Marketing strategy for launching mobile money services in Mexico

E-CASH - MOBILE BANKING IN MEXICO

Didier Gutierrez Luis Morales Nokwazi Mzobe Takayuki Saito Ashish Tandon Irene Zubillaga

March 6, 2012

MACRO

-ENVIRO

NM

ENTAL FACTO

RS

MexicoDemographic

Economic

Technological Social & Cultural

Legal

Political

Demographic Economic Technological Social & Cultural

Legal Political

•114,975,406 population for 2011; 11th in the world•Approx. 78% of the people live in urban areas•Literacy rate 86.1%•Age Structure: 0-16 =28.2%, 15-64 = 65.2%, +65 = 6.6%•Immigrants to the US: 11.5 M (including temporal residents)

•Real GDP growth rate 3.8%; composition: 3.9% Agriculture, 32.8% Industry, and 63.4% Services•2011 Unemployment rate 5.1%; Labor force of 47.77 million•Inflation rate 3.5%•Gini Index: 51.7 (2008)•After oil, the second source of income for the state, is US remittance 21,271 million dollars•Part of NAFTA

•VoIP has gained huge popularity•Teledensity stands at 18%; ranging from 41% to 5%•Triple play service has started in Mexico (TV Cable, Telephone and Internet)•ADSL, is one of the fastest growing telecom markets

•76.5% Roman Catholics; 5.7% Protestants•92.7% Speak Spanish•60% Mestizo; 30% Amerindian; 9% Caucasian; 1% unspecified•Literacy rate 86.1%

•Legal System: civil law system with US constitutional law theory influence; judicial review of legislative acts•Accepts ICJ jurisdiction with reservations; accepts ICCt jurisdiction

•Federal republic, with three main parties: PRI, PAN & PRD•Considered to be politically stable, yet there is a ‘civil war’ against drug dealing

IND

USTRY AN

ALYSISBanking Industry Mexico

• Banking sector is dominated by commercial banks

• Four foreign-owned banks dominate the commercial

banking sector

• Services: online banking, loans, home and life insurance,

credit cards, savings deposits, promotions, transfer of

funds, lease of transportation, foreign trading and

purchase/sale of dollars, investments and mutual funds

through its large branch network and ATMs.

Mobile Banking Trends

• Mobile banking is emerging as a key electronic channel

for the global banking and financial services industry

• Global customer base projected to reach 1.1 billion by

2015

• Growing demand for microfinance, mobile remittances

and micropayments services from un-banked population

in developing countries is also expected to boost uptake

of mobile banking services

• Banking penetration in Mexico as of 2010 is around

54%

Opportunities for mobile money in Mexico• The acceleration of mobile remittance services alongside new

mobile payments highlights the opportunities for the mobile

phone to redefine the movement of money by:

• Lowering costs

• Increasing convenience

• Reducing fraud

30%

24%17%

8%

6%

4%1%

1%1%

8%

BBVABanamexSantanderBanorteInbursaScotiabankHSBCINGBajioOthers

Economist Intelligence Unit 2011

0

5,000,000,000

10,000,000,000

15,000,000,000

20,000,000,000

25,000,000,000

30,000,000,000

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

Dollars Number of Transactions

Mobile Subscribers ForecastFamily Remittances

Evolution of Payment Methods in Mexico

2010 2011 2012 2013 2014 2015 201670%

75%

80%

85%

90%

95%

100%

91 96102 107 111 115 117

Subscribers (Million) Penetration

• Mexico has 91.363 million of cell phone users in 2010

• 11th in comparison to the world

• Only 54% of the Economically Active Mexicans had a bank

account in 2010.

• Evolving from 35% in 2003

• 297M Interbank Electronic Transfers where made in 2011

• 98% on the international transfers to Mexico were made by

electronic sources

• Less than 1 million transactions were made offline

Banxico 2012 Monitor 2010

2002 20100%

10%20%30%40%50%60%70%80%90%

100%

67%

19%

16%

44%

16%35%

ChecksDebit CardsTransfersAutomatic Charges

Banxico 2012

Highlights

2007 2008 2009 2010

118

166

200

297

Operations (Millions)

IND

USTRY AN

ALYSIS

CUSTO

MER AN

ALYSISMarket Segments

• Policies

• ERP Integrations

• High volume of

transactions

Corporations

• Need of receipts and

fiscal compliance

• More than 30

transactions per

month

Small Business

• Less than 30 transactions

per month

• Looking for convenience

• Low price sensitivity

• Considering the ceiling

established by Banxico

Personal Users

Persona # 1: Juan Perez

Mexican resident who owns a cell phone. Appreciates the convenience of making a transfer to another Mexican resident with his cell phone. And the practical fact of withdraw his transferred money in any convenience store around the country.

Juan’s Needs: • Not having to open a bank account• Saving time (not going to a bank)• Convenience: Immediate Money and

Speed

Persona # 2: Mary Lopez

Mexican in a foreign country, and owns a cell phone. Works in a foreign country and need to send remittances to her family or relatives in Mexico.

Mary’s Needs:• Not having to open a bank account• Send remittances to their families and

relatives in Mexico. • Convenience: Immediate Money and

Speed

CUSTO

MER AN

ALYSISPersonal Users

International Operators

BUSIN

ESS MO

DEL – E-CASH

Retail Stores BANKST-MOBILE AT&T

Mexican Operators

Telcel Movistar

e-cash

PURCH

ASE PROCESS

Online RegistrationSMS Registration

Text Message Code

Security Configuration

COM

PETITOR AN

ALYSISE-Cash comparison - strengths & weaknesses

E-Cash comparison - opportunities & threats

Cash & Traditional Banking

• No need to be face to face to do the transaction• Create your currency denomination• E-Cash is new, thus it needs to get customer's trust• Check accounts do not generate interest• Traditional banks offer a wider range of services, hence possible expansion to offer

wider range of services• Reduce the cost of international transactions

Internet Banking

• No need for Internet connection• No need to have a bank account• Add the option of international transactions• Possible Hacking remains a weakness for both

Cash & Traditional Banking

• Growth rate of mobile users + market size• More services could be embeded in the application• Offer an easier way to transfer money internationally• International laws and regulations

Internet Banking

• Offer an easier way to transfer money internationally• Barriers of entry will be erected through the partnerships• Reduce Partnerships uniqueness by approaching everyone in the market• Share the same risk in terms of acceptance of new technologies by costumers• Open a new channel for illegal international and national transfers• E-cash has the threat of higher partnership risks• International laws and regulations

MARKETIN

G STRATEG

YMarketing Objectives

Marketing Objectives

• Achieve 18% of the Telephone users in 5 years• Industry Experts expects that

mobile banking reach 15% of the bank users in the next three years

• That 3% of the transactions from US to Mexico are made through our solution

• $98M USD in 2016• $53M USD from National

• $45M USD from International

2012 2013 2014 2015 2016$0

$20

$40

$60

$80

$100

$120

0

20

40

60

80

100

120

Revenues and Transactions

International National Transactions

National 2016Mobile Users 117Between 15 and 55 yrs old 99.45Market Share 18%Clients 17.9Avg. Trans per Month 6Avg. Price per Transaction (USD) 0.5Revenues ($M USD) 53.7

International 2016Electronic Remittances 75Market Share 3.0%Transactions 2.2Avg. Price per Transaction (USD) 20

Personality

Message

Promise

Vision

Substitute the use of cash in 2050

Provide our customers the most secure and convenient way to transfer money

• Affordable• Convenient• Practical• Trustworthy

• Energetic, fast, precise, family oriented, community oriented

MARKETIN

G STRATEG

YBrand Map

For Mary and Juan who want to transfer money anywhere, any time. E-Cash is a unique service that provides a simple and secure way to send and receive money.Unlike Traditional Banking, E-Cash delivers an easy to use mobile money solution.

Positioning

Money at the tip of my fingers

e-Cash

Research PlanM

ARKETING

STRATEGY

Primary Research How Where Objective1 Surveys Survey on Facebook Facebook

Questionaires at Government offi ces/ Post offi ces/ Grocery Stores Mexico & US

2 Focus GroupsRandomly select potential users, invite them to provide feedback

Mexico & US

Gathering opinions, beliefs, and attitudes about issues of interest to your organization; Testing your assumptions; Encouraging discussion about Mobile Money

Secondary Research How Where Objective1 Bench-Mark Study Articles, Research Journals, Blogs E-Cash offi ces Get Best Practices i.e. with M-Pesa in Kenya2 Competitor Analysis Articles, Research Journals, Blogs E-Cash offi ces Understand Competitor plans and objectives3 Industry Trend and Analysis Articles, Research Journals, Blogs E-Cash offi ces Understand size of Market, Potential for growth

Testing platform How Where Objective1 Beta testing with Focus group Monitor and test userbility Mexico & US Test platform and get firsthand consumer feedback

Post-launchPrimary Research How Where Objective

1 Surveysms based survey after 1st transaction, then after every 10th transaction

Mexico & US Gathering opinions, attitudes, areas of improvement

2 Focus GroupsRandomly select users, invite them to provide feedback. Every 3 months Mexico & US Gathering opinions, attitudes, areas of improvement

Segmentation, Consumer habits & Needs

Pre-launch Research

Campaign objectives• Create awareness of mobile banking and E-CASH in

Mexicans inside and outide the country• To actively inform people the advantages and solutions

of our service• Get people to visit our website, and take advantage of

our introductory product• Get Mexicans to feel their transactions are safe and

immediate • Become known as the best and trustable way to make

transfers

Touch point strategy:• Announce: Create mass awareness of E-Cash introduction

to the market• Educate: Educate Mexicans on how convenient and safe is

our service. Also educate our partners on how this will continuously increase their profitability

• Act: Create engaging consumer & mobile banking to bring E-Cash to life. Also create engagement with our partners and leverage on them to grow fast

Media insights regarding target consumer:• Heavy Radio Listeners & TV watchers with preferred consumption of

Spanish and Latin channels and stations• Public transportation users (commute)• Heavily influenced by culture and peer pressure giving Word of Mouth a

critical role for their lives

Campaign dates: April 1 – October 1 MARKETIN

G CAM

PAIGN

Juan Mary

Print Ads: •Buses•Trains •Retail stores

Print Ads: •Buses•Trains •Retail stores

TV: 2 major networks•8:00-9:00 pm Soap Opera•9:00-10:00 pm News

TV: Spanish networks

Social Media: •Facebook (4hrs/week)•Twitter

Social Media: FacebookTwitterLinkedIn

Road shows:•Smaller Towns

Radio

Soccer Games:•Stadiums

Church and Community Centers

EXHIBIT 1 – FIN

ANCIALS

Strategy Objective Method

TV Reach and impact massively while educating the customer

Commercials, sponsorship on targeted programming. Combine with partner’s TV commercials

Social Media Create awareness, education and continuous engagement

Through the Social Media: Facebook, Twitter, LinkedIn and Partner’s web sites.

Print Ads Create awareness & education

Spaces on public transportations and billboards in heavy traffic highways

POS Create awareness & education

Print Ads in partner’s retail stores (Walmart, Oxxo, Telcel, etc)

Radio Create engagement and excitement at launch

Activations at key radio stations- that have critical reach

Communications (Church/Communities

Continuously educate and highlight the convenience of our service

Continuous investment on Print Ads and workshops in churches, community centers, etc.

Consumer Activation Exhibit the differentiators benefits and drive consumer engagement by actual trials

Promotions with partners in order to offer the trial

MARKETIN

G STRATEG

YOVER

Offering + Money transfer service + High Security

Value + Transfer money any time, any where + Simple and secure

Experience + Control your finance at the tip of your fingers + Efficient use of your time + Easy to use

Relationship + Trusted Advisors + SMS Based Survey

Sales EnablementM

ARKETING

STRATEGY

1. Sales training session:

• Materials

• Feedback, etc.

2. Incentives and Compensation

3. Customer Analysis Data

• Customer behaviors

• Customer feedback

4. Buyer Personas

5. Directory of Technical Experts: Customer Service

6. Pre-Written proposal for our partners and customers

1 2 3 4 5 6 7 8 9 10 11 12 -

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Sales Fixed Cost Variable Cost Total Cost

Our Break-Even point is 1.3M Transactions

ANN

EX 1 - COM

PETITOR AN

ALYSISCash Traditional Banking Internet Banking

Strength

• Ease to use• Portable• Widely accepted

• Customer Service• Full range of services

to the customer.• More securer than

mobile banking

• Rapid growth of Mobile and wireless market

• Substantially better interest rate than those offered at traditional banks

• Protect our environment by using e-banking.

Weakness

• Secure to keep it by ourselves• Does not generate interest• Easy to falsify• Transaction has to be done in

person• Devaluation risks

• Need to go to the branch

• Time limitations• International

transactions are complicated and costly

• Lack of awareness about the new channel among the mobile users.

• Security concerns about the new channel

• No Personal Customer Service (when we faced troubles and questions)

• Hacking, spyware program, computer virus and breaking online password are the weakness of e-banking or online banking.

Opportunity

• New technologies to produce safer bills

• Ecofriendly bills

• Geographic expansion • Rapid increase in the Mobile user base and acceptance of the Mobile technology even in Rural areas makes a bigger market available for mobile banking to expand.

• With technology advancements in Mobile handsets rich features can be embedded in the application.

Threat

• Newly joining companies• Traditional banking, Mobile

banking• Internet banking

• Newly joining companies

• Acceptance of new technology by users.

ANN

EX 1 - COM

PETITOR AN

ALYSISTelcel / Banamex

TransferTelefonica / Mastercard E-Cash

Strength

• Telcel has more 80% of the Cell Phone Market Share in Mexico

• Banamex is the second largest bank in Mexico

• Strong security

• Telefonica is the 2nd largest Cell Phone Operator in the country

• Partnership with Mastercard

• Easy to use• No need to have a bank

account• No need for Internet• Functions in all Cell Phone

Providers

Weakness

• Bad customer service• Bad reception in some

areas

• Need to have a bank account

• Still need to interact with your bank

• You need a credit/debit card

• No compatible with American Express

• People need to learn how to use it

• People need to learn to trust it

• Hacking, spyware program, computer virus and breaking online password are the weakness of e-banking or online banking.

Opportunity

• Will offer the services to the unbanked

• Partnerships with Online stores

• Market size• Faster and easier way to

transfer money internationally

• Market value

Threat

• They don’t develop their own software

• Fierce competition with Telcel

• Partnerships• Harder to regulate by the

government

ANN

EX 2 - FINAN

CIALSE-Cash PnL

Year 1 Year 2 Year 3Net Sales 16,873,220 25,271,550 38,039,107Cost of Goods Sold 2,530,983 3,790,733 5,705,866Fixed Costs 5,061,966 5,061,966 5,061,966Operating Costs 2,580,000 2,627,155 3,903,911Depreciation & Amortization 1,518,590 1,518,590 1,518,590Total Costs 11,691,539 12,998,443 16,190,333Operating Income / Earnings Before Tax 5,181,681 21,125,806 32,616,607Less Tax (30%) 0 6,337,742 9,784,982Net Income 5,181,681 14,788,064 22,831,625% Margin 31% 59% 60%

Best Case

E-Cash PnLYear 1 Year 2 Year 3

Net Sales 5,624,407 8,423,850 12,679,702Cost of Goods Sold 843,661 1,263,578 1,901,955Fixed Costs 5,061,966 5,061,966 5,061,966Operating Costs 2,580,000 2,527,155 3,803,911Depreciation & Amortization 1,518,590 1,518,590 1,518,590

9,160,556 9,107,711 10,384,467Operating Income / Earnings Before Tax -3,536,149 4,378,105 7,357,202Less Tax (30%) 0 1,313,432 2,207,161Net Income -3,536,149 3,064,674 5,150,041% Margin -63% 36% 41%

Worst Case

ANN

EX 2 - FINAN

CIALSModel for Chapter 11, Basics of Capital Budgeting 12/12/08

Data on Projects S and LWACC for both projects: 10%

Initial Cost: TotalYears: 0 1 2 3 4 InflowsProject S: -$2,480,000 $16,873,220 $25,271,550 $38,039,107 $0 $80,183,878

(Text Section 11-2)

0 r = 10% 1 2 3 4-2,480,000.00 16,873,220 25,271,550 38,039,107 10015,339,290.9120,885,578.8928,579,344.42

0.00NPVS = $62,324,214.22 Sum = NPV for Project S

NPV

After-Tax, End of Year Net Cash Inflows, CFt:

Project S