Towards A Common Performance Measure In Branchless Banking

This is the last post in a series on the emerging branchless banking (BB) data architecture. This post releases a deck on existing reporting indicators used by funding agencies to track branchless banking data.

The terms branchless banking (BB) and mobile financial services (MFS) are often used interchangeably, even though there are important distinctions between the two. In MFS, mobile phones are used as the primary device to access financial services and execute transactions. BB, on the other hand, uses not only mobile phones, but also card reading point-of-sale (PoS) terminals to transmit transaction details. BB relies exclusively on the use of agents as the principal interface with customers. MFS does not specify a point of service, but relies primarily on agents when referring to financial inclusion. In seeking common performance indicators for both MFS and BB deployments, it is important for funding agencies to remember these nuances.

This blog post series started out with stressing the importance of data to support policy and decision-making in BB. We presented an overview of supply-side data collection efforts worldwide, and subsequently discussed demand-side surveys studies. In a later post, UNCDF and the MIX shared the experience on the emergence of common reporting standards for microfinance institutions (MFI) performance, which are valuable findings for the BB and MFS space now.  In a further post, GSMA discussed the trade-offs in achieving participation, transparency, comprehensiveness and comparability when conducting industry surveys.

Funding agencies are interested in identifying common indicators to enhance transparency in program performance and refine their approach to sector development. For businesses, common indicators have the additional advantage of providing operating and profitability benchmarks against their competitors.

In a first step toward eventually identifying common indicators measuring BB and MFS business performance across different models (bank-based, MNO, retail, MFI etc.) and countries, existing reporting indicators used by funding agencies were reviewed systematically. Indicators tracked by funding agencies can be broadly placed in the following categories: (i) provider-level, (ii) industry or market-level, (iii) program or project-specific, (iv) demand- or household- (i.e. consumer) surveys. Provider-level indicators can then be further grouped into the following six different categories:

What observations can be made from the agencies’ indicators?

First, the performance indicators chosen by the agencies naturally reflect their stated program missions or research interests. For instance, indicators are in some cases geared to measure a specific provider-type that an agency may have historically prioritized for its program. As a result, such indicators are often ill-suited to serve as performance comparators for the entire industry. Second, indicators generally rely on a common definition of  “Registered Users” (i.e. excluding over-the-counter users) and types of transactions performed by “Active Users” (i.e. excluding registration, PIN renewal and balance enquiries), but may differ in the time lapse considered to qualify a user as “active”.  Similar characteristics with respect to transactions and activity apply to agents. 

Third, there is variation in the range of products that agencies are tracking and, consequently, may fail to depict the full potential for deepened financial inclusion.

A further challenge resides in the fact that different providers (e.g. banks, MNO’s etc.) may have different production and distribution economics, as a result of which the financial performance (profitability, efficiency, etc.) of the BB or MFS business cannot be readily compared across different provider-types. Moreover, the focus of their profitability assessments will likely be linked to the reason for which providers had launched the business in the first place: banks would likely look at distribution efficiency, MFIs in cost of funds reduction and MNOs in increasing average revenue per user (ARPU).

However, there is also reason to be optimistic about the eventual development of common performance indicators. As the UNCDF and the MIX post argued, it might be that regulators eventually drive the convergence of reporting standards. Additionally, one could conjecture that despite differences in funding and production costs, competition between different provider-types might entice the creation of common financial performance metrics that will allow for actionable benchmarking of profitability in a diverse marketplace.

--- The author is a consultant with CGAP’s Technology and Business Model Innovation team, advancing the research and project agenda on branchless banking in order to expand financial services to the unbanked.