Interoperability in Branchless Banking and Mobile Money

09 January 2012

Mention the word interoperability in branchless banking and mobile money circles and watch people react in very different ways. For some, the word means something positive – efficient services and lower prices for consumers. For others, it means something negative – more costs, threats to competitive advantage and less profitability. For still others, the word means a reality that is inevitable but far in the distant future. Some don’t want you to say the word at all.

At the end of the day, we suspect interoperable systems will accelerate financial inclusion by allowing customers to use the infrastructure of multiple service providers to access their accounts. The question is how best do we get there?

A discussion on interoperating branchless banking and mobile money services that have yet to reach critical mass appears premature. But businesses and policy makers are already grappling with these issues in a number of markets where CGAP is heavily involved. In Ghana, the government is trying to understand its role in promoting interoperable branchless banking. In Pakistan, where Central Bank regulations permit a “many-to-many” model, there are questions about how the market will evolve into interoperable systems. In India, interoperability at the agent level is part of the financial inclusion vision painted by the Unique Identification Authority of India.

In general, governments are struggling to understand a regulatory approach that will balance the interest of customers with those of market players. They do not always adequately consider the state of the market or fully understand the implications of their approaches.

Businesses typically expect to interoperate their systems eventually but don’t want to do it without recouping the substantial investments they have made into developing services and related infrastructure. First movers, in particular, are concerned about government interventions which may force them to give up their competitive advantage. In mobile money, businesses are unclear if interconnection will actually lead to desired network effects in their payments business.

CGAP has begun to look into this question of interoperability and related issues in branchless banking and mobile financial services. To begin with, we realized that not only does the word itself elicit a variety of reactions, but that people, even experts, remain unsure of what interoperability in branchless banking actually means.

In this blog series, we introduce a framework to think about interoperability and related issues at three different levels:

1. Platform-level interconnection. If mobile money platforms are interconnected, a customer with an account with one service provider can send or receive money to or from the account of a customer with a different service provider. Today, no market has interconnected mobile money platforms.

2. Agent-level exclusivity. Agent exclusivity revolves around the ability of a customer of one provider to use the agent of another provider for cash-in/cash-out services related to that customer’s account. Agent interoperability is possible even when there is agent exclusivity, as long as platforms are interconnected (such as with interoperable ATM networks).

3. Customer-level interoperability. This term is used to describe two interoperability scenarios related to the mobile handset: a customer’s ability to (i) access her account using any phone with a SIM card on the same network; or (ii) to access multiple accounts on one SIM.

The framework is discussed in this presentation. For simplicity we have focused just on accounts accessed from a mobile phone, but there can be equivalent implications for accounts accessed via cards or by other means. We will expand on each level in subsequent blog posts. In the meantime, what would you consider to be the big questions on interoperability and mobile money?




Submitted by Lavesh on
Very clearly summarized and I think providers need to understand that interoperability actually helps in growing the market. Take the example of ATMs where customer of any bank can use any bank's ATM now unlike 10 years ago. Has that reduced the profits of banks, NO rather it has reduced the cost of Banks and more people are using ATM facility. This can even further increased if all the banks work together and divide the areas for installing ATMs used by all the customers. Reduced cost with increased reach. I think in same way if we have interoperability in mobile money, it will ultimately increase the market size and every provider would be benefitted with increased market size. Thanks - Lavesh

Submitted by Iseult on
I'm not sure I know what Alvaro Cuadros is referring to but it might be Carl Shapiro & Hal Varian, Information Rules 1998 theory of networks defined by standards with high startup costs and zero marginal costs versus traditional economic models of industrial production (were economies of scale matter)

Submitted by Saif Shafi on
Interoperability among customers is restricted to other customers within the domain of same MNO customers as they use short codes to access their Mobile Money & Branchless Banking systems. A short code is unique to each MNO and therefore does not allow access to other MNO customers. One way to overcome this problem would be to have this short code be mapped over to other MNO short codes just like mobile number portability (In Pakistan imposed via regulator). Another example I saw sometime ago was through a platform where data in transit was encoded on voice frequency and ported on to GSM channel instead of GPRS thus becoming completely telco agnostic and accessible to all.

Submitted by Anand Raman on
Very neatly summarized Kabir. Although a lot of the solutions are already available through multiple models in prepaid telephony in India - ranging from shared agent locations with individual wallets for agent to agent locations with aggregated wallets like Oxigen & Suvidha. I think the argument that interoperability is disadvantageous to the party making the market is bunkum. Open platforms have repeatedly succeeded in adoption over closed ones (AOL vs Yahoo), Android vs iOS on the internet and there is no reason to believe that financial services are an exception.

Submitted by M.ahmed on
i think after few years the current players of branchless banking in Pakistan will prefer interoperability. It will decrease the operational and channel cost but at the same time companies will have to share their revenues. After three four years almost all the banks and telcos will enter into branchless banking and price war will start and after that it will become stagnat. So according to my analysis the telcos and financial institutions will focus on branchless banking interoperability.

Submitted by Anonymous on
I don’t think this is a trend that might be considered as “far in the future” in fact, all payment systems, no matter what structure or technology they are based on become successful by “Network Economies” (not Scale Economies). In my opinion it is not regulation that would speed up the process, but standardized IT Security Procedures. Worth thinking about it, and start talking about it among MNO and Mobile Money Services providers. Alvaro Cuadros S TIGO

Submitted by Saif Shafi on
Kindly excuse me and elaborate on "Netwrok Economies" VS "Not Scale Economies.... I am not sure I understand. Just a couple of lines would be appreciated. Thanks, Saif

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