MOBILE BANKING STUDY: EXPERIENCES AND PERSPECTIVES OF MICROFINANCE INSTITUTIONS

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1 MOBILE BANKING STUDY: EXPERIENCES AND PERSPECTIVES OF MICROFINANCE INSTITUTIONS A SMEP Kenya customer being taught by a loan officer how to repay his loan using MPESA. Jan 2013

2 FOREWORD Over several decades microfinance institutions (MFIs) have worked diligently to provide financial services to the unbanked and help address poverty. But several factors continue to limit the scale of MFIs, namely, high operational expenses, inefficient operations and limited capacity all contributing to high interest rates. In order for MFIs to increase their outreach and maintain quality services they need to look at innovative ways to offer their services, especially leveraging technology. In the past several years MFIs have been looking at alternative ways to reach clients and expand via means other than costly traditional brick and mortar channel. The use of point of sale devices (POS) with smart cards, automated teller machines (ATMs), pay boxes, kiosks and mobile phone applications are all being tested as solutions to increase outreach and service quality. With half of the world s adult population unbanked (2.5 billion people) and global mobile phone penetration at 91%, leveraging the mobile phone to offer financial services in a cheaper, more efficient manner, is a solution that is obviously worth trying. However, what is much less obvious is how to do this successfully, sustainably and with scale. Triple Jump Advisory Services (TJAS) has been helping microfinance institutions (MFIs) implement mobile banking services since 2008 and has witnessed the potential benefits for both MFIs and their clients as well as the myriad of business challenges that must be addressed in order to be successful. In Q we hired Microfinance Opportunities to help us conduct a global study with the aim of allowing our MFI portfolio partners to share their experiences in offering a mobile banking service with other practitioners and allow us to see how we could support our MFI partners with grants for advisory services. The results of the survey show that a small percentage of MFIs are currently offering services via the mobile yet a very large percentage of MFIs are interested and planning to do so in the near future. The results also show that the majority of participants claimed their highest priority reason for offering mobile banking services was to improve client outreach and service delivery, by reducing costs and creating a more affordable solution for clients. As institutions explore and implement mobile banking it is crucial that they deploy a thorough methodology that helps them determine why, when, with whom and how to launch a mobile banking channel. A secondary objective of this study was to develop a questionnaire that mirrors our proven methodology for deploying mobile banking for MFIs with the hope that it will act as a guide for institutions considering offering mobile banking. In this respect, several participants mentioned that the survey itself prompted some thinking about how they would approach implementing mobile banking and presented certain important points and questions they hadn t previously considered. Globally, microfinance institutions that offer mobile phone banking today do not see significant scale. This is due to a wide variety of reasons. Triple Jump Advisory Services suggests that MFIs can gain some quick wins from a few focused activities. For example, performing market research before launch to understand the needs and behaviors of clients who may adopt mobile banking and well-planned, well-executed, regular trainings both for staff and customers to ensure people understand how to use the system and feel comfortable using it. And lastly, mobile banking, like all new customer facing channels, should be piloted in order to test the functions and usage and especially the effect it has on the business processes and procedures that need to be modified to embed this new service into the institution. The high percentage of survey participation proves that there is strong global interest and belief in offering a mobile banking channel. However, the findings in our survey have shown that few institutions are approaching mobile banking with a well thought out plan that addresses all of the business issues involved. This is not just a technology project. The business model for the channel, operations, partnerships and client needs to name a few of the business activities required to launched mobile phone banking - must be well planned out in order to reach scale. CCARUSO Carol Caruso Director, Triple Jump Advisory Services II

3 TABLE OF CONTENTS EXECUTIVE SUMMARY... V INTRODUCTION... 1 Purpose of the Study... 1 Defining mobile phone banking... 1 Report Structure... 2 RESEARCH DESIGN... 3 Sampling... 3 Questionnaire Design... 3 Data-Collection Methodology... 4 FINDINGS: CHARACTERISTICS... 5 Mobile Phone Banking Experience... 5 FINDINGS: MFIS OFFERING MOBILE PHONE BANKING... 6 Summary of Findings... 6 Financial Services Offered... 6 Results & Impact Lessons Learned FINDINGS: INTERESTED IN, BUT NOT YET OFFERING, MOBILE PHONE BANKING12 Summary of Findings Financial Services Offered Potential Interest in Mobile Phone Banking Development to Date FINDINGS: NOT INTERESTED IN MOBILE PHONE BANKING IN THE NEAR FUTURE Summary of Findings Reasons for Current Disinterest CONCLUSIONS ANNEX List of Institutions that Participated in the Study III

4 TABLE OF FIGURES Figure 1: Sample by Region and Tier... 5 Figure 2: Sample by Tier and Mobile Banking Status... 5 Figure 3: Services Offered by Channel... 7 Figure 4: Challenges during Launch of Mobile Banking Channel Figure 5: Financial Services Offered through Traditional Channels IV

5 EXECUTIVE SUMMARY Table of Contents In the past five years alone we have seen a steady increase in the number of branchless banking channels being launched by banks and MFIs around the world. Mobile phone banking has especially been on the rise in the past three years as favorable legislation is slowly rolled out and mobile money technology platforms become increasingly available. In order to understand the impact and interest of microfinance institutions in branchless banking, and particularly mobile phone banking, Triple Jump Advisory Services (TJAS) commissioned Microfinance Opportunities (MFO) to help develop and conduct a survey on the branchless banking activities, impact and intentions of Triple Jump s investees. The online survey was sent to 125 MFIs of which 73 responded: 35 from Latin America and the Caribbean, 18 from Sub-Saharan Africa, 17 from Europe and East and Central Asia and 3 from the Middle East and North Africa. Using TJAS s tiering criteria, a majority (66%) of the responding institutions were Tier 3 institutions, while Tier 1 institutions were 16% of the sample, and Tier 2 were 18% of the sample. MFO, in consultation with TJAS, selected 15 of those MFIs of which to conduct follow-up phone interviews in order to review their responses and gain a deeper understanding of their experiences. Most MFIs in the sample (56) were not offering services through a mobile money platform at the time of the survey, but were interested in doing so. In fact, a large portion had actually begun exploring the channel and had already conducted several important activities like upgraded their management information system (MIS) or met with mobile network operators or the central bank. Thirteen (13) MFIs were already offering financial services through mobile phone banking at the time of the survey. Of those 13, three (3) offered non-transactional services such as SMS read only messages, while the remaining 10 offered transactional services such as loan or savings transactions. Only four (4) MFIs in the sample indicated that they were not currently offering and were not interested in offering financial services through mobile phone banking channels in the near future. Though many of the important findings of the study come from one or another of the segments described above (currently offering, not offering but interested, not interested), the data suggest some important findings that cut across the entire sample: Among the various goals cited by MFIs in offering mobile financial services, the vast majority said their priorities are to decrease customer costs for banking, make it easier to transact and to increase customer outreach. There was also a general consensus that mobile phone banking could reduce the operational costs for financial institutions. The 13 MFIs that are currently offering financial services through a mobile phone banking platform provided some valuable insights into the process of deploying such a platform, with some important lessons learned: In terms of the first phases of the project these MFIs reported that: o It is imperative to conduct market research in order to understand the needs of customers. V

6 o Pilot testing is essential and allows institutions to make changes to the channel before rollout, including addressing problems with the technology platform or other technology factors. In terms of on-going operations, the survey revealed that: o Customer complaints range from agent liquidity problems and technical errors with the system to high costs and lack of confidence. o Many MFIs do not yet have reporting in place to measure results. o Some reported having low transaction volumes, which does not allow for useful reporting of metrics. o Partnering with an MNO (Mobile Network Operator) was the most popular partner model. Finally, the survey asked the MFIs about their needs for assistance, resulting in the following findings: o The majority of the assistance the MFIs reported needing included external support for training of clients, grant funding for consultants, and other technical assistance related to implementing the channel, re-engineering business processes and adapting existing products to the channel. o Other assistance needed included technical assistance for security to protect the system as well as marketing to customers. Focusing on the 56 MFIs that were not currently offering financial services through mobile phone banking but were interested in developing this channel, the following findings stood out from the survey data: Overwhelmingly, they agreed that it would have a positive impact on operations through: o Increasing operational efficiency, o Reducing operational costs of service delivery, and o Providing an efficient channel to cross-sell and up-sell other products They also felt strongly that the channel would allow them to offer innovative services and experiment with new technology while also increasing outreach. This group saw the potential for direct benefits to the customer including reducing costs for the customer and making it easier for customers to transact. These MFIs anticipated some challenges, including: o Concerns about having sufficient internal and external technological capacity, including an MIS system that can easily integrate with a partner s system to process transactions in real time. Concerns about customers lack of knowledge and perceptions of mobile phone banking being a barrier to their adoption of the new channel. In sum, the data suggest that there is considerable interest in mobile phone banking amongst the 73 MFIs that participated in the survey, but that there will need to be a substantial focus on getting the basics of market research, customer orientation, regulation awareness, technology stability, training and on-going performance management properly understood and implemented for this new channel to be a success. VI

7 INTRODUCTION This report analyzes the interest and experiences with mobile phone banking of 73 MFIs from 38 countries. PURPOSE OF THE STUDY The purpose of this study was to understand and share Triple Jump s investees experiences offering financial services through the mobile phone, including any potential or realized impact on clients and on the MFI s operations to date. A key objective for Triple Jump is to provide this information so peers may learn from the experience of other MFIs. Another key objective is to understand how Triple Jump Advisory Services can continue to help their MFI investees in launching mobile banking services. While there are several existing reports on East African and Asian MFIs offering mobile banking, we aimed to look globally at what others may be doing and how they are pursuing mobile banking in various parts of the world and what challenges they may encounter. In cases where MFIs had no experience offering financial services through mobile banking channels, we focused on learning about their level of interest in developing mobile phone banking as well as other branchless banking channels. This study will help readers understand why some institutions are looking to alter the way they deliver services using branchless banking, particularly mobile phone banking, and what impact such a change might have. In addition, this study garners valuable insights from across Triple Jump s portfolio of investees to better inform MFI management about the decisions they face in deploying a mobile phone banking channel and how they might increase their chance of success. The study sample is broken down into three groups: 1) Those that are currently offering financial services through mobile phone banking, 2) Those that are interested in developing a mobile phone banking channel and 3) Those that are not interested in this channel in the near future. The majority of the survey respondents, 77%, are MFIs who are interested in developing this channel in the near future. DEFINING MOBILE PHONE BANKING Branchless banking refers to a distribution channel that allows financial institutions and other commercial actors to offer financial services outside traditional, brick and mortar bank premises. Branchless banking technologies come in the form of smart cards or mobile phones services that can be used to conduct transactions. 1 Specifically for purposes of this study, we define mobile phone banking as a channel through which an institution leverages mobile phone telephony to allow customers and banks to interact. Throughout the report we use the term service to refer to the financial services that can be offered through this channel. While there can be confusion between service and channel, this report seeks to define these as two distinct features. 1 Dermish, Ahmed, Kneiding, Christoph, Leishman, Paul and Mas, Ignacio. Branchless and Mobile Banking Solutions for the Poor: A Survey of the Literature. Innovations 6.4 (Fall 2011):

8 There are many MFIs and banks that use the term mobile phone banking even if they offer a limited number of services through the channel, such as only being able to check account balances. Mobile banking provides further benefits the more services that are available; especially those services which allow end customers to transact. Our findings show that there are many different types of services available, from simple SMS push messages and allowing loan officers to use their phone to check client balances to more transactional services including deposits, withdrawals, loan disbursements, loan repayments, and remittances services, among others. The section discussing MFIs that offer mobile phone banking, describes the various types of services that are currently being offered through the mobile phone. Often MFIs might begin to use the mobile phone in non-transactional ways, such as providing customers with SMS push messages or allowing account balance checks via mobile phone. The next step is to develop additional interactive services, which usually involves using an agent network to deliver these services. This results in the clients ability to conduct transactions through their mobile phone. REPORT STRUCTURE This report begins with a description of the research methodology, including development of the survey and of follow-up interview content. This description is followed by an analysis of the results and experiences of the MFI survey respondents that currently offer mobile phone banking. It then focuses on the perceptions, interests and activities of the majority of the sample, those who do not offer mobile phone banking but are interested in developing this channel in the near future. The last section explains the responses of the four MFIs who reported not having any interest in offering services through mobile phone banking in the near future. 2

9 RESEARCH DESIGN SAMPLING Triple Jump Advisory Services selected a total of 125 MFIs from our investee portfolio to participate in this study. We sent s with links to the online survey to the CEO, COOs or other executive management staff of these organizations. A total of 73 respondents completed the survey, representing a 58% response rate. This rate is extremely high. 2 QUESTIONNAIRE DESIGN The Triple Jump Advisory Services and MFO teams developed a questionnaire tailored to respondents level of experience with mobile phone banking. Specifically, the survey determined in which group a respondent belonged depending upon if they currently offer financial services through the mobile phone. If not, the next question asked if they were interested in developing this channel in the near future. The survey also had the capability of sorting out respondents who offered financial services through the channel in the past and no longer offer it, but we did not see any respondents who fit this category. As a result, the questionnaire was designed to ask questions falling into three distinct groups: Group 1: Currently offering financial services through mobile phone banking If an MFI responded that it was currently offering the channel, the questionnaire focused on the MFI s objectives, planning, experiences during pilot testing and implementation, and any impact to date. The survey focused on mobile phone banking, but also investigated the MFI s experience with an interest in other branchless banking channels. Finally, the survey was designed to differentiate between evidencedbased responses versus those reflections based on perceptions. Group 2: Interested in offering financial services through mobile phone banking For MFIs that are interested in mobile phone banking, but not currently providing it, we aimed to determine if the MFIs had taken any steps to develop the channel. We also aimed to determine their objectives and perceived benefits and challenges with respect to both pilot and rollout of the channel. Group 3: Not interested in developing a mobile phone banking channel in the near future The last group was MFIs who are not interested in developing the channel in the near future. It became clear that while this group might not be interested in the channel at the moment, they might or could potentially be interested in developing the channel in the medium to long term. These MFIs had very particular reasons as to why they were not interested or able to move forward at the moment. We developed the survey in SurveyMonkey to be accessed online. We also developed an offline version in case some respondents preferred this method; however, no participants took the offline version of the survey. While the length of the survey depended on a participant s responses, we estimated that it did not take longer than minutes to complete the survey. We tested the survey with 5 respondents to make sure that the survey worked properly. The survey was available in English, Spanish and French. 2 According to a study conducted by supersurvey.com, the average response rate for online surveys is 32.5%, and the median survey response rate is 26.45%. Therefore, achieving a response rate of almost 60% is extremely successful. 3

10 DATA- COLLECTION METHODOLOGY The study included both quantitative and qualitative survey methods. Triple Jump Advisory Services ed select MFIs explaining the purpose of the study, presenting potential incentives for participation including receipt of the full-version report and supplied the link to participate in the online survey. In addition to the online survey, MFO and Triple Jump Advisory Services conducted 15 individual interviews with most of the respondents who indicated that they currently offer financial services through mobile banking channels. We also interviewed a few that were either interested or not interested in developing the channel. These interviews allowed the research team to probe into select MFIs survey responses and better understand their experiences, perspectives and needs for branchless banking. 4

11 FINDINGS: CHARACTERISTICS The MFIs in the study are organized by a variety of factors: key indicators, region and tier. Throughout the report, we use Triple Jump Advisory Services market approach to tier the organizations according to multiple, wide-ranging indicators. These data points include but are not limited to gross loan portfolio (GLP), the number of active borrowers, regulation status, legal status and operational sustainability (OSS). Three tiers are used throughout the report: Tier 1 includes larger, highly established institutions; Tier 2 includes mid-range institutions; and Tier 3 includes smaller, less mature instutitions. MOBILE PHONE BANKING EXPERIENCE The sample also represents a geographic diversity (see Figure 1). Latin America and the Caribbean (LAC) is the most represented geographic region with 35 respondents (or 48% of the sample). Africa is the second largest group, with 18 respondents (or 25% of the sample). Next, 17 respondents (or 23%) are from Europe and Eastern and Central Asian (EECA). Finally, the smallest subset is from the Middle East and North Africa (MENA), representing 3 institutions (or 4% of the sample). Figure 1: Sample by Region and Tier Number of Respondents LAC EECA Africa MENA Total Tier Tier Tier Total The sample includes a variety of mobile phone banking experiences. Figure 2 organizes the data by tier and mobile phone banking status. About two-thirds (66%) of study participants are Tier 3 institutions, with most interested in offering mobile phone banking channels. Tier 1 is the smallest share of the sample, representing only 16% of the participants. Figure 2: Sample by Tier and Mobile Banking Status Tier 1 Tier 2 Tier 3 Total Currently offer mobile phone banking 4% 3% 11% 18% Never offered mobile phone banking, but interested 12% 11% 54% 77% Never offered mobile phone banking, NOT interested in the near future 0% 4% 1% 5% 16% 18% 66% 100% 5

12 FINDINGS: MFIs OFFERING MOBILE PHONE BANKING SUMMARY OF FINDINGS The following section outlines the results of the sample that currently offer financial services through mobile phone banking channels. The results illustrate that MFIs of all sizes are exploring the usage of mobile banking. Furthermore, the fact that a majority of these institutions are in Africa is not surprising considering the advance of mobile money transfer in this region. The most widely offered service from respondents is loan repayments, not loan disbursements as is commonly thought. Voluntary savings deposits is the second most commonly offered service suggesting that the mobile phone is a promising tool to help people save. The majority of the respondents stated that their main objectives for launching the channel were to make it easier and cheaper for clients to transact and to increase outreach. It is clear that the client s perspective is taken into account when MFIs launch mobile banking. Main challenges around rollout of the channel are lack of in-house knowhow as well as internal and external technology challenges. FINANCIAL SERVICES OFFERED The MFIs offering mobile banking provide a wide array of services at their institutions ranging from savings, credit and insurance to financial education and remittances. Figure 3 displays the variety of financial services offered through traditional channels, mobile phone banking or both. The most widely offered services available through mobile phone banking include loan repayment (9), voluntary savings deposits (6) and checking account balances (5). On the other hand, the most common services offered through traditional channels include loan repayment (11), voluntary savings deposits (11) and savings withdrawals (10). At Triple Jump we also know that there are The most widely offered services available through mobile phone banking, provided by respondents, include loan repayment, voluntary savings deposits and checking account balances. several MFIs globally that are now offering insurance through the mobile phone channel but they didn t partake in our survey. In fact, at the time of writing this report, Triple Jump Advisory Services is going live with one of its projects in Rwanda that will allow customers to receive insurance coverage through the mobile banking channel, provided by Microensure. The mobile phone is clearly being used for a wide variety of services beyond loan disbursement and repayment. A number of the institutions in the study mentioned that while they would like to offer savings services, they are not deposit-taking institutions so they are limited in their capacity to do so. 6

13 Figure 3: Services Offered by Channel Objectives The majority of the respondents stated that their main objectives for the development of the channel were to make it easier and cheaper for clients to transact and to increase the MFI s outreach. The majority of the respondents agreed or strongly agreed that the goals of their MFI in launching mobile phone banking include: Reduce operational costs of service delivery and reduce costs for customers Make it easier for customers to transact Increase customer outreach Provide an efficient electronic channel for cross-selling and up-selling additional services. Build customer loyalty and keep up with competitors that have already launched. Partnerships Financial institutions have two choices when it comes to building a mobile phone banking channel: build their own technology platform (using partnered technical solutions) or partner with a third party or MNO that already has the basic system and agent network in place. Most MFIs are not in the position to set up their own platform and manage their own third-party agent network. While several MFIs in our survey mentioned that they began exploring mobile banking after talking with an MNO, they also emphasized that they did not allow this to be the main driver since they had to ensure their customers would be able to use the system and that the organizational impact could be well managed. The majority (8 out of 13) of MFIs partnered with a Mobile Network Operator (MNO) or a non-mno service provider. Five (5) MFIs launched their own platform either individually or through a third party technical solution partner. Three (3) of the five (5) MFIs that launched their own platform are Tier 1 or Tier 2 institutions. Tier 3 institutions and most Tier 2 institutions preferred to partner with service providers or MNOs. This is in line with what we have experienced at Triple Jump; some Tier 2 and most Tier 3 MFIs do not have the capacity, funding or infrastructure to create their own technology platform and/or agent network. The list of MNO partners identified by our sample include: Celpay, Vodacom, Tigo and Safaricom. 7

14 Regulation The findings show that only six (6) respondents were aware that their country had regulations regarding mobile banking. Four (4) responded that there were no regulations in their country and three (3) did not know. A few respondents believe that there should be some changes to the regulatory environment related to mobile money. Market Research The first step to implementing a successful mobile banking channel is to conduct research, usually while performing a feasibility study. MFIs can learn about market trends and options in their country, regulation, potential partners, technical solutions, costs and benefits and, most importantly, customer interests and financial behaviors that will affect the success of a mobile banking offering. MFIs that decide to move forward without conducting market research can face a multitude of operational issues that can prevent uptake and use of the channel at scale. Market research is a critical contributor to the success of the deployment of a mobile banking channel. From the beginning of the project we decided to offer 100% of our products and services through mobile banking and internet channels in order to be a fullservice option for customers. The goal is that customers should never have to leave their home or enter a bank in order to conduct the financial transactions they are used to conducting with Desyfin." - Mauricio Lacayo, Operations Manager, Financiera Desyfin, Costa Rica The survey results show that eight (8) out of 13 MFIs conducted market research prior to developing their channel. Five (5) MFIs conducted qualitative research (such as focus group discussions or individual interviews), and six (6) conducted quantitative market or data mining research (such as a survey or internal accounts data analysis). Several respondents mentioned that the research helped them identify various client concerns about system security, which they addressed during their rollout. One respondent researched an MNO s market share and growth potential prior to partnering and developing the channel. Pilot Testing and Results A majority (9 out of 13) of those currently offering the channel pilot-tested the channel with clients before rolling it out across the organization. However, several MFIs did not dedicate a long period of time to pilot testing; the reported time ranged from 1 to 12 months. It was promising to see findings that showed MFIs following best practice of incorporating clients, staff and agents into the pilot to test out all aspects of the channel. The majority of the respondents took less than one (1) year to rollout the channel and make it available to all clients. The pilot tests revealed many challenges and technical errors that might occur when developing a new channel. For example, one respondent mentioned that the MFI was not able to report on loan repayments very easily, because doing so required an upgrade of their MIS. Clients also faced challenges in using the technology for mobile banking. Not only did a number of MFIs report experiencing difficulty convincing clients to sign up, but also clients who had signed up often inputted the wrong number and some forgot their account number. Agent Networks and related challenges The majority of the respondents (8 out of 13) rely on their partner s network of agents where their customers can perform cash in and cash out transactions. Many processes need to be in place before creating a new platform and a new agent network. The majority of respondents partnered with an MNO 8

15 that already had a network of agents in place in order to leverage the MNO s ability to achieve scale and outreach. While the MFIs were able to take advantage of the MNO s agent network, respondents outlined a number of challenges associated with working with the MNO s agent network. Challenges include: liquidity management, technical problems, costs of transactions, ceilings on transactions and lack of MNO presence. For instance, one MFI indicated that agents are overwhelmed, resulting in a poor agent network and transaction delays. Roll- Out Experiences While the respondents shared their experiences with the challenges related to the development and rollout of the channel, it is clear that the benefits surpass these challenges. One MFI emphasized that mobile phone banking is a faster and more convenient way of disbursing loans. The client no longer needs to travel to the branch office to collect the loan, saving both travel costs and time. "It would be a bad idea for an MFI not to launch mobile banking because of cost concerns; when well designed and developed, the benefits far outweigh the costs for the organisation and the customers." - Claude Lafond, COO, EFC, Tanzania Among the challenges mentioned, include poor uptake and low usage as well as external and internal technology challenges. Many MFIs in the study identified both internal and external technology challenges as being a barrier to uptake and use of the channel. These MFIs experienced both challenges with their in-house systems as well as with their partners systems with which they had to integrate. Multiple MFIs indicated that although they might continue to face challenges, they believe that they are experiencing only a small fraction of the potential benefits at this point. Some believe that specific changes, either within the organization or with respect to regulatory laws, need to take place in order to bolster the business case of offering additional financial services through this channel. In order to appreciate all of the benefits of the channel, MFIs have reflected on what they can do to promote the channel. For example, one MFI knows that it needs to strengthen its technical infrastructure because its server is not strong enough. Additionally, the same MFI suggested offering more training to both staff and clients in order to increase uptake and usage. 9

16 Figure 4: Challenges during Launch of Mobile Banking Channel RESULTS & IMPACT While all respondents signaled clear objectives as to why they wanted a mobile banking channel and what they expect from it, very few are actually measuring the performance or customer impact of the channel. The absence of performance and impact metrics in many of the MFIs indicates that they are running their mobile banking channel blind. These measurement problems are compounded in some cases by low usage rates that make it difficult to report such metrics. Almost half (6 out of 13) of participating MFIs indicated that they do not yet have reporting in place to measure customer results. However, a number of MFIs reported gathering customer metrics such as: o o o % Of existing customers signed up for mobile phone banking % Of signed up customers using the service at least once per month Decrease in customer costs due to usage of mobile phone banking Almost half of the respondents (6 out of 13) indicated that they do not yet have reporting systems in place to measure operational results. However, a few MFIs reported gathering data on some operational metrics, such as: o o o % Of all transactions performed through mobile phone banking Cost per branchless banking transaction Contributed to a decrease in PAR 30 due to mobile phone banking usage 10

17 MFI IMPACT : SMEP Deposit Taking Microfinance Institution in Kenya has been providing financial services via mobile phone since Through a partnerhsip with Safaricom, they have integrated their MIS with the Mpesa platform and allow customers to repay their loans, deposit and withdraw savings, check account balances and get mini account statements. Each year SMEP has been experiencing a steady increase of usage by customers of their mobile banking channel, and in Q had over 23K loan repayment transactions amounting to $977K USD. In the same period, there were 5,641 voluntary savings deposits, amounting to over $120K USD a 1000% increase from Q when there were only 553 deposits. The impressive increase is also due to the fact that SMEP received a deposit taking license in 2010 and hence began offering savings products and deposits started growing in For SMEP this proves that with a simple and convenient channel, in which people have confidence, savings services can be offered and well used by clients. We are grateful to Triple Jump for supporting our mobile phone banking initiative. - Phyllis Mbungu CEO, SMEP DTM LTD. As MFIs add these types of electronic services to their offering, they can realize cost savings for both their operations and their customers. LESSONS LEARNED All the MFIs in the survey had learned lessons that they were interested in sharing. The most particularly interesting findings include the following: 1) All MFIs agree or strongly agree that it is essential to have strong internal human capacity - both for business and technical activities 2) The vast majority agree that it is essential to develop a plan along with the business case to understand costs and breakeven points The clients who are coming from areas with no bank at all are the ones who are fully using the service successfully. - Shafi Nambobi, CEO, Tujijenge Tanzania 3) 12 out of these 13 MFIs running mobile phone banking agree or strongly agree that it is important to have a stable management information system (MIS) before launching into mobile phone banking Interestingly all MFIs in Kenya that participated in our survey and offer loan repayment through the mobile unanimously agreed that it is necessary to invest a lot of time to educate customers on how to use mobile phone banking. Despite being a country with the highest end customer usage of mobile phone banking, customer training and education are still essential for the successful completion of mobile phone banking transactions. 11

18 FINDINGS: INTERESTED IN, BUT NOT YET OFFERING, MOBILE PHONE BANKING An overwhelming 77% of the survey participants (56 MFIs) are interested in offering financial services through mobile phone banking, but are not currently doing so. Of these MFIs, are in LAC, 15 in EECA, 9 in Africa and 2 in MENA. Nine of these 56 MFIs are Tier 1 organizations, eight (8) are Tier 2 organizations, and the majority (39) fall into Tier 3. Together, this subgroup is composed of a diverse group of MFIs, both geographically and in terms of size and structure. SUMMARY OF FINDINGS The MFIs interested in launching a mobile banking channel have the potential to service at least 2.3 million current customers with this new channel. The majority of MFIs in this group (63%) have begun to take steps to develop their mobile banking channel in one form or another. Most have met with potential partners. A third of this group plans to pilot test the channel in MFIs in this group overwhelmingly agreed that mobile banking has a positive impact on operations by: increasing operational efficiency, reducing operational costs of service delivery, and providing an efficient channel to cross-sell and up-sell other products. Most agreed that both internal and external technology challenges can impede the deployment of a mobile banking channel. A limited number of MFIs in this group believe that a weak or unclear regulatory environment would have an important effect on successful implementation of the channel. The most common types of assistance needed were staff training, followed by grant funding, and customer training. FINANCIAL SERVICES OFFERED The most common services these MFIs currently offer through traditional channels are loan disbursements and loan repayments. However, this group also includes 17 deposit taking institutions that offer savings deposits and withdrawals. Figure 5 describes the distribution of financial services offered through traditional channels. Other services offered include tax services and bill payments as well as non-financial services. 12

19 Figure 5: Financial Services Offered through Traditional Channels POTENTIAL INTEREST IN MOBILE PHONE BANKING The respondents expressed a substantial interest in offering a variety of financial services through mobile phone banking. There is a lot of agreement on the potential benefits of implementing a mobile banking channel. MFIs in this group overwhelmingly agreed that doing so would have a positive impact on operations by: increasing operational efficiency, reducing operational costs of service delivery, and providing an efficient channel to cross-sell and up-sell other products. The MFIs also felt that the channel would allow them to offer innovative services and experiment with new technology, while also increasing outreach. Other potential benefits for the client include reduced costs and increased ease of transacting. A few MFIs suggested additional potential benefits, including noting Sembrar Sartawi in Bolivia has planned to launch innovative mobile technologies in order to increase coverage and service offerings for clients in rural areas. In order to better serve the productive sector of Bolivia, specifically the agricultural sector, Sartawi's solution is the installation of Mobile Kiosks. These Kiosks function with the cellular network and interact with clients' cell phones, and as a result can be installed anywhere. The client, upon approaching the Kiosk to conduct a transaction, authorizes the transaction with a code (PIN) that he/she receives via an SMS sent from the Kiosk to his/her cell phone. After entering the code into the Kiosk, the client can then conduct transactions including: account inquiries, money transfers, payments for basic services, loan re-payments, and deposits by directly inserting cash into the Kiosk. Through these technologies, Sembrar continues to pursue its mission of working towards financial inclusion and providing financial services adequate to the needs of all clients. that the channel could keep clients informed and provide transparent information, as well as help the MFI gain access to rural and niche markets. Overall, there is a perspective that mobile phone banking can 13

20 positively affect both the MFIs operations and the client experience, producing a double-bottom line impact - increasing revenues and improving business processes while reducing costs and improving access for customers. DEVELOPMENT TO DATE The majority (63%) of MFIs in this group have already begun to explore launching a mobile phone banking channel. Of this group, four (4) have conducted market research on mobile banking; three conducted the research internally, while one MFI hired an external consultant. The market research primarily consisted of qualitative research. The results of the research indicate that clients are interested in: savings, transfers and payment services. They are also interested in the flexibility and improved ease of use the channel offers, as well as its service quality. The most common step that MFIs have taken towards developing a mobile banking channel has been to meet with an MNO or another service provider. Several MFIs in this group reported that they have taken a wide variety of additional measures, such as: conducting a feasibility study, working on a mobile money project with the Ministry of Microfinance, creating a project team, and meeting with the central bank. One MFI is about to launch the channel and another developed a platform already. While these MFIs are moving ahead in the development phase, others need assistance in determining: national regulations, clients needs, and how to develop relationships with potential partners. One limitation many MFIs are facing is the cost to develop the channel. The majority (68%) of the MFIs in this group do not have funding to develop the mobile banking channel. Nevertheless, these MFIs have ambitious timelines and consider the channel a priority to their MFI. Two-thirds of the sample (66%) wants to pilot test the channel in One MFI has not yet undertaken steps to implement mobile banking, however their Loan Officers use mobile technologies as part of the loan review/client assessment process to improve client service and efficiency. Loan Officers in the field are now using mobile phones to run credit checks on prospective clients. Instead of the previous method where they would take a client's data back to the branch office, run a credit check, and then return to the client, Loan Officers can now send an SMS to the branch; someone reviews the credit data and sends an almost immediate response to the Loan Officer. This saves an average of one to two days in response time to the client. The MFI has implemented this system in 3 of 22 branches as part of a pilot that has gone extremely well to date, and expects to expand to all branches in early A few MFIs were not yet ready to identify the exact services they would like to offer, but the majority of MFIs cited various services which they want to launch including loan disbursement and repayment services. In addition to these fairly standard services, MFIs identified some less standard services they would like to offer, including: bill payments, financial education, customer complaint services, airtime purchase, and electronic vouchers for rural farmers. 14

21 FINDINGS: NOT INTERESTED IN MOBILE PHONE BANKING IN THE NEAR FUTURE Of the 60 respondents who currently do not offer financial services through mobile phone banking, only four responded that they are not interested in offering services through this channel in the near future. There are several key factors that contribute to their inability to or disinterest in moving forward with the development of a mobile phone banking channel. Three out of these four institutions are located in Latin America, and the fourth is in the Middle East. The four institutions range from Tier 1 to Tier 3 and represent NGOs, NBFIs and Cooperatives. Two out of the four are regulated. SUMMARY OF FINDINGS This group represents only four (4) MFIs and most indicated they are interested in developing the channel, but not at this time. Reasons these MFIs are not interested include: internal and external technology constraints and the regulatory environment. There is an agreement that market research should be conducted prior to developing the channel and the MFI should have a stable MIS system. REASONS FOR CURRENT DISINTEREST After conducting interviews with two of the four institutions that indicated that they were not interested in offering a mobile phone banking channel, it became clear that they are actually quite interested in doing so, but not in the near future. However, there are a variety of factors that impede their development of the channel at this moment in time. Below are examples from the survey results as well as the in-depth interviews with two of the four respondents. Internal Technology Constraints All respondents 3 agree or strongly agree that they need to first improve their institution s MIS system, and that they do not have technical or business expertise to manage a mobile banking channel. Therefore, most constraints are related to internal capacity and technology or to complicated national regulatory environments. There seems to be agreement that there is a business case for mobile phone banking since clients have access to mobile phones. Furthermore, one respondent conducted a diagnostic study that concluded that the biggest challenge it faced was internal technology constraints. In fact, this MFI is presently in the process of integrating their 20 branches located throughout the country to enable the branches to communicate with one another, including branches in rural areas. The MFI is using fiber optics and satellite technology to centralize its information on a server in the head office. The MFI spent one year implementing this technology upgrade and they expect it will take one more year to complete the process. Therefore, this MFI has taken a first step towards being able to offer branchless banking channels. 3 While 4 responded that they were not interested in implementing a mobile banking channel in the near future, only 3 completed the survey, therefore these responses are based on 3 respondents. 15

22 Technology and Clients While results from the survey indicate that most MFIs clients have access to mobile phones, it seems that clients technical capabilities and level of interest in this channel are potential constraints. One respondent indicated that since its clients are lower income and not very technologically savvy, it does not believe that they are ready for the service, and, in addition, the MFI itself is not ready to offer the service. Despite these challenges, the respondent still indicated that the MFI is interested in offering mobile banking sometime in the future. Regulation One MFI indicated that it had already begun to explore branchless banking channels, including mobile phone banking. However, it currently does not offer these services because they are not regulated, a requirement in their country for being able to launch mobile banking. The regulatory environment can both impede and encourage mobile phone banking and, as we have seen with other respondents, some MFIs are not able to develop this channel at this time as a result. 16

23 CONCLUSIONS Deploying a mobile phone banking channel is a complex task that requires both business and technology expertise. As we have seen from the results of our survey, MFIs have started seeing the benefits of the new channel but also continue to face a wide variety of challenges, especially related to the technology, such as the integration of the mobile banking system with an existing MIS. Nevertheless, the potential of mobile phone banking is great, and the results of this survey suggest that MFIs of various types from across the globe have either already deployed mobile phone banking or are very interested in doing so in the near future. If the new deployments are to be successful however, they will need to follow some already established best practices for launching mobile phone banking systems, and heed the lessons learned by those that have gone before them. In the experience of Triple Jump Advisory Services and other organizations that have either supported the implementation of or directly implemented mobile banking channels, success is contingent on following a proven methodology 4 : 1. Establish the goals and objectives for offering mobile phone banking; 2. Conduct a feasibility study covering: a. A review of external factors, such as: performing market research to understand client needs and concerns, mobile phone usage, the regulatory environment, existing mobile banking solutions and their results, potential partners, and the competition; b. A review of internal factors, such as: creating a business plan or strategic planning document describing the objectives, assessing the current IT infrastructure and the organization s human resources for their suitability in deploying and maintaining the new channel, and conducting a cost-benefit analysis including identifying how the new channel will be funded and how success will be measured; 3. If a Go decision is made, develop a project plan (including UAT & FUT 5 ) and team (including external experts if there is no in-house expertise); 4. Develop the technology solution (i.e. developments, software installations, partner integrations, MIS customizations, etc.); 5. Review and revise, as necessary, all business processes affected by the new channel (i.e. loan disbursement, repayments, etc.); 6. Define a training plan for staff, agents (whether own or third-party) and customers; 7. Define a marketing plan for the pilot and full launch; 8. Pilot test, monitor, evaluate; 9. Refine channel based on results & feedback (i.e. technology or business process adjustments); 10. Rollout; 4 For further details on the methodology see: 5 UAT = User acceptance Testing, FUT = Friendly User Testing 17

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