Anatomy of a mobile banking collaboration

Peru’s new mobile banking system is less than two weeks old and off to a running start. Since officially launching on Feb. 16, BIM — an abbreviation for “mobile wallet” in Spanish — already has around 23,000 registered accounts, far outpacing its target of 8,000 to 10,000 for the first month. The system is a unique model that brings together most of the country’s financial institutions and telecommunication companies into one common mobile money platform, specifically geared towards boosting financial inclusion for the poor. The near-term goal is to reach 5 million accounts in the next five years. For that, BIM’s managers estimate they will need roughly 300,000 accounts signed up by the end of the year. If the current pace holds, hitting that mark should not be a problem. To understand BIM’s early success and its vision for providing mobile wallets to the nearly 9 million Peruvians who presently lack access to financial services, Devex spoke with Carolina Trivelli, BIM’s principal manager. Trivelli, a former national minister of development and social inclusion, leads Pagos Digitales Peruanos, the company formed by Peru’s banking association to oversee BIM’s design and development. She offered insights into BIM’s ongoing experience that could benefit other countries looking to leverage mobile payment systems as a way to promote financial inclusion. There are several key factors that have led to much of BIM’s success so far and the model that Trivelli believes will allow it to hit those targets. First, she noted, BIM fully integrates e-money issuers — the banks — and the service providers for the end users — the telecom companies. Several banks had previously tried to go it alone after the passage of a new banking law that allowed nonfinancial institutions to participate in e-money initiatives. Wanting to protect their traditional turf, banks designed e-money platforms, often sending teams to the Philippines or Kenya to consult with similar initiatives such as Safaricom’s M-Pesa. Very few of them, however, made it past the pilot phase because of problems of scale. Peru’s fragmented telecommunications markets meant that banks needed to bring multiple cellular providers on board to reach a meaningful volume of customers. That laid the groundwork for multiple banks, with their multiple telecom partners, to go in together on the project. The system as it has been constructed allows a BIM user to sign up for an account with just their mobile phones and deposit or withdraw funds through any one of a participating bank’s agent network. Similarly, the mobile phone provider makes no difference — payments and transfers work equally across all providers. Second, the concept of BIM as a tool for the unbanked was rooted in Peru’s legal framework. The same law that regulated e-money also included as a core objective an intent to promote financial inclusion. “The law inherently provided a legal and regulatory framework to allow e-money to flourish as a way to promote financial inclusion,” Trivelli told Devex. That paved the way for the participation of a range of financial institutions in BIM. “The bankers association did a good job to promote the program,” including opening it up to the country’s two main microfinance institutions, she said. As more institutions signed on, the greater the incentive became for even more to participate, according to Trivelli. For many banks, it was better to join in than to be left out. “The initiative brought a significant positive reputation to an industry that typically carries a poor one,” she said. But getting that critical mass and reaching a common consensus was, not surprisingly, no easy feat. An early sticking point was the level of buy-in from participating banks. A critical point that was addressed early was to avoid having larger banks take control of the initiative. The group ultimately decided that investment and say in the project was to be split equally, but it was a decision that took time to reach. By the end of 2013 the legal framework was in place, the bankers association members had agreed to finance the project equally among all parties, technology providers to build the system were shortlisted and a team of international consultants was assembled to assist. At that point the idea of BIM had evolved into what Trivelli described as a third key component — building a digital ecosystem beyond just an e-money business. That is an ongoing task for the foreseeable future. It requires building up trust in BIM, which in practice means signing on enough merchants and vendors to keep payments circulating within the system without users having to exit out into cash. “When money is captive it will pay for the system,” said Jeffrey Bower, a digital finance specialist with the United Nations-based Better Than Cash Alliance who advised the project. Banks currently charge small service fees for BIM transactions. But they are capped at a low rate and the same for all issuers in order to promote a high uptake early on. Most of those fees, in fact, cover the SMS costs of sending BIM payments that mobile providers pass on to the banks. But the plan is that over time a high enough volume of transactions will cover the system’s operating costs. Bower and Trivelli both describe BIM as a profit-seeking, but not purely profit-driven, venture. It is meant to recover its startup costs, but not much more beyond that. Pagos Digitales Peruanos itself is owned 51 percent by a nonprofit entity created by the bankers association. And Trivelli says that the project will operate at a loss for at least the first three years. Only around 2019 — or when roughly one million active users are signed on — does BIM expect to break even. For now, the low-hanging fruit is to target potential users in Peru’s urban areas. BIM’s financial inclusion aims are to eventually reach the rural populations that live in remote parts of the Andes mountains or Amazon forest. But as Trivelli points out, urban markets present huge opportunities to boost financial inclusion — 60 percent of adults in Peru’s urban areas, she estimates, do not use banking services. 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