The potential of mobile phones to bring banking services to the traditionally underserved is now becoming better understood by many. Financial Inclusion at the bottom of the pyramid is a topic for many – including luminaries like Bill Gates, Pierre Omidyar, and Hilary Clinton.
But it is not a new topic for telecom leaders in the Philippines. They started in 2000 to transform the local landscape with mobile financial services. Even the Kenya leadership went to Manila in 2005 to study the pioneering work of Smart and Globe Telecom before they got started with mPesa.
I got the opportunity to catch up with the former Smart Money executive, Jojo Malolos, recently and ask him about what he learned over his decade of work on financial inclusion in the Philippines.
Jojo told me “Smart started with an approach that built on their experience with telecom. In the beginning Smart could see telecom realizing extensive communications reach – where everyone would have access to communication through mobile phones. Key innovations –prepaid accounts vs. post paid billing, electronic distribution of prepaid minutes (elimination scratch cards), vast retail networks for distribution – were dramatically changing the communications landscape.
And as we saw the “communications gap” close, we saw the other impact it had in the Philippines – it did more than connect people, it meant social and economic good. So while we had built a highly profitable telecom business reaching everyone, at the same time we created new jobs, added new tax revenue for the government, and grew the economy of the Philippines.
When mobile telecom entered Philippines the typical person did not have a landline. There were fewer than 2 Million landlines in a country of approximately 75 Million people. Mobile Operators understood that the telecom success required a well designed “ecosystem” which included a vast retail network. This retail network created efficient reach to all people which enabled Smart Telecom to profitably serve even the small customers. Average Revenue per User, “ARPU”, is $3.25 a month in the Philippines in 2012 (Indonesia $3.07, India $1.62, Malasia $13.20, Singapore $34.00, China $10.52) This retail channel has to be “mutually beneficial” to scale, meaning the business model work for all involved –each business in the value chain no matter what size, financially benefitted from participating.
What was amazing about this telecom success was that it created new businesses and jobs. Some of the retailers existed and they benefitted with new revenue opportunities. But there were many retailers that were new businesses. This created hundreds of thousands of jobs; Smart, just one of the mobile operators, had 1.2 million retailers enabled to provide telecom services.
In addition to job creation, mobile telecommunication empowered people’s lives and their work. Consumers and small businesses were given great service at a low price. This addressed a massive communicate gap – benefits included greater business efficiency, greater security, enhanced family and friend communication, and on and on.
As the communications gap was being addressed, Smart decided to leverage their assets to tackle another hard challenge – and set out to address the banking gap. When they started only 25% of the adult population had bank accounts.
The other leading operator followed suite, and in 2004 Globe Telecom launched a competitive offering. So in 2004, before the rest of the world even noticed, both mobile operators were actively marketing mobile financial services targeted at the traditionally unbanked.
When we set out to add mobile financial services to our product set, we felt if we used the same principles that enable scale in our telecom business, we could achieve the same results. Scalable profitable services that reached everyone and benefitted all in the value chain. We aspired to solve a hard problem – give underserved people affordable access to banking and electronic payments. At the same time, we knew this too would bring social, economic and government improvements to the Philippines.
This was a bold and visionary step. In the next blog Jojo will talk about the dynamics of managing the relationship between the bank and the telecom company. For as anyone involved in mobile financial services knows, this is one of the biggest challenges.