[From IMTFI blog, 21 October 2013]
Myths as retrospective reinterpretations
Every movement has its founding myths. These stories are
rarely manufactured during the early struggle to catch attention. Rather, they
develop at the onset of success, and tend to be retrospective reinterpretations
designed to give a greater sense of purpose and method to what happened along
the path to success. Myths generally have a strong basis of fact, at least
initially, but they always play very selectively with those facts, and usually
get disconnected from the facts through noisy repetition. Never let the facts
get in the way of a good story. Founding myths serve to give a sense of
inevitability of outcome; to create a sense of order in the inherently chaotic
process of challenging and innovating; to create inspiring figures
(individuals, organizations) that others can seek to emulate. In modern
parlance, we call them case studies.
Mobile money is now cool, and it has attracted many of the
trappings of a movement. Never mind that it’s just applying the logic of
prepaid cards and internet banking on mobile phones, which are the only digital
devices that most people in developing countries happen to have. In a cold
business analysis, mobile money is simply the application of a secure,
real-time, digital infrastructure permitting banking o shift from costly direct
channels (branches, ATMs) to much more distributed indirect channels (stores as
agents) and even to self-service (mobile) channels.
So what are the founding myths of mobile money, those origin stories which have
inspired the industry? I would say there are two: agent banking in Brazil (even
though agents tend to be connected through bulkier point-of-sale [POS]
terminals rather than mobile phones, but that’s just a technicality because POS
terminals carry a SIM card within them), and Smart Communications’ mobile money
service in the Philippines. These two aspects, plus excellent messaging of
customer benefits, are the three legs that Safaricom stood on to build its
wildly successful M-PESA service in Kenya.
The early Brazilian experience
A critical enabler or component of mobile money is the
conversion of cash to electronic value through non-bank retail outlets, and
here Brazil is touted to this day as the poster child. Agent banking
regulations date back to 1999, and by end-2008 (the dawn of the M-PESA era),
Brazil had over 140,000 agents (correspondents, to use their term). Sure,
Brazil is a large country, but not even Kenya today comes close to that. Here
we see the key ingredients of a founding myth.
One element of myth-making is the injection of purpose. What the Central Bank
of Brazil sought to do with its agent regulations was not so much to create new
channels but rather to find a place within the law for a constellation of
existing semi-formal and outright informal players who resold or brokered bank
services to clients. The central bank was driven by consumer protection
concerns (clarifying obligations and responsibilities across existing players)
rather than by aspirations of financial inclusion.
Equally, banks did not see agents as a way to offer more convenient service to
existing customers or to seek out new ones, but largely as a way of getting
non-customers out of their banking halls. That’s because of an unusual
provision in the Brazilian banking law, which stipulated that bill payment was
a banking service and hence could only be conducted at banking outlets. Banks
largely sought to shift this mass of bill payers onto non-bank retail outlets
while respecting the letter of the law – agents, bingo! By end-2008, 75 percent
of agent transactions were still bill payments, and only 5 percent were
deposits.
Another element of myth-making is the misleading interpretation of data. Of
those 140,000 agents in end-2008, only some 37,000 offered cash in/out
services. The rest were a plethora of brokerage services for loans, mortgages,
pensions, insurance and such. And two-thirds of these 37,000 I’d be hard
pressed to count as a novel kind of retail agent. This figure includes the
lottery houses, directly owned by Caixa – no arm’s length there. And it
includes the post offices which Bradesco was running as a postal bank – as if
postal banks didn’t have a long tradition elsewhere. If you exclude these
agents, you are left with far fewer agents than there were bank branches (circa
19,500) at the time.
The early Philippine experience
Now onto the mobile phone. Smart Communications is rightly
credited as being the daddy of all mobile money systems in developing
countries, launched in 2001 and hence predating M-PESA by an impressive six
years. Smart Money was the first operator to create a secure platform permitting
customers to access a bank account securely from any mobile phone. Smart Money
was much celebrated in its day, but its shine has now worn off, largely because
of its paltry performance compared with M-PESA.
Was the touted success of Smart Money a mirage? No, it’s simply that Smart
Money was not intended to be what later mobile money enthusiasts have wanted it
to be. Smart Money was conceived not as a person-to-person money transfer
system but rather as a mechanism to broaden the base of electronic airtime
distributors across the operator’s customer base. Here was the thinking: if
customers’ prepaid airtime account could be linked to their bank account, they
would be in a position to buy as much airtime as they needed, on the spot.
Combine that with the ability that users already had to transfer airtime to
each other, and now any Smart Money user could become a Smart airtime reseller
– in the process earning airtime commissions, which have historically been very
high in the Philippines.
So Smart Money was designed as an enabler for airtime distribution, rather than
as a consumer product in its own right. The design implication was that a cash
in/out network was not so important: the money would come from linked bank
accounts rather than from cash, there would be little cash-out since the money
would go primarily into buying airtime, and in any case juicy airtime
commissions to business-minded customers would compensate for any inconvenience
from having to go to a distant or crowded bank branch to deposit cash. But
precisely because Smart Money (and G-Cash, which came after it) underplayed the
importance of the cash network, transitioning it to a consumer product à la
M-PESA proved very difficult.
Their enduring legacy
All this is not to downplay the importance of Brazilian
agent banking or Smart Money as precedents for what has come later in
branchless banking. Their significance will be better understood if we look at
them from the lens of the problems they were trying to solve at the time,
rather than the problems we wish they had been trying to solve. If you don’t do
this, you’ll be puzzled if you go to Brazil and notice the low level of banking
(non-bill payment) transactions still happening through its agents. And if you
go to the Philippines, you’ll be surprised to find so few people who send
mobile money to each other. It’s only fair that we tell their story their way.
My respect goes to them – and to M-PESA which was the first to combine these
two stories –the agent and the mobile side of things—to great effect.