article marafketing research 02

8/9/2019 Article Marafketing Research 02

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Bridges to Cash:Challenges for the retail end of

Mobile Money

Serving customers as

Agency Network Manager

Bogota, 24 November 2011

Frederik Eijkman

PEP Intermedius Ltd

PEP Intermedius Ltd


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http://www.cgap.org/p/site/c/media/?play=1.9.45741

How mobile money works, the M-pesa case
http://www.cgap.org/p/site/c/media/?play=1.9.45741http://www.cgap.org/p/site/c/media/?play=1.9.45741http://www.cgap.org/p/site/c/media/?play=1.9.45741


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PEP traces its roots to the developmental needsof the under banked

Mission To deliver financial services in a safe and secure environment, that help to enhancethe welfare of those who have been excluded from, or have had limited access to thecurrent providers of financial services .


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Business at PEP s network of agents hasexperienced strong growth since inception

Rapidly expanding branded networkof branches

PEP currently operates 177 stores inthree different formats:

Supermarket: 30 shop -in-shopoutlets (15 Nairobi and 15 urban)

PEP stores: 7 stores (4 rural and 3urban)

Franchise agents: 140 stores (80%rural and 20% urban)

15,000 transactions per day

450,000 USD daily value moved

30 USD average transaction size


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Currently PEP operates 2 networks totaling 36own agents and 140 franchise agents

Sub -Network Location # Agents

PEP ownedFranchise

Although PEP operates as asingle company with the HeadOffice in Kisumu, itdifferentiates between its subnetworks of agents.

Being a multi-format operator,enables PEP to cater todifferent opportunities to enterthe market, while applying a

common managementapproach to agent supportand liquidity provision


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PEP has successfully built key strategic partnerships with leading financial players

Depending on contractual arrangement PEPagents may be registered to act for single ormultiple money transfer services.

PEP has partnered with leading financial

players such as M-Pesa, YU Mobile, KenyaCommercial Bank, Mukuru.com, OrangeMoney and Western Union/MoneyGram.

The result is that PEP currently offers a broadspectrum of payment services, making it theideal transaction destination for both privateas business customers.


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PEP Value Chain- Offering a broad spectrumof value propositions to a variety of stakeholders

Safaricom

Others

FranchiseAgents

Individuals

Traders

Upstream Customers(Producers of

financial services) PEP

Downstream Partners(PEP Agency

network)

End Users(Main customers

segments)

PEP-OwnedAgents

NakumattStores

Effectively offeringDistribution Channels

Serve as welfareenhancing partner

Managing liquidity andchannel managementsupport

Airtel

Orange


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PEP Value Chain- End Users

Safaricom

Others

FranchiseAgents

Individuals

Traders




network)


segments)

PEP-OwnedAgents

NakumattStores




Airtel

Orange


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Level 1:End Users

450,000 transactions permonth (+/- 85 transactionsper day per store)

Over $ 13.5M monthly valuemoved (+/- $30 pertransaction)

Private clients (household)and commercial clients(traders)

Client transaction profilesdiffer significantly bygeographic location


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Clients display different transaction profiles;geographic locality makes a difference

City: CBD Kisumu

Peri-urban: in and around twomain city markets and busterminal

District: small towns

Rural: village markets


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Average number of client transactions perstore per trading day

Average client transaction size perstore, in Kshs

Rural clients do fewer and smaller transactions

In the city centre transactions are much larger


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Average daily net value of clienttransactions in Kshs '000

Different domestic remittance patterns

Rural areas are strongly cash out, whereas urban areas tend to be morecash in


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PEP Value Chain- Downstream Partners

Safaricom

Others

FranchiseAgents

Individuals

Traders




network)


segments)

PEP-OwnedAgents

NakumattStores




Airtel

Orange


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Level 2: Downstream partners

140 agents doing 50 200transactions per day

$200 $1000 commissionrevenue an agent takeshome every month4000 rebalancingtransactions per monthbetween $1000 - $1250


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Two nearby M-PESA stores and their daily cash transactions with clients, in Ksh '000 over a period of 6

months Privacy and security

Friendly and speedy service

Cash and float availability

Cash out

Cash in

Cash out

Cash in

LakeMarket

Cash Joint

Customer Service is a strong determinant of profitability of outlets


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Agencies offset their customers transactions withtheir own cash or e-float

Cash

60,000

E Float

40,000

Cash

30,000

E Float

70,000

Cash

50,000

E Float

50,000

Cash

50,000Cash

60,000

Cash

30,000

Case 1:Client

deposits10,000

Case 2:Client

withdraws30,000

Composition of agent working capital balances


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Managing liquidity is the central aspect of theagent's business

too many cash-in transactions: agent runs out of e-float too many cash-out transactions: agent runs out of cash

In either case, the agent needs to rebalance its liquidity


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Case Study 1. Liquidity Management inUrban Areas

Molly, Lake Market, KisumuMollys shop is located in a busy market area ofKisumu city. Her customers are businessmenwho pay suppliers via m-pesa or salariedworkers who send money home.

Her outlet is typical of urban outlets where thereis an excess of cash

In October 2011:

Total cash out: $ 55,000 (2,000 p/day)Total cash in: $ 122,000 (4,500 p/day)

Difference: $ 67,000 (2,500 p/day)

Molly's working capital: $1,500


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Case Study 2. Liquidity Management in Rural Areas

Evelyn, Siaya MarketEvelyn s outlet is located at a busy corner ofSiaya market and the bus stop. Typical of ruralareas, Evelyn sees more cash withdrawals andconstantly needs to replenish cash.

In October 2011:

Total cash out: $ 81,000 ($3,000 p/day)

Total cash in: $ 51,000 ($1,900 p/day)

Difference: $ 30,000 ($1,100 p/day)

Evelyn's working capital:$ 750


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Case Study 3. Liquidity Management in City Area

Lynet, Karen Supermarket, NairobiLynet s outlet is located in a busy supermarket inKenya's capital Nairobi.

Typical of rural areas, sees more cash deposits and

constantly needs to replenish float.

In October 2011:

Total cash out: $ 240,000 ($8,000 p/day)

Total cash in: $ 100,000 ($3,300 p/day)Difference: $ 140,000 ($4,700 p/day)

Lynet's working capital: $ 3,000 Ksh


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Stores need to rebalance their liquidity holdings daily

Number of transactions with PEP per storeper trading day, by type of store

Daily net value of client transactions in Kshs '000

Frequency with which stores transact withPEP per trading day, by type of store

Agent liquidity management is costly


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PEP Intermedius Ltd

Statement Float Account Aggregator


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Rebalancing Super Agent

PEP Intermedius Ltd


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Cash Distribution Challenges

Stores require quite intense daily liquidity management support:They must rebalance on at least 60% of days and often several times

per day

Rural areas face greater difficulties: lower commissions;

transactions lopsided towards cash out; and high travel and time costsThere is evidence of market discipline between stores: favouringcertain stores offering exceptional service + substantial tradingvolumes


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PEP Value Chain Upstream Customers

Safaricom

Others

FranchiseAgents

Individuals

Traders




network)


segments)

PEP-OwnedAgents

NakumattStores




Airtel

Orange


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Level 3: Upstream customers

Providing physical infrastructure/ transactionplatform

Customer Channel and Interface; mobilising

and registering

PEP C t i t d t 3


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Core competences

Responsible level Channel management Liquidity management

Front desks Customer interaction andgenerate repeat visits

Local knowledge

Active monitoring and timelymanaging of float

Interact on basis of trust withend-users (ie in someinstances provide advances)

Back Office (Treasury) Timely commission paymentsto agents

Technical supportchannel/back-up

Guarantee availability ofcash for agents

Rebalance agent accounts Provide operational support

and oversight

Management Network selection Product development Agent location Seed capital provision Staff training

Manage overall cost ofcapital

PEP: Core competencies executed at 3operation levels


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Revenue and cost structure in the agency model

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ResultM-Pesa

TurnoverCommission

CostsM-Pesa agents

Number oftransactions

Type oftransactions

Size oftransactions

Relationshipwith PEP

Accomodationcosts

Staff costs

OverheadCosts

WC costs

PEP owned: 100% commission for PEPFranchise: 30% commission for PEP

Commission per transactions

Higher Commission if size is higher

Rent PEP owned Agencies

Salaries and wages PEP owned agencies

Support HQ

WC multiplied by costs of capital

LocationAgency

Urban, District, Rural

Agency prof il e inf lu ences the three dri vers of tur nover :

Other costs Bank Costs, Costs of Sales,Travel Costs.

-/-

Commission per transactions


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Take Aways

Sound business proposition for agents: Compensating themfor the cash solution he/she is offering, considering the risks andresources required.

Incorporation of Aggregator model: Identifying institutionsthat have the financial cloud and presence to quickly rebalanceagencies accounts.

When mobilising rural agents, stick to local people: when itcomes to money, the unbanked prefer to deal with people theyknow


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Thank You

For more information: [email protected]

article marafketing research 02

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