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VITAL WAVE eTransform Africa: Lessons from the Financial Services Sector

Vital Wave

Emerging Market Speaker Series

Brendan Smith Director of Professional Services

May 17, 2012

© 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.

AGENDA

The Role of ICTs 2

Financial Services: Challenges & Opportunities 3

Financial Services: Recommendations 5

1

Questions and Answers 6

Financial Services: Case Studies – Kenya & Senegal 4

The African Context 1

2 © 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.

• Six of the ten fastest-growingeconomies are in sub-SaharanAfrica, including non oil-basedcountries such as Ethiopia andUganda

• Africa is the fastest-growingmobile market in the worldand the second-largest afterAsia, with 20% growth over thepast five years

• Nearly half of Africa’spopulation lives in poverty asdefined by the World Bank andthe continent trails others inmany health indicators

THE AFRICAN CONTEXT

2

Rapid Growth with Substantial Socioeconomic Challenges

Sources: Ernst & Young, GSMA, World Bank


Country Overall NRI

Rank

NRI Infrastructure Readiness Sub-

Rank

Country ICT Opportunity

Botswana Ethiopia Ghana Kenya Mali Mauritius Mozambique Namibia Senegal South Africa Tunisia

91 123 99 81 120 47 106 82 80 61 35

106 137 118 102 134 78 133 108 91 73 57

ICT Investment Impact Opportunity There is a notable difference in overall NRI rank and the supporting rank for infrastructure readiness (a difference of greater than 10 places), suggesting these markets may be in the greatest demand for ICT infrastructure.

Nigeria Uganda Zambia

104 107 102

112 116 111

Some ICT Investment Impact There is some difference (greater than 5, less than 10 places) between overall NRI rank and infrastructure readiness rank, suggesting markets may be in greater relative demand for ICT infrastructure than is available.

Malawi Morocco Tanzania

105 83 118

109 84 120

Readiness and Infrastructure on Par Overall NRI ranking and infrastructure readiness ranking are comparable, suggesting a more balanced strategy of ICT investments, awareness, and usage are in order.

Côte d'Ivoire 113 103

Some Underutilization of ICT Assets There is some difference between overall NRI rank and the supporting rank for infrastructure readiness (greater than 5, less than 10 places), suggesting markets can do the more to improve the environmental conditions and awareness to make better use of existing ICT assets.

Algeria 117 101

Greatest Underutilized ICT Assets There is a notable difference between overall NRI rank and the supporting rank for infrastructure readiness (a difference of greater than 10 places), suggesting these markets can do the most to improve the environmental conditions and awareness to make better use of existing ICT assets.

Prepared by Bazaar Strategies LLC using the World Economic Forum, The Global Information Technology Report 2010-2011.

THE ROLE OF ICTS

3

Variance in “ICT Readiness” among African Nations


THE ROLE OF ICTS

4

ICTs as a ‘Game Changer’

ICTs can help reduce waste and inefficiency and increase productivity

ICTs can increase synergies between sectors and create new opportunities for growth in business and innovation

ICTs can improve access to services, especially to poor, underserved and remote populations


While access to financial services varies widely in Africa, it trails other major regions

FINANCIAL SERVICES SECTOR STUDY

5

Landscape Analysis

Country

Branches per hundred thousand adults

Branches per thousand Km2

Deposit accounts per thousand

adults Combined (Commercial, Co-ops,

SSFIs, MFIs) Combined (Commercial, Co-

ops, SSFIs, MFIs) Combined (Commercial,

Co-ops, SSFIs, MFIs) Mauritius 20.11 96.55 2109.04 Tunisia 31.87 16.16 1143.36 Botswana 10.29 0.23 912.50 South Africa 8.00 2.22 839.13 Namibia 7.25 0.12 757.61 Algeria 5.30 0.55 736.56 Nigeria 9.54 9.09 495.21 Morocco 15.91 7.93 412.14 Kenya 4.41 1.71 389.62 Ghana 8.29 5.21 332.61 Rwanda 1.87 4.26 226.15 Mali 18.24 1.06 223.13 Senegal 12.80 4.57 206.07 Uganda 2.73 2.23 195.73 Malawi 2.16 1.75 175.57 Cote d'Ivoire 2.12 0.81 170.56 Ethiopia 2.42 1.10 144.03 Mozambique 3.89 0.60 140.50 Zambia 5.62 0.51 44.35

Sudan 0.04 0.00 No data Tanzania 1.84 0.49 No data

Region % of banked households

High Income 91%

Eastern Europe & Central Asia

50%

East Asia & Pacific 42%

Middle East & North Africa

42%

Latin America & Caribbean

40%

South Asia 22%

Sub-Saharan Africa 12%

Source: CGAP Prepared by Bazaar Strategies LLC using CGAP Financial Access 2010



6

Financial Sector Development Challenges

Market Maturity/ Financial System

• Provider interest

• Weak industry voice

• Cost of established practices

• MFI single product approach

• Interoperability, networkcooperation

• Insufficient infrastructure

• Poor/abusive businesspractices

• Availability of credit bureaus

• Collateral registry

Governing/ Regulatory

• Lag of regulation to keep upwith technological pace

• Documentation requirements

• Prioritization of financialinclusion

• Limited regulatory frameworkfor MFIs

• Political interference

• Non-business friendlyenvironment

• Inadequate client protection

• Weak legal infrastructure

Consumer/End User

• Transient populations

• Remote populations

• Understanding of consumerneeds (behavior anddemographics)

• General literacy

• Financial literacy

• Trust of banking institutions(exposure and history)

• Capital access (SME/MSME)

Three main categories of challenges



7

ICT Advances Offer New Potential

Advances in ICTs present new opportunities to increase financial inclusion

Data Processing & Analytics • Open-source and more open platforms

• Crowd-sourced data sharing and analytics

• Shift from IPv4 to IPv6

• Business intelligence and predictiveanalytics

Security • Biometrics

• One-time passwords

• Fraud management

Data Storage and Application Hosting

• Increased local storage

• Remote and shared storage – cloudcomputing

• Software-as-a-service (SaaS)

Consumer Device Advances

• Intuitive interfaces

• Increased processing power

• Geolocation tracking capabilities

• Improvements in power storage

• Falling costs

Data Transmission • Satellite (end point and Internet

backhaul)

• Terrestrial wireless – broadband/data

ICT Category • Important Developments


Source: GSMA

Mobile money users in Africa exceeded 40 million by 2012 Many operators are still trying to replicate the success of M-Pesa in Kenya, but growth is occurring in countries like Uganda, South Africa, Nigeria and Ghana as telecom operators and banks see the market potential

Reaching those without phones Movirtu’s cloud-based solution lets consumers enroll for services and get a “virtual” SIM so that consumers may use any available mobile phone to login to their own accounts and perform transactions

Creating an electronic collateral registry The Ghana Collateral Registry was created in 2008 and a fully integrated and redesigned electronic database is in development, all with the aim of increasing access to lending

VALUE-ADDED SERVICES: A GROWING CHANNEL Initiatives Capitalizing on ICTs’ Potential

There are initiatives underway that seek to address fundamental challenges, such as retail payments, identification, collateral registries, SaaS for MFIs and credit bureaus



9

Challenges to Application of ICTs in Financial Services in Africa

While access to financial services varies widely in Africa, it trails other major regions

Identification

Credit Bureaus

Collateral Registry

• Liquidity Management• Consumer Protection• Intersystem Agreements• Fraud• Limited Products• SME Access to Capital

• Lack of Id Documents• Moveable Assets• Fragmented Collateral Data• Corruption

• Fear of Redundancy• Institutional Opacity• Customer Services• Security• Discrepant Data



10

Case Studies: Senegal

Senegal is at the tipping point to become one of top performers in financial services in Africa

Drivers of Growth Readiness (Regulations,

Infrastructure, Demand)

Challenges Opportunities

ICTs High Multiple regulators Bureaucracy Slow mobile money

services

Diversification of products/servicesoffered on existing platforms (mobile)

Linking to financial and non-financialservices

Financial Services Low-Medium Up-market focus Inefficient MFIs Lack of credit to SMEs and

the informal sector technology limitations

Low-cost, down-market banking Leveraging excessive technological

capacity Diversification of products and delivery

platforms

Market Players Medium Limited knowledge ofmarket

Competition notaggressive enough

bureaucracy

Demand-driven product offering More competition


If the banking sector perceives mobile money services as an additional business opportunity rather than a competitor, both industries (as well as their clients) gain from this co-operation, and the financial sector is less likely to lobby against the introduction of mobile money services.


11

Case Studies: Kenya

Drivers of Growth Readiness

(Regulations, Infrastructure, Demand)

Challenges Opportunities

ICTs High Address interoperabilitychallenges to allowoperator-independentplatforms to compete

Build on mobile money success by allowinggreater functionality for other savings,payment and insurance products

Financial Services Medium Overcome relativelyhigh transaction costs byaddressing marketcompetition issues

Address internationalpayments issues (such asremittances)

Create competitive environment foradditional mobile or ICT-based savings andpayments services to thrive

Improve and clarify regulatory structure toencourage cross-sector participation bytelcos and banks/MFIs

Diversification of products and deliveryplatforms

Market Players Medium Mitigate dominantmarket position of onecarrier

Encourage greater competition



12

Opportunities for ICTs to Improve Financial Inclusion

Mobile Banking

Identification

Product Diversification

Formative State

Scaling State

Desired State

SME Access to Capital

Backend Systems

Credit Bureaus

Collateral Registries

S izable mobile penetration ; ad hoc,

provisional experiments

Multiple closed networks; Coordination with

“seeding” initiatives

Interoperable Fully fungible

Interest - bearing

Rudimentary extensions of mobile

payment

Collaboration with non - financial institutions

Broad portfolio; nuanced demographic

targeting

Proportional methods of ID for financial

access

Introduction of broad - based identifying

infrastructure

Unique identifiers for all citizens

Mechanisms to leverage available capital access

practices

Risk underwriting incentives to induce

private capital

Transparent & competitive capital

environment

Data and protocol standards System adoption

Interoperable systems engaged in data

exchange

Data sharing standards

Networked data aggregating capabilities

Multiple competing sources for assessing

risk

Transparent ownership policies

Shared registry of ownership and liens

“Real - time” viewing and updating of shared registry

© 2012 Vital WaveTM Proprietary and Confidential: Do not copy or distribute.


State of Maturity

Consumer Public Sector Private Sector

Formative State

Productdiversification

Wider consumeridentification options

Engage in policy experimentation in:

data standardization andalternatives

transparent propertyownership

Diversify products andcapital raising channels

Scaling State

Raise overallawareness

Incent and requireobtaining ID

Remove artificial levies ontechnologies

Mandate IPv6 transition andcompliance

Minimize monopoly andramp up interoperability

Desired State

Ensure competitiveenvironments andconsumer protection

Policy conducive to integratedfinancial services in place

Full-fledgedInteroperability

Platforms for basicpayments as semi-publicproducts

Recommendations


14

• Health

• Financial Services

• Agriculture

• Education

ETRANSFORM AFRICA

Overarching Project Goal Raise awareness and stimulate action, among African governments and development practitioners, of how ICTs can contribute to the improvement and transformation of traditional and new economic and social activities across all sectors.

Sectors • Climate Change Adaptation

• ICT Competitiveness

• Public Services

• Trade & Regional Integration

www.etransformafrica.org

Join the conversation online eTransform.org

Q&A

For more information contact:

Brendan Smith Director of Professional Services

[email protected] vitalwave.com