Beyond payments: Next-generation mobile banking for the masses

Is ready financial access for the unbanked and underbanked as close as the mobile device in their pockets? A new study by PlaNet Finance and Oliver Wyman indicates that the billions not reached by traditional financial services could be through second-generation mobile financial services.

 

Getting past basics like airtime
The number of unbanked or underbanked mobile subscribers around the world is projected to reach 2 billion by 2012. Today, only around 50 million subscribers use mobile money services. Most of these deployments have been focusing on first-generation mobile money products, such as remittances, airtime top-up, bill payments, and loan repayment. The transformational impact of mobile money is expected to come from second-generation financial services, such as micro-savings, micro-credit, and micro-insurance, especially in countries with less than 10% retail banking penetration. Both telecommunications companies and financial institutions should benefit from the take-up of these products, as they reap expertise from complementary skills and deliver more value to customers.

PlaNet Finance and Oliver Wyman explored the power of mobile technology in providing low-income consumers with access to a wide range of financial products that go beyond simple mobile payments.

This work, sponsored by the Bill and Melinda Gates Foundation, studied distribution strategies and second-generation mobile microfinance products via pilots in West Africa and Southeast Asia.

 

Lessons from the pilots
However, the formula for success is not straightforward. Drawing on their onsite experiences in the 2010 pilots, PlaNet Finance and Oliver Wyman explain the challenges in deploying mobile microfinance and offer strategic and operational solutions.

Two distinct innovative models have been explored through the pilots:

• The distribution of microfinance through mobile money via existing microfinance banks.

• The distribution of microfinance through a virtual microfinance bank, operating as a pure mobile player.

“The study outlines that the benefits of these models include a more than twofold increase in access to banking, 20-50% lower operational costs for the microfinance institution, and revenue or market share benefits for the Mobile Network Operator,” says Arnaud Ventura, co-founder and vice-president of PlaNet Finance Group.

The main conclusions of the report are:

 

• Alternative to branching. Mobile microfinance can have a significant impact on increasing financial services access for unbanked subscribers by eliminating all the disadvantages of physical bank branches. The benefits of this service are both social and economic.

 

• Piggybacking on telecom. It is a cost-effective way for banks and microfinance institutions to reach the masses by capitalizing on the widespread penetration of telecom distribution networks.

PlaNet Finance and Oliver Wyman also see a new breed of intermediaries emerging that allow partners on both sides to interact smoothly by playing the “interconnection” role, making money on transactions, rather than the spread.

“PlaNet Finance and Oliver Wyman are convinced that, agreeing on a long-term vision, all stakeholders, from banks to distributors to regulators, need to come together to design an adequate offer and build a win-win model that can address all challenges successfully,” says Greg Rung, Partner at Oliver Wyman.

For more about the report, click here.