Much depends on mobile phone network

Financial inclusion has been a policy priority of late. The RBI has indicated the importance of involving all agents in the universal financial inclusion exercise by opening the space to business correspondents (BCs) and for-profit companies.Its insistence that banks should recognise the poor as a business opportunity calls for newer strategies from the banks.

For businesses to be profitable, one of the most important steps ahead is to build an extensive network by facilitating transactions — whether remittances or payments/receipts — essentially building up volumes. International experience shows that there are three main hurdles to overcome while scaling up deployment of a new payment system — expanding the network of users, attracting and retaining customers and retail agents, and building up trust and confidence in the new system.

Given that rapidly scalable financial inclusion models tend to rely on low-cost e-money transactions that help overcome these hurdles, it is essential that the inter-connected systems are able to smoothly ‘talk to each other'. In essence, this points to inter-operability, amongst telecom operators, and between telecom operators and financial institutions. Unfortunately, there are constraints to such inter-operability that need to be smoothed out to achieve universal financial inclusion.

Mobile payment service

Regulation can only go so far in creating an enabling environment; in the end it is for the operators and financial institutions to work out viable models amongst themselves.

In Ghana, for instance, the regulator has prohibited exclusive partnerships, mandating a many-to-many model; the aim is to have maximum connectivity and maximum outreach so that all banks and all telecom companies (telcos) should be able to interact with each other.

Even with such regulation backing the basic need for seamless integration, the nitty-gritty of the relationship between mobile network operators (MNOs) and banks remains to be resolved in that country — there is dispute over the roles and responsibilities of each partner, over revenue sharing and, in general, there is a reluctance to invest in a service that will benefit a competitor's customers.

In India, where such regulation does not exist, the Inter-bank Mobile Payment Service (IMPS) has been a big step forward in connecting payment transactions between various players. However, it appears that banks are still not working towards taking the most out of it and do not seem to be aggressively marketing the convenience and security of these transactions to their existing customers.

Another significant block here is that each bank requires its own application downloaded on the phone, rather than a common platform. While this may make for bank branding, it takes away from the ease of doing transactions.

Then there is the problem of sharing of infrastructure. In some countries, such as Tanzania, markets are looking at sharing the agent infrastructure. A retail store can service multiple mobile money schemes, this eases the access of customers and increases competition at the agent level, but the agent now has to maintain separate accounts with different operators, constraining working capital and overall liquidity. Of course, mandating inter-connected mobile wallets has its own set of issues, yet sharing of agents would go a long way in increasing access to a broader base of customers, especially in difficult-to-service areas.

Infrastructure access

Allowing MNOs to act as Business Correspondents in India has already yielded some more lessons. It appears that some operators are restricting connectivity to ward off competition, creating blocks to inter-operability. What is needed, as Mr Abhishek Sinha of EKO India Financial Services puts it, is “a policy framework that allows third-party use of the communications infrastructure as a utility to enhance delivery of other essential services such as financial services, education, and healthcare among others.”

Over the long run, allowing access to infrastructure, whether technology or retail, will be vital in expanding networks. Competition amongst financial service providers should be on the basis of scope and quality of financial services rather than restricted by access to infrastructure.

In the end, branchless banking will spread essentially through building up economies through volumes. However, it must be kept in mind that since the early adopters to any new system would be those who are financially literate and technologically savvy, moving into the lower rungs would be another leap altogether.

Both banks and MNOs need to recognise that financial inclusion can be a win-win situation and learn to work together in an environment that is co-operative and competitive. While there will be stumbling blocks along the way, with regulators and governments across the developing world bent on achieving financial inclusion, such a scenario of what is termed ‘co-option' is not as improbable as it sounds.

(The author works with Indicus Analytics.)