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By David Cracknell
Between 16th and 27th of
February, 2004 MicroSave (supported by UNDP-UNCDF) hosted a virtual conference
on electronic banking for the poor moderated by Charles Waterfield. Electronic
banking includes delivering financial services using palm pilots, ATMs, debit
cards, point of sale devices and cell phones. The conference was co-funded by
CGAP, the FinMark Trust and MicroSave.
Delivering financial services to
the poor has long been dogged by high costs and poor quality of information.
Technology offers the potential to dramatically decrease operational costs,
improve the quality of financial information and make banking for the poor more
profitable and less risky for mainstream financial institutions.
Indications from users in Asia and
Latin America are that palm pilots can reduce costs and increase the number
of clients per loan officer. However, early attempts to develop more comprehensive
e-banking solutions for low-income clients have been less successful for example,
pilot tests for smart card banking in India were cancelled. Still, the industry
has not given up; for example, South Africa is developing electronic banking
solutions, which offer clients a wide choice of services.
The challenge is that developing
a successful e-banking initiative for poor and low-income people entails managing
a host of inter-related issues including technology, pricing, financial literacy,
functionality, partnerships, delivery channels, point of service (POS) distribution,
and regulation.
Over the course of two-week conference,
the following questions were among those deliberated.
- Which e-banking initiatives
have been successful and why?
- What are the key constraints
in developing successful e-banking products?
- What are the key advantages
and disadvantages to different approaches to electronic banking for the poor?
- Which product features
are essential to create a value proposition to customers that works?
- What strategies have
been adopted to encourage usage of the e-banking solution in a semi literate
market?
- What are typical costs
of developing successful e-banking solutions, in time, money and human resources?
- What level of infrastructure
is necessary to support electronic banking?
- Partnership strategies
– which partnerships are necessary to create viable electronic banking
initiatives?
- Pricing strategies –
what issues are important to consider when developing pricing strategies for
electronic banking for the poor?
- Which elements of electronic
banking can micro-finance institutions successfully adopt?
- What are the regulatory
issues surrounding electronic banking for poor?
- What elements of electronic
banking can microfinance institutions successfully adopt?
- Is there a role for
subsidies in creating e-banking solutions?
- What opportunities for
additional products can be developed using an e-banking infrastructure?
- How can the challenges
posed by developing a suitable distribution infrastructure be met?
Separate listserves with a total
of more than 500 participants were maintained in English, Spanish and French.
The English listserve attracted the greatest attention, with a total of 383
participants from all corners of the microfinance and banking world with almost
400 postings. Several central themes emerged:
- E-banking for the poor
depends on technologically driven delivery solutions, but many of these can
not be implemented without the presence of additional skills. These include,
the ability to manage relationships with multiple implementing partners, the
careful training of issuers and merchants, the capacity to ensure the financial
literacy of clients, and carefully design marketing and distribution strategies
appropriate to clients.
- Investing in financial
literacy will be important as electronic banking solutions are rolled out
to the illiterate and semi-literate market. However, how this can be introduced
in a cost effective manner remains a significant challenge.
- It is possible to enhance
the utility of an e-banking infrastructure. Potential operational components
include deposit taking, withdrawals, bill payments, internet access, money
transfers, pension payments.
- It is important to create
an appropriate enabling environment within which e-banking can flourish. However,
the complexity and potential of e-banking solutions will challenge legislators
and regulators with the creation of new intermediation channels such as internet
kiosks and merchants and potentially the revitalization of post offices as
financial service centers.
- Building an appropriate
electronic infrastructure is a momentous challenge, encouraging standardization
and the development of interoperability between networks of ATMs or point
of sale devices will be important.
- Any solution to mass
scale electronic banking, is likely to be through a series of partnerships,
banks, IT solution providers, merchants, government departments, microfinance
programmes, and equipment suppliers.
- Security within the electronic
infrastructure is a recurrent problem. Electronic theft and money laundering
are significant potential risks. For example, the merits and pitfalls of smart
cards verses mag-stripe cards produced one of the more heated debates during
the conference.
- Pricing proved another
thorny issue: for low prices to be offered, high transactions volumes need
to be maintained. This requirement may demand linkages into the government
payment systems, or payment of pensions, for example. A degree of cross subsidy
between different market segments may be necessary to provide basic transactions
at low cost.
- Several roles for donors
were highlighted. These included creating an enabling environment or pump
priming the development of an appropriate infrastructure. Some contributors
argued that donors should take care not to invest in small-scale proprietary
solutions.
To follow the debate, download
Chuck Waterfield’s daily summaries of the ongoing discussion. For those
with greater enthusiasm or interest, it is possible to download the full email
discussion. A conference summary expounding on some of the points made above
will be produced. In preparation for the e-banking conference, a page of resources
on electronic banking was created which was expanded during the conference;
this resource should further assist the uninitiated in understanding the complexities
of e-banking. The daily summaries, the email discussions, and e-banking resources
can be accessed at: www.microsave.org
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