the role of funders in digital finance: peer experience
TRANSCRIPT
What we will cover: Peer Experiences
• How do you select and work with partners?
• How to you understand and work with the incentives of market actors/partners?
• What are your key lessons from a funder perspective?
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CGAP LEARNING EVENT FOR DFS FUNDERS
Bill and Melinda Gates Foundation
Presented by Jason Lamb
© 2014 Bill & Melinda Gates Foundation
March 9, 2016
© Bill & Melinda Gates Foundation | 4
STAGES OF MARKET DEVELOPMENT Regulations and digital payment infrastructures are precursors to a full digital payment ecosystem and high impact services
Enabling Environment
Digital Payment Platform
Digital Payment Ecosystem
High Impact Digital Financial Services
Basic Connectivity Critical mass of mobile coverage and penetration amongst rural poor
1 Enabling regulations that support poor people to open accounts and providers to outsource distribution, and to protect users
2 Poor people adopt and use low-cost digital systems for P2P, basic transfers, and interoperability
3 Poor people get money, spend money, and conduct financial transactions digitally, including bulk, many-to-on, pay-as-you-go, and proximity payments .
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India
Nigeria
Indonesia
Pakistan
Uganda
Bangladesh
Poor people adopt and use digital to move out of poverty and stay out of poverty
Kenya
Tanzania
Home | Intro | Appendix What If |
What If: We could turn a 30 day sign up process into 30 seconds?
What If: Everyone was an agent?
What If: Anyone with a phone could send or receive money?
What If: Payment processing was digital and close to zero in cost?
What If: You could send money to any person in the world?
What If: Every mobile phone came with a savings account and insurance?
What If: Assessing risk for a billion new customers was cost-effective?
Customer Activation Distribution Payments Front-End
Payments Back-End Integration Products Analytics
What If
© Bill & Melinda Gates Foundation | 6
© Bill & Melinda Gates Foundation | 6
GLOBAL PARTNER FOCUS: BETTER THAN CASH ALLIANCE
OBJECTIVES
The Better Than Cash Alliance partners with governments, companies, and international organizations that are the key drivers behind the transition to make digital payments widely available by: Advocating for the transition from cash to digital payments in a way that advances financial inclusion and promotes responsible digital finance. Conducting Research and sharing the experiences of our members to inform strategies for making the transition. Catalyzing the development of inclusive digital payments ecosystems in member countries to reduce costs, increase transparency, advance financial inclusion– particularly for women– and drive inclusive growth.
MEMBERS • 16 governments (including India,
Bangladesh, Pakistan, Mexico) • 18 international organizations • 2 companies • 7 resource partners
GEOGRAPHIC FOCUS
• GLOBAL
2016 FUNDING COMMITMENT
$1.2M
RESOURCE PARTNERS
• Bill & Melinda Gates Foundation • Citi Foundation • MasterCard • Omidyar Network • USAID • VISA • UNCDF
© Bill & Melinda Gates Foundation | 7
COUNTRY PARTNER FOCUS: TANZANIA
OBJECTIVES
By 2017:
• 75% of adults actively using digital stored accounts
• 65% of <$2/day adults actively using digital stored value accounts
• 25% <$2/day adults using DFS beyond basic wallet, P2P and bill pay
• 65% of adults living within 5 km of an active cash-in/cash-out (CICO) point
PARTNERS • AIM Group • Bankable Frontier Associates • Commercial Bank of Africa • FSD Tanzania • Intermedia • IFC • MasterCard • REPOA • Tigo • WS Technology Consulting Ltd.
GEOGRAPHIC FOCUS
• Tanzania
FUNDING COMMITTED FOR 2016
TOTAL >$7M
© Bill & Melinda Gates Foundation | 8
PARTNER FOCUS: BKASH
OBJECTIVES By 2017:
• Provide digital payments at scale
by onboarding large numbers of poor users onto bKash’s existing payment platform.
• Drive account acquisition and transaction volume by digitizing existing payment streams.
• Scale existing digital payment services and develop new financial products through targeted investment, technical assistance, and governance support for the organization likely to result in additional private sector funding.
RESOURCE PARTNERS
• BRAC Bank
• IFC
GEOGRAPHIC FOCUS
• Bangladesh
FUNDING COMMITTED
TOTAL
$4M GRANT
$11M EQUITY
Digital Financial Services?
supply
chain payments
government
disbursements credit
insurance bill
payments
payroll
services
local
remittances
savings
products
supply
chain
payments
social
payments
airtime
top up pension
contributions
retail
purchases
PAYMENTS
SAVINGS
LOANS INSURANCE
TV ON DEMAND
PAYG SOLAR POWER
PAYG WATER
AGRICULTURAL
MICRO-INSURANCE
HEALTH SERVICES PAYG TEXTBOOKS
FORMAT: A joint initiative by IFC and The MasterCard Foundation. TIMELINE: Started in 2011, ends in December 2018. OBJECTIVE: Expand microfinance and advance digital financial services in Sub-Saharan Africa. FUNDING: $37.4 million from MCF CLIENTS: Microfinance institutions, banks, MNOs DELIVERABLES:
• Bank 5.3 million previously unbanked people in Sub-Saharan Africa • Develop and test innovative business models to advance financial
inclusion • Research and Knowledge sharing program for the industry and the
public good
OTHER PARTNERS: Development Bank of Austria, Bill & Melinda Gates Foundation, CGAP, SECO and World Bank.
STRATEGY AND
FINANCIAL ANALYSIS
CUSTOMER
ACTIVATION
AGENT NETWORK DESIGN,
BUILD UP, MANAGEMENT
RISK
MANAGEMENT
Definition of core objective Ecosystem mapping Gap analysis Strategy/business planning Financial modelling
Agent strategy, structure and design Agent business case Agent incentives, monitoring and performance assessment Liquidity management and quality control
Market research and customer segmentation Product development and pricing Marketing and consumer awareness/education Data analytics
Risk mitigation tools/internal controls Regulatory compliance Data dashboards to monitor risks (esp. liquidity, fraud and compliance risks)
IFC Digital Financial Services Advisory
BENEFITS FOR OUR CLIENTS
Increased geographical reach Reaching new market segments Lower operational cost Increased efficiency Lower cost of funds (deposit mobilization) Reduced churn (MNOs) Competitive edge
BENEFITS FOR IFC
Increased portfolio value (existing clients) Impact/bank accounts towards 2020 goal of
universal financial access Center of excellence/expertise on DFS Leads on IS Fintech pipeline Competitive edge in AS market
BENEFITS FOR OUR PARTNERS
Advancing donor objectives Market based rigour Leveraging DFI client relationships Leveraging DFI partner relationships Channel for funding Well tested theories of change
BENEFITS FOR END USERS
Improved service levels Greater competition and choice Increased accessibility Improved efficiency Lower costs Greater protection and security
Bank - Nigeria
Customer:Agent ratio Year 1 Year 2 Year 3
# Agents @ 400:1 1,696 4,695 10,398
Instead of 40,000 agents at a ratio of 100:1
19 80
4.1 20
Monthly transactions per customer Monthly transactions at the agent
FM Target M-Pesa
Profit estimates based
on
Year 1 ($,m) Year 2 ($,m)
Year 3 ($,m)
Bank projections (10.9) (2.7) 37.9
Assuming 33% of projected transactions
(13.8) (4.5) 1.5
Projections very likely underestimate magnitude
of investment required
More realistic but still very optimistic
Initial DD revealed low activity rates of agents and customers of existing service, and overoptimistic targets and misread of market.
Based on industry benchmarks, Bank unlikely to meet target of 19 transactions per customer per month.
Projected number of agents reduced to enhance agent loyalty and support realistic customer growth and transactional velocity in system.
Adjacencies like float intermediation critical to breakeven. Rethink of assumptions and business model required.
Getting the numbers right
Bank - Nigeria Distribution and customer insight also key
25,000 15,600 Ensures a higher activity rate and better cost control on commissions. Allows higher commissions to agents.
Smaller, more productive agent network
Bank A
gent
Mgm
t.
Master Agent
Aggregators Agents
Standard Agents
Agents
Super Agents Super-agent
outlets
Master agent structure
Faster roll out. Clear roles and responsibilities. Increased efficiency and cost-effectiveness
Customer Activation Converting potential users to regular users. Drive customers to agents, invest in high quality agents and BTL marketing, focus on ‘send money’ product and CICO at agents.
RESULTS AND PROJECTIONS
MFI – Democratic Republic of Congo Transforming the client
1. CONCEPT
REVIEW
2. FINANCIAL
MODELING
3. BUSINESS
CASE
DEVELOPMENT
4. PILOT 5. IMPLEMENT 6. REVIEW AND
ADJUST
Initial plan developed by MFI was overly ambitious, unrealistically based on direct revenue from agent/mobile channels. Little prioritization or
strategic focus.
IFC specialists work onsite with MFI to develop a narrower plan reflecting MFI’s real priorities: an agent network for deposit mobilization
IFC experts model the business case to test initial assumptions with MFI team, and make adjustments.
IFC MFS specialists support MFI throughout the implementation phase, with regular onsite reviews of agent performance and concrete recommendations to optimize the agent network. Additional support on
data analytics, branding, and market segmentation by IFC experts.
IFC microfinance specialists called upon by MFI to support new scaling-up initiative based on value
delivered by IFC during ADC engagement. Phase II project (including IS) now under discussion.
Advancing financial inclusion to improve the lives of the poor
www.cgap.org