key challenges on digital financial services for mfis

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

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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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Summary





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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1) Additive Mobile Banking 2) Transformational Mobile Banking

Source : Adapted from CGAP, 2010


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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


Mobile Scoring

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Summary



III. DFS for MFIsGroup Work Example of MusoniServices in a nutshellGroup WorkScreening of the challenges


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


phone.

2) Mobile Banking



loan repayment, loan disbursal…)?

3) Agent Banking



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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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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


phone.

2) Mobile Banking




3) Agent Banking


II. 101 on DFS – 1) Overview

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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


Source : PHB Development

1) Mobile Money


phone.

2) Mobile Banking




3) Agent Banking



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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


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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





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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





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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



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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



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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…)

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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

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Other initiatives

Has any funder be interested in funding some initiatives ? 4


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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


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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?

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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

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Simon PriollaudBranchless Banking [email protected]

Contacts

Simon PriollaudMobile Banking [email protected]

Contacts

mailto:[email protected]

key challenges on digital financial services for mfis

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