Papua New Guinea: Banking the great unbanked

OXFORD BUSINESS GROUP The potential of mobile phone banking in Papua New Guinea (PNG) has been evident ever since a local telecoms company launched a service in 2009 allowing subscribers to purchase electricity by using pre-paid airtime credit. For PNG’s banks, it presents the easiest route to tapping into the nation’s 87.5% rural population. Loi Martin Bakani, the governor of the Bank of Papua New Guinea, supports this idea, stating at the 2012 PNG Advantage Summit in September, “For the majority of the rural population to become part of the market economy, financial inclusion of the rural majority through financial literacy, microbanking and technological innovation through the use of mobile phone banking is a must”. However, microbanking is as much a necessity. PNG’s mountainous, forested and fractured landmass, including large islands with substantial population centres, has long been a barrier to political and economic inclusion. The proliferation of mobile network coverage across 70% of PNG’s 425,000 km has overcome much of these difficulties, however, and through the early adoption of mobile banking technologies, PNG’s potential mirrors mobile money exemplars the Philippines and Kenya. “Papua New Guineans are very keen technology adaptors and will readily pick up on all new technologies,” John Mangos, the CEO of Digicel, told OBG. "Financial services is one area where mobile devices can be used to a far greater extent”. The expansion of the banking sector is piggybacking on PNG’s mobile networks, which had a total of 2.4m subscribers in 2011, equivalent to a 38% market penetration rate, up from just 4.6% in 2007. The Asian Development Bank (ADB) estimates that some 85% of PNG’s population has little or no access to banking services. Expanded network coverage has largely eliminated the requirement for hard infrastructure investments in remote or potentially low-yield regions, issues that perpetuated poor branch and service coverage, making retail banking an inefficient and loss-making business for banks, according to Ian Clyne, the group CEO of Bank South Pacific (BSP). A move to digital banking and electronic transactions is set to circumvent these issues, providing cost-effective and efficient services to the unbanked. The switch also helps reduce operational risks, minimise the transit of large quantities of cash and improve internal accounting transparency. This has been embraced by BSP, which already has 250,000 registered e-banking users and is making a concerted strategic effort to move its mass-market customers out of its branches. By rolling out “Branchless Banking”, BSP is providing electronic services to its customers through ATMs, mobile point-of-sale units, mobile phone banking and subsidiary BSP Rural. Recording a net annual profit of $326.56m in March 2012, BSP’s service modernisation strategy is expected to deliver more than 1.5m retail customers by 2014, and although market space is restricted, diversification of the industry’s service providers is expected. Earlier this year, PNG’s central bank granted a mobile banking licence to Digicel Financial Services, a Digicel subsidiary, stating that, “Non-bank financial service providers, such as mobile network operators and postal service companies, are in a better position to extend financial services to the niche market using their extensive mobile network coverage and their existing network of agents around the country.” The central bank’s move builds on the success of PNG Post’s “Salim Moni Kwik (send money quickly)” service, as well as the Sepik Savings and Loans Society launching its own mobile banking service this month, “MiCash”, in partnership with Nationwide Microbank. Westpac and ANZ Bank are also reported to be expanding their operations, but are trailing behind BSP, which alone moves 80% of the nation’s cash. While the technological and regulatory environment is certainly conducive to further development of the industry, according to a recent multi-lateral study led by the International Finance Corporation (IFC), further mobile-led e-banking applications may be present, given PNG’s limited utilisation of cash. The shift to electronic payment options for goods and services, and the limited need for cash in rural areas, may “minimise the need to build an extensive network of rural cash points from the outset”, the IFC report concluded. With a large number of rural companies already turning to mobile banking for salary payments, which in turn is encouraging the development of a savings culture, this would play well into the hands of mobile banking service providers.