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Banking agents – the key to successful mobile banking services
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February 18, 2009
M-PESA Growth
M-PESA is a service offered by Safaricom (a Vodafone affiliate), one of Kenya’s leading mobile phone providers. It allows users to transfer money using their phones. The M-PESA application is installed on the SIM card of most handsets.
Currently, M-PESA is available to all Safaricom subscribers who register for the service through an agent. M-PESA has more than 6,000 agents. Cumulative person-to-person (P2P) transfers reached US$ 682 million in September 2008, according to Safaricom.
The service took off quickly, largely because of the unmet market demand for low-cost money transfers, said Nick Hughes, Vodafone's head of International Mobile Payments and a chief architect of M-PESA in Kenya. Today, M-PESA has over 5 million registered users.
“We’ve never positioned this as mobile banking. We said: ‘Do you send money home, or do you want to send money between A and B very quickly? Then M-PESA is the answer,’” Hughes said at recent CGAP roundtable. M-PESA is handling approximately 160,000 P2P transactions per day, with an estimated value of $4 million, according to Hughes.
M-PESA reported US$120 million in P2P transfers during September 2008. Assuming an average transaction size of US$25, this corresponds to a revenue run-rate of US$23 million per year. Safaricom is the first to acknowledge that the larger-than-expected response to M-PESA has meant that it has spent more capital upfront. Yet with such a high transaction volume, M-PESA is probably nearly profitable, if it is not already producing a profit from transaction fees alone. And this does not even take into account the cost savings that Safaricom realizes from a reduction in churn.
Safaricom retains control over training and monitoring of all retail outlets. Agent training takes one day, and agents are further required to take a test on anti-money laundering/combating the financing of terrorism. An agent gets KSh40 (US$0.50) when a customer signs up and another US$0.50 when a customer makes the first cash deposit. Afterward, agents receive a commission when they handle an M-PESA transaction for a subscriber.
A typical agent generates more than twice as much revenue through M-PESA than through the sale of airtime. Also, particularly among rural agents, M-PESA brings cash into the village, where it is spent locally, usually in the agent’s shop. Urban agents also report a bump to non-M-PESA sales, but somewhat smaller.
Challenges and Limitations
However, not all agents are prospering. CGAP surveyed 19 agents representing 150 locations in Kenya and found cases in which the model is not profitable. One agent said he lost money on the service because he could maintain only a US$250 float, and had to pay US$1.77 for a bus to the nearest bank. That more than ate up the US$1.01 in commission he earned.
Some agents reported having trouble keeping a sufficient float to maintain service continuity. This is particularly a problem for rural agents, who face a preponderance of cash withdrawals and are located farther away from bank branches. Many rural agents also said it was costly to pay for trips made into the nearest town to acquire float. Some asserted that such a trip would cost them 400+ Ksh (US$5).
Additionally, agents wanting to resolve customer issues reported that Safaricom’s dedicated M-PESA call center is often swamped. This made it difficult for many of the agents to help customers with M-PESA-related problems.
M-PESA is investigating solutions to these issues, including improving money distribution by phone, said Hughes. “We need to create a model where those aggregators can move money around just by using a phone, and are not having to go to a bank,” he said. Another way to improve service, Hughes said, is to enable more payment recipients to accept payments through M-PESA accounts rather than strictly in cash.
GCash
GCash is the mobile commerce and payments service operated in the Philippines by Globe Telecom, one of the country’s leading mobile network operators. Launched in 2004, GCash offers a cashless and cardless method for sending and receiving remittances, paying bills, topping up airtime, or making purchases. The service consists of an e-money account tied to a mobile phone SIM card.
Agents play a vital role in providing GCash services. Customers can make transactions or convert balances into cash through a network of several thousand partner outlets nationwide. Globe Telecom customers can also use prepaid airtime dealers to deposit cash into their accounts. GCash has more than 1,800 ”accredited partners” throughout the country. These primarily include department stores, Globe Telecom outlets, pawn shop chains, and a small but growing number of independently owned shops. GCash customers can also access some automatic teller machines.
At the end of 2007, over 1 million GCash SIM cards (out of a total of 19 million Globe subscribers) had been activated, of which 500,000 were active users. CGAP found that most users buy airtime and send money to friends and family with the service.
Challenges and Limitations
Converting cash into electronic value, and vice versa, is a key feature for clients living in a largely cash-based economy. Yet to date, the network of places where GCash customers can do so has been limited. Only a very small percentage of merchants selling airtime are registered to perform this function, due in part to cumbersome rules on certifying merchants to conduct the required know-your-customer process, which is designed to reduce the likelihood that transactions will be used for nefarious purposes. Yet beyond this regulatory issue, there are many market-related challenges for independent shops to serve as agents in the Philippines.
For one, agents receive only around 1% commission for GCash transactions compared to 10% for airtime top-ups. As a result, it is difficult to motivate agents to push the GCash product over airtime sales. Second, in contrast to the Kenyan market, there is steeper competition for remittances in the Philippines, even in small towns. GCash has had a harder time making as big a splash in the market. Finally, some GCash agents are also agents for other remittance providers, such as Western Union, so GCash faces competition even within its agent's own shop.
