Branchless Banking 2010: What Price?

Last week, my colleague Mark Pickens started a blog series on the 3 main findings in our new CGAP Focus Note, which looks at several aspects of branchless banking across 18 branchless banking providers with more than 50 million customers in 10 countries. You can read a full web feature about the paper on the CGAP website. In this post, we’ll look at the second question we asked in the Focus Note:

Is branchless banking cheaper than traditional banking, and by how much?

To answer this question, we compared the prices charged by 16 branchless banking providers across 10 countries and by 10 traditional banks in five countries across 8 use cases. We first released the results of our analysis on this blog in May. Here are the highlights:

• The average monthly price to use a bundle of branchless banking services is US$3.90.
• Branchless banking is 19% cheaper than comparable bank services overall.
• The lower the transaction value, the cheaper branchless banking is in comparison. Branchless banking is 38% cheaper at lower values at which poor people are likely to transact.

So, the bottom line of this pricing analysis is that branchless banking is cheaper than traditional banking but the price advantage may not be as big as one might anticipate. The Focus Note offers some hypotheses on why this might be the case.

If you’d like to see the full pricing analysis, you can download a detailed powerpoint deck and a pricing tool that allows you to compare the prices of your service with those of the 16 in our study here.

There is still a lot of work to be done on this issue, especially in understanding how sensitive unbanked customers really are to price and how the total cost of accessing informal and formal products compares when taking into account factors like travel time and cost. We are currently working with Bankable Frontier Associates to delve deeper into some of these issues with households across Bangladesh, India and South Africa.

The interim results from the South African data set are raising some interesting questions. For example, we often say that informal products are much more expensive and less reliable than formal products. Well, when it comes to savings this is not necessarily true. The full cost of informal savings products (including fees, travel time and cost and transaction time) is just 1/3 the cost of formal savings products.

What’s most striking to me is how differently the costs of accessing both types of instruments are structured. 84% of the cost of informal products is in the form of transaction time while 90% of the cost of formal products is in the form of bank fees. Of course, one of the biggest ‘costs’ to saving informally is the high risk of losing the money. How risky are informal savings? We hope to answer this question as well as many more as we complete the study over the next few months.

- Claudia McKay