard, which is a plastic card with an integrated circuit or chip from which data can be read and updated by card-reading devices. The chip stores the money value, but this is not linked to any bank account, and the information is not backed up on a server. Thus, the money value is irretrievably lost if the card itself is lost, and the card provides a much higher level of anonymity for users.
Consumers load Mondex value by transferring money from their (separate) bank account using an ATM or a Mondex-enabled telephone, which has a card reader and is connected to the Mondex system. The float is kept by the Mondex issuer (a private company set up by Mondex International in each country), from whom participating banks would “buy” Mondex value to meet their customers’ requirements for Mondex value.
Extensive field tests were conducted in Swindon, in the United Kingdom, during 1995–97 and in Guelph, Canada, in 1997–98. Both involved a very strong marketing push to get a critical mass of merchants to take up the card-reading devices. In the Swindon trial, 14,000 cards had been issued by the time the trials were discontinued after 3 years, compared with the uptake of 25,000 cards that had been anticipated for the first year alone (Van Hove 2005). Use of the cards turned out to be much more disappointing. Although this service still lingers in a few countries, it never met much market success.
Mondex is one case which shows that customers will adopt (or not) a new payment service or technology when (i) it provides clear benefits relative to current alternatives and (ii) they can trust it based on a clear understanding of the risks involved. Mondex failed to convince the public on both grounds.
Read the rest of the cases we analyzed here.
by Mark Pickens: Tuesday, February 24, 2009
Last week was the gigantic GSM Mobile World Congress in Barcelona. At the Mobile Money Forum, optimism ran fast and deep. That tone was a refreshing break from the steady tide of gloom and doom in the financial press. Safaricom won another award for its M-PESA mobile money service, which has now signed up over 5 million Kenyans.
There was also lot of congratulations for making it possible for people the world over to buy airtime in amounts as little as 5 cents from literally millions of sellers in the smallest villages. One commentator called it “the cheapest, biggest, most powerful sales channel in human history.” The mobile industry thinks they have a huge advantage in delivering financial services cheaply.
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by Mark Pickens: Monday, February 23, 2009
I’m just back from the Mobile World Congress. Tomorrow I’ll write about banking agents and share our presentation from Barcelona. Meantime, I came home with a question: I can load any software I want onto my PC, so why can’t I do the same with my phone? Better yet, why can’t poor people?
I’d love to see a boom of cheap m-banking software, designed by people who know how poor people want to use their phones. Although lower-income, non-Western users make up 80% of the world’s new mobile consumers, the guys in Finland, Sweden and South Korea still decide how people’s phones look and feel. But for how long? I’m interested, because I expect usability to be one key in how fast poor people are willing to adopt mobile-based financial services (which CGAP believes can blow open the frontier for access to finance for the poor).
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by Gautam Ivatury: Wednesday, February 18, 2009
Recently I talked about mobile banking and CGAP’s Technology Program at two events in New York. One was the “Innovation to Impact” conference hosted by the Bridge group for social entrepreneurship at the Wager School of Public Service (NYU) and the other was organized by the Financial Women’s Association in New York on mobile banking. For the latter, I was joined by panelists from Nokia, Bank of New York Mellon, and MPower Mobile.
Both sessions ended up tackling the same big question — how can banks, mobile operators, and others change their behavior to develop large-scale mobile banking services for poor people?
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