Building a Business Case

Transcription

1 Building a Business Case for Savings

2 Evolution Business Strategy Business Model Business Case (Financial Model)

3 Business Strategy for Savings Fermin Vivanco, IADB/MIF

4 Contents Understand Different Savings Clients Needs Select a Savings Approach Develop a Savings Products Strategy 10 Key Elements to help you Develop a Distribution Channel Strategy Adjust Market and Financial Goals This presentation is based on studies of commitment savings in Latin America and the Caribbean region. Upcoming publications on these studies will be available at: savings.org

5 Understand Savings Clients Needs

6 Select a Savings Approach Need for adapted products that help people move from informal to formal savings mechanisms, and that instill savings habits. Fixed term savings Liquid savings Commitment savings

7 Select a Savings Approach Total clients served Average savings size Savings mobilized A Regulated MFI 100,000 US$174 US$17,376,000

8 Select a Savings Approach Total clients Average savings served size Savings mobilized Sight Deposits 98,500 US$24 US$2,364,000 Certificates of Deposit 1,200 US$12,500 US$15,000,000 Commitment Savings 300 US$40 US$12,000 Aggregate Data 100,000 US$174 US$17,376,000

9 Adapt a Savings Product 10 rules to Design a Commitment Savings Product Both Appealing to Clients and Financially Viable Conclusions based on a desk review of 780 commitment savings products available in Latin America and the Caribbean and site visits to 16 financial entities in the region. Publications and more information coming soon at: savings.org

10 1. Relevant Focus on large, underserved marketniches and respond to their needs. US$61,3 BILLION TOTAL AMOUNT OF REMITTANCES RECEIVED IN 2012

11 2. Easy to open Opening requirements. Look at Basic Accounts Regulations

12 3. Easy to use Products must be easy to understand and use. Mobile bl wallets fail when they are dff difficult to use Example: First version of Tigo Paraguay Pursue automation ti when possible Example: most entities in the LAC region

13 4. Follow-up Financial offer must be accompanied by support and monitoring St Set up targetst Microcredit s success and scale was partially due to follow up efforts, same must apply to savings Adapt MIS for follow up purposes Example: Cooperativa Comultrasan Ahorrando Juntos

14 5. Good incentives Apply incentives to encourage deposits and discourage withdrawals E l Fi H i C i C di Examples: First Heritage Cooperative Credit Union (Jamaica)

15 6. Interest rate isn t everything Studies and observations reveal that attractive interest rate is not what motivates clients to adopt and use a product. For liquid savings products interest rate becomes almost irrelevant. Clients are willing to pay for the service There is no interest rate competition Example: Caja de Ahorros (Panama) First Heritage Cooperative Credit Union (Jamaica)

16 7. Motivated employees Sales cannot be passive Loans sell themselves but savings products have to be actively promoted Ensure top to bottom buy in Example: Cooperativa Confiar (Colombia)

17 8. Marketing Learn from informal mechanisms and take advantage of their opportunities to market new products Simple and clear popular messages Examples: EcoFuturo (Bolivia) First Heritage Cooperative Credit Union (Jamaica) Banco Azteca (Mexico) Banca Comunitaria Banesco (Venezuela)

18 9. Innovation Innovate from informal mechanisms (savings groups) and popular culture/behaviors Unbanked population demand for a combination of credit and savings Design products that combine credit, savings and microinsurance elements. Design products that have elements of commitment and flexibility Design products that incorporate a positive peer pressure to motivate savings Innovate based on behavioral savings habits compartmentalization Example: Cosechando Juntos los Sembrado (Mexico)

19 10. Scale Up Identify elements that allow scale up Set reasonable but ambitious goals Finance 20% of loan portfolio with savings Example: Banesco, Venezuela Design intelligent t pricing g(bundles, multi channels, ut es,coss cross selling of products) Find ways to mitigate impact of seasonality Example: Cooperativa Cotrafa (Colombia)

20 Adapted Channels: Evaluate the cost of savings products transactions in different channels Price transactions accordingly so clients can make decisions on costs and scaling up is viable financially To find out more about inclusive business models using bank agents in Latin America and the Caribbean, view the recent publications on Bank Agents and Financial Inclusion: Regulatory Frameworks and Bank Agents and Financial Inclusion: Business Models of the Tec In Program.

21 Bank branch vs. bank branch

22 Bank branch vs. bank agent

23 Cost and productivity at bank agent

24 Bank branch vs ATM

25 Basic Financial Analysis for a Liquid Savings Account

26 Business Models

27 The Business Model Canvas Key Partners Key Activities Value Proposition Customer Relationships Customer Segments Who are our key partners? Which key resources are we acquiring from partners? Which key activities do partners perform? What key activities do our Value Proposition require? Our distribution channels? Customer Relationships? Revenue streams? What value do we deliver to the customer? Which one of our customers problems are we helping to solve? What bundles of products and services are we offering to each customer segment? Which customer needs are we satisfying? What type of relationships does each of our Customer Segments expect us to establish and maintain with them? Which ones have we established? How are they integrated with the rest of our business model? How costly are they? Examples: Personal assistance, Self Service, Automated services For whom are we creating value? Who are our most important customers? Examples: Mass market Niche Market Segmented Diversified Multi sided Platform Key Resources Channels What key resources do our Value Proposition require? Our distribution channels? Customer Relationships? Revenue streams? Through which channels to dour customer segments want to be reached? How are we reaching them now? How are our channels integrated? Which ones work best and are most cost efficient? Cost Structure What are the most important costs inherent in our business model? Which key resources are most expensive? Which key activities are most expensive? Is your business more: Cost driven (leanest cost structure, low price value proposition, p maximum automation, extensive outsourcing? Value Driven (focused on value creation, premium value proposition) Revenue Streams What value are our customers willing to pay? What do they currently pay? How are they currently paying? How would they prefer to pay? How much des each revenue stream contribute to overall revenues? Types: Asset sale, usage fee, subscription fees, lending/renting/leasing, licensing, brokerage fees, advertising Source:

28 CASHPOR Business Model Overview CASHPOR will act as the Business Correspondent (BC) agent to ICICI Bank Eko Technologies will provide the technology solution Use existing credit infrastructure SCSP Located at the branch Non Clients CM (CSP) Existing Members Customer-owned mobile handsets along with CASHPOR agents (Center Manager) to perform transactions CASHPOR Delivery Channels are: the branch for new customers that are not CASHPOR loan clients Center Meetings for existing CASHPOR loan clients Loan business uses Center Manager s mobile-based application from ATOM Technology

29 Cashpor Service using Eko technology BENEFICIARY AMOUNT AUTHORIZATION *543* * 999* # Authorization is based on using an Okekey PIN Booklet Missed Call Only Numbers Works on Ultra-low cost handsets FREE

30 CARD Bank Business Model Overview Revenue drivers = cross selling products, intermediating ti funds and ATM fees Sales Offcers General Public Account Officer Existing Members Customer segment = existing customers living below $2.50/day plus general public Delivery Channels: Deposits during center meetings Bank branches Withdrawal through ATMs MFS for loan disbursements and payments Dedicated Sales Officers SMS deposit pick-ups

31 Example of Business Model Canvas CARD MFS Partners Platform Provider Grameen Foundation Billers Mobile Operators Outsourced Service Providers Funders Cost Structure Mixed business model of value driven and cost driven activities. Partnerships value driven Agent Management value driven Call center cost driven Agent Network cost-driven Training value-driven Customer Acquisition valuedriven Service Delivery cost driven Technology platform cost driven Key Activities Agent network that is liquid and high quality Call centre that s available to clients Technology platform that never fails Continual development of the ecosystem Change management Key Resources Call center MBO Agent Management Capability Training team CAPEX/OPEX budget Agent Management Unit Technology Platform MFS Management team IP Assets Biller/MNO Integration Outsourced relationships Marketing/Comms Value Proposition Do CARD transactions in the barangay Pay your bills/top-up CARD accepts me when others don t More options for handling cash and managing g money Generate income and increase footfall (agents) Send and receive money easily More time for yourself for the important things Customer Relationships Maintaining personal relationships if desired through group meetings monthly Giving self-service as an option Personalized relationships with agents Segments Customers of CARD: Urban and rural customers, borrowers and savers Non-customers of CARD: Insurance buyers, OTC bill payment/money send customers, micro-enterprises (agents) Channels Account officers Tellers Savings officers CSO Agents Call center Customers Agent Management Unit Revenue Streams Transaction Fees Insurance Premiums Commissions from airtime/billers Loan Income Retailing Margin G2P payment fees Cross-sell Deposits

32 3 Golden Rules to Building a Business Case

33 #1 Understand the present before planning the future

34 Understand the present In the case of product change or new product design, using data for similar existing operations (and/or having access to some industry standards), is helpful Degree of innovation / uncertainty Context New Project New Organization New project within existing organization Planning for existing operations Financial Model Base Industry Standards, Benchmarks Current metrics and drivers, historical data and trends

35 Complex Financial Model Allocation Method for Portfolio per loan product existing Credit and Savings 4% 3% 1% Challenged with high 14% level of manual data entry prone to errors Automation to increase speed by 8x, increase accuracy, & allow for branch-level focus 8% SIKAP 1 Microagri Loan Micro Housing Loan 70% SIKAP Additional Educational Loan Other Loans Portfolio per Savings product 3.00% 2.91% Contrived Precision 62.37% 23.41% 7.87% 0.26% 0.12% 0.05% Centre Fund Kayang-Kaya Savings Curent Account Tagumpay Savings Tiwala Savings Pangarap Matapat Maagap

36 #2 Keep models simple

37 Keep models simple Simplicity it is key For accuracy For regular updates For an understanding confidence in the outputs Don t focus on everything, but parameters that matter Pareto principle 80% of the effects come from 20% of the efforts Certainty of predictions and impact on bottom line Impact on bottom line Certainty / accuracy Effort / Time spent

38 Cashpor Business Case Using Variable Cost Model Income Account Opening fee Transaction fees for deposits and withdrawals Float Expenses Incentives for field officers Automation of account opening Application and staff Administrative, e.g., Couriers Training Costs Liquidity Cost

39 #3 Rephrasing the questions and objectives often

40 Rephrase questions & objectives often Needs have to be clearly identified Requires discussion from a number of stakeholders Communication critical when building model

41 What is the caseload for 1 Savings Officer? Parameters Total Monthly Cost of an SO Compensation, transports (data checked, as of March 2013) Notes Interests paid to customers 1.5% % of balance generated available (regulation) 75% Estimated cost of capital 6.5% From latest Microsave Costing Model Cumulative balance necessary to cover cost Average balance of customer 1000 Total caseload / SO 4001 At maturity, balance necessary to justify SO position financially (breakeven) Currently PHP 654. Study of 14 months Matapat history shows downward trend. At maturity, with previous hypothesis, an SO position would have to maintain a Php 4M savings balance to cover its costs. This represents 4000 active customers, if the average customer balance is P 1000.

42 Current Product Mix additional products Kayang Kaya Matapat Maagap Tiwala Total Interests paid 1.5% 1.5% 3.0% 2.0% Average account balance Current Product Mix: 65% 28% 0.7% 6% 100% Total caseload / SO Cumulative balance Financial Opportunity Savings Officers are currently opening other types of savings accounts: only 65% of accounts opened are Matapat.

43 Change in Product Mix Changing gthe mix of SO portfolio, especially with higher balance products like Tiwala and Kayang Kaya, reduces the caseload Example: A portfolio of 150 Maagap Accounts, 22 Tiwala and 55 Kayang Kaya reduces the total caseload to 455 accounts additional products Kayang Matapat Maagap Tiwala Kaya Total Interests paid 1.5% 1.5% 3.0% 2.0% Average account balance Current Product Mix: 65% 28% 1% 6% 100% Modified Product Mix: 50% 33% 5% 12% 100% Total caseload / SO Cumulative balance Financial Opportunity * * * * Maagap and Kayang Kaya avg balances include staff, as systems don t separate staff from non members for these products * For Tiwala: 3% average interest rate assumption

44 Simplified model 5 years projection Year 1 Year 2 Year 3 Year 4 Year 5 SO Cost Accounts opening Cumul. accounts opened Cumul. Balance Collections Amount collected Assumptions SO opens non members accounts only, and collects from all clients Cumul. Balance inflation rate 2% Interests Paid openings monthly * 30 Available for credit (75%) average acct balance 3600 Est. financial opportunity collections monthly 250 as % of Costs 39% 77% 113% 148% 181% average deposit 900 Bottom Line % deposits building balance 10% Cumul. Bottom line Findings: Portfolio gets big enough to cover monthly cost on Year 3 Cumulated costs are covered by financial opportunity on Year 5 * Average account balance higher than in previous slides, as it reflects non members account openings only

45 Conclusion - Summary Targeted portfolio 4M Php less? Related caseload P1000 avg balance (Matapat like) 65% Matapat 28% Maagap 6% Kayang Kaya 1% Tiwala (today) 50% Matapat 33% Maagap 12% Kayang Kaya 5% Tiwala Targeting high balance clients

46 Additional Recommendations Importance of strong data systems and reporting practices Identify staff skill gaps& organize trainings Document - for current and future users Separate assumptions design & model design Identify strong dependencies first

47 Activity it Business Model Canvas

48 The Business Model Canvas Key Partners Key Activities Value Proposition Customer Relationships Customer Segments Who are our key partners? Which key resources are we acquiring from partners? Which key activities do partners perform? What key activities do our Value Proposition require? Our distribution channels? Customer Relationships? Revenue streams? What value do we deliver to the customer? Which one of our customers problems are we helping to solve? What bundles of products and services are we offering to each customer segment? Which customer needs are we satisfying? What type of relationships does each of our Customer Segments expect us to establish and maintain with them? Which ones have we established? How are they integrated with the rest of our business model? How costly are they? Examples: Personal assistance, Self Service, Automated services For whom are we creating value? Who are our most important customers? Examples: Mass market Niche Market Segmented Diversified Multi sided Platform Key Resources Channels What key resources do our Value Proposition require? Our distribution channels? Customer Relationships? Revenue streams? Through which channels to dour customer segments want to be reached? How are we reaching them now? How are our channels integrated? Which ones work best and are most cost efficient? Cost Structure What are the most important costs inherent in our business model? Which key resources are most expensive? Which key activities are most expensive? Is your business more: Cost driven (leanest cost structure, low price value proposition, p maximum automation, extensive outsourcing? Value Driven (focused on value creation, premium value proposition) Revenue Streams What value are our customers willing to pay? What do they currently pay? How are they currently paying? How would they prefer to pay? How much des each revenue stream contribute to overall revenues? Types: Asset sale, usage fee, subscription fees, lending/renting/leasing, licensing, brokerage fees, advertising Source: