International Context of Branchless Banking, and Alternative Models of Agent Networks
1. Overview of branchless banking models 2. Alternative agent models 3. Agent value proposition and G2P opportunity 2
53% of the total adult population does not have access to formal credit and savings services 75% of Under-Served Individuals Are in East and South Asia and Africa 3
while 1.7 billion people could be reached through the mobile channel 4
Mobile penetration in emerging market is unprecedented 5
and this has led to a number of branchless banking models (1/2) 6
and this has led to a number of branchless banking models (2/2) 7
With over109 live projects in the world today one or more distribution channels to access different customers 8
M-Pesa started on a direct sales model but quickly moved to an indirect sales model Customer value proposition National remittance is the main product offering of M-PESA. Safaricom positioned the product as a fast, safe and easy way to send money home. The service also enables airtime purchase, bill payment, ATM withdrawal and purchase of goods and services Customers that have registered for M-PESA can send money to non-registered mobile phone users on any network. This capability spurred initial subscriber growth since it enabled early registrants to use the system even when there were few other customers registered. Distribution & Ecosystem Safaricom has developed an extensive agent network nationwide. Currently, there are more than 22,000 by the end of 2010. Several large institutions such as Kenya Power and Light Commission (KPLC), Kenya Airways, and Nakumatt supermarkets also support MPSA Agent Training and management is one of the key achievements. Safaricom uses an external agency management firm (Top Image) with over 50 staff supporting the product to train and manage M-PESA agents Marketing Campaign Large BTL and ATL educational camapign Safaricom invested a large amount in marketing and customer education The product is aggressively advertised through. The initial TV and radio advertisements of the product played on the emotional aspects of national money transfer ( send money home ) and used the local culture to explain the benefits of the product. Branding M-PESA has benefited directly from closely associating the product brand to Safaricom s which is associated with people s idea of a modern Kenya and plays on nationalistic sentiments. A distinct M-PESA sign is distributed to each retail shop and retail agents Sources: CGAP, GSMA, IOM World, Various Web Publications
GCASH and MABS have established direct relationships with MFIs Customer value proposition SMART and GLOBE primary launch with 4 basic services Air time Purchase / Domestic Money Transfer / International Money transfer / Retail Payment Through partnership with rural bank GCASH can also offer to customers at the BoP formal financial service that were previously inaccessible (e.g.: salary & loan payment deposit taking, bill payment) Smart launch an internet transaction channel and auto pull from bank account features to reach the high value customer Distribution & Ecosystem Marketing Campaign GCASH and SMART Money distribution consists ofglobe and Smart business centers, ATMs, Non bank agents, Bank branches In addition GLOBE established a network of 3000 outlet and develop key partnership with rural bank to reach the BoP Large BTL and ATL educational campaign The marketing for GCASH as often emphasized the benefice of a «full-service electronic wallet» SMART focused on a education campaign which show the way that Smart money came to the rescue of customer in a specific need Strong brand identification and relevant to the BoP customers Sources: CGAP, GSMA, IOM World, Various Web Publications, Amarante Analysis
MTN contracted a large number of foot soldiers to register customers Customer value proposition National remittance and Airtime top up was the main product offering MTN Mobile Money. MTN positioned the product as a fast, safe, cheap and easy way to send money home and easily purchase Airtime. The service also enables bill payment and utility payment Distribution & Ecosystem Marketing Campaign By the end of 2010 MTN Mobile Money has more than 2500 agents throughout the country. This network is able to reach those at BoP as it is mainly composed by the MTN Airtime dealers which already address this market. Based on the MPESA experience, MTN contract an agreement with Top IMAGE to manage its distribution network MTN invested a huge amount in marketing and customer education through TV spot and radio show. The billboard advertisements focused on the utilities of the product send money home now now and by showing typical usages (send money to your children in Kampala) MTN Mobile Money point of sells has benefited directly from MTN s brand and visibility In 2009 MTN deployed 1000 town-stormes registering customers on the ground. This allow Mobile Money to reach 1,500,000 subscribers registered by the end of 2010 Sources: CGAP, GSMA, IOM World, Amarante Consulting Analysis
1. Overview of branchless banking models 2. Alternative agent models 3. Agent value proposition and G2P opportunity 12
A MFS distribution approach can have one or more distribution channels to access different customers Direct Sales Team Corporate & Government Accounts Master Agents Retail Agents Financial Service Provider Distributors Sales Reps Master Agents Channel Managers Retail Agents 13
A MFS distribution channel can be built from a range of enterprises with varying proximity to customers Source: Amarante Consulting 2009 14
MFSP Channel Strategies - Examples Channel Model Examples Characteristics Benefits Challenges Direct Sales MABS, Philippines WING, Cambodia Builds internal sales team to acquire agents Increased control and adherence to MFSP standards More costly, slower network build-out Indirect Sales M-PESA, Kenya M-PESA, Tanzania Acquires and manages network through distribution partners Ability to grow network quickly and efficiently Loyalty of partners can be limited Franchise Cola-Cola, East Africa Sets up individual entrepreneurs to build distribution Exclusive relationships, dedicated teams Skilled franchisees are difficult to find Independent Service Operators EKO, India Paynet Group, Kenya Provides technology and network on behalf of MFSPs Lower costs due to outsourcing of infrastructure Non-exclusive, often shared Financial Services Linkages Multiple Occurrences Leverages existing financial infrastructure for cash-in/cash-out Rapid access to ATM and POS networks Requires bank, and potentially card product Viral Agents Multiple Occurrences Unsolicited individuals emerge to provide cash-in/out services Rapid growth, most prevalent in rural areas Unregulated 15
Direct Sales Examples WING, Cambodia - MFSP that started its business with a direct sales model MABS, Philippines - customer acquisition and management through microfinance institutions Paynet, Vietnam - originally built for top-up, now offering financial services Benefits Direct relationship with channel partners provides greater degree of oversight Deeper understanding of agent needs and obstacles during MFSP start-up phases Valuable customer insight, enabling rapid adjustment of pricing and promotions Challenges Can be expensive relative to outsourced models, 35% of Paynet s total staff dedicated to acquiring, managing, and training agents Without substantial investment in the team, build out will be relatively slow Like the outsourced model, loyalty can be limited Model Description MFSP hires internal staff who actively recruit and manage agents Staff visits each of the merchants on a regular basis, often as frequently as once a week Visits to urban agents more frequent than those to more distant agents Direct assistance with liquidity management during site visits, also provide promotional materials Training provided at agent location by MFSP sales team Results Paynet built a network of 2,500 agents, which required a staff of 50 people and about 20% of annual budget WING decided direct model was not achieving quality results, now shifting to an indirect model Creative Idea Bank that had each of its 300 branch managers find 10 trusted customers who could function as agents, enabled rapid scaling to 1,800 agents 16
Indirect Sales Examples M-PESA, Kenya - mobile money transfer service, launched with 400 Safaricom outlets and has grown to more than 11,000 retail agents M-PESA, Tanzania - replication of M-PESA model that did not scale as quickly as Kenya Benefits Provides more rapid expansion of network Turns fixed costs into variable costs Companies that are focused on distribution are likely to perform the function better Enables MFSP the freedom to focus on core business Challenges If market has only a few distributors, they can hold MFSP hostage to their terms (ex. Tanzania) When distribution partners service multiple clients, focus is diluted and loyalty is limited Consumer information depends on willingness of suppliers to share Model Description The development of the network is outsourced to third-party companies, which can either be wholly independent or partially owned by the MFSP Used by fast moving goods companies (FSGC), such as Cocal-Cola and P&G to achieve scale and reach Selling via indirect channels can be justified by the number and importance of the assigned business tasks transferred to the distributor MFSP maintains an internal team to manage partners and maintain oversight on channel Ongoing agent training is a key to success Results In Kenya, M-PESA partnered with 300 master agents and achieved dramatic reach in a short period of time In Tanzania, M-PESA had only 6 distribution partners and needed an aggregator strategy Creative Idea P&G partners with banks to provide 7-day lines of credit to agents to overcome capital requirements In Tanzania, retail agents hire promoters to sign up customers and direct them to the agent location to make their first transaction. The promoter receives a small portion of the commission that is paid to the agent. 17
Independent Service Operators (ISO) Examples Model Description EKO, India - building a low-cost financial services infrastructure on behalf of State Bank of India Paynet Group, Kenya - example of a traditional payment service provider that builds ATM and POS infrastructures on behalf of banks Benefits MFSP can completely outsource their agent acquisition to a third-party, to an even greater degree than is possible with the indirect model Both technology and agent network can be delivered by ISO Allows market entry and participation for smaller players Challenges Network is shared with other providers, which is generally not advantageous nor practical for early market entrants Generally a model that appears in more mature markets Third-party company that builds network of access points, in the financial sector these were traditionally ATM and POS networks Operate on behalf of the financial service providers, but provide a complete turn-key outsourced solution for entities that do not have the capacity or desire to build and manage inhouse Customers obtain co-branded products that can be used across the network Results Model is highly evolved and widely accepted in financial markets around the world for ATM and POS infrastructures EKO represents one of the earliest examples of an ISO within the mobile money space Creative Idea M-PESA, Kenya partnered with the Paynet Group to gain access to their ATM and POS networks. Customers have more places to cash-out, and the Paynet Group helps manage M-PESA liquidity 18
Financial Services Infrastructure Examples Model Description Multiple Occurrences, Globally Benefits Immediate network of cash-in/cash-out points Eases liquidity management challenges of MFSP as customers rely on the ATM network Reliable and trusted process for accessing cash Challenges Infrastructures do not usually reach into remote or rural areas, therefore primary application in urban and peri-urban areas only MFSP integrates their solution into existing ATM and POS networks, which then serve as cashin/cash-out points Financial service provider that manages the ATM and POS infrastructure assumes responsibility for managing liquidity at their access points Requires either a card for ATM withdrawals or modification to the ATM to accept a numeric transaction code Results Lower density of bank branches to mange cash liquidity has made the uptake of M-PESA in Tanzania slower than in Kenya Equity Bank, Kenya grew its customer base from 100,000 to 3.4 million in less than a decade by deploying ATMs across the country Creative Idea M-PESA, Kenya partnered with the Paynet Group to gain access to their ATM and POS networks. Customers have more places to cash-out, and the Paynet Group helps manage M-PESA liquidity 19
Viral Agents Examples Multiple Occurrences, Globally Benefits Adds to scale of mobile money solution at no additional cost by MFSP Potential to reach into even the most remote and rural areas Qualitative reports suggest it may be used primarily for small or micro payments Challenges Usually not condoned by MFSP, and in most cases actively discouraged, yet it happens anyway Completely non-regulated and outside of the authority of Central Banks Could result in corruption and excessively high transaction fees Model Description Popularity of the mobile money solution causes individuals to spontaneously emerge to provide cash-in/cash-out services Viral, fast acting, usually handling very small amounts of money in hard to reach areas Individuals are not associated with MFSP nor do they adhere to regulations, they operate below the radar Very difficult to stop or control Results Phenomenon has been noted by MABS in the Philippines and M-PESA in Kenya Tanzanian mobile phone users send airtime to friends and family, often with the intention of converting it back to cash. Airtime transfers are not legal, but they are strong competition for recent mobile money launches in Tanzania. Reports indicate it is occurring in range of countries around the world Also seen with electronic top-up where individuals trade airtime as currency Creative Idea In Kenya, super agents have even spontaneously emerged to handle the liquidity issues for local retailers 20
Whichever the selected model, it is key to specify the roles between the partners Source: Amarante Consulting 2009 21
1. Overview of branchless banking models 2. Alternative agent models 3. Agent value proposition and G2P opportunity 22
Determine value proposition for retail agents by starting with a through understanding of their business needs What they want for themselves Financial remuneration Increased customer traffic (footfall) Value-added services Increased status in the community What they need from the MFSP Commitment & support Creative fee structures Loans for capital costs Training 23
Determine value proposition for retail agents focusing on the quick wins first
Determine value proposition for master agents considering the must haves of any successful distribution partnership Quality products or services that customers want Adequate compensation that aligns with margins received on other products sold by the master agent Committed sales people from the MFSP who work to achieve success for the master agent, stand up for the master agent during conflicts, and coach the master agent s staff in how to proficiently sell the services Internal support systems that enable top-quality customer service, technical support, training, and marketing services Branding that reflects well on the distributor in the eyes of competitors and customers Trust across the value chain 25
One of the biggest challenges is liquidity management try to find a proper balance between money in and money out services Money In Money Out Cash in At Agent Cash out At Agent Domestic money transfer, top-up Salary payment Bill Payment G2P payments
G2P payments are a great money out opportunity Category Definition Figures* Employee Payments Average to high income employees Low income employees Banked employees who receive pensions & wages through a bank account Unbanked employees, who cannot receive payments through a bank account 18,4m 4m G2P Conditional Transfers Conditional social transfers upon receivers' actions (vaccinations, schooling ) 24m Social Transfers Unconditional Transfers Social transfers received under no specific conditions 7m Workfare Welfare system in which people are required to work as a condition for receiving aid Unknown *LATAM 15 countries (estimates based on OIT and CGAP Data) G2P payments encompass conditional cash transfers & other social benefits, payouts, pensions and wages 170m beneficiaries worldwide, of which 35m in LATAM 27
G2P payments have considerable magnitude in Latin America 45% of G2P programs launched during the last 10 years use an electronic payment mechanism Mobile 1995 2000 Money 2005 2010 Salvador Honduras Mexico Ecuador Columbia ChIle Paraguay C.R Guatemala Peru Brazil Nicaragu a Argentina Dom. Rp Breakdown of G2P recipients per country* ( 000) Panama *estimates based on OIT and CGAP Data 28
G2P disbursement B2B payments Some experiences are trying to combine G2P payments with other services such as B2B payments Agent Distribution company Distributor s bank Payments made directly into the account of the distributor Removes costs of physical transfer of funds (transports, security) Real time (or almost real time settlement) for the distributor Significant cost reduction opportunity to the Government Agents can get rid of excess cash for a commission Agent Government Bank or MNO or 3 rd Party Bank account or m-wallet Payments disbursed by agents Beneficiary 29
Gracias! 30