The banking industry in Mexico estimates there are at least 30 million people that could be integrated to the formal financial system during the following years. However, this is not likely to happen through traditional banking, but through new schemes that leverage existing retail infrastructure and mobile phones to reach the lower segments of the population. Mexico allows third-parties (merchants, mom and pop stores) to process transactions on behalf of banks, and several national and regional retail chains are currently working to be certified as banking correspondents leveraging their existing footprint to bring new customers into the banking system. According to the National Banking and Securities Commission (CNBV), correspondent networks are a resource that is already paying off, especially for low-income Mexicans living in areas where it is expensive for banks to establish branches or ATMs.
While commercial banks target 100% banking coverage in all municipalities of the country directly or through correspondents, more than 30 million people (30,000 localities with less than 5,000 people) still will not have convenient access to formal financial services because they live several hours away from the nearest access point in those municipalities. Moreover, these people also lack access to cell phone services because the low population density makes it unviable for MNOs to bring coverage to these areas. Therefore, even the most basic forms of mobile banking would be hard to deploy under such conditions.
Telecomm is a decentralized government agency that operates the telegraph services, bridges data connectivity across the territory, and offers financial services such as domestic and international remittances, as well as bill payments. It has converted its branch network of more than 1,600 branches mostly in rural and semi-urban areas into banking correspondents for seven commercial banks. As part of its expansion program, Telecomm has decided to launch a pilot program which seeks to close the three most common gaps in financial inclusion: technological infrastructure, channels and products.
Telecomm Mobile Payment Pilot in Santiago Nuyoo, Oaxaca.
Located in the “Sierra Mixteca” it takes local people over two hours by truck to get access to mobile coverage and bank branches. Agricultural activities with low productivity and remittances generate most of the income. Telecomm chose this community to run a pilot to test the potential adoption of mobile banking, rural mobile telephony and the viability of low-cost access points to connect this community to its service network. As a first step, Telecomm set up an office in the community, which started operations in February 2011. Besides serving as a branchless banking office, it also serves as cash in/cash out center for other correspondents in the locality. For this pilot, Telecomm made an alliance with Rev Worldwide and Banorte, the third largest bank in Mexico, to offer MiFon (Banorte’s mobile account). Telecomm has also considered developing an agent model for small businesses, in which they plan to offer commissions for accepting mobile payments as well as for acting as cash in/out operators.
After completing the deployment of the rural satellite infrastructure, “Pagos Móviles”, was finally launched in January 2012. In this first phase, the community was enabled with satellite coverage, local calls, local SMS, balance inquiry and P2P mobile payments. Charges for local switched voice service and local SMS’s will start applying in the second semester of 2012 based on the usage registered in the first 6 months of operation. So far, the accounts may be opened with 50 pesos (about USD $4) with no minimum balance requirement. In addition to this, “Educación Financiera BANAMEX”, a local branch of Citigroup, deployed a financial education program in the community. Besides the technical viability of mobile transactions traveling through satellite links the objective is to test usage and the feasibility of the model in order to replicate it in other rural communities with no access to financial services.
Preliminary findings are encouraging:
- Mobile account penetration is above 50 percent among the adult population in the coverage area;
- Reduction of cash inflows has reduced the cost of operating the Telecomm local branch increasing the viability; and
- Merchants play a key role by increasing the number and amount of P2P transactions.
At this point, Telecomm thinks that the solution for rural mobile payments via satellite links is viable. The infrastructure for SMS’s is considered very reliable. The number of transactions of the mobile accounts is still low. However, bill payment services have not been released yet and two additional locations in the community are about to be connected. Once this occurs and communications services are being charged they expect to reverse this tendency.
The data from this experiment will help Telecomm design the business model to bring coverage to “disconnected areas” and estimate the investment needed to cover a universe of up to 19,000 rural communities, targeting up to 5.5 million users within mobile coverage and up to 2.5 million users served through a satellite connected network. Telecomm expects that the business model will prove viable to bring not only convenient access points to these communities, but also a set of basic telecommunications and financial services that could stirrup the economic development of the community.