This is a guest blog by Salah Goss, Associate Program Officer in the Financial Services for the Poor program and Ignacio Mas, Deputy Director in the Financial Services for the Poor program at the Bill & Melinda Gates Foundation.
New technology-enabled models for financial inclusion seek to take transactions outside of bank branches and into retail shops that exist in every community where poor people live and work. Constructing the necessary transactional infrastructures and service propositions requires bringing a broad set of assets and skills, which are likely to emerge from partnerships between various kinds of players.
But who will play orchestrator of such schemes? While much of the debate has so far focused on banks versus telcos, there is in fact a broader cast of characters angling to get in there. Here we evaluate the opportunities for some categories of ‘third party’ players who may someday become principals.
1. Technology Providers. First out of the gate are companies with a technology background rearing to innovate. These companies usually have a pre-existing relationship with the banks and mobile operators, for instance providing point-of-sale equipment, switches, mobile applications or hosted communications gateways. In branchless banking, they see an opportunity to both sell more equipment and to provide higher-level managed solutions to their bank or telco customers. But in order to offer a useful proposition, they often need to take responsibility for developing and managing the retail channels in which their technology is deployed.
In India, a host of technology players such as FINO, ALW and Eko have been pioneers in developing as Business Correspondents. In West Africa, MoneyBox, Obopay, and INOVA are similarly entering the financial services space.
But technology-centric players often don’t have the skills and deep pockets required to build and maintain dense retail networks. Their brand is not well recognized by the public, and they often operate in something that is more akin to an outsourced contract from a bank. In many cases their true aspiration is to operate a multi-bank or multi-telco scheme, where their value add is less in the provision of the basic service than in enabling an interoperability framework. That’s their path to freedom from being too tightly wound to a single bank or telco.
2. Specialized bill pay companies/airtime reselling platforms. Bill pay companies and electronic airtime top-up resellers have an established network of service outlets under management which already use electronic point-of-sale systems and have appropriate cash management systems. They already take cash and effect an electronic payment (for a bill) or provide electronic value (for airtime); it doesn’t seem to them much of a stretch to go from there to full cash in/out services. In Colombia, DDDedo is partnering with Banco AV Villas to manage an entire distribution network of financial services. Blue Telecom of South Africa also envisions creating e-value ecosystems going into the m-commerce space, standing on its footprint of airtime reselling outlets. They typically aim to provide a common customer front-end service across multiple schemes.
3. Distribution Companies. Companies that distribute fast-moving consumer goods to stores possess a huge advantage in terms of logistical infrastructure and deep reach into ubiquitous mom and pop shops. They have weekly if not daily contact with store who often pay in cash. Hence these companies have developed cash transport capabilities with their fleet of trucks –though that tends to be one way (collecting cash only). They are used to marketing new products to retailers, and have sophisticated information systems to develop a deep understanding of customer demand patterns on a geographic basis. In sum, they could be a phenomenal channel for managing agent networks for financial service providers. And yet, for the most part they have shied away from taking on the challenge of managing agent networks. Their desire is more to take cash out of their own business rather than to aggregate other people’s cash problems and solve them by ‘powering’ an agent network.
4. National branded retailers. National retail chains enjoy a known brand, a relationship with their customers, and a sizable physical distribution footprint often in premium locations. Adding basic financial services to their range represents a new revenue source, but may also support their other product sales by driving foot traffic and providing customers with liquidity (and possibly credit) right at the point of purchase. They have established systems for training staff, supervising stores and managing cash – all useful elements to roll out a branchless banking capability.
Retail players have become prominent in the delivery of financial services in Latin America. In Mexico, the larger retailers have in fact become banks (case of Banco Azteca and Banco WalMart). In Peru, Interbank places mini-branches in supermarkets and department stores owned by its group. Some independent retail chains (e.g. OXXO in Mexico) are seeking partnerships with banks and mobile operators to offer their financial services, but that often entails hard negotiations in terms of branding (as retail chains may be concerned about not diluting their brand image at their shops) or fees (as chains are well aware of the value of access to customers they provide).
We are in the early days of the development of dense, high volume/low value transactional networks worldwide. There is a frantic search for new business and partnership models. Is it possible that it will not be banks or telcos but rather third-party players with technology savvy, channel management know-how, retail footprint or brand who end up calling the branchless banking shots?