Viewing all posts with tag: Payment  

Cash Transfers: The Conversation Continues

Last night FAI had the pleasure of co-hosting a lively and informative panel discussion on the impact of cash transfers in international development with the Microfinance Club of New York.  The panel (moderated by FAI's Timothy Ogden) included Paul Niehaus and Jeremy Schapiro, co-founders of GiveDirectly, Jenny Aker, Assistant Professor of Development Economics at The Fletcher School, and Johannes Haushofer, Assistant Professor of Psychology and Public Affairs at Princeton University. 

As is to be expected when you mix practitioners and academics, the evening's conversations had a good mix of thoughtful insights, debates, and allusions to other bodies of work for futher research.  Below is a list of what was mentioned as well as some additional items we feel are a nice complement for the issues raised by the panelists, including a new FAI infographic showing what we know so far about microcredit. . . 

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When Regulators and Remittances Collide, Migrants Lose Out

Just about everyone agrees that international remittances should be cheaper. If you run the numbers on international remittance flows, incomes of recipients and transaction costs, you can make a case that reducing remittance costs would be among the highest ROI interventions for raising incomes of poor households in the developing world (and given what we’re learning about the use and benefits of cash transfers, there’s good reason to believe the money would be well spent).

As this became clear over the last 10 years, the World Bank, IADB and plenty of NGOs have drawn attention to the issue—and have largely succeeded in dramatically reducing the cost of sending money home (costs do still vary widely depending on sending and receiving country). Still, most people I talk with think costs should fall even more . . . 

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Walmart is Coming for Your Banks

In April Walmart announced the launch of a new money transfer service. I did a double take on the service's low price: $9.50 to send up to $900 from one Walmart store to another – that’s as much as $66.50 cheaper than the price of competing services at Western Union and Money Gram.

This is just the latest example of Walmart's foray into the financial services industry. In 2012 the retailer launched the Bluebird prepaid card with American Express. The product has no monthly fees or minimum balance requirements, making it more affordable than the norm. The cost of cashing a check at Walmart's Money Center is a transparent flat rate, often cheaper than independent financial services centers that take a large percentage of a check's total. The big box store also offers car insurance “one stop shops” at a growing number of locations, and it houses bank branches with “convenient hours, free financial education and unusually forgiving account features”. All in all, Walmart seems to consistently deliver more budget-friendly financial tools than its competitors. And not only do its financial products come at a lower price for consumers; they are all offered in the same place, easing the burden on people who are squeezed for time and transportation . . . 

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Not For Free

Two weeks ago I attended a Payments Bootcamp put on by Glenbrook Partners (a 2-day class they hold several times a year) to learn more about how the payments industry works behind the scenes. There is a lot to learn. Two days allows more than just scratching the surface, but not much more. While the class is focused on the payments infrastructure in the United States particularly, the material illuminates the evolution of mobile money and digital payments in the developing world.

A better understanding of the economics of the payments industry provided the foundation for a new longer-term research project on the future of digital payments innovation in developing countries. But one thing that immediately grabbed my attention was a conversation from the first day about why the payments system in the United States is so complicated and opaque (for instance, it is now virtually impossible for a small merchant to know what fees they will pay for a credit card transaction). According to Carol Coye Benson, a Glenbrook partner teaching the course, the root cause is the stubborn refusal of consumers to be overtly charged for payments. The attitude seems to be that no one should be charged for using “their own money" . . . 

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South-South Remittances: The Untapped Mobile Market

Mobile money supporters often tout the benefits of using transfer services to facilitate remittances. Many users are migrants who made the financial investment to live in a Western country and send financial resources back home. But that is only part of the story. According to a 2010 UN report , the number of South-to-South migrants (73 million) in 2010 was only slightly less than South-to-North migrants (74 million) worldwide. In Africa, one-tenth of remittances come from within the continent, and South Africa (a destination country) sees most of its remittances flow to neighboring countries. Where the people go, the money follows. The World Bank estimates the value of South-to-South remittances between $17.5 billion and $55.4 billion, or in other terms, 9 to 30% of all remittance traffic to developing countries.

Sending these payments is not cheap – the average global money transfer fee is 9% while the average fee to send funds within South-South corridors is 12% . . . 

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Who needs payday loans?

There’s a nice post on payday loans by New School professor Lisa Servon on the New Yorker Currency blog this week. She tells the story of Azlinah Tambu, a single mother in Oakland, CA who took out a series of payday loans, knowing she wouldn’t be able to pay them back on time and will end up repaying far more than she borrows. There’s no question Tambu is as informed a consumer of these types of loans as you could find: she has worked as a teller for a payday lender. In relating Tambu’s struggle to repay, Servon makes two really important and related points.

First, current debates focus too much on the need for regulation to curb the abusive practices of payday lenders rather than seeking to understand the financial lives and motives of the people taking out these loans, despite their high cost . . . 

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FAI Affiliate Michael Clemens Weighs in on Migration Policy Debate

Michael Clemens, FAI-NYU Visiting Scholar and Senior Fellow at the Center for Global Development (CGD), recently co-authored a review with Justin Sandefur for Foreign Policy of Exodus:  How Migration is Changing the World, Paul Collier’s new book arguing for tighter restrictions on global migration. The review is an interesting read that challenges Collier’s policy proposals, which are highly relevant discussions at FAI as the decision to migrate is often motivated by financial circumstances. (As Clemens notes in a recent blog post: “migration is one of many financial tools they juggle to smooth income and consumption.”)

Debates over migration policy are nothing new but are integral to understanding how remittances and payment systems shape development. Clemens also recently partnered with FAI’s Tim Ogden on a new framing note that discusses 12 research questions on the role of migration and remittances in household financial management - themes that are intertwined with the greater policy issues of Exodus. (For further information on remittances and payments in general, visit our Big Questions section on Payments and/or peruse relevant research publications by topic.)

We encourage you to join us in this discussion:  What are your thoughts on migration policy? How are remittances shaping global development and what are the key issues affecting these systems?  Let us know in the comments section below.

A Roundup of Recent and Ongoing Mobile Money Research in Economics

A growing body of research on mobile money has a lot to say about its potential to smooth risks and facilitate transfer programs, but a definitive experimental study on what it means for the financial lives of the poor remains undone – a gap we would like to fill with our future work at the Financial Access Initiative.

In recent years, mobile technologies have rapidly expanded in the developing world, bringing information and other transformative services with them to the previously isolated and the poor (Aker and Mbiti, 2010; Aker, 2010; Jensen, 2007).  Rapidly adopted in most developing country contexts, mobile technologies have the potential to serve as a broad-distribution platform for other services and products.  For example, a growing literature looks at the potential for mobile technologies to serve as a vehicle for the delivery of information and reminders in a variety of contexts, including for loan repayment and health . . . 

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The Urban/Rural Divide is Less Divided Than You Think

In his recently published paper, “Accounting for the Poor,” MIT Economist Robert Townsend uses an impressive dataset to make the case for “accounting” for the economic contributions of the poor. Most interesting to me is how he analyzes this data to show the lifecycle and consumption needs of both the rural and urban poor – and shows that urban and rural lives are more intertwined than I had assumed . . . 

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Payments from Domestic Migrants Dwarf International Remittances

Despite a lot of excitement about global payments, we are just beginning to learn the most basic facts about them– how much money is sent by whom, to whom, where, and how.  International remittances flows could reach $515 billion by the year 2015 and are slowly starting to receive the attention they deserve from policymakers.  Now, a new set of Gates reports on payments in Africa and Asia shows that domestic remittances may far surpass international remittances in frequency and magnitude . . . 

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Fighting Poverty, Profitably: A New Report on Payment Systems

A recent report of the Gates Foundation, from their program on Financial Services for the Poor, highlights payment systems as a way of “Fighting Poverty, Profitably” – as the report says in its title.  Payment systems, according to the report, “could serve as the connective tissue for bringing a broader array of financial services to the poor”.

The report brings together the existing data on payment systems to analyze how potential payments service providers could profitably extend their services to underserved populations in developing countries.  They identify four cost and revenue centers – accounts, cash-in-cash-out, transfers, and what they term “adjacencies” – in their framework, and argue for revenue models built on three of the four (cash-in-cash-out, transfers, and adjacencies) to best give companies an incentive to serve the poor.

In countries that have already embraced mobile payment systems, such as Kenya, some of the most exciting action is occurring in adjacencies . . . 

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A New Agenda on Remittances, Payments, and Development: 12 Better Research Questions

Migrants send a lot of money to developing countries—several times more than foreign aid. Researchers and policymakers have seized on these very large flows and built an agenda to understand how these remittances can foster development. Indeed, you most often hear remittance flows compared to aid flows.

Something fundamental is wrong with this agenda however. Researchers tend to study remittances as if they were windfall income, like aid or oil revenue, that arrives like manna from heaven. This leads researchers toward the kind of questions you might ask about windfall income: Are remittances spent on ‘good’ things like investment and education? Do families and countries become ‘dependent’ on remittances?

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Why Aren't Users Paying with Mobile Money?

On the Center for Financial Inclusion blog, Ignacio Mas and Beth Rhyne are discussing a central question in the evolution of electronic payments in developing countries: why aren't people using it to pay? Even in countries like Kenya with very high rates of adoption of a electronic payment platform, the vast majority of money that goes into the system come back out into physical cash in 24 to 48 hours. Ignacio makes a case that electronic payments systems need to be more integrated into other financial behaviors, like savings and credit, before they will be used for routine payments. The reason is fairly simple: unless you are storing value in the electronic system (as with a savings account) using the electronic system for a payment involves at least one extra step to turn cash into electronic form.

Beth responds that if people are receiving their income in electronic form in the first place, like benefits payments or paychecks, and the merchants they frequent take payment in electronic form then there is good reason for users to keep their money in the electronic system. Using Ignacio's same logic, cashing out involves an extra step if the inflow is electronic and the outflow can be electronic. Beth's argument is one of the reasons organizations like the Better than Cash Alliance are focused on encouraging governments to use electronic payments to pay salaries or benefits to households . . . 

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The Death and Life of Cash

Cash is all the rage in development circles right now—whether it’s trying to drastically reduce the use of cash by the poor or drastically increase the use of cash by development agencies (both public and private). There isn’t an actual conflict here. In the first case, the idea is to reduce the use of the physical artifact of cash; the latter is all about increasing the direct transfer of money to the poor. So the two efforts are actually complementary: reducing the use of physical cash makes transferring money cheaper and more feasible.

The cost and risk of transporting, transferring and tracking physical cash has always been one of the major objections to cash transfer programs. Another is the idea that poor households won’t use cash well. At various times and places you can find someone arguing that the poor lack the training, education, sophistication, access to quality goods and services, impulse control, security, or moral sensibility to make cash transfers a good use of funds.

That position has always had little evidence on its side . . . 

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Beyond Business: Rethinking Microfinance

In just 30 years, the microfinance movement has reached 200 million people who had been deemed "unbankable." That's a stunning success. But the narrative that drove this success has implicitly shut the vast majority of the unbanked out of the system. That's why it's time to change the story, and our minds, on how microfinance works, argue FAI's Jonathan Morduch and Timothy Ogden in Foreign Policy. They suggest that the fundamental need of poor households is tools to smooth out volatile and uncertain cash flows, not credit for business investment . . . 

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What's Next: Five Factors – Beyond Mobile Money – that will make Financially-Inclusive G2P a Reality

What’s next? Jamie Zimmerman says it's the opportunity to make government-to-person payments a major vehicle of financial inclusion.

Mobile money and electronic payments have leaped to the fore of many financial access conversations.  Take the launch of the Better Than Cash Alliance (BTCA) and the recently released latest Bill & Melinda Gates Foundation (BMGF) strategy as prime examples. Some (Tim Ogden of FAI, Jesse Fripp of SBI and I for instance), have suggested tingeing the optimism over payments with  caution, citing several hurdles that we must still overcome, and questions we must answer, before payments can become a financial access success story . . . 

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What's Next: Financial Access in 2013

The microfinance space has never been a dull place. As the tumult of the last few years—debates about effectiveness, industry crises and crashes in several countries—seemingly dies down, it’s a good time to speculate about what’s next. It seems clear that “business as usual” in terms of rapid growth and expansion paired with unvarnished enthusiasm and uncritical praise is not what’s next.

So what is?

Over the next few weeks we’ll be running a series of blog posts from folks at FAI and around the financial access world offering their takes on what’s next. Some are calls to action, others are predictions, and others pose the important questions we need to answer now. If you’d like to contribute, send us a tweet @financialaccess.

Herewith are my thoughts on “What’s Next?” . . . 

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Who Pays for Transactions? How Much?

One of the many important questions in the transition to mobile and/or electronic money is who will bear the costs associated with using the system. This question is particularly salient since the Kenyan government announced it was planning to begin taxing mobile money transfers, adding to the cost of the system. The Kenyan government seems to believe that operators will absorb the cost of the tax, but others suggest that it will be passed on to consumers, "picking the pocket of the poor."

Who will bear the cost of the tax and the other costs of operating mobile money systems? On a theoretical basis, this is an easy question to answer: the people who benefit will bear the costs—if those costs are lower than the benefits. In economic theory, it is even irrelevant who is initially charged for the costs, as costs will be passed on to those willing to pay to receive the benefits (known as tax incidence).

Practically, it’s a hard question to answer because we have very little information on the true costs and benefits of any money system . . . 

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