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108Chapter 8 - New Technologies: A Path to Lower Costs and New Productsreaders, and modems to transmit data from debit or credit cards to financial intermediaries, thus enablingfinancial transactions or the sale of products or services. The minimum specifications for POS terminals areoutlined in box 8.1.Box 8.1 Minimum Requirements for a POS DeviceA POS device requires the following minimum specificaons:• A card reader that can read the informaon stored on the magnec stripe or chip of a card (Thereader also may be able to write informaon into the chip, if it is off line and the card is virtual—thatis, embedded in a mobile phone.)• A numeric keypad, through which users can enter their personal idenficaon number andtransacon amounts• A screen large enough for the users to view and to validate informaon pertaining to the transacon• A set of encrypon keys held in highly secure memory, with all communicaons between the POSterminal and the bank’s server conveyed securely—with no possibility of decrypon by a third party(The standard is keys of a minimum length of 128 bits.)• A printer to issue receipts for each (successful or aempted) transaconSource: Adapted by authors from Mas and Siedek (2008).POS partners may include supermarkets, pharmacies, gas stations, post offices, or other businesses that havereliable access to communications networks and contact with the target audience. Agents must be selectedcarefully, however, because they are (1) providing customer service for the financial intermediary, (2) carrying anMFI’s transactions on their own balance sheet while funds are settled, and (3) intermediating what may be largesums of cash between clients and institutions. The client’s trust must be ensured for effective intermediation.For that reason, a strong client orientation and clear understanding of client needs and limitations are requisitesfor effective representation of a MFI.MFIs have successfully developed and leveraged large networks of POS agents in Brazil, Colombia, Kenya,Maldives, Mongolia, Pakistan, and the Philippines, among others. 2 In Brazil, banks have partnered with morethan 95,000 local merchants, post offices, and lottery dealers equipped with POS terminals to offer financialservices in 1,600 municipalities that previously had little or no bank presence (Mas and Siedek 2008).BiometricsBiometrics refers to the measuring of a person’s unique physical characteristics, like fingerprints or facial features,to verify identity. The technology records the clients’ biometric features—fingerprints are most commonlyused—and stores this information on the MFI’s database and, usually, on a smart card the client carries fortransactions (Whelan 2003).Biometric readers can be installed on ATM machines (creating biometric ATMs, or BTMs) and on handhelddevices, so clients can verify their identities by simply touching (in the case of fingerprints) the reader’s scanner.2. See Consultative Group to Assist the Poor, http://www.cgap.org/p/site/c/tech/, and Barton and others (2007).
Managing Risk and Creating Value with Microfinance109The scanned image is then compared to the client’s recorded biometric feature, either located on the client’ssmart card or accessed through a network connected to the MFI’s servers. Authentication is guaranteed whenthe scanned image matches the original biometric feature.Biometric solutions enable clients and MFIs to conduct secure transactions remotely, because they reducethe need for staff members to be present. When they replace signatures, biometrics can also significantlycut down on the paper records that must be processed and archived, which is often one of the most laborintensivecomponents of information management. Biometrics work better than signatures because they arenearly impossible to forge. They provide a secure means even for illiterate clients to authorize a transaction.Biometric technology also has an advantage over passwords and personal identification numbers, which areeasily forgotten or can be transferred from person to person. Biometric and smart card technologies have beendeployed in Indonesia’s PT Bank Danamon, India’s ICICI Bank, and Bolivia’s Prodem Fondo FinancieroPrivado (FFP), which have also reportedly lowered the costs of administering high-volume, low-valuemicrofinance transactions (Yeo 2008).The case of Prodem FFP in Bolivia illustrates the potential of biometrics to reduce costs and to increase thesecurity of microfinance transactions. Prodem FFP first introduced its biometric solution in 2000, writing itsown software to integrate the biometric readers and smart cards with its MIS. At Prodem FFP’s 54 branchoffices, computers were equipped with card readers and fingerprint scanners. Tellers were able to verifycustomer identity more quickly and to speed up transaction times. BTMs have also been set up at manyProdem FFP offices so clients can securely conduct savings, transfer, and loan disbursements without havingto wait for a teller. 3Costs, Risks, and ChallengesImplementing new technologies can be hugely rewarding to MFIs and their clients, but they are often very costly,<strong>risk</strong>y, and disruptive to the institution. Those challenges occur whenever new technologies are introduced infinancial intermediation. Managing a successful technology implementation program requires careful planningand attention to many factors. Management will need to determine the specific objectives of a technologyproject, to assess the variables that will drive costs and benefits, and to evaluate whether the project is likely topay off. In addition to the upfront hardware and software costs, the costs of training, maintenance, and upgradesmust be included in the planning.Before deciding to adopt new information and communications technology, the MFI should examine its goalsand should evaluate the state and use of its existing systems. If the management expects to reengineer the entiresystem, a phased approach is usually best. For example, innovative solutions for loan processing and paymentsdistribution require a robust MIS. Learning how to analyze the information coming from that system and howto apply it to business decisions is often a big institutional challenge itself. 4To assess a technology project’s return on investment, MFIs must pay close attention to the costs and benefitsthey accrue on a transactional basis. Oftentimes, technology investments in microfinance require large economiesof scale to become viable. Given the volume of expected transactions or the average amount of each transaction,the communications cost of authorizing payments over land line, mobile phone, or broadband networks, forexample, may be too high to justify the costs of a POS network. In regions with low population density or low3. The information presented on the Prodem FFP case study comes from Whelan (2003), with contributions from the staff ofConsultative Group to Assist the Poor and from eChange, LLC.4. For resources on planning and implementing technology projects, see Progressive Technology Project (2009) and TechSoup (2009).
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