Branchless Banking is just 19% cheaper than Traditional Banks

By Asma Azmi,

Microfinance Focus, May 25, 2010: According to the recent CGAP’s global pricing study report on banking services targeting poor, unbanked and under-banked people in Africa, Asia and Brazil, mobile banking and other forms of branchless banking are found to be cheaper than traditional banking, but the gap between the two is not a very significant one. The study, conducted across 16 providers and 10 countries finds that on an average, branchless banking is just 19% cheaper than traditional banks.

The study analyzed the services of branchless banks like Afghanistan’s M-Paisa, Brazil’s Bradesco and Caixa, Cambodia’s Wing Money, India’s Eko, Kenya’s M-Pesa and Zap, South Africa’s Mobile Money etc. It found that by comparing 26 branchless banking pioneers and traditional banks with products aimed at the same kind of customers, on average, branchless banking is 19% cheaper across eight services. These services included money transfer, short‐term safekeeping, medium‐term saving for asset, bill payments, high usage (as a proxy for financial inclusion) average monthly transactions per M‐PESA user in 2008 and average monthly transactions per Kenyan banking customer in 2008.

It was found that the lower the transaction value, the cheaper branchless banking is in comparison with banks. For example, at a transactional value of $23, branchless banking is on average 38% cheaper than commercial banks the study looked at. If compared to other informal options for money transfer, branchless banking is still 54% cheaper. Informal providers charge double the price for a money transfer than a branchless banking provider. Customer usage is influenced not only by absolute prices but by the way a service is priced. For example, in order to encourage trial of money transfers, some services offer free deposits, which make branchless banking an affordable way to save. Average branchless banking price is $3.90 per month.

Zap Kenya is currently the overall cheapest service. WING Money and the Filipino services (Gcash and Smart) are among the cheapest third across most use cases. ZAP and the Filipino services all provide airtime discounts. EKO is very cheap on the low‐end but expensive on the high‐end. Easypaisa and WIZZIT are the most expensive services. Zap Tanzania and Orange in Côte d’Ivoire are also among most expensive third across most use cases.

Banks in India and South Africa face political pressure to offer simplified accounts (‘nofrills’ in India and ‘Msanzi’ in South Africa) that are not profit oriented. In these countries, BB is more expensive than banks. Kenyan banks, in contrast are more expensive. This could possibly be one reason for the success of M‐PESA

The report also identifies few reasons low pricing difference between branchless and commercial banking. A possibility that establishing a successful, scaled branchless banking service could be more expensive than expected is one. Some branchless banking providers want to leave room to come down on prices as more competitors enter the market. Moreover, mobile money providers might also be keeping profits for themselves and not passing them on in lower costs.

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