OpenRevolution develops mobile banking services in emerging markets. Through partnerships with local mobile network operators and microfinance organizations, OpenRevolution seeks to expand financial access in communities underserved by traditional banking institutions and to develop an integrated set of mobile financial products tailored to the needs of individuals, merchants and micro-entrepreneurs.
Allen Gilstrap, Chief Executive Officer, OpenRevolution
MicroCapital: First of all, can you provide your interpretation of what mobile banking means in relation to the microfinance sector and regulated banking channels?
Allen Gilstrap: From our perspective at OpenRevolution, mobile banking is the extension of full banking services via mobile phones to microfinance customers. That not only includes being able to repay your micro loan using your mobile phone, but also being able to go to merchants, make purchases or to obtain/deposit cash, peer-to-peer transfers, remittances, etc. Essentially, it is a full suite of financial services that are provided over the mobile phone. In fact, our plans for launching a mobile banking network very shortly are the services that I have just mentioned and will be available on the first day of service. It will be a complete package.
If you look at mobile banking in the marketplace today you have a lot of things that are called “mobile banking” which frankly are mobile money transfers. We at OpenRevolution have taken the approach that we are working with our microfinance partners to actually create ‘licensed banking organizations’ to provide the full feature of mobile banking services that I have just referred to you.
MC: What is the story behind OpenRevolution, with regards to the mobile banking initiatives and its founding?
Allen Gilstrap: OpenRevolution was found in 2008. Previously I was an executive with American Express based in London and met a couple of the other founders of OpenRevolution who were originally from Booz Allen Hamilton (the consultancy group based in Washington D.C.) and SAIC. They are Michael Catalano (Chief Network Officer for OpenRevolution), followed by Jordan Weinstock (Advisory Services Director) and Ysbrant Marcelis (Senior Director) and Job Henning (MD Investment Management Group & General Counsel).
At American Express I served as General Manager of the Smart Solutions business based in London which essentially provided technology and payment solutions to banks and merchants acquiring customers from about 35 different countries, primarily in emerging market countries. Thus, I have extensive experience working in the types of markets that OpenRevolution is now approaching.
The consultants from Booz Allen Hamilton were working with the Bill and Melinda Gates Foundation developing a blue print for commercial success in mobile banking and actually came to interview me as part of that project where I was based in London. That meeting was the genesis of OpenRevolution. Thus, I decided to leave American Express shortly thereafter and joined my colleagues who were subsequently leaving Booz Allen and SAIC. Hence, we formed OpenRevolution back in 2008.
MC: What was the vision for the development of mobile banking in emerging markets at its beginning? How did the partnership with microfinance organizations and network operators develop?
Allen Gilstrap: If I can give you a foundational understanding of what we do in OpenRevolution, it will become pretty clear as to what our vision was. What we certainly observed and studied was the growing number of launches in mobile banking around the world (particularly in emerging market countries). Certainly this is being stimulated by a number of factors. One of the key drivers that we recognized is that microfinance organizations need to become more self-sufficient (although many microfinance organizations have been fairly successful). The challenge for MFIs is being able to develop and secure the capital to provide that growth. By becoming a bank and taking deposits, microfinance organizations can actually self-fund their growth ambitions. We believe that becoming a mobile bank certainly makes much more sense than becoming a bricks and mortar bank for these institutions.
In our extensive analysis, we looked at the next 20 or 30 mobile banks that would launch in the world. They would all essentially go out and have to conduct the same due diligence and, more or less, put together the same functional mobile banking platform on 20 or 30 separate occasions with no economies of scale involved. Thus, our foundational strategy has been to create a mobile banking network with a single platform that multiple mobile banks in multiple countries can actually leverage.
In essence, our mobile banking network business provides three things: First, we provide a mobile banking network itself. Secondly, we build into each of the countries that we partner in, a merchant acceptance network. We have extensive experience in our past careers in setting up payment acceptance among merchant communities. That will help us recruit additional merchants for mobile payment acceptance, as well as places where people can deposit or withdraw cash from the mobile bank account within the merchant community. Thirdly, we provide advisory support to help microfinance organizations transform and provide a successful mobile banking business as well.
In addition, we will invest capital into many of the mobile banks that we license and work with.
We have learned from our analysis that there are a lot of mobile money transfer businesses globally that have been successful. In our mind, to truly realize sustainable commercial success, one must have a robust merchant acceptance network in each marketplace and a successful micro-lending business. We believe these components can provide a successful mobile bank for microfinance organizations.
In terms of how our network operators developed; we are presently negotiating and developing partnerships with a number of mobile network operators in different jurisdictions. We have a partnership with Geocell (part of the TeliaSonera group (a large conglomerate of mobile operators) in the country of Georgia). TeliaSonera AB is a dominant telephone company and mobile network operator in Sweden and Finland.
Our mobile banking network platform will be based in country of Georgia and it will be hosted by Georgian Card, a subsidiary of the Bank of Georgia. They have a secure payment hosting facility where we will base our network operations for multiple countries in the region and not just solely to Georgia.
(Note: TeliaSonera provides telecommunication services to over 135m subscribers in 20 countries worldwide: in the Nordic and Baltic countries, the emerging markets of Eurasia, including Russia and Turkey, and in Spain. TeliaSonera is headquartered in Stockholm, Sweden. TeliaSonera has also held majority stake in Geocell since its inception but the Scandinavian company bought the remaining 2.5 percent to become its sole owner in January 2009. Geocell’s rebranding now comes as part of TeliaSonera’s regional initiative which aims to bring successful operators in Eurasia under one umbrella.)
MC: How will you enable existing microfinance and regulated banking channels to utilize your network?
Allen Gilstrap: Our business approach is to license into our Network, microfinance organizations who want to develop a mobile banking offering. In our license agreement they will have full access to the mobile banking platform but there is no capital expenditure requirement on there part to build it since we provide economies of scale.
In the licensing agreement, the OpenRevolution network also agrees to be a merchant acquirer for securing merchants acceptances within their particular market. We currently have teams that actually manage the outsourced enrollment of merchants into the mobile payments scheme, which their customers participate in as well. We also provide expertise in terms of placing our advisors into these microfinance organizations to help them ‘stand up’ and perform mobile banking activities. Naturally, it a big transition going from a successful microfinance organization to one that also provides full service banking products on a mobile platform. The final part of how we enable these organizations is that we provide capital to help them make that transition.
MC: Can you secure deposits for micro-loans? If so, please explain.
Allen Gilstrap: Yes. We like to call it “mobile microfinance” in term of mobilizing savings. Previously in most jurisdictions, microfinance organizations were prohibited from taking deposits and using those deposits to fuel their micro-lending growth. In this instance, every time one of our banks takes in a deposit, they can actually use that to grow their micro-lending portfolio.
With regards to transfer of payments and remittances, our ‘Mobi-bank’ licensees will be allowed to send varying sums of money. There certainly will be varying levels of security depending on the amount but those will be set on a market-by-market basis in partnership with our mobile bank operators.
MC: Do you plan to develop an integrated set of mobile financial products tailored to micro-entrepreneurs, individuals and merchants?
Allen Gilstrap: Indeed, the platform supports a number of financial service products that will be available to the customers of our mobile banking licensees who will be microfinance organizations. In most instances, these are microfinance organizations that are looking to evolve and provide full services in mobile banking.
MC: What are the sources of capital as well as investment instruments that OpenRevolution will focus on?
Allen Gilstrap: First of all, we did a ‘founders’ round’ of capital back in 2008 that was essentially our seed capital. Presently, we have two principal investors and are working to close funding by early July. Our investor group (Series A financing) is with Blue Heron Capital, based in Washington D.C. and V Ten Capital, based in Richmond, Virginia.
MC: What is your geographic scope for your mobile banking network?
Allen Gilstrap: Our initial focus is in Eastern Europe and parts of Eurasia. We also have a few markets in Africa that we will be serving as well. In our experience, the mobile banks will actually be served out of the Georgian platform and will serve four to five time zones. As we look to expand, we will look at having other nodes of our mobile banking network platform in other regions. We are currently working primarily around time zone issues. From an IT connectivity perspective, it is pretty flexible in terms of where we are located. However, from an operational perspective, we want to be within four to five time zones of all of our mobile banks in each region.
MC: What operation and methodology components are comprised in mobile banking? Specifically, what type of operating platform, transaction processing and system integration will you initiate?
Allen Gilstrap: The high-level overview regarding the components of the platform and how it is integrated into different stakeholders are as follows: our core mobile banking platform really has four components. The first component is the mobile banking module that holds the various consumer products that our licensed mobile banks will offer to their customers. Secondly, there is the funds transfer component which basically connects us within the financial services market to other financial services operations and to different folks that we need connection to. Third, there is the microfinance component/platform where we provide the front/back end automation that many of our microfinance partners will choose to utilize. That is particularly important when you look at the investments required by some MFIs to automate their operations. By partnering with OpenRevolution, they leverage that work already done within our platform. The fourth component is the mobile money transfer.
That respective platform is then integrated into each of our mobile network operator partners in each of the countries we will operate in, as well as legacy systems of the mobile bank (which again is a microfinance organization in most cases that is evolving into a full service mobile banking business).
We also will integrate thru the mobile network operator partner to the merchant network that we will acquire in each country. Thus, the customers will access our mobile banking network platform thru the mobile network operator linkages as well. There will be separate linkages for remittances and bill payment that we will integrate into some of the existing service providers and large employers of utility companies in each market, so that people can use the mobile banking services in each country to pay their bills and/or remittances from country to country. They will also be linked into the ‘real time gross settlement’ RTGS system in each jurisdiction that we go to. The final piece of integration around the automation is that the microfinance agents will actually have linkages thru PDAs or their mobile devices, into the platform. This should help MFIs more efficiently automate the loan processes, both from a finance perspective and the consumers on the back end that repay their microloans.
MC: What is the structure like with regards to the cell phone technology to implement this?
Allen Gilstrap: The one thing that all these markets (we focus on) have in common is the ubiquitous mobile network operator coverage through the respective country that we have interest. We work with the latest generation of mobile technology in place. For instance, in some markets our services will be provided on a 3G platform, while in other markets it will be basic SMS types of transactional business. We really adapt to the individual condition of the market. The markets that we talk about are fairly evolved, both from a technology perspective at the mobile network operator level, as well as a handset level in terms of sophistication of cellphones that people carry.
MC: What kind of considerations need to be taken into account with regards to different regulatory models?
Allen Gilstrap: When you look at the various markets that we are very interested in developing mobile banks, you get the full spectrum of permissive and restrictive regulatory environments. In each instance we are going to work with a partner to provide full service banking. We pursue a formal bank licensing agreement so that we are compliant with both the local and state regulatory requirements. Most of the mobile money transfer activity you see in the market today has not taken this additional step. The regulators are certainly taking a wait and see attitude towards the different types of mobile money transfer activities that are out there today. Overtime, we think it will be commercially viable for partners to seek full licensing.
MC: There are some well known mobile banking businesses such as M-PESA (SafariCom in Kenya), Wizzit (South Africa), and Smart Money (Phillipines) to name a few. How does OpenRevolution differentiate themselves from their competitors?
Allen Gilstrap: We differentiate ourselves as a provider of a mobile banking network, not a mobile money transfer business. Our licensees could be organizations like M-Pesa or Smart Money or Wizzit to name a few. While we certainly provide a best in class platform technology to our mobile bank licensees, we focus on providing our hosted mobile payment transaction services along with setting up the merchant network and providing advisory services and network capital if needed. Most importantly, we are a full partner with our mobile bank licensees. I don’t know of any other company in the market that has taken that approach.
MC: What are your target markets and could you provide a brief perspective (on the top three countries) as to why you believe them to be advantageous?
Allen Gilstrap: I can discuss specific countries and regions. We are starting in Georgia, so our mobile banking network and licensees will be based there. We are working with existing microfinance organizations in that country. There will be some exciting announcements in the near future (with regards to partnerships) as to who they are and as we are able to actually be more public about it. At this time I can tell you that we are working with a couple of multinational microfinance organizations and about a dozen individual microfinance institutions.
We are also very interested in some of the former Soviet Republics (the NIS markets) Tajikistan and Kyrgyzstan. We also are interested in Bulgaria, Ukraine, Russia as well as targeted markets in Africa, such as Ghana and Ethiopia.
In each of the instances that I have spoken about, there are a number of factors that make them good places for mobile banking. First, there are a high number of unbanked individuals in that market. At the same time there is high mobile penetration, so you have a large potential client base from a microfinance community that is very fluent with mobile telephony. Secondly, there are some progressive mobile network operator partners in those markets that are looking to expand into the mobile money space. Also, a right blend of regulatory oversight in those markets will make them an attractive environment for us to pursue. We have had many conversations with numerous likely microfinance partners that also have very specific interest in those markets that I have just mentioned.
MC: Are there any target markets that you have decided to not pursue at this time?
Allen Gilstrap: We want to keep a strong focus and be very successful in this first region(s) that I mentioned earlier. We aren’t really interested in Latin America at this time as we view that market as more of a second phase development. We are also not really looking into Southeast Asia or other parts of Eastern Asia at this time.
MC: Can you provide insight as to how mobile banking will fit into the information systems with regards to MFIs that have some form of technology systems infrastructure.
Allen Gilstrap: One of the real opportunities that our microfinance mobile licensees have is that OpenRevolution networks established partnerships with mobile network operators in each jurisdiction. What our partners with exclusive rights do is actually perform data mining of customers from the mobile network operators prepaid customer base. This is very valuable. When you look at the value of the data, there is a high correlation and ability for microfinance organizations to really identify new customers. Most importantly, we can use that same transactional information to help them in their risk management/credit scoring type of efforts.
MC: What is your most important achievement to date? What are you currently working on now?
Allen Gilstrap: Our most important achievement to date is kicking off the implementation of the mobile banking platform in Georgia. That is the foundation of our business. We think that the business model we have developed, such as partnering with microfinance organizations and network mobile operators to create successful mobile banks, will hopefully be our greatest accomplishment in the very near future.
MC: There has been a published case study entitled “EXAMINING TRUST IN MOBILE BANKING TRANSACTIONS: THE CASE OF M-PESA IN KENYA” by Olga Morawczynski and Gianluca Miscione. A concern shared by many is how to ensure and maintain trust in the context of mobile transactions. Furthermore, the case study mentions that interpersonal trust relations between customers and agents are weak. Can you provide me your opinion as to how trust can emerge and be sustained in the context of mobile transaction?
Allen Gilstrap: It’s a combination of technical and operation vigilance that will sustain trust. It is our view that a mobile banking platform will have integrated into the system the capability to look into various transactional events that measure the velocity of transactions or entries that would be triggered as a red flag. It is the same types of technological safety measures as the Visa or Mastercard network today. There are encryption capabilities from a transactional perspective on a handset themselves if they interact with our network on the mobile banking platform. One of the reasons microfinance have been successful is that the institutions know their customers well as they interact on a face-to-face basis. We don’t see mobile banking changing that interaction, but we do see mobile banking (from an operational perspective) improving some efficiencies in terms of customers being able to pay their microloan or bills without missing half a days of work by taking the bus and heading to the village to make those payments.
MC: In the past couple of years Microfinance Mobile Banking has been getting a lot of positive press. How critical do you feel that mobile banking is an integral component to enabling mobile microfinance throughout the world?
Allen Gilstrap: I think it is very critical. If you look the mission of the successful microfinance organizations, mobile bank is a way to make them increasingly self-sufficient. In providing this service, you provide economies of scale for them in order to build successful ventures and minimize cost on their end that would eventually get passed onto the borrower.
By Zoran Stanisljevic
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