Microfinance and Digital Financial Services Simon Priollaud, Branchless Banking Manager 27th November 2014, Johannesburg Protea Hotel – Second Regional Workshop Increasing the Efficiency and the Outreach 0
Microfinance and Digital
Financial Services
Simon Priollaud, Branchless Banking Manager
27th November 2014, Johannesburg
Protea Hotel – Second Regional Workshop
Increasing the Efficiency and the Outreach
0
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Summary
I. Introduction Objectives of the workshop Overview of the definitions
II. 101 on Digital Financial ServicesOverviewMobile MoneyMobile BankingAgent Banking
III. DFS for MFIsGroup Work Services in a nutshellGroup WorkScreening of the challenges
IV. Key lessons Lessons learntRoadmapChecklist before implementing DFS
2
Summary
I. Introduction Objectives of the workshop Overview of the definitions
II. 101 on Digital Financial ServicesOverviewMobile MoneyMobile BankingAgent Banking
III. DFS for MFIsGroup Work Services in a nutshellGroup WorkScreening of the challenges
IV. Key lessons Lessons learntRoadmapChecklist before implementing DFS
I. Introduction - I.1. Objectives
Main objectives
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Objectives of the workshop
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I. Introduction– 1.2. Overview of the definitions
There are many terms with different meanings when we talk about “New” banking ways
Mobile Money “Additive” Mobile Banking
Digital Financial Services
Branchless Banking Alternative
Delivery Channels Mobile
PaymentsE – Banking
SMS Banking
Mobile Scoring
Agent Banking
“Transformational” Mobile Banking
Mobile Banking
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5
1) Additive Mobile Banking 2) Transformational Mobile Banking
Source : Adapted from CGAP, 2010
I. Introduction– 1.2. Overview of the definitions
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I. Introduction– 1.2. Overview of the definitions
Source : PHB Development
There are many terms with different meanings when we talk about “New” banking ways
Mobile Money (e- wallet)
“Additive” Mobile Banking
Digital Financial Services
Branchless Banking
Alternative Delivery Channels
Mobile Payments
E – BankingSMS Banking
Agent Banking
“Transformational” Mobile Banking
Relevant Banking for MFIs
I. Introduction– 1.2. Overview of the definitions
Mobile Scoring
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Summary
I. Introduction Objectives of the workshop Overview of the definitions
II. 101 on Digital Financial ServicesOverviewMobile MoneyMobile BankingAgent Banking
III. DFS for MFIsGroup Work Example of MusoniServices in a nutshellGroup WorkScreening of the challenges
IV. Key lessons Lessons learntRoadmapChecklist before implementing DFS
1) Mobile Money
Mobile Money gives the possibility to conduct remote transactions through any mobile
phone.
2) Mobile Banking
Mobile Banking usually refers to a link between
an e-wallet and accounts of an institution. (enabling
loan repayment, loan disbursal…).
3) Agent Banking
A small business as “an agent” (also called
correspondent) can, depending on the
regulation, conduct transactions on behalf of
an institution (bank or MFI).
Financial institution usually rely on three different means to extend their outreach
II. 101 on DFS – Overview
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1) Mobile Money
Mobile Money gives the possibility to conduct remote transactions through any mobile
phone.
2) Mobile Banking
Mobile Banking usually refers to a link between
an e-wallet and accounts of an institution. (enabling
loan repayment, loan disbursal…)?
3) Agent Banking
Financial institution usually rely on three different means to extend their outreach
II. 101 on DFS – Overview
10
A small business as “an agent” (also called
correspondent) can, depending on the
regulation, conduct transactions on behalf of
an institution (bank or MFI).
What is the difference between an airtime account and a mobile money account ?
1 Airtime account Call
Send SMS
Access Internet
Deposit Money (“cash In”)
Credit my airtime account (“top-up”)
Pay Bills (including loan repayment)
Transfer Money to another MM account
Withdraw Money (“cash Out”)
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II. 101 on DFS – II.2. Mobile Money – key features
Mobile Money account
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Mobile phone & SIM card
If my Mobile Network Operator has a Mobile Money Solution, how can I open a Mobile Money Account ?
ID card 1 USD Form to fill in
How can I credit my e-wallet ? (“Cash In”)
1
MM agent2« e- Value »
1 The client hands cash to the agent.
2 The Agent credits the e-wallet of the client with “E-Value”.
Legend:
II. 101 on DFS – II.2. Mobile Money – how is it working?
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MM agent
What happens during the “cash In” step?
How much does it cost for the CLIENT to do a Cash In?
It is freeThe client has to pay a
feeThe client earns a
commission
How much does it cost for the AGENT to do a Cash In?
It is freeThe Agent has to pay a
fee
The Agent earns a commission
Who is losing money on this exact transaction ?
The Client The AgentThe Mobile Network
Operator
II. 101 on DFS – II.2. Mobile Money – Some questions raised
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Main challenges faced by the Mobile Money Solutions
1) Awareness
4) Business Model
2) Inactivity
3) Ecosystem and acceptance network
More and more, people haveheard of Mobile Money butusually do not understand thewhole range of services.
The awareness is difficult tobuild up in remote areas.
Illiteracy is an issue difficult toovercome.
Depending on the country butoften more that 80 % of theregistered Mobile Money clientsdo not use it.
A few Mobile Money solutionshave more that 50% of activeclients in their database (clientshaving conducted a transactionwithin the last 30 days).
There is a disparity betweenthe number of Mobile Moneysolutions in urban and in ruralareas.
Mobile Money solutions havenot enrolled enough partnersto keep the “e-value” in theloop.
80% of the mobile moneysolutions worldwide are notprofitable.
In most countries, agents do notearn enough commissions tomake it a living.
Cash out fees are still expensivefor the end-users.
II. 101 on DFS – II.2. Mobile Money- challenges faced by Mobile operators
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Why is there only “one Kenya” ? (abstract from a EIB/UNCDF presentation)
1/ Regulation Kenyan regulatory environment is uch that Safaricom was able to experiment and innovate.
2/ Infrastructure High penetration of mobile phones in the country. Widespread use of one type of phone – Nokia has 88% market share: easy to predict which device
customers would be handling.
Kenyan Population : 100%
Population using M-Pesa : 40%
Population having a mobile phone : 93%
In a nutshell (2013 figures)
II. 101 on DFS – II.2. Mobile Money – The case of M-Pesa
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Why is there only “one Kenya” ? (abstract from a EIB/UNCDF presentation)
3/ Providers In 2006, Safaricom was a near-monopoly: large captive customer. Base for their mobile money product. Initially designed as a tool for microfinance loan reimbursement. Effective marketing campaign: “Send money home” (domestic transfers). Strong commitment of CEO, Michael Joseph, to M-Pesa.
4/ Agent Network M-PESA first recruited 400 of their largest airtime re-sellers as agents Today, the agent network relyies on so-called aggregators who subcontract agents. Aggregators identify new agents and improve cash management by addressing imbalances between
deposits and withdrawals. Contracts provide incentives for staying loyal to Safaricom.
5/ Customers Kenya is characterised by high share of split-families leading to high latent demand for domestic
remittances. Existing alternatives poor: before M-Pesa, domestic remittances were expensive and slow. Rapid customer uptake due to the dangerous security situation during riots in the election of 2008 and
the fact that many banks were closed. Comparatively high level of education compared to the region.
II. 101 on DFS – II.2. Mobile Money – The case of M-Pesa
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Overview of the Mobile Money users in the SADC region
Legend
Out of SADC region
None
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2
3
4
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Only two out of the fifteen countries have no Mobile Money solution (Angola & Seychelles).
II. 101 on DFS – II.2. Mobile Money – Mobile Money in SADC
Source : GSMA deployment tracker, November 2014.
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1) Mobile Money
Mobile Money gives the possibility to conduct remote transactions through any mobile
phone.
2) Mobile Banking
Mobile Banking usually refers to a link between
an e-wallet and accounts of an institution. (enabling
loan repayment, loan disbursal…).
3) Agent Banking
Financial institution usually rely on three different means to extend their outreach
II. 101 on DFS – 1) Overview
18
A small business as “an agent” (also called
correspondent) can, depending on the
regulation, conduct transactions on behalf of
an institution (bank or MFI).
II. 101 on DFS – II.3. Mobile Banking – Key features
Which transactions may be conducted through a transformational Mobile Banking ?
Mobile Money accountMFI or Bank Account
Check account
E-Wallet
Savings account
C
B
A
D
Mobile Banking enables the transfer of money from one account to another and therefor ;
A/ Allows the customer to repay loans through the debit of an e-wallet and the credit of a checking account.
C/ Allows the customer to save money and earn interest on a savings account held at a financial institution.
It also enables the customer to credit an E-Wallet through the debit of a bank account (B) and (D) .
A
B
D
C
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MFIs using Mobile Banking services linked to MNOs
II. 101 on DFS – II.3. Mobile Banking – Key features
Source : PHB Development
1) Mobile Money
Mobile Money gives the possibility to conduct remote transactions through any mobile
phone.
2) Mobile Banking
Mobile Banking usually refers to a link between
an e-wallet and accounts of an institution. (enabling
loan repayment, loan disbursal…).
3) Agent Banking
Financial institution usually rely on three different means to extend their outreach
II. 101 on DFS – Overview
21
A small business as “an agent” (also called
correspondent) can, depending on the
regulation, conduct transactions on behalf of
an institution (bank or MFI).
What is the difference between an airtime account and a Mobile Money account?
Deposit Money on his banking account
Consult the balance of the accounts
Subscribe to products offered by the institution
Withdraw Money on his banking account
Conduct transfers to other bank accounts Banking account of a client
1) Mobile 2) POS 3) Biometric devices
Technology used
Source : Adapted from CGAP, 2010
II. 101 on DFS – II.4. Mobile Banking – Key features
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CAPEX (Capital expenditures) estimates for setting up different kind of financial services – PlaNet Finance analysis
II. 101 on DFS – II.4. Mobile Banking – Overview of the CAPEX
Source : PF Analysis based on information from CGAP
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Summary
I. Introduction Objectives of the workshop Overview of the definitions
II. 101 on Digital Financial ServicesOverviewMobile MoneyMobile BankingAgent Banking
III. DFS for MFIsGroup Work Services in a nutshellGroup WorkScreening of the challenges
IV. Key lessons Lessons learntRoadmapChecklist before implementing DFS
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Overview of the customer’s journey (individual loan) Exercise # 1
Define which streams are themost valuable:o To the client of the
institution.o To the MFI.
o Define the three “toppriorities”.
1. Promotion
2. Loan application
3.A. Pre evaluation
3.B. Field evaluation
3.C. Pre committee
analysis
4. Committee approval
5. Disbursement
6.A. Post –disbursement visit
6.B. Regular Follow up
7. Repayment
8. Collection
III. DFS for MFIs – III.1 – Group work
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1st Generation DFS (Digital Financial
Sercices) 2nd Generation DFS 3rd Generation DFS
Bill Payment in a branch
Intra branches transfers Disbursal of loans
Mobile Money Agent
Interconnection between an ewallet and MFI accounts
Loan repayment
Balance information
Transfers from MFI accounts
Savings product
Credit product
Pure insurance product
It is important to assess which services will bring added value to the institution
Agent Banking (Cash In and Cash out)
Agent Banking (subscription of new services)
III. DFS for MFIs – III.3 – Services in a nutshell
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Overview of the customer’s journey Exercise # 2
For the disbursement of aloan, decide on who wouldbe the best partner:o A Mobile Money
Solution ?o Existing Agent
network ?o Card provider ?
Key elements of analysis:o Outreach (number of
clients & agents)o Reputationo Willingness to partnero Experience in the
marketo Tariffso Easiness to use this
service for a end-user
1. Promotion
2. Loan application
3.A. Pre evaluation
3.B. Field evaluation
3.C. Pre committee
analysis
4. Committee approval
5. Disbursement
6.A. Post –disbursement visit
6.B. Regular Follow up
7. Repayment
8. Collection
III. DFS for MFIs – III.4 – Group work
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Part. Distribution HR Clients RegIT Oth BM Focus
Agent Banking (Cash In and Cash out)
Agent Banking (subscription of new services)
Loan Disbursment
Mobile Money Agent
Interconnection
Loan repayment
Balance information
Account transfers
Savings product
Credit product
MFIs MNOsBoth
1st generation BB DFS
2nd generation BB DFS
3rd generation BB DFS
Legend : challenges
LowMiddleHigh
III. DFS for MFIs – III.5 – Screening of the challenges
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Summary
I. Introduction Objectives of the workshop Overview of the definitions
II. 101 on Digital Financial ServicesOverviewMobile MoneyMobile BankingAgent Banking
III. DFS for MFIsGroup Work Services in a nutshellGroup WorkScreening of the challenges
IV. Key lessons Lessons learntRoadmapChecklist before implementing DFS
30
Understand the costs around the DFS.
Think about a strategy –market entry.
Be certain that there is a need for a DFS and that it would bring some value to your clients.
Cost is a big issue ( “tech is not cheap”).
Develop partnerships to keep the loop open as much as possible. Try as much as possible not to sign any “exclusive” contract.
Define reachable indicators and other KPIs.
Make sure that Digital Financial Services (DFS) is what you need and make sure that the connectivity in the targeted area is reliable enough.
Carefully think about the DFS services you want to offer. Strategic planning is important.
Make sure that your clients do not have to switch from one operator to another to use this service.
Do not copy-paste, DFS are very much linked to the local contexts.
Have discussions with your regulator to see whether it will be complicated to get an agreement.
Be sure that the DFS you are offering is compliant with limits of the Mobile Money Solution.
Make sure that the Partner you will be working with has a reliable agent network (in terms of liquidity).
Think big but start small!
General
1/ Before the Implementation
Business Model
IV. Key lessons – IV.1. Lessons learnt
Source : Interviews and presentations from PHB, UOB, PAMIGA, EIB, FINCA.
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Understand the IT requirements (do your MFI needs to buy a solution, develop a middleware).IT
1/ Before the Implementation
IV. Key lessons – IV.1. Lessons learnt
Source : Interviews and presentations from PHB, UOB, PAMIGA, EIB, FINCA.
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Take the time to explain to your clients what a DFS is.
Conduct awareness and marketing campaigns.
Staff from your institution must be sufficiently trained and use this service themselves.
Take your time to learn and study past case studies and examples..
Consider incentives to execute the innovation program successfully.
Pilot the service before rolling out it.
Involve all departments of the financial institution; operations, legal and regulatory, marketing, human resources, IT, finance – accounting and internal audit.
Make sure that the enrolled client is active and knows how to conduct a transaction.
General
2/ During the Implementation
Awareness
IV. Key lessons – IV.1. Lessons learnt
Source : Interviews and presentations from PHB, UOB, PAMIGA, EIB, FINCA.
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Possible roadmap
Studies1Development of a
Business Model2 Pilot3
Customer study Product definitionIntegration in the
institution
Staff training
Customer awareness
Legal “study”
Identify the right Partners and delivery
channels
Roll Out4
Pilot evaluation
Soft Launch
Identify the client’s needs
“Evaluation” of the MIS
Business Model definition (including
financial costing)
IV. Key lessons – IV.2. Roadmap
Full Launch
What kind of Branchless Banking services are allowed by the regulator (Mobile Banking, agent banking…)?
Does it require pre-approval ?
Depending on the service, which authority (or authorities) will be in charge of its supervision (if any) ?
Regulation 1
1/ Within the environment of the institution
Which initiatives /organizations have initiated a MMS?
What is the uptake level of the service ? Could we consider it successful ?
Did this solution have some problems with the Central Bank ?
How many clients are they ? How many active clients/ agents are they ?
Which is the institution with the biggest footprint ?
Is this solution interoperable ?
Would this solution require an “exclusivity” clause ?
What would this solution be willing to offer to the financial institution ? (marketing material, awareness events…)
Do the clients feel that one operator doesn’t match the image of the institution?
Are the clients more client of one operator compared to another ?
Acceptance networks (Mobile money Solutions…)
2
IV. Key lessons – IV.3 – Checklist
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1/ Within the environment of the institution
What are the other initiatives in terms of Branchless Banking in the country ?
What is the uptake of the service ?
Is it successful or not ? Why ?
What are the main challenges faced by this institution ?
How is it overcoming the challenges at stake ?
Did the institution carefully study the initiatives offered by the concurrence ? Did the institution do a benchmark on the BB initiative ?
Would I consider to develop a partnership with the institution having this BB initiative ?
Other Branchless Banking initiatives
3
Other initiatives
Has any funder be interested in funding some initiatives ? 4
IV. Key lessons – IV.3 – Checklist
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What is the MIS capable of ? Does it work in real time ?
Did the institution experience major technical glitches during the past 6 months ?
Did the institution study how much it implies in terms cost & time with another acceptance network (if any)?
Does it require the development of middleware software?
Who will be assuming the costs of the technical integration ?
IT 3
2/ Within the institution
Did the managing team took the time to understand all that there is at stake with a Branchless Banking solution ?
Has the institution conducted a Business Model on this matter (including financial forecasts) ?
What is the main reason of the development of the solution ?
General 1
Has the institution carried out a study with the clients on Branchless Banking (BB)? (it doesn’t have to be a qualitative one ? )
What is the main reason motivating the clients to use a BB initiative ?
Is the client willing to pay to use this service ?
Demand2
IV. Key lessons – IV.3 – Checklist
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2/ Within the institution
Does the institution understand well the prices at stake to develop a BB service ?
CAPEX (Capital expenditures) ?
OPEX (Operating expenditures) ?
Is the institution willing to incentivize its staff to make the service work ?
How does the institution plan to make the investment ?
Financial forecasts?
4
Would the institution be willing to recruit new people in charge of the awareness and coaching on this matter ?
What is the awareness and marketing strategy ?
Awareness 5
Has the institution thought about the project team members in charge of implementing and monitoring this new service ?
Do they have the time? If not, does the organization plan to hire new staff?
Is it possible to involve in this project staff from different departments/services (accounting, IT, regulatory, operation, internal control & audit…)?
Human Resources
6
IV. Key lessons – IV.3 – Checklist
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Simon PriollaudBranchless Banking [email protected]
Contacts
Simon PriollaudMobile Banking [email protected]
Contacts