In a recent post in the Celent Banking Blog entitled The Mobile RDC Cost-savings Myth, Bob Meara discusses the mirage of costs savings for banking thinking of introducing mobile payments alongside a well developed mulch-channel network. His argument is spot on, the cost of the transaction might be lower but there are also maintenance issues to be considered, activity cost in banking is the stuff of Alice in Wonderland and more important, potential savings might be small when considering that many have already been realized.
At the other side of the spectrum, however, are micro-finance institutions working in developing countries such as Mexico. So far many they have relied on staff as the main distribution channel. Mobile payments offer the possibilities of foregoing legacy investments and jumping the queue, sort to speak.
Thanks to a travel and subsistence grant from FUNDEF,with Gustavo del Angel and Enrique Cardenas, we have started to map the evolution of payment systems in Mexico. While on site, I was lucky to be invited to a field visit to see first hand operations from Banco Compartamos, a Mexican microfinance institution.
The day started early (kicking off at 0630 hrs) to travel in group to the nearby city of Cuernavaca. The sherpa for the day was Enrique Majos, Banco Compartamos CEO, together with his IT and PR directors. We were joined by two other directors at the site. These visits are a regular thing for Compartamos’ directors.
I was introduced to all the local staff members and took part in the daily debrief (a pilot scheme in which all team leaders report on their activities for the day and any issues from the previous day). All “colleagues” set off on to meet with their customers groups – along the lines of Gramin, Compartamos lends small amounts to individuals (chiefly self-employed women), who are part of co-sponsor groups.
During the meeting individuals bring their weekly repayment and make sure everyone has met their commitment. The “colleague” role is to inquire on the nature and state of the indiviudual’s business while also looking for cross selling opportunities. An “expert colleague” will establish good rapport with all/most the members of the group. If appropriate he/she will also hand deliver a certified cheque for any new loan.
Virtually all individuals will bring their weekly repayment in cash. The leader of the meeting will keep track (through a basic ledger and updating individual pass books manually). At the end of the meeting all repayments are then taken to be deposited in a nearby retail bank branch.
Hence, Compartamos’ staff do not handle cash. Yet Compartamos has to rely on larger banks and a network of correspondents (such as a chain of convenience stores) to collect deposits and distribute loans. Most of these, in turn, will charge individual depositors onerous fees to provide their service. Like many other microfinance, the distribution channel is challenging growth and diversification.
Mobile payments are not the solution at present. For one, the service is highly unreliable outside of big cities and in some of the regions where Compartamos operates, there is no network cover at all. Second and most important, individuals who borrow from Compartamos work in a cash economy. Their business (such as market stalls, beauty products, or seasonal goods) is carried out in cash. Few have access to the Internet or a smart phone (yet all have a mobile).
A mobile branch (i.e. on the back of a bus or minivan) could provide some relief provided it is not a target of highjacking or highway robbery. The volume of individual business is not enough to justify deploying ATMs (let alone self-replenishing machines) in the most remote areas while other financial intermediaries discourage their use of ATM through punitive fees. The time is perhaps ripe for Compartamos and other microfinance come together in the deployment.