101 on Digital Financial services
Key challenges on Digital Financial Services, Mobile Banking, Branchless Banking, Agent Banking
Roadmap to enter the market
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Digital Financial Services Workshop Summary
1. 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
0
2. 1
Summary
I. Introduction
Objectives of the workshop
Overview of the definitions
II. 101 on Digital Financial Services
Overview
Mobile Money
Mobile Banking
Agent Banking
III. DFS for MFIs
Group Work
Services in a nutshell
Group Work
Screening of the challenges
IV. Key lessons
Lessons learnt
Roadmap
Checklist before implementing DFS
3. 2
Summary
I. Introduction
Objectives of the workshop
Overview of the definitions
II. 101 on Digital Financial Services
Overview
Mobile Money
Mobile Banking
Agent Banking
III. DFS for MFIs
Group Work
Services in a nutshell
Group Work
Screening of the challenges
IV. Key lessons
Lessons learnt
Roadmap
Checklist before implementing DFS
4. I. Introduction - I.1. Objectives
Main objectives
1
2
3
4
Objectives of the workshop
5
3
5. 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
Payments
E – Banking
SMS Banking
Mobile
Scoring
Agent Banking
“Transformational”
Mobile Banking
Mobile
Banking
4
6. 5
1) Additive Mobile Banking 2) Transformational Mobile Banking
Source : Adapted from CGAP, 2010
I. Introduction– 1.2. Overview of the definitions
8. 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
I. Introduction– 1.2. Overview of the definitions
Mobile Scoring
7
9. 8
Summary
I. Introduction
Objectives of the workshop
Overview of the definitions
II. 101 on Digital Financial Services
Overview
Mobile Money
Mobile Banking
Agent Banking
III. DFS for MFIs
Group Work
Example of Musoni
Services in a nutshell
Group Work
Screening of the challenges
IV. Key lessons
Lessons learnt
Roadmap
Checklist before implementing DFS
10. 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
9
11. 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
Financial institution usually rely on three different means to extend their outreach
II. 101 on DFS – Overview
10
A small business as “an
agent” (also called
correspondent) can,
depending on the
regulation, conduct
transactions on behalf of
an institution (bank or
MFI).
12. 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”)
2
II. 101 on DFS – II.2. Mobile Money – key features
Mobile Money account
11
13. 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?
12
14. MM agent
What happens during the “cash In” step?
How much does it cost for the CLIENT to do a Cash In?
It is free
The client has to pay a
fee
The client earns a
commission
How much does it cost for the AGENT to do a Cash In?
It is free
The Agent has to pay a
fee
The Agent earns a
commission
Who is losing money on this exact transaction ?
The Client The Agent
The Mobile Network
Operator
II. 101 on DFS – II.2. Mobile Money – Some questions raised
13
15. Main challenges faced by the Mobile Money Solutions
1) Awareness
4) Business Model
2) Inactivity
3) Ecosystem and acceptance network
More and more, people have
heard of Mobile Money but
usually do not understand the
whole range of services.
The awareness is difficult to
build up in remote areas.
Illiteracy is an issue difficult to
overcome.
Depending on the country but
often more that 80 % of the
registered Mobile Money clients
do not use it.
A few Mobile Money solutions
have more that 50% of active
clients in their database (clients
having conducted a transaction
within the last 30 days).
There is a disparity between
the number of Mobile Money
solutions in urban and in rural
areas.
Mobile Money solutions have
not enrolled enough partners
to keep the “e-value” in the
loop.
80% of the mobile money
solutions worldwide are not
profitable.
In most countries, agents do not
earn enough commissions to
make it a living.
Cash out fees are still expensive
for the end-users.
II. 101 on DFS – II.2. Mobile Money- challenges faced by Mobile operators
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16. 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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17. 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
16
18. Overview of the Mobile Money users in the SADC region
Legend
Out of SADC region
None
1
2
3
4
5
6
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.
17
19. 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
Financial institution usually rely on three different means to extend their outreach
II. 101 on DFS – 1) Overview
18
A small business as “an
agent” (also called
correspondent) can,
depending on the
regulation, conduct
transactions on behalf of
an institution (bank or
MFI).
20. 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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21. 20
MFIs using Mobile Banking services linked to MNOs
II. 101 on DFS – II.3. Mobile Banking – Key features
Source : PHB Development
22. 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
Financial institution usually rely on three different means to extend their outreach
II. 101 on DFS – Overview
21
A small business as “an
agent” (also called
correspondent) can,
depending on the
regulation, conduct
transactions on behalf of
an institution (bank or
MFI).
23. 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 accountsBanking account of a
client
1) Mobile 2) POS 3) Biometric devices
Technology used
Source : Adapted from CGAP, 2010
II. 101 on DFS – II.4. Mobile Banking – Key features
22
24. 23
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
25. 24
Summary
I. Introduction
Objectives of the workshop
Overview of the definitions
II. 101 on Digital Financial Services
Overview
Mobile Money
Mobile Banking
Agent Banking
III. DFS for MFIs
Group Work
Services in a nutshell
Group Work
Screening of the challenges
IV. Key lessons
Lessons learnt
Roadmap
Checklist before implementing DFS
26. 25
Overview of the customer’s journey (individual loan) Exercise # 1
Define which streams are the
most valuable:
o To the client of the
institution.
o To the MFI.
o Define the three “top
priorities”.
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
27. 26
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
28. 27
Overview of the customer’s journey Exercise # 2
For the disbursement of a
loan, decide on who would
be 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 Reputation
o Willingness to partner
o Experience in the
market
o Tariffs
o 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
30. 29
Summary
I. Introduction
Objectives of the workshop
Overview of the definitions
II. 101 on Digital Financial Services
Overview
Mobile Money
Mobile Banking
Agent Banking
III. DFS for MFIs
Group Work
Services in a nutshell
Group Work
Screening of the challenges
IV. Key lessons
Lessons learnt
Roadmap
Checklist before implementing DFS
31. 30
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.
32. 31
Understand the IT requirements (do your MFI needs to buy a solution, develop a
middleware).IT
1/ Before the Implementation
IV. Key lessons – IV.1. Lessons learnt
Source : Interviews and presentations from PHB, UOB, PAMIGA, EIB, FINCA.
33. 32
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
IV. Key lessons – IV.1. Lessons learnt
Source : Interviews and presentations from PHB, UOB, PAMIGA, EIB, FINCA.
34. 33
Possible roadmap
Studies1
Development of a
Business Model2 Pilot3
Customer study Product definition
Integration 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
35. 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) ?
Regulation1
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…)
2
IV. Key lessons – IV.3 – Checklist
34
36. 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
3
Other
initiatives
Has any funder be interested in funding some initiatives ?
4
IV. Key lessons – IV.3 – Checklist
35
37. 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 ?
IT3
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 ?
General1
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
IV. Key lessons – IV.3 – Checklist
36
38. 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?
4
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 ?
Awareness5
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
6
IV. Key lessons – IV.3 – Checklist
37
39. 38
Simon Priollaud
Branchless Banking manager
spriollaud@planetfinance.org
Contacts
Simon Priollaud
Mobile Banking Manager
spriollaud@planetfinance.org
Contacts