Assessing the Benefits of Innovative Payment Facility in Microfinance: The M-Banking Value Proposition using Mobile Phone Technology

"As a challenge to achieve the Millennium Development Goals, m-commerce and m-banking help in the creation of a more open, rule-based, predictable, nondiscriminatory trading and financial system. Mobile banking allows synergies with the private sector in making available the benefits of new technologies, especially information and communications to unbanked and marginalized sectors of the society."

This 93-page case study aims to assess the benefits of mobile banking applications in microfinance banking in the Philippines, with a focus on how mobile telecommunications solutions impact the lives of Filipinos, particularly small and medium enterprises and micro borrowers. It explores the strategy of using information and communication technology (ICT) - in the form of mobile telephony - to foster economic development by facilitating banking service delivery in isolated areas of the Philippines.

As Joel Umali explains, many rural areas in the Philippines lack access to formal financial institutions. For example, only 73 of the 6,800 ATM machines are located in rural areas. In contrast, "mobile phones numbering more than 40 million, have proliferated in almost all corners of the country and all levels of the society. Dubbed as the texting capital of the world, the Philippines sends more than 500 million texts messages a day..." In this context, Umali undertook a study to explore whether access to mobile services and familiarity with short messaging service (SMS) technology can indeed provide wider access to information and financial options, promote economic development in terms of cost and time savings, and deliver efficiency and productivity gains to microfinance institutions.

To do so, he examines one particular tool: the m-banking loan payment application called "Text-a-Payment" (TAP), which uses the Globe Telecommunication's electronic wallet technology called "G-Cash". In particular, the study seeks to assess the pilot implementation of the TAP using the G-Cash technology in 4 rural banks taking part in a pilot programme implemented by the Rural Bankers Association of the Philippines-Micro-enterprise Access to Banking Services (RBAP-MABS) under the funding grant of the United States Agency for International Development (USAID).

To assess the success of the TAP product, Umali has developed - and outlines in detail here - a conceptual framework based on the value creation approach and the electronic payment models. Value chain, value shop, and value networks are used in assessing the actors, the activities, the resources, and the linkages and how they individually or collectively bring value to the end users. The multi-perspective approach for electronic payment, on the other hand, presents assessment of the technology-based environment is combined with 3 complementary perspectives: the market, the actors, and the issues.

Prior to detailing the results of this research, Umali provides additional context. He first describes the "wireless boom" in the Philippines, outlining the following contrasting trends in Philippine telecommunications:

• Wireline teledensity has declined. In 2003, for instance, the installed capacity of the wireline telephone service fell 3.7% to 6.5 million lines from 6.8 million lines in 1999.
• There has been a "continuous surge" of wireless subscription volume. The number of mobile phone subscribers grew 8 times from 1999 to 2003, jumping to 22.5 million from 2.8 million subscribers. Cellular Mobile Telephone Service (CMTS) subscriber numbers continued to grow in 2005 registering 34.8 million subscribers and a farther jump to more than 40 million subscribers by the end of 2006. CMTS subscribers doubled from 19 subscribers in every 100 Filipinos in 2002 to 41 cell phone users out of every 100 Filipinos in 2005.

He also outlines in detail the advent of, and motivation behind, m-commerce and m-banking in the Philippines as a context for describing the development of the G-Cash technology itself. Umali explains that G-Cash transforms a user's phone into an electronic wallet where subscribers can easily and conveniently send and receive cash and make payments through SMS or texting. It offers payments, phone-to-phone fund transfer, and international and domestic money transfer. TAP is the application of G-Cash for microfinance, particularly loan repayments and deposits.

Based on his analysis, Umali concludes that the TAP application "brings significant value to the borrowers by reducing transactions cost and time associated with traveling for loan repayments and benefiting from the perceived reduction in bank charges." In addition, "[r]ural banks benefited from transportation cost reduction but more importantly, the TAP was instrumental in generating additional valuable time for the AOs [account officers] which can be utilized in generating additional loan accounts and improving portfolio quality."

Despite these financial and non-monetary benefits for both microfinance clients and banks, Umali stresses that "full realization of benefits is hindered by issues relating to technology assimilation, business models, marketing, customer relationship, and access to electronic fund loading centers." He argues that the viability and sustainability of the TAP model can be enhanced by factors such as:

• Collaboration - "Technology alone can not make the service sustainable, it's the alliances, network and sharing of knowledge that ultimately bring value. Network operators, oversight organizations, partners and the bank should set-up a joint Project Management Group to address TAP issues.."
• Training - "To quickly assimilate all the m-banking service suites, an automated system that will integrate with the bank's current accounting system should be developed together with the appropriate training for all bank staff involved....AOs should possess skills in orienting clients on the features of the product and be able to provide technical support. MF [Microfinance] staff should be regularly trained and retooled to address implementation issues."
• Incentives and Marketing - "An incentive system can also
  be set-up to encourage AOs to utilize the TAP and enroll micro clients....It is important to create a critical mass of both outlets and establishments accepting GCash...thereby creating incentive to keep electronic funds."
• Customer Support and Service Variety - "Monetary allowances in communication cost should be made available especially to AOs who handled direct marketing with the clients. Clients would rather call up their AOs instead of the network provider if issues are encountered...[In addition,] it is more attractive to have a wide array of services including deposit, withdrawal, account balance, remittance, pay roll, among others."
• Monitoring and Evaluation - "The bank should be able to track TAP performance and be able to set-up performance monitoring systems to evaluate and assess the issues, benefits and impact of the program both on the organizational and societal levels..."

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