New Market Exploration in Nigeria - INSEAD · PDF fileNew Market Exploration in Nigeria Singapore, ... Defined by McKinsey Global Institute as income required to achieve basic household

New Market Exploration in Nigeria

Singapore, October 2014 Section AB

Alexandra Albers

David Bondatti

Dominique Cina

Omar Elassar

Anthony Khawam

Georges Nakhle

Executive Summary

2

Nigeria is the largest economy in Africa with a GDP 2013 of $510bn and has been growing at a sustained rate of 6.4% between 2010 and 2013. The financial services industry is emerging as a major component of the economy contributing 7.5% to the GDP growth.

As of today, there is still low financial inclusion in Nigeria compared to its peers in Africa across all financial products (payments, credit, savings, insurance and pensions).

However, issue of low financial inclusion is recognized and addressed by the Nigerian Government through the Nigerian cash-less program and the National Financial Inclusion Strategy. In addition, the entrepreneurial ecosystem is trying to address the issue as well.

We believe that mobile-money will be key as it could substantially accelerate inclusion. Although there are still major gaps in the Nigerian m-money industry, e.g. in agent networks & consumers education/ user base, we believe that if regulation and infrastructure improve, demand could unlock the mobile-money industry.

This being said, we recommend Accion to invest in the mobile-money industry. Hence, we have identified four non-bank-led m-money start-ups as potential targets.

3

I. Macroeconomic View of Nigeria

II. Financial Inclusion in Nigeria

III. What Should Accion Do?

Why Nigeria?

4

1. Households with income more than $7,500 (in PPP term) 2. According to 2013 Global Entrepreneurship Monitor 3. Defined by McKinsey Global Institute as income required to achieve basic household needs SOURCE:Nigeria’s Renewal; McKinsey Global Institute analysis

The largest economy in Africa and the 26th largest in the world, with GDP of $510 billion in 2013

With 170 million people, it is twice as large as the next most populous African country

Benefits from a large scale consumer market. Almost 40 million Nigerian are consuming-class households1, with a potential to increase to 160 million by 2030

Population is young and growing; Nigeria has the ninth largest working-age population in the world—a substantial growth driver going-forward

An entrepreneurial mindset, with 41% of working-age Nigerian being involved in an early stage business2. Country ranks top-10 against entrepreneurial measures

Potential to move 120 million Nigerian above the Empowerment Line3 and 70 million out of poverty

Nigeria is the largest economy in Africa, and has been growing at a sustained rate

5

22

23

28

28

45

46

47

48

52

105

124

216

262

354

510

Egypt

Angola

Algeria

Morocco

South Africa

Sudan

Nigeria (rebased)2

Côte d’Ivoire

Cameroon

Kenya

Ghana

Ethiopia

Tunisia

Zambia

Uganda

6.7

4.9

4.1

4.4

4.9

10.2

9.0

1.5

-0.4

4.3

4.9

3.0

1.9

2.7

6.4

African countries

Nominal GDP, 20131

2013 $ billion

Real growth 2010–131

%

1 Economic data for some countries in 2013 estimated by the International Monetary Fund (IMF). 2 Data for Nigeria rebased GDP are based on basic prices, the headline figure used by the National Bureau of Statistics. SOURCE: IMF; National Bureau of Statistics; McKinsey Global Institute analysis

The Nigerian economy is both more diverse and stable than commonly conceived

6

1 Calculated at basic prices. Data estimates by IHS Global Insight for some countries, as 2013 numbers were not available for all. 2 Developing or emerging economies as defined by IMF. 3 Currently rebased GDP is available only post-2010, so this chart uses the official GDP statistics based on 1990 structures and should be considered indicative for the period 1990 - 2010. NOTE: Numbers may not sum due to rounding.. SOURCE: IHS Global Insight; National Bureau of Statistics; US Energy Information Administration; McKinsey Global Institute analysis

6145

3726 24

14

5563

74 7686 89 92 94

811

96

39

Avg = 23.6

Iran

Bra

zil

4

Ch

ina

6

Mex

ico

Ru

ssia

Nig

eria

Ven

ezu

ela

UA

E

KSA

Kuw

ait

Resources Other

Resources share of GDP, 20131

Leading oil producers, developing & emerging economies only2 %

-20

-15

-10

-5

0

5

10

15

20

25

30

35

2010 05 2000 95 90 85 80 75 70 65 1960

Nigerian real GDP growth (pre-rebasing data)3

%

Standard deviation %

1960–2002 9.0%

2003–10 2.0%

Nigeria’s growth has been stable following the fiscal reforms

The financial services industry is emerging as a major component of the economy

7 1 Information and communications technology. 2 Resources do not include oil refining, which is included in manufacturing. SOURCE: National Bureau of Statistics, data accurate as of April 2013 GDP release; McKinsey Global Institute analysis

Nominal GDP, 2013 2013 $ billion

6.6 10.4

2.2 5.1

7.7 20.1

2.6 9.4

23.1 3.7

14.6 7.2

5.4 2.6

18.6 7.5

8.1 8.7

4.5 2.5

13.0 14.3

6.9 8.2

CAGR 2010–13, real

%

Contribution to GDP growth, 2010–13

%

7 40

Agriculture

Trade

Resources2)

Real estate

Telecommunications and ICT1)

16

35

18

112

Professional and technical services

Finance and insurance

Public administration

17

Construction

Entertainment, music

Other services

510

85

16

49

74

41

Manufacturing

Improved productivity—not labour input—has been the major growth driver…

8

1 GDP at basic prices, the preferred measure of the National Bureau of Statistics, was used. 2 Based on the growth of the working-age population. 3 Changes in workforce participation and employment rates. 4 Labour productivity effect is growth in labour productivity, measured by real GDP per employee. SOURCE: National Bureau of Statistics; World Bank; IHS Global Insight; The Conference Board; McKinsey Global Institute analysis

Contribution to GDP growth, 2010–131

2013 $ billion 510

GDP, 2013 Labour productivity4

47

Employment effect3

3

Demographics2

36

GDP, 2010

424

3 42 55

Labour input

Category contribution %

Given that Nigeria has the 9th largest working-age population in the world, we expect Labor input to be the main growth driver. Nevertheless productivity took over

…yet productivity still lags behind other EMs, hence presenting significant upsides potential

9 SOURCE:National Bureau of Statistics; IMF; The Conference Board; McKinsey Global Institute analysis

Nigeria 3.0

Turkey 11.0

Brazil

South Africa

10.9

9.8

Indonesia 3.5

6.9

14.8

Malaysia 10.5

Mexico

Russia

10.9

24.0

25.4

32.3

29.1

10.3

22.2

26.1

24.9

7.7

29

45

27

34

49

42

42

51

41.0

Per capita GDP $ thousand

Labour productivity $ thousand

Employment/population %

Peer average

-70% -57% -30%

To realize the significant upsides, major issues still need to be addressed

10 1. According to a McKinsey survey of business across Africa 2011; 2. Economic and political instability 3. Excluding wages SOURCE:Nigeria’s Renewal; McKinsey Global Institute analysis

Relatively low digital impact

The economic impact of the internet has been lower in Nigeria than in other developing economies (e.g., 159th for mobile use & 128th for internet penetration)

Poor infrastructures…

Electric power and transportation are inadequate for Nigeria’s area and population. Substantial enhancement is vital for economic growth and further urbanization

High barriers to doing business…

Country ranks 144th in Corruption Index, difficult regulatory process (e.g., 13 procedures to register property), and major concerns for Nigerian employers1 are among others limited financing, instability2, lack of electricity and high OPEX3

High security risks…

In the first three months of 2014, more than 1,500 civilians were killed. In the south, ongoing conflict with militants occurs. Such issues make it harder to attract companies and human capital; it also creates challenge for existing companies

Low skill levels… More than 35 million adults cannot read or write. More than 10.5 million children between 6 and 17 are not in school. Only 30% start primary school. For those in school, quality of education is often poor

Additional progress in reducing poverty also needs to happen

11

1. Pre-rebasing 2. Poverty rate based on World Bank definition of $1.25 a day in 2005 purchasing power parity terms 3. Only countries with a 1990 poverty rate above 5% were included in analysis 4. Based on pre-rebasing GDP data for Nigeria 5. Defined by MGI as income required to achieve basic household needs SOURCE:PovCal.Net; World Bank; McKinsey Global Institute analysis

Economic growth1 vs. change in poverty rate2

-3

-2

-1

0

1

2

3

4

5

0 1 2 3 4 5 6 7 8 9 10 11

GDP compound annual growth rate, 1999–2010 %

Annual decrease in poverty rate, 1999–20102 Percentage points

Zambia

Vietnam

Tajikistan

Swaziland Nepal

Liberia

Kenya

Indonesia China

Bhutan

Angola Nigeria3

130 million Nigerians live below the empowerment line5

Should issues be resolved, Nigeria’s GDP could exceed $1.6 tn by 2030 according to MGI

12 1. Assumes growth from 2010 to 2013 will be maintained for these sectors; includes financial & insurance services, real estate, motion pictures, education, health, and other service. SOURCE: National Bureau of Statistics; IHS Global Insight; UN FAOSTAT; World Bank; Canback Global Income Distribution Database (C-GIDD); McKinsey Global Institute analysis

GDP contribution 2013 $ billion

Total

1,634

Others1

582

1,124

510

140

442

Oil and gas

108

73 35

Manufacturing

144

35 109

Infrastructure

257

63 194

Agriculture

263

112

151

Trade

279

87

192

7.1 5.2 8.7 7.1 CAGR % 8.7 2.3 8.7

2013 GDP Increase in GDP by 2030

Should reforms and investments occur, Nigeria could reach its full potential by 2030,

and thus become a top-20 economy

13




Five distinct products are identified with regards to financial inclusion

14

“Financial Inclusion is achieved when adults (>18 years) have easy

access to a broad range of financial products designed according to their

needs and provided at affordable costs. These

products include payments, credit,

savings, insurance and pensions.”

Payments Transfer of money by underserved, mainly through

mobile phones

Service include P2P, bill payments and remittance

Credit Allow unbanked/ poor to borrow, taking into

account specific needs (e.g., no collateral and need for working capital financing)

Savings Allow unbanked/ poor to save money in an account

that provides principal security and in some cases interest

Insurance Mainly includes insurance that covers the risks of

underserved and poor (weather risk for farmers)

Referred to as micro-insurance

Pensions The Nigerian pensions industry is based on the

Chilean pensions system

Makes allowances for voluntary contributions

Source: National Financial Inclusion Strategy, Summary Report, Roland Berger

Definition Financial products

Today, there is still low financial inclusion in Nigeria vs. peers across all products

1. Formal or informal (See appendix for definition) 2. South Africa, Kenya, Uganda, Ghana, Tanzania, Rwanda, Zambia 3. Malaysia, Kenya, South Africa, Brazil, Indonesia, Mexico Note: Numbers are based on 2010 data Source: National Financial Inclusion Strategy, Summary Report, Roland Berger, EFInA Access to Financial Services in Nigeria 2012 Survey

Access1 to financial products Other Indicators Product

Payments

Credit

Savings

Insurance

Pensions

Access to payment services

M-payments users in % of adult population

Peers2 Peers3

Access to credit products

Loan accounts per 1’000 people

Access to savings

Saving accounts per 1’000 people

Access to insurance services

Share of population using insurance

Share of population contributing pension

Peers2 Peers3

Peers2 Peers3

Peers2 Peers3

Peers3 N/A

43%

<1%

15

422

977

461

18%

1%

22%

5%

25%

1%

47%

41%

28%

5%

31%

22%

15

Currently, five major barriers hinder the evolution of financial inclusion

Financial Literacy

• Lack of clear understanding of financial institutions and products

• Lack of trust arising

Afforda-bility

• High fees for ATM cards and transactions

• Very often, there is a minimum balance required

Eligibility • Cumbersome documentation requirements

• Rigorous identification requirements

Income • 23.6% of the adult population earns less than

USD 2 per day, 10.9% of adults are unemployed

• Salaries typically paid in cash

Physical Access

• Low banking density: The average distance to a branch is more than 10 km

• 79% of rural dwellers are unbanked

Source: National Financial Inclusion Strategy, Summary Report, Roland Berger

Problem of low financial inclusion is being addressed by Government of Nigeria through

1. Cash-less Nigeria policy

2. National Financial Inclusion Strategy

1

2

16

Problem of low financial inclusion is being addressed by Government of Nigeria

Source: National Financial Inclusion Strategy, Summary Report, Roland Berger, CIA World Factbook

Description

Assessed

Effecti-veness

Objective

• Further to the Cash-Less Policy, includes a comprehensive plan led by the Central Bank of Nigeria (CNB) Measures to tackle the 5 barriers to inclusion

• Lower the financial exclusion rate to 20% by 2020 by enhancing financial literacy and consumer protection, simplifying account opening procedures and access to credit

• Ensure the stability of the financial system funded by increased and stable savings

National Financial Inclusion Strategy 2012

• Ongoing efforts with limited means to assess progress realized

• According the CNB, in 2012 40% of the population remained financially excluded, an improvement of 6% over 2010

Cash-Less Nigeria Policy

• Promotes the use of alternatives to cash (debit/credit cards, bank transfers, m-money, etc.) by imposing a fee of 3% for any individuals withdrawing over USD $3,000 per day

• Facilitates the implementation of monetary policy and helps anti-corruption efforts

• Favor the attainment of the 20:2020 economic growth program by digitizing payments

• Reduce cost of banking services thereby transferring savings towards increased lending

• Limit security risks associated with use of cash

• Limited effectiveness to date given the high cash withdrawal limit (70% of the population lives below poverty level) and unclear whether Strategy is resulting in expanded credit access

• Unreliable power supply affects reliability

1 2

17

In addition, the entrepreneurial ecosystem is trying to address the problem as well

Source: Web Research

…addressing the barriers of financial inclusion

Selected examples of start-ups…

Income (low salaries, high unemployment)

Oradian is set to transform microfinance banking in Nigeria with the deployment of its flagship product, Instafin.

Physical Access (low banking density)

CashEnvoy.com is a web application that aids the transfer of money from person-to-merchant using the web application and personal email addresses

Financial Literacy (lack of trust in financial institutions)

i.Sec’s financial security app protects users from malicious debits by providing real-time options for approving, declining, or reporting transactions

Affordability (high fees for financial services)

Mobile card payment system that enables merchants to accept card payments without internet connection

Eligibility (Cumbersome document. requirem.)

Connect Finance allows companies to track their finances, create invoices, quotations, sales orders, way bills, payments etc.

18

This being said, m-money is key as it could substantially accelerate inclusion

19 1. Could be more than 9; these markets area Cameroon, Congo, Gabon, Kenya, Madagascar, Tanzania, Uganda, Zambia, and Zimbabwe SOURCE: GSMA Mobile Money for the Unbanked

Relatively high mobile penetration (compared to banking) grants access to large client base (100+ million in Nigeria)

Underserved clients need to be educated on financial products usually “sold not bought”. M-money helps the educate & push-sales process

Mobile agents are significantly more dense than bank branches and ATMs (especially in rural areas) and can solve the proximity issue

Once foundation of m-money is established, tapping into financing/ saving & insurance is easier (e.g., M-PESA successfully lunched M-Shwari a saving & credit product, gaining 5+ million accounts in less than a year )

9 markets1 in Sub-Saharan Africa where access to financial services has largely improved have more m-money accounts than bank accounts

Why is m-money the enabler?

There are 3 main models for m-money: World Bank argues for an MNO-led model in Nigeria

20 SOURCE: helix-institute, ITU-T “The Mobile Money Revolution” 2013

Mobile money demand curve (World Bank)

1 2 3

▪ In developing economies, MNO-led models (e.g., M-PESA) make most sense/ dominate, as financial infrastructure is not well established. MNOs allow m-money to target large numbers of unbanked people. MNOs typically handle relationship, provide an alternative infrastructure & a network of agents

▪ Bank-led models are more

likely in countries where there is a good level of banking infrastructure and regulation

▪ In developed economies the

collaboration model, where mobile money must integrate the entrenched financial infrastructure, is most likely

Also, an MNO-led model would help overcome barriers for Nigerian consumers

21 NOTE: survey results refer to InterMedia FII Tracker Survey in Nigeria, End of 2013 SOURCE: finclusion.org; Nigeria Renewal Report; McKinsey Global Institute

Only 12% of Nigerians have ever heard of mobile money providers, with awareness among non bank users four times lower than among bank account holders: advertising seems not to be reaching the intended audience

Main challenges to m-money in Nigeria

Few people are aware of mobile money…

Nigerian consumers lack clear understanding of mobile money services, e.g., less than half of adults who have heard about mobile money knew they can send (48%) or receive money (39%) from other people

Knowledge around the service is limited…

Only 21% of respondents said they trust mobile money services: services are deemed vulnerable to mobile network fraud and poor network quality/ technology

Level of trust in performance/ safety is low…

How can MNOs help?

MNOs can leverage the 100 million mobile connections in Nigeria and the 23% mobile penetration growth to increase awareness and educate the unbanked about m-money. MNOs have a significant reach advantage

MNOs already established trust with their growing 100 million customer base

However, current regulation in Nigeria hinders MNOs to take a leading role

22 SOURCE: helix-institute, ITU-T “The Mobile Money Revolution” 2013

Current m-money regulation in Nigeria

▪ In line with the 2009 Regulatory Framework, Nigeria is issuing mobile money licenses according to 3 schemes:

– Bank-focused, where a bank delivers banking services to customers using the mobile phone

– Bank-led, where a bank or consortium of banks, partnering with other organizations, jointly seek to deliver banking services via mobile phones

– Non-bank-led, where corporate organizations deliver mobile money services to customers

▪ 15+ licenses granted so far

▪ Under the current framework, Mobile Network Operators (MNOs) are excluded from obtaining mobile money licenses

▪ Strong collaboration between license holders and MNOs is required to successfully tap into the large unbanked market

▪ However, current volume of transactions does not attract MNOs in the business, and uncertainties on future of regulation are further refraining MNOs to fully invest in m-money partnerships

Note: out of the 9 markets in Sub-Saharan Africa that have more m-money accounts than bank accounts 7 have allowed MNOs to provide m-money services

Ban

k-fo

cuse

d &

ban

k-le

d

No

n-b

ank-

led

This is why, despite a recent proliferation of m-money platforms in Nigeria…

23

▪ The GSMA’s mobile money tracker lists ~20 active services in Nigeria as of May 2014, provided by both banks and third-party vendors

▪ Most of these mobile money products offer basic services such as money transfers, airtime purchases and bill payments

▪ Paga was the first to enter the market in early 2011, but its customer base has not exceeded that of more recent entrants to the market

▪ Such a fragmented offering can lead to an inability to distinguish between different providers among potential consumers

1. Does not hold the license yet SOURCE: GSMA, finclusion.org, company websites

Selection of m-money platforms currently present in Nigeria)

ENZADI1

Bank-led and bank-

focused players are

restricted in

scalability due to the

lack of inter-bank

transfer capabilities.

…the service is not gaining traction, and <1% of adults are actively using it

24 SOURCE: finclusion.org

% respondents to end of 2013 survey (N=6,000+)

Compared to 62% in Kenya, 38% in Tanzania and 26% in Uganda

Major gaps in Nigerian m-money are in agent networks & consumers education/ user base

SOURCE: IFC Mobile Money Study Nigeria 2011, team analysis

Readiness of finance and mobile industries

Regulation/ Gov’t support

Nigeria Kenya (best in class)

Nigeria vs. Kenya along the key factors influencing m-money development

Nigeria is at a stage similar to that of Kenya at the launch of M-PESA in 2007. The majority of the population has limited financial access but uses mobile phones. There is high demand for simple services such as m-money

Regulatory framework is cautious and offers little flexibility to players to respond to the market opportunities (e.g., required interoperability at all levels is slowing deployment)

Fully in place

Not in place

Regulator's initial decision was to allow the scheme to proceed on an experimental basis (without formal approval required) in order to encourage initiatives in the industry despite its uncertainties

Broad agent networks

The exclusion of MNOs from leading in m-money implies that one of the few parties with experience in running agent networks may not find the participation attractive

More than 17,000 retailers who already sold airtime signed up as M-PESA agents. At the beginning, they were incentivized based on new accounts opened

Consumers education

So far, efforts have not reached the intended segments (i.e., rural and unbanked): the majority of current m-money users already have a bank account

Used marketing extensively to educate poor and underserved through simple and effective campaigns (e.g., “Send money home”). Agents also played a significant role in this regard

User base growth

Several licenses issues, market is fragmented and there is low trust in current players. “Chicken-and-egg” trap, where few users join the platforms because there are few users on it

Leveraged dominant market position/ brand name of Safaricom to boost network effect

25

If regulation/ infrastructure improve, m-money demand could be unlocked

26 SOURCE: mobilereadiness.mastercard.com

Nigeria lacks conditions for a vibrant m-money market…

…but Nigerian consumers have strong desire for m-money services

25

50

20

31

45

25

40

0

33

60

30

60

50

12

Total Score

Regulation

Mobile & tech infrastructure

Financial readiness

Economic & demographic readiness

Partnerships btwn banks & MNOs

Consumer readiness

Index Nigeria

Regulation & Infrastructure

Nigeria’s readiness for m-money MasterCard index score

Usage

61%

31%

Familiarity

30%

53%

Wilingness

4%

61%

Kenya Nigeria

Consumer perception for m-money in Nigeria MasterCard Survey, figures out of 100%

High willingness to use…

…yet education is needed…

…to reach usage rate of leading countries

27




Accion should look into m-payment start-ups as giants are still not building traction

28

M-payment Start-ups

Bank-led m-payment initiatives did not gain significant traction; banks are struggling to increase penetration using conventional measures

Telco providers who are most fit to provide m-payment services are not granted licenses to do so

Established players such as Paga are still struggling to unlock the potential of the Nigerian m-payment market

As such, there is opportunity for independent m-payment start-ups to build traction so it becomes too late and too difficult for giants to compete

What should Accion look into?

Hence, we have identified four non-bank-led m-money start-ups as potential targets

1. Does not hold the license yet Note: Assessment of start-ups along market attention and potential is based on expert interviews Source: Field interviews

We believe that start-ups with low market attention and high market potential fit best Accion’s investment criteria and its focus on seed-stage investments.

Low High

Low

H

igh

Ma

rket

att

enti

on

Market potential

ENZADI1

Nigerian non-bank-led start-ups can be categorized along two dimensions (current market attention and potential).

Current market attention is defined by: • Customer awareness of

service • Size of network of agents • Size of existing customer-

base • Size of received funding

Current market potential is defined by: • Managerial skills • Well-suited & passionate

team • Technical expertise • Clear strategic vision

29

Case Study: Enzadi’s business plan looks promising…

Source: Enzadi Mobile Money Business Plan 2013

Enzadi is a start-up mobile money company aspiring to become Nigeria’s leading mobile financial services brand by the end of 2015 by offering a paradigm shift in terms of operations from the conventional phone based, that rides on STK platform.

Owing to the challenges inherent in the STK platform, e.g. mobile money operator’s unwillingness to open their platforms to other operators so as to retain market dominance as well as the capital investment required to operate a telecommunication company, Enzadi intends to use a low capex investment model to offer a seamless service that does not discriminate across mobile net work operators.

The Enzadi business model will leverage on existing mobile network operators and a USSD functionality (real-time connection) to deliver to its customers mobile money services ranging from sending and receiving money, paying bills, cashing out or making transfers.

Enzadi has a competitive advantage due to its experienced team (support from successful M-Pesa team), its trusted platform (iCeni: the engine powering M-Pesa) and

its key partners (leading mobile operators and banks)

30

Appendix

31

Four distinct segments are identified with regards to access to financial products

32 Source: IMF: Financial Access Survey

All adults who have access to or use a deposit money bank in addition to having/using a traditional banking product, including ATM card, credit card, savings account, current account, fixed deposit account, mortgage, overdraft, loan from a bank, or Islamic banking product; including indirect access

All adults who have access to or use other formal institutions and financial products not supplied by deposit money banks, including Insurance companies, microfinance banks, pension schemes or shares. It also includes remittances (through formal channels); including indirect access

All adults who do not have any banked or formal other products, but have access to or use only informal services and products. This includes savings clubs/pools, esusu, ajo, or moneylenders; as well as remittances (through informal channels such as via a transport service or recharge card)

Adults not in the banked, formal other or informal only categories, even though the person may be using or have access to any of the following: loan/gift from friends or family and loan from employers, as well as remittances via a friend/family member

Formal

Formal

other

Informal

only

Completely excluded


Country fundamentals show that Nigeria has big potential for m-money

33 SOURCE: Wireless Intelligence; World Bank; WMM; Global Insight

140 130 120 110 630 100 90 80 70 620 50 40 30 20 10 0

2.5

2.0

1.5

1.0

0.5

0

3.0

780 60

7.5

6.0

3.5

5.0

8.5

8.0

5.5

4.0

6.5

7.0

9.5

9.0

4.5

760 770 610 600 160 150

Algeria Vietnam

Argentina Philippines Mexico

Ukraine

Romania

Myanmar

Iraq

Belarus

Georgia

Nigeria

Ethiopia

Pakistan

Mobile vs. banking reach1

Indonesia

Kenya

Armenia

Nicaragua

Tanzania

India

South Africa Brazil

China Bangladesh

Unbanked population2

Mn

B A

C

1 Mobile penetration (net of multi-SIM proxy) vs. % banked; average ratio of mobile penetration to banked share across markets shown is ~2 2 Based on World Bank “Access to Financial Services,” the average of unbanked population across markets shown is ~30mn

A Major potential ▪ Large unbanked

populations ▪ High mobile vs. banking

reach

B Quick risers ▪ High to very high mobile

vs. banking reach

C Giants ▪ Relatively low mobile vs..

banking reach ▪ Very large unbanked

population in absolute terms


Kenya leads the world in m-money

34 SOURCE: The Economist, September 2014


M-Pesa’s success has spurred others products that ‘ride the rails’ of the m-money platform

35 SOURCE: Safaricom/M-Pesa; The White African Blog - “The-Kenyan-mobile-money-ecosystem”, Oct. 12 2011

Several players followed suit offering a suite of mobile services or links to savings accounts …

… while new players are integrating existing mobile payments platforms with online merchants, bank accounts, and microfinance platforms

Example: Jipange KuSave in Kenya

▪ Pilots now being run in small groups throughout Kenya, so final features and costs are still being defined

▪ Allows customers to save easily, while borrowing small amounts ($30-$200) at an affordable cost

▪ Marketing focused on ´financial independence´ (no need for group savings) and simple repayment rules

▪ During the pilot phase Jipange KuSave is also targeting potential dealers with messaging on leading the community and earning commissions


Non-bank-led m-money start-ups (1/4) Potential targets (Low attention/High potential)

36 SOURCE: Web Research


• Nigeria's first award winning electronic transaction switching and payment processing platform • Global reach, developed products across all aspects of the e-payment industry; ATM, Internet, POS, and

Mobile • Granted the license by the Central Bank of Nigeria to provide Mobile Money services to individuals with a

special focus on the unbanked • Website: http://www.pocketmoni.com

• Secure mobile payment service designed to comply with the CBN’s regulatory framework on mobile payment services in Nigeria

• Enables end users with GSM phones to operate virtual wallets, pay bills, transfer money or purchase good and services via their mobile phone

• ReadyCash System is pre-paid based • Website: http://www.readycash.com.ng

• Virtual Terminal Network’s (VTN’s) Vcash allows people to transfer and receive money locally and through Western Union using their phone or online

• VCASH is fully licensed by the Central Bank of Nigeria to deploy mobile payment service in Nigeria • Website: https://www.virtualterminalnetwork.com

Non-bank-led m-money start-ups (2/4) “Stars” (High attention/High potential)



• Service to buy airtime, transfer money and pay bills from the mobile phone • Licensed by the Central Bank of Nigeria (CBN) in December, 2012 as a Mobile Payments Operator, and was

granted commercial approval by the CBN in July, 2013 • Winner of the Kalahari Awards for the 2013 ‘Best Mobile Money Startup in Nigeria’ • Website: http://teasymobile.com

• Nigeria’s first mobile money company • Founded by Tayo Oviosu, who has over twelve years of experience in High-tech and Private Equity • Paga enables people to send money via mobile phone or make payments without bank account • Funded by Acumen Fund, Aldevo Capital, Capricorn Investment Group, Goodwell West Africa, Omidyar

Network, Tim Draper and received grant from EFinA • Website: https://www.mypaga.com

• UK company Monitise plc is a world leader in mobile money • In August 2011, the CBN granted Monitise a Mobile Payments System Provider licence to operate Mobile

Money services in the country • Monitise’s vision is to help people without bank accounts interact with the wider world via their mobile

phones • Website: http://www.monitise.com

Non-bank-led m-money start-ups (3/4) “Dogs” (Low attention/Low potential)



• MKudi has launched an electronic digital payments platform called MiMo. MKudi is a subsidiary of the Vanso Group that was formed to create an independent mobile money payment scheme in Nigeria

• Was awarded a full operating license in November 2011 • Was awarded a grant by EFInA (funded by DFID & The Bill & Melinda Gates Foundation) to carry out the pilot • Website: https://www.mimo.com.ng

• Mobile money product from Fund and Electronic Transfer Solutions (FETS) Ltd • Turns any mobile phone into a virtual point of sale portal, allowing using to do transactions that mostly

required face-to-face interactions • A “do-it-yourself, anytime, anywhere” mobile commerce service • Website: http://mywallet.testingwebsite1.com

• MoneyBox Africa provides mobile savings and payment solutions in Nigeria • MoneyBox Africa subscribers purchase MoneyBox scratch cards from neighbourhood retailers to remotely

save money into their bank accounts, pay bills, buy insurance, transfer money with a mobile phone or bank account, withdraw cash at agent locations, and pay for top ups, as well as to buy insurance, get access to credit, and make investments

• Website: https://moneyboxafrica.com

• Kegow offers a large variety of services such as: buy airtime, pay bills, transfer money, request money, withdraw money or send invoice

• Kegow is a product of Chams Mobile, a subsidiary of Chams Group with special focus in mobile payment • Received operational license in December 2011 • Website: https://kegow.com

Non-bank-led m-money start-ups (4/4) “Dogs” (Low attention/Low potential)



• QikQik is a service of Eartholeum Networks Ltd., an innovative Nigerian based international e-business company

• QikQik provides financial products and services for the under-banked and unbanked populations in viable and profitable ways

• Website: http://www.eartholeum.com/home.html

• PiDO stands for “Payment Irrespective of Distance or Obstacles”. With PiDO, financial related activities are easy, convenient and secured

• PiDO belongs to PayCom Nigeria Ltd, who is one of Nigeria's leading Mobile Payment Solutions providers approved by the Central bank of Nigeria to render mobile payment services to the Nigerian market

• PayCom provides solutions for two major sectors: the business enterprise and the consumer segment • Website: http://www.paycom-ng.com

Accion’s investment criteria (1/2)

*Quality as defined by the Center for Financial Inclusion. Quality includes affordability, convenience, product-fit, safety, dignity of treatment, and client protection.

Direct Impact

• Does the entrepreneur intend to create

social impact?

• Are we positioned to influence the

direction of the business (for social impact)?

• Does the product/service have the potential

to achieve scale impact?

• Does the product/service enhance value

proposition, is it convenient, accessible, and

affordable?

• Does the product/ service have long-run

potential to disproportionately add value

to lives of the systemically underserved?

• Is there transparency, controls, and

effective decision making?

Indirect Impact

Accion

Industry/

Innovation

• Does this support

and/or improve upon

our strategic

priorities/adjacencies?

• Are there any particular

reputational sensitivities

in this sector or market?

• Is the core offering:

• new/unique

• “wave of the future”

and/or

• likely knowledge

creation/transfer?

• Is financial service core to offering?

• Does it address key problems/ barriers to

financial inclusion?

• Is it “good” for the consumers (i.e. creating

positive economic and social value for the

individual/ community in the long run)?

Product

Management

Transaction

Scale

Quality*

Client

Governance

Customer of model at time of investment

• BoP/Poor consumer

• Small/Micro enterprise

• Trickle down innovation that allows them to

better serve the underserved within 5 years

• Systemically underserved for product that

generates some sort of social externality

(outside the household)


Accion’s investment criteria (2/2)

Size of addressable market/need?

Strength of value proposition?

Attractive unit economics?

Plausible execution?

Well-suited, passionate team?

Supportive/enabling market context – regulation, competition, other?

Sensible budget and growth plans?

Looming icebergs?

Do-able deal?


Motivations

• Entrepreneurship is viewed as a desirable career option due to poor private sector opportunities

• Strong start-up spirit and limited fear of failure

Entrepreneurship Assets

• Requirements for obtaining capital

are prohibitive for new businesses

(up to120% collateral requirements)

• Physical infrastructure challenges

constrain business operations

• Strong and growing talent pool

exists consisting of diverse skillsets

• Thriving business ecosystem has emerged in Yaba, Lagos

• Accelerators, incubators, and co-working hubs provide early stage funding options, business expertise and working spaces

• Strong international business support exists

Business Assistance Policy

• Legislation places significant burdens on new businesses

• Legislation is varied and not consistently enforced

1

1.5

2

2.5

3

3.5

Nigeria

Sub-Saharan Africa

Global Peer Average

Financing Skills & Talent Support Services Legislation Mindset Tech/Infr

Financing is difficult to access

Physical infrastructure is inadequate and unreliable

Strong networking opportunities and business spaces

Poorly administered business regulations

Strong entrepreneurial spirit exists

Source: Start-Up Nigeria: 1 - Opportunities, Challenges and the Future (Seedstars network) 2 - Omidyar Network, Accelerating Entrepreneurship in Africa.

Ind

ex

Nigerian start-up ecosystem is burdened by issues along financing, infrastructure & policy

Nigerian start-up ecosystem

Overview on accelerators, incubators, co-working hubs (1/2)

43

Mission

Overview & Focus

Range of programmes focused on accelerating successful development of social tech ventures through business support focused on rapid prototyping

Provides essential support to entrepreneurs to build software skills, solutions and businesses critical to their success

Services

• Business mentorship & training • Physical workspaces • Mobile testing laboratory for

testing applications

• Business mentoring & training • Physical work space

Stage • Seed Stage • Early Stage

• Early Stage

Funding

• Access to various funding schemes through CC-Hub networking

• Access to funding through IDEA network

Business accelerator services to early stage growth companies

• Business mentoring & training • Physical workspace • Networking events • Candidate recruiting services

• Early Stage • Growth Stage

• Seed funding through proprietary fund and investment partners

Accelerating the application of social capital and technology for economic prosperity in Nigeria

Creating businesses that positively impact lives and drive development in Nigeria, West Africa and the African continent

Addressing the business and technology educational gap to drive business growth in Nigeria


Overview on accelerators, incubators, co-working hubs (2/2)

44

Mission

Overview & Focus

Core product development team builds initial products for each founder team; enabling the founder teams focus on business development early so their startups can quickly gain traction

Specializes in providing short, medium and long term funding to small and medium sized start-up businesses in tech (software applications, mobile applications, electronic payments and big data)

Services

• Basic entrepreneurship training • Product development services • Physical workspace • Networking with VC funds

• Business mentoring • Physical workspace and start of

the art facilities/labs • Shared business services (HR, Tax,

Accounting, Legal)

Stage • Ideation stage • Seed Stage

• Early Stage • Growth Stage

Funding

• No proprietary fund • Access to investors through

networking events and pitch opportunities

• Seed funding through proprietary fund

• Average investment $25,000 to $100,000.00 for seed stage

Provides affordable serviced co-working spaces entrepreneurs. Along with trainings, seminars and access to pools of Angel Investors and Venture Capital companies

• Serviced virtual / physical working spaces

• Networking events with business SMEs, VCs, and Angels

• Early Stage • Late Stage

• No proprietary fund • Funding can be provided through

support network

Providing innovative entrepreneurs with the resources to launch lean start-ups that can grow fast and where success can be quickly institutionalized

Making doing business in Nigeria practical, affordable and flexible for Start- Ups, SMEs, Corporate and Multinationals

Powering companies in Africa by bridging the gap between start-up to market dominance through seed capital funding


Africa’s payment innovations are attracting international investors

45

Examples of investor interest in African

payments

Investors are attracted for a number of

reasons, and have different strategies

▪ Established July 2010, with vision of building Africa’s leading e-payments platform

▪ Investments include:

– Mediterranean Smart Cards Company –card issuing, processing and ATM switching services to +70 banks across 25 African countries

– ACET Processing – card and credit processing services to consumer finance organisations/retailers in Southern Africa

▪ Helios acquired majority stake in Interswitch

▪ Interswitch is largest transaction switching and electronic payment processing service provide in Nigeria and owner of the leading card scheme, Verve

Attractions

▪ Gaining entry to a “last frontier” payments market with exciting growth prospects

▪ Potential acquisition with detailed market knowledge, existing track record, and customer base that can be quickly and easily leveraged for growth and expansion

Strategies

▪ Typical PE acquisition with exit strategy

▪ Geographic extension of existing operations

▪ Acquisition of innovative products and technologies

▪ Local partner with detailed understanding of market conditions and customer needs


• 3 years experience

in the McKinsey

Rome Office,

working in 10+

engagements for

global companies

• Relevant expertise

in Banking,

Automotive and

Energy topics

• Master of Science

in Computer

Science from

Columbia

University

David Bondatti

[email protected]

+65 8361 0400


in the Boston

Consulting Group

Zurich Office

• Worked on a wide

range of projects in

various industries,

incl. Healthcare,

Private Equity, and

Consumer Goods

across Europe &

US

• Master of Science

in Mathematics

from ETH Zurich

Dominique Cina

[email protected]

+65 9813 8241

• 2 years of audit

experience at

KPMG and 4 years

of corporate M&A

in Canada (focus

on services firm in

EMEA)

• Completed an

internship in

investment

banking at Morgan

Stanley in London

• Bachelor of

Commerce from

McGill University

Georges Nakhle

[email protected]

+65 8607 5231


in consulting at

Booz & Company

in the Middle East;

worked mainly with

banks & insurance

companies

• Raised USD 5m

for a PE fund,

focused on real

estate

development

• Bachelor of

Science in

Mathematics from

the American

University of Beirut

Antoine Khawam

[email protected]

+65 9813 8234


in Debt Capital

Markets and

Derivatives

Solutions Group,

Credit Suisse

• In charge of

interest rate

business for

German corporate

client accounts

• Bachelor of Arts in

Business

Administration,

University of

St.Gallen

Alexandra Albers

[email protected]

+41 78 617 04 75

INSEAD Project Team

• 4+ years

experience in

consulting at

Deloitte Consulting

LLP’s Toronto

office focused in

Financial Services

• Significant

experience

working with tech-

focused VCs,

accelerators, and

start-ups

• B.A.Sc., Honours

Computer

Engineering from

the University of

Waterloo

Omar Elassar

[email protected]

+65 8149 6875

mailto:[email protected]






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