Interoperability in Branchless Banking and Mobile Money

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?