Adopting Digital Financial Services in Guatemala

> Posted by Carol Caruso, Senior Vice President, Channels and Technology, Accion

Guatemala presents great potential to advance financial inclusion through the adoption of digital financial services (DFS). Only 22 percent of the population has a bank account with a formal financial institution – in most cases one of the three largest commercial banks – while almost every Guatemalan household has a mobile phone (8.8 million unique subscribers among a total population of 15.5 million). Yet most financial transactions are still conducted at bank branches. The logistics challenge of reaching isolated rural communities results in high distribution costs for the banking sector, hence it is no surprise that in 2012 Fitch Rating described the banking system as highly inefficient.

Some innovation in delivering financial services has taken place in the last few years. A few banks have implemented agent networks and the three mobile network operators now offer mobile financial services. But the results achieved are far from what the players and the supervisory authority were expecting in terms of usage and increased financial inclusion. For example, the leading mobile money service, Tigo Cash, is being used by MFIs in a limited way. Instead of empowering clients to use the available mobile wallet, clients primarily use Tigo agents for cash-in/cash-out transactions. While this over-the-counter (OTC) service through an expanded distribution channel has benefits and works in nascent environments, it is far below the potential of DFS in Guatemala.

To explore opportunities and barriers to mobile financial services and other pressing issues such as corporate governance, risk management, and social performance management, more than 300 market players decided to gather at the first Congreso de Microfinanzas de Guatemala, August 28 and 29. For the conference, I was invited to lead a workshop on Trends in Mobile Banking and Micro-Financial Services. Practitioners from many financial institutions shared their views and engaged in a debate on their concerns and goals for digital financial services. Starting with a clear definition of the mobile banking ecosystem and key dynamics among players, the audience was introduced to important themes such as risk management, adoption challenges, and leveraging partnerships. The latter was particularly well received by local MFIs who lack internal resources to reach adequate scale in DFS. A session of the workshop was focused on agent banking and was led by Sandra Calderon – Channels and Technology Manager at Accion – who presented agent banking trends and challenges and examples of various Latin American networks that provide good practices.

While there were questions and discussion about how to best design mobile banking services particularly for serving low-educated clients in rural areas, a key issue that concerned many participants was the role of mobile network operators versus financial institutions. Many of the organizations were looking for advice on how to best engage with MNOs to develop a symbiotic relationship. There was much debate however around how MNOs may quickly become competitors if regulation allows additional types of financial services such as rapid-credit and mobile savings accounts bundled with insurance. This important challenge is of course also applicable to markets beyond Guatemala and requires deep relationship building among sector participants, understanding player incentives, and most importantly having an entrepreneurial and innovative mind to embark upon and test new ventures.

This debate will certainly continue in Guatemala and beyond for the near future as all actors in this ecosystem struggle to best serve BoP clients… and is welcomed here at CFI.

Image credit: Drew Coffman

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