Branchless Banking Has a Volume Problem

11 March 2011

CGAP’s Branchless Banking Database synthesizes a mass of data into a short 12-image “story” about what branchless banking is and the key hurdles we face in 2011. We’ve converted that into a three-part series, which we continue today.

The first post in this series presented new data on how mobile ownership converts into an opportunity to bank the poor in emerging markets. We immediately need to ask whether mass market consumers are actually adopting such new services when offered.

Some branchless banking institutions (BBIs) have seen strong customer response to payment services, such as money transfer and bill payment. CGAP looked at 7 markets where reliable data is available about branchless banking customers: Brazil, Cambodia, India, Kenya, Philippines, South Africa and Tanzania. BBIs in these markets have 1.7x more active, previously-unbanked customers than the largest MFIs in the same market. BBIs are not replacing MFIs: credit services are complimentary to BBI payment services. But the comparison shows BBIs are also reaching the mass market of unbanked consumers, at scale.

Even with robust growth in users, major revenue requires several years in the best case scenario. Providers should have this in mind when setting assumptions about their payback period. CGAP analyzed the revenue potential of the top 3 African mobile money services (as measured by active users). For two, mobile money quickly surpassed SMS in revenue generation (2 years). One has already seen mobile money begin to deliver more than 10% of company revenue, and another is on the path to reach this target in year 5. Again, this is probably a best case scenario. MNO 3 is facing much longer timelines, possibly beyond the typical expectations of time to see attractive returns.

In fact, most BBIs are following a trajectory similar to MNO 3, or even lower. Globally, there are more than 100 live branchless banking services. Approximately 1 in 5 have made it to a “million client club” of services which have registered 1 million clients. The remainder are struggling to sustain growth in customers and most likely are losing money for their parent company, given up-front costs to enter the space. To put it succinctly, most players in the branchless banking space have a “volume problem” of getting enough clients to drive revenue to hit payback in any reasonable timeframe. The industry needs solutions for steepening the growth curve in numbers of users, the portion who become active users, and the intensity with which they use services. Volume is the central challenge in branchless banking in 2011.

BBIs could drive volume by including governments and other institutional players as users of the platform from early on. Worldwide, there are at least 170 million low-income consumers who receive a regular payment from their government, either for a social transfer, wages or a pension. To provide a point of comparison, 170 million exceeds the estimated number of active microloans worldwide (150 million). But after bulk payors are signed up, there remains the important question of whether payees will use their account for more than just removing all the cash. BBIs must also look at the value proposition not only to payors but also to payment recipients, if they hope to convert them to active, valuable clients.

In the 3rd and final post in this series we will look at product design, pricing and agent networks, all topics which need attention in 2011.

CGAP’s Branchless Banking Database is available here. It marshals data from our 2010 field work on agents, business models, customer adoption, and regulation, and combines it with data on banking access, mobile penetration, population, and income in 168 countries. Graphics are easily imported into your own presentations, and the data is presented in Excel, enabling you to manipulate it for your needs.


- Mark Pickens


Submitted by Joel Patenaude on
Great work, per usual. Volume is the story but a backstory receives less attention, i.e. the upfront costs to enter the space. If these upfront costs were low, smaller operations could turn profits. Large corporations don’t naturally bootstrap and they will nearly always need volume. Though a bit tricky to get past complex internal accounting, this would be an interesting area to investigate. Thanks.

Submitted by Mark Pickens on
Peter, Nomenclature is always fraught with the fault of imprecision. We’ve settled on the term “branchless banking”, while others prefer “banking beyond branches”, “mobile money” or one of the many other terms driven by local regulatory environments (e.g. “business correspondent banking” in India). If nothing else, we can agree that regulation is a determining factor driving the boundaries of what can be done by which institutions, BBI or otherwise.

Submitted by Mark Pickens on
Hi Joel, You’re absolutely right that loaded upfront investment puts a lot of pressure on the enterprise. It puts even more premium on driving massive usage at the outset, or takes the rare firm which can be patient over a multi-year payback period.

Submitted by Anonymous on
[...] Yet in comparison to other mobile money uses, mobile water payments could potentially bring more lucrative MNO payoffs through these. The vital nature of water means payments for it are recurring and regular, offering MNOs a way to become customers’ default SIM card for guaranteed transactions. In this sense they are a good answer to mobile money’s “volume problem”.[1] [...]

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