Our blog goes mobile, and posts?

Writing this from a mobile phone, of course!
The postal network is the most mobile physical and human network one can imagine: there is at least one postman for each of the 500,000 post offices in the developing world thus potentially doubling the number of contact points to deliver financial inclusion. Other banking agent networks – gas stations, grocery shops, pharmacies, lottery agents – cannot easily allow their employees to leave their shop or premise; posts must! And the postman is always back!
Now give a mobile phone to each postman, link them to an application that optimizes their route according to the demand, make available another that enables customers to ask for the visit of their postman by SMS, and you will have the billion excluded from finance but with a mobile phone physically reachable for face-to-face financial transactions going from basic personal finance advisory to savings collection and identity verification. Utopic?

Autazes and agent banking in Brazil: CGAP’s insights

CGAP is opening an interesting new series of posts on their technology blog related to agent banking in Brazil (as you know, one of the most important agents is the postal network – Correios). We forward you below their invitation to comment and contribute to their blog.

CGAP’s invitation:

Two colleagues and I (Sarah Rotman) recently spent 2 weeks in Brazil interviewing agents (termed “banking correspondents” in Brazil) as part of CGAP’s three-country research on agent networks. We started last year with an analysis on the agent economics of M-PESA. We then turned our attention to Brazil, and in the next few months we will look at a country in Asia as well. In Brazil, we worked in partnership with the Center for Microfinance Studies at FGV (Fundação Getulio Vargas), the leading business school in Brazil.

Brazil has the largest agent network in the world with more than 113,000 agents, close to 40,000 of which offer a broad range of banking services including cash-in, cash-out, bill payments, and account opening and loan applications. Agents in Brazil conducted 2.4 billion transactions in 2009. In contrast to Kenya, branchless banking in Brazil is bank-based and card-based. Transactions happen with point-of-sale (POS) devices at each agent location, not via mobile phones.”

Our team visited four locations in Brazil in order to understand agent economics in different regions of this vast country – São Paulo, Brasilia, Fortaleza and Amazonia. We gathered data from about 300 agents and conducted interviews with a subset of about 50 of these agents to understand the motivations, challenges and risks involved in being an agent. We also had meetings with agent network integrator companies and the three largest banks.

Post #1: From rural outpost to boomtown – how banking services transformed a town in the Amazon

and our comment to their post related to our own econometric research on the impact of Banco Postal

Post #2: Making it work for small merchants

certainly a few lessons to be learnt for postal networks with a large number of franchised postal agents

Most-read in 2009

Congratulations to Hans Boon and Marie-Odile Pilley for their posts, which were the most-read in 2009 according to our blog statistics! Please find them below and do not hesitate to react yourself! Best wishes to all for 2010!

Branchless banking or post- branch_banking in 2020 ?

By Hans Boon

One week after the UPU-AFI workshop CGAP newsflashed with scenarios for branchless banking in 2020. That is interesting ! See:
http://www.cgap.org/p/site/c/template.rc/1.9.40599/ .

However the word “ post” occurs in the paper only in combination as POST-conflict, and branchless banking does not identify (yet) the post office as the post-bank_branch option, including the mobile phone technology to reach out to the poor. The cases discussed in those scenarios regarding e.g. Brazil, Kenya, South Africa do not mention the ongoing role of the post offices in mobile money and the reference list does not include any postal data/publications.

The “branchless banking 2020″ scenarios build on the feature of the 250.000-300.000 brick and mortar outlets for mainly urban banking, and expansion is indeed limited from an economic point of view. Expansion through ATMs faces also limitations, as capital expenditure remains relatively high, maintenance, and often usage is only to withdraw a monthly salary or remittances. The question whether some one is “banked” if he/she has an account and a card to withdraw 10 times per year the income is not answered. The scenarios overlook the nearly 500,000 post offices in the developing world, with more than 350,000 in rural areas. If equipped with EFT POS terminals and other standard and connected ICT they could be a part of the basic global access infrastructure. The paper also does not view on the linkages between post and telecom. Many post offices do have a function in sales of telecom services and cash collection, providing a phone booth, and mobile technology is also emerging for the postmen, to provide an efficient delivery service, but linked applications between mobile mail logistics management and mobile money delivery have yet to be designed.

Perhaps one could indeed agree that 2020 is the post-bankbranch era, as by then MFIs, Agents, Post Offices, ATMs, Self Service Terminals reach out to the “unbanked”.
That is all very much dependent on the degree of financial literacy.
In that respect the Post office is not only a potential “library” but with proper ICT it could be the local “e-learning” centre, as part of a broader “portal” function to the e-conomy. Moreover post offices and schools could re-invent a new tradition of ’school savings’ to help to familiarize the new generation with financial literacy and encourage savings and cashless payments.

This sounds extremely nice, but as the CGAP scenarios indicate, there is a dramatic gap in today’s “literacy” about the dream potential and the real problems in involving the post offices in financial literacy, access and inclusion. The challenge today is not only at the bottom of the financial pyramid but more at the top. Apparently there seems to be a lack of convincing “literature” for mobilising broad support to an internationally coordinated approach to involve the nearly 500,000 post offices for financial services delivery through standard ICT solutions and effective business models.

From a high-level macro perspective 500,000 post offices in the developing world serving each on average 5000 micro-customers is 2.5 billion people being included, from unbanked young school children to old aged pensioners. To enable that globally requires an investment and development budget in the range of US$ 5 to 10 billion (PostFI editor’s note: Russia is planning a US$ 1 billion investment in its forthcoming Postal Bank). A enormously large amount, but much bigger sums have recently been injected in commercial banks to “rescue” them. Many of these banks spent US$100 or more to acquire a retail client.

The UPU-AFI workshop was an unique event to highlight the potential and to improve awareness. The follow up is a challenge. With the technology developments in mobile and internet gaining pace the pressing question emerges : Will 2020 be the year of branchless banking, post- branch_banking, or less post offices?

A long-kept secret in facts and figures: the role of post offices in financial inclusion.

By Marie-Odile Pilley

You are surely aware that post offices are among the most trusted institutions in many countries. Their position has been strengthened by the financial crisis with many people switching from bank accounts to post office accounts.
Did you know too that there are :
• 1.5 billion existing financial services users through the post office network;
• 500,000 post offices in the developing world with an average of 5,000 micro-customers
• 350,000 rural post offices in developing countries
Indeed, which other network is better positioned to take up the challenge of financial inclusion for a large section of the remaining 2.5 billion un-banked citizens in the developing world ?
However, there is little hard data to argue this self evident case with policy makers.
Postal financial institutions, which can be century old entities rooted in their local culture, often fall under specific regulations. These regulations have evolved especially in the last twenty years, as a result both of liberalization and new public policy initiatives in the field of financial inclusion. The word “Postbank” covers all sorts of organisational and legal structures. Some postal financial services institutions have become, or been merged into, fully fledged publicly quoted banks. Others are privately owned while some remain fully state-owned. Some are part of the post, and the post can be itself an administration. Postbanks can be dedicated postal financial institutions subject to specific regulations. “Postbank” can refer to a brand for banking services provided through the post office by means of an agency agreement with a financial services provider. The brand “postbank” can even be used by banks which do not have much in common with the post apart from an historical connection, but that prefer to keep this name for marketing reasons (trust building and customer retention). Some postal financial institutions have been absorbed into financial conglomerates, themselves dramatically affected by the recent crisis. New “postbanks” were also created and they reflect the diversity of postal financial services institutions.
The value propositions of these postal financial institutions have evolved in parallel with their organisational structure, from traditional postal savings and payment services, to:
• banking services ,
• reinvented fully modernised services
• new services delivered through integrated physical and virtual channels.
Thus, words like “postal savings accounts or giros” may cover services very different in nature.
As a result, new data need to be gathered and a consistent basis for collection developed. This has to take into account the existing information base, which includes:
1. UPU statistics that focus on traditional postal financial services (savings and payments )
2. Central banks: national, regional (EU) and world statistics (CPSS/BIS)
3. Other specialist statistics such as those of the World Savings Bank Institute or microfinance networks
A two-part study on the regulatory situation of postal financial services and related statistics would be more than welcome. This would be a natural complement to the IMF’s Access to finance project pioneered by the UN Secretary General’s Special Advocate for Inclusive Finance for Development
http://www.microfinancefocus.com/news/2009/10/08/princess-maxima-launches-imfs-access-to-finance-project/
Please feel free to provide any idea about :
• Possible methodologies
• additional sources of information

Research on Brazil: Solving the Last Banco Postal’s Puzzle

Our econometric estimation of the Brazilian Banco Postal (BP) impact on local economic development did not identify a significant statistical impact of BP on the gross domestic product (GDP) of the communities under analysis while our model finds clear impacts on the creation of new firms and employment. Why?

A plausible explanation is that financial inclusion is above all a matter of numbers rather than value. While many individuals and small firms were financially included through BP, it is intuitive to understand that the monetary added value of all transactions was not large enough so as to have an impact on a macroeconomic aggregate – such as GDP – which is measured in value terms. This is the same when comparing these transactions to the overall financial system, as it was rightly pointed out by Ernesto Aguirre during the UPU-AFI Conference on Financial Inclusion and Postal Banking (as it can be seen in the video below).

Yet this constitutes another tangible proof of the inclusion power of BP, because if many new firms have been created locally thanks to BP (as tested econometrically) while the value aggregate (GDP) remains largely unaffected, this in turn means that the new economic activities created have been mostly involving the less well-off segments of the population – low-income households and micro-enterprises. The positive macroeconomic local impact of BP is to be found at the extensive (number of) rather than the intensive (value of) margin. It thus confirms that BP was an important factor of integration for those segments of the population – mostly rural or in small cities – in a time of stronger concentration of economic activities in large centers due to development. As highlighted by the World Bank (WDR 2008), more concentration also calls for more integration in order to prevent the periphery from becoming a de-stabilizing factor and jeopardize the sustainability of economic development.

Related material:

Financial inclusion and local economic development in Brazil: a quantitative evaluation of the impacts of Banco Postal

Financial inclusion through the Banco Postal: an evaluation

By Dr. José Ansón, Economist, UPU

Research chapter on Banco Postal in English, French and Spanish languages (with Laia Bosch Gual, Ed. Joëlle Toledano and José Ansón, 2008)

Reserve Bank of India’s Governor: What Becomes Possible for Rural Women With Access to Finance

An extract from TendersInfo:

” … the governor had more success stories to offer. Aruna, a farm labourer, managed to get a loan to set up her own, now-thriving, vegetable stand. This allowed her to shift away from the back-breaking work of tending other people’s fields, Subbarao told bankers in Kolkata on Wednesday.
“Her former hand-to-mouth existence had given way to a new reality, one which includes savings and checking accounts at the bank, and the credit needed to keep her kids in school,” he said.
Lakshmi Shelar, widowed at 17, helped form a local self-help group. The 177 women of Lakshmi’s self-help group have all borrowed and repaid their loans, the governor said. This section of his lecture was titled “Let a thousand flowers bloom”.
“This is what financial inclusion is all about – giving people an opportunity to build better lives for themselves and their children,” Subbarao said exhorting banks to go to under-banked areas.
Aruna and Lakshmi are just two of the millions of women across the country who have demonstrated what is possible if only rural women can have access to basic financial services, Subbarao said.”

Let the Post Office write a few of these “fairy tales” … Just post your own stories – postal or not –  and share them with us! In the meantime, here is an interesting article in Bloomberg on the Bill and Melinda Gates Foundation involvement in helping poor save money.

Related material:

Mr. Sandip Ghose’s intervention, from the Reserve Bank of India, during the 9-10 November UPU-AFI Conference on Financial Inclusion and Postal Banking

Authentication Can Be Revolutionized: ICANN Grants Top-Level Domain Name to the Post. What Impact on Financial Inclusion, Anti-Money Laundering and Anti-Terrorist Financing?

The Internet Corporation for Assigned Names and Numbers (ICANN) formally granted the sponsored top-level domain name .post to the UPU on 9 December 2009. The contract betwen both organizations was signed in Geneva’s U.N. headquarters (Switzerland) on 11 December 2009 and represents a truly historical step in the integration of the electronic and physical communication worlds.

The UPU is the first United Nations agency to obtain a top-level domain name for the global industry it represents.

.post will facilitate the development of secure and trusted postal services over the Internet and enable the UPU to reach the full potential of its original mission, to build a worldwide space without borders that facilitates personal and business communication in a secure and trusted environment.

Having delegated authority for .post, the UPU will develop, implement and monitor governance rules for .post and manage the attribution of domain names. These are expected to be available by mid-2010 for postal-sector stakeholders who meet the eligibility criteria.

What could this mean for the provision of secured financial services to the poor, and for financial inclusion policies? The lack of identification usually comes as one of the main barriers that prevents a larger access to financial services by the poor. As banking agents or themselves postal banks, postal networks will soon be ready to channel more secure and safer electronic financial transactions thanks to the top-level domain name “.post” attributed by ICANN, and thereby reduce authentication concerns as well as anti-money laundering (AML) and anti-terrorist financing (ATF) concerns of many financial regulatory authorities.

How could this more concretely work? With the likely expansion of mobile postal banking, it becomes paramount to bridge physical and all kind of digital addresses in order to reduce dramatically the number of suspicious financial transactions. This unique authentication service – that could permanently match electronic and physical locations and addresses – could be provided by postal operators as banking agents or directly as postal banks.

Listen to the press conference. Your reactions are most welcome. Also access UPU’s official press release.

IFAD, AfDB and IAD Recommend a Wider Use of Postal Networks to Increase Access to Finance

Is the postal network an essential infrastructure for economic and social inclusion in rural areas of developing and emerging countries? The International Fund for Agricultural Development (IFAD), the African Development Bank (AfDB), and the Inter-American Dialogue (IAD) seem to think so!

Two recommendations following the last Global Forum on Remittances co-hosted by the IFAD, the AfDB, and the IAD in Tunis encourage a wider use of postal networks in access to finance. It recommends “the use of the worldwide postal network to give customers access to financial services”. It also recommends “post offices to act as pay-out locations in order to make more financial services available in rural areas”.

Click here to access the full list of recommendations. To which extent can increased competition be a response to a market failure in the provision of basic financial services?  Your comments are welcome.

Financial Exclusion in the U.S.: 60 Millions Adult Americans Living Without an Account or Underbanked

This is the striking news of the day (2 December 2009), according to an article published in the Financial Times. It highlights that financial exclusion is a major issue in developed countries, too. As posted in PostFI-News, Lord Mandelson is opening a wide consultation to expand the role of post offices in delivering financial services in the U.K. Could this also become true in the United States?

FDIC Economic Inclusion Website

Article in the Washington Post

Branchless banking scenarios 2020: CGAP invites us to debate

On 1 December 2009, CGAP invited us to debate the 2020 branchless banking scenarios in their technology blog. We submitted the following question, maybe you also have your opinion. So post here or there!

One of the most important issues in branchless banking is to align the interests of the poor, the agent and the bank (or financial partner). So far, discussions have focused on the principal-agent relationship between the agent and the bank, that is a one-sided agent model. Achieving sustainable financial inclusion may require a two-sided – or multi-sided – agent approach, with the same agent not only acting for a bank but also for a group of low-income people, and by so-doing better aligning the various parties’ interests. Do such agents exist? We think so: some agents may enjoy the trust of the poor, be very close to them, offer affordable services while simultaneously benefiting from a joint-venture with one or several banks (or other financial entities) and deliver many activist governments’ benefits. One of these multi-sided agents is called the post office, with three striking cases in Brazil, India and China. So why don’t we pay more attention to multi-sided agents that can better internalize and align the interests of different parties?

Interestingly, this approach was partially introduced in one of the CGAP scenarios related to Self Helf Groups. In our opinion, the more a platform (be it mobile telephony or/and postal operator) has aligned interests with the Self Helf Group, the better it will internalize these interests when dealing with the other side of the platform, i.e. the bank and/or financial partners. Post offices, through their local presence and proximity to Self Helf Groups members, are often trusted institutions and have universal service obligations (USO) that may ease the alignement of interests between them and Self Helf Groups.

The Posts: a Universal Library to Promote Financial Literacy?

Having visited numerous post offices in developing and emerging countries, it is often striking to notice the space left available and not utilized in front of their counters. This is just one more sign of what is the most underutilized asset of the Posts – their network – as recently highlighted by the UPU POC Chairman – Dr. Andreas Taprantzis – during our UPU-AFI workshop on financial inclusion and postal banking.

During the same event, Christian Sinobas from PlaNet Finance was rightly pointing out that while improving geographical access can be secured with impressive results through the use of agents (or correspondent banking), nothing was guaranteeing that people living 50 meters away from a post office – acting as a bank agent or itself as a postal bank branch – where an offer of basic financial services is available will indeed use these services. Financial literacy may appear as a significant barrier to effectively take advantage of an improved geographical access.

If one thinks in a creative way, one can easily understand that a physically under-utilized post office space can not only provide a counter for financial services, but also become a permanent library to promote financial literacy. Posts have already proven their effectiveness in campaigning against AIDS in their offices, or delivering school books on time for millions of Brazilian students every year. So why couldn’t Posts use an area in each of their offices for increasing people’s financial readiness? What other network can propose 500,000* libraries reaching the poorest segments of the world’s population?

What do you think? Leave your comment below.

* Number of post offices in developing and emerging countries

Also see: CGAP’s Financial Literacy Meets the Mobile Network Operator

Recent initiative: Pacific Islands – Building Financial Literacy in the New Year