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> Posted by Juan Blanco, Associate, Financial Inclusion 2020, CFI
A Spanish-language version of this post follows the English version.
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After five months of discussion, Colombia’s Financial Inclusion Bill has been approved by Congress, now only needing presidential sanction to become law. Earlier this year the country’s Minister of Treasury and Public Credit and Minister of Information Technologies and Communications filed the bill in Congress. The bill articulates a framework for the expansion of savings and payment services by engaging a wider range of providers in offering digital services.
The new law would allow for the creation of a new type of financial institution, Organizations Specialized in Electronic Deposits and Payments. These institutions can be established by individuals or legal entities, with a minimum capital requirement of $3 million, approximately 10 percent of the minimum currently required for commercial banks. The new electronic deposit and payment providers can receive capital investments from commercial banks and financial corporations.
> Posted by Ignacio Mas, Independent Consultant
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I guess it happens in all human endeavors; we sometimes get carried away wishing things were the way we think they ought to be. Let me provide three cautionary observations relating to financial inclusion: about how we measure it, how we talk about it, and how we assess it. The point is not to dampen enthusiasm about the possibilities, but to reflect on our progress in a more realistic way.
Industry Showcases and the Numbers Game
Through numerous industry conferences and blogs, certain players get put up as shining examples for the industry to follow. M-Shwari is perhaps the latest one, I guess because it delivers large customer numbers to an industry that is still largely focused on coverage rather than usage, and it represents the kind of telco-bank partnership that many have been fantasizing about.
> Posted by Ignacio Mas, Independent Consultant
Remote payments usually are the beachhead for mobile money as it struggles to create a role for itself alongside cash in developing countries. It’s easier to create customer awareness, induce customer experimentation, and generate customer willingness to pay when you are addressing situations in which cash presents the biggest pain points – sending money home, paying bills at distant and busy utility offices, travelling with or delivering larger stashes of money.
But that’s a limited market. Those are not daily occurrences for most people. And in many markets, especially outside of Africa, the reality is that people already have decent domestic remittance or bill payment mechanisms – through networks of pawnshops in the Philippines, courier companies in Colombia, or Hawala in Afghanistan.
Now mobile money providers are itching to get into the merchant (i.e. in-store) payment space. That’s where you can drive daily as opposed to monthly usage, so that’s where the volume is.
Of payment volumes and value
Much of the discussion on mobile retail payments centers on pricing models (merchant fees, interchange, potential cannibalization of P2P pricing), usability issues (customer convenience, speeding up transactions at the store), and acquiring strategy (how to roll out devices at stores and at what cost). These issues arise because cash is a much stronger competitor here than in a remote setting: paying some cents and waiting some seconds for an SMS confirmation are an irrelevance when you are sending money halfway across the country, but can tax people’s sense of fairness and patience in a retail setting. The less value people and stores see in electronic payments the larger these issues will loom.
But treat these as hygiene factors. Imagine that you could buy half a kilo of rice at any corner store from your mobile wallet at no cost and as conveniently as you flash out a banknote. Still, the fundamental question remains: why would you take out of your pocket your mobile phone rather a banknote?
> Posted by Jeffrey Riecke, Communications Assistant, CFI
A community health worker in Kenya trained by Pathfinder International, using a mobile phone to collect client data. Photo by Sala Lewis.
Each year billions of dollars in cash payments are distributed by development organizations to individuals in need. Across sectors including agriculture, health, and emergency relief, cash payments are dispersed with the intent of imparting a lasting impact on their recipients. As we’ve discussed in this space previously, dealing with cash instead of electronic payments brings risks and inefficiencies to the parties involved, both development organizations and their payments recipients, too, who are likely to have a lot at stake.
Visa, in partnership with NetHope, a consortium of more than 40 humanitarian organizations, is addressing this opportunity to improve development organizations’ payments systems through the Visa Innovation Grants Program, a new initiative providing funding to development organizations for the modernizing of their payments systems. A few weeks ago the program selected the five winning organizations, who will each receive $US 100,000 for their projects. Representing a breadth of sectors, the five organizations are Agribusiness Systems International (ASI), Freedom from Hunger, International Federation of Red Cross and Red Crescent Societies (IFRC), Mercy Corps, and Pathfinder International.
The payments system projects of ASI and Mercy Corps focus on developing mobile money services for farmers and other actors in agriculture value chains. ASI is working with rice farmers in Ghana, and Mercy Corps with smallholder farmers in Indonesia. The payments systems allow farmers to receive timely and secure payments from agricultural cooperatives electronically, rather than by traveling to pick up cash, which requires expending resources, including time that could otherwise be spent tending the farm.
> Posted by Jeff Abrams and James Hokans, Bankable Frontier Associates
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process, and highlights findings from “Mapping the Invisible Market.”
In a blog post entitled “Are E-Payments a Boost or Bane to FI2020?”, Jamie Zimmerman asserted the potential of social transfer schemes to boost electronic payment adoption and ultimately financial inclusion. While G2P (Government to Person) payments are indeed a potential gateway to savings and financial inclusion, our experience managing the Gateway to Financial Innovations for Savings Program (GAFIS) has not found that regular G2P payments are the low-cost acquisition strategy (or gateway) for banks to serve poor people we might have expected. Of the five banks we work with, four pursue G2P-related gateway opportunities (ICICI Bank in India, Standard Bank in South Africa, BANSEFI in Mexico, and Equity Bank in Kenya). Two years into the project, the evidence of progress towards G2P as a gateway for savings is still very limited.
The more common pattern is still for G2P recipients to immediately withdraw all the cash they receive. They use the account as a payment conduit only– which is not the general definition of “financial inclusion.” In South Africa, for example, more than 9 million G2P recipients now receive their payments via an ATM/debit card distributed through a single provider tied to a relatively small bank. This is, in fact, a major step backwards. Recipients no longer have the ability to credit their funds to their bank accounts at any other bank (67 percent of South Africans have bank accounts).
Our findings to date suggest that all of the following factors must be addressed before G2P payments become a more effective gateway to financial inclusion, particularly to savings. Read the rest of this entry »
> Posted by Jamie M. Zimmerman, Director, Global Assets Program, New America Foundation
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
Good news for the audacious folks putting forth a vision of financial inclusion by 2020: government-to-person (G2P) payments are poised to serve as a significant on-ramp to financial services for the most excluded populations. In the last decade, the use of cash to alleviate poverty has gained a lot of popularity. Armando Barrientos and David Hulme, authors of the well-received “Just Give Money to the Poor,” have estimated that more than 500 million poor people around the world benefit from cash transfers. Even better news is that these individuals, mostly young women and girls, and many of them among the poorest and most marginalized populations in society, make up a sizable portion of the elusive “bottom billion” – those often deemed “too poor” to effectively take advantage of traditional microfinance services.
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