Decoding mobile financial services. Innovation and collaboration to drive growth

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1 Decoding mobile financial services Innovation and collaboration to drive growth

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3 Contents Executive summary 4 Methodology 6 Highlights from the report: a view on the MFS opportunity 7 1. The MFS opportunity and dynamics of a telco-financial institution relationship MFS: an introduction Economic analysis of the benefits of MFS for telcos and financial institutions Opportunity matrix for telcos and financial institutions Synergies through financial services and telco collaboration The cost benefits of a collaborative approach A mobile-first approach to financial services infrastructure Possible innovations and business models in MFS led by telco-financial institutions Potential innovations in MFS Potential business models for telcos and financial institutions Service-wise opportunities for MFS Mobile payments Mobile savings and mobile insurance Mobile financing Key challenges in MFS service delivery for telcos and financial institutions Role of MFS in developing financial dividend Regulation and cybersecurity remain key pivots for sustainable MFS models An integrated approach to lead the way for MFS 37 Decoding mobile financial services 3

4 Executive summary A lot of interest has gathered around mobile financial services (MFS) in the past decade. Currently, mobile money is available in 85% of countries where the vast majority of the population lacks access to a formal financial institution. In 2015, there were 29 cross-border mobile money initiatives connecting 19 countries. This increasing prominence of MFS is largely driven by the accessibility and ease of use which mobile as a platform brings to financial services. Because of ubiquity of devices and affordability of use, consumers are connected to their mobile devices to an extent not matched by any other platform. This has led to mobile increasingly becoming a preferred medium for financial services. Right from an unbanked individual, to a techsavvy user, MFS has value to offer to users at all economic levels. In unbanked economies, MFS can help serve a vast mass market, which otherwise may be out of reach due to high infrastructure costs and low financial viability of maintaining a physical presence. Research points that service providers realize 96% cost savings when serving customers through mobile bank channels instead of branch tellers. In terms of the currently prevalent service segments, mobile payments and remittances have been dominant amongst consumers. Both customer-to-business (C2B), and customer-tocustomer (C2C) payments have seen traction 255 mobile money services were live across 89 countries as of 2014, and C2B payments are expected to grow to over two billion users by However, this is just the tip of the iceberg, as mobile payments have the potential to bring a digital transformation at all ends of the payments spectrum business-to-business (B2B), businessto-customer (B2C), government to business (G2B), and government-to-customer (G2C). B2B has a strong use case for small and medium enterprises (SMEs) as it lends an affordable financial medium to these businesses. As mainstream financial procurements can be expensive, and also out of reach for many, MFS can enable them access remotely. Untapped potential exists for government led payments as well. Government departments can use MFS to improve payment processes, streamline the management of money flow, and 4 Decoding mobile financial services

5 also lead to reduction in arbitrage with third-party involvement in payment systems. Both businesses and customers can benefit from a user-friendly, ubiquitous and secure mobile based platform for all financial transactions with the government. Mobile payments have seen the maximum adoption so far users expected to grow at a CAGR of 47% until However, steadily other service areas have also begun to gather steam. Segments such as savings, credits, micro-financing and insurance are picking pace. Globally, around 10 million dedicated mobile savings accounts have been opened, and mobile credit services have witnessed a 50% increase in the number of services in Transformational impact of MFS is expected to be witnessed for the next generation financial services such as micro-finance and mobileinsurance. The global micro-insurance market is estimated at 4 billion individuals, but the cost of selling and administering low-value policies makes it uneconomical for many traditional providers. Mobile based service delivery can reduce cost significantly, and help enroll low income customers. Mobile micro-finance is also gaining traction, as both financial institutions and non-banks enter the fray to offer small scale credit services. For financial institutions mobile micro-financing can allow them to reach the bottom of the income pyramid, increasing their client base. For new entrants, mobile financing is opening up avenues such as crowd funding. An interesting outcome of mobile micro-financing is where service providers work with mobile operators to build innovative credit scoring models using telco data. Aware of the existing opportunity, both telecom operators and financial institutions are keen to tap this potential. Given their complementary competencies and infrastructure, they are well positioned to collaborate to bring synergies and innovation to MFS. Undoubtedly the MFS space is brimming with activity, which is likely to translate into significant growth going forward. However, this surge in usage will need backing from sound policy and regulatory guidance, to enable a secure transaction environment for MFS. While the strategies, dynamics, and service uptake will differ based on the local market conditions, ensuring consumer protection from cyber-threats and frauds will be utmost essential for longevity of services. Decoding mobile financial services 5

6 Methodology Decoding mobile financial services has been developed based on first-hand market perspective from industry practitioners, inputs from EY s subject matter residents, customer discussions and is supported by insights from EY s sector professionals and secondary research. It attempts to assess the evolving landscape of the MFS industry, with a focus on opportunities which are arising from the collaborative efforts by telcos and financial institutions. To include a first-hand industry perspective, EY organized its First MFS workshop in Nairobi in February The event saw participation from senior executives from banks, telcos, insurance companies and technology players as well as end customers bringing a 360 degree view on this space and incorporating a diverse set of perspectives from key stakeholders in the value-chain. The insights from the workshop have contributed significantly to the development of this report, providing inputs on industry dynamics, strategic priorities and key initiatives such as customer centricity, regulatory viewpoints and success factors. Further, the report discusses examples and case studies from across the world to supplement the primary insights from the workshop. These are based on extensive secondary research, analysis and insights provided by EY. 6 Decoding mobile financial services

7 Highlights from the report: a view on the MFS opportunity 38% Two billion adults, or 38% of adults globally, continue to be excluded from the financial system 50% 15 There is a potential near-term opportunity for MFS in 15 select countries to include 434 million unbanked people in the financial system 50% 96% Mobile credit witnessed a 50% increase in the number of services in % 10 The market potential for MFS Service providers can achieve 96% cost savings in the average cost per transaction through mobile bank channels 67% Globally, approximately 10 million dedicated mobile savings accounts have been opened so far Sixty-seven percent among bank regulators in 143 jurisdictions have a mandate to promote financial inclusion 47% 50% Users of mobile payments are expected to grow at a CAGR of 47% until 2019 Fifty countries have set formal targets and ambitious goals for financial inclusion Decoding mobile financial services 7

8 1 The MFS opportunity and dynamics of a telco-financial institution relationship 1.1. MFS: an introduction MFS today is seen as an exceptional channel for propagation of financial services. The threefold benefit expansion of reach, decrease in capex due to lesser need for physical infrastructure, and lowering of transaction cost have been the key factors strengthening the business case for MFS. With its prospects to serve the masses, MFS has been backed aggressively by both telcos and financial institutions. Financial services sector sees it as a way to serve a vast section of customers by bringing in last mile connectivity, and act as a channel extension for convenience of use. For telcos, it is increasingly becoming an important service segment to differentiate their propositions, contain churn and drive revenue growth. Moreover, telcos are increasingly seeing MFS as a complete business solution, rather than approaching it as a value added service. Given the significant investments required for setting up this business stream, they are focusing on monetization and profitability of MFS. In the current scenario, any form of mobile money services are being offered with a basic minimum interdependence between telcos and financial institutions banks are the custodians of the deposits backing the electronic value of mobile money, while telcos are the bandwidth holders. However, given the primary roles played by the two in a mobile money value chain, they can generate significant partnership synergies. Also, together they have the potential to bring in disruptions that can transition financial delivery systems to majorly digital platforms Economic analysis of the benefits of MFS for telcos and financial institutions Benefits for financial institutions Technological advancements are touching every sphere of customers journey mobile has become a key interface in consumers daily routine and services are increasingly being channeled using innovative mobile applications. With this, digital strategy, and in particular, mobile strategy has become an integral part of any financial institution s overall service delivery plan. Mobile based delivery of financial services brings multiple benefits to financial institutions and go much beyond tangible direct increase in revenues and cost reduction. For instance, it positively impacts customer stickiness, product ownership, transaction frequency and reduces cost. 8 Decoding mobile financial services

9 Assessing the benefits of mobile banking to financial institutions A study of credit unions and banks of varying asset sizes indicates the various benefits accrued from adoption of mobile banking. Increase in product holdings and stronger customer relationship A mobile banking focus helps in cross-selling and upselling products and services, which further leads to better customer loyalty. For instance, the study of select banks indicated that their average unique product holdings, i.e. the number of different products held by a customer, grew by 12% in three months after adoption of mobile banking. Further, mobile banking consumers are less likely to leave their financial institutions large credit unions had a 4.9% attrition rate for members using mobile banking, as compared to 13.4% for members not registered in mobile or online channels. Increase in transaction frequency Mobile banking consumers are likely to drive more transactions both frequency as well value of transaction. In the study, despite accounting of only 14.4% of the customer base, mobile banking users drove over 39% of the total point-of-sale spend. Moreover, in the three months after adoption of mobile banking, consumers significantly increased their transactions. This association can be explained because of easier and real-time access to financial information, including balances, which is likely to influence transaction behaviors. Growth in revenue Mobile banking consumers generated higher average revenue as compared to branch-only users in the study 36% higher at the credit unions and 72% higher at the banks. Cost savings The cost of mobile banking channels is significantly lesser as compared to traditional channels a mobile banking transaction can be done at 10%-15% of the branch banking cost. The cost involved in financial infrastructure is also much less, US$400 for agent-enabled mobile banking as compared to US$250,000 for a traditional branch. Source: Fiserv, International Finance Corporation (IFC) Decoding mobile financial services 9

10 Benefits for telcos 1 From a business standpoint, MFS holds considerable potential for telcos both in terms of direct and indirect revenue gains, as well as the cost efficiencies which it brings along. Direct financial gains for telcos The revenue from mobile money has been on a rise in the past few years. In 2015, 25.6% of the telco-led deployments (11 out of 43 deployments) reported earning more than 10% of total revenues from mobile money. Of this revenue, for telcos almost 76.5% is derived from customer fees. Indirect gains For telcos, the indirect benefits of MFS churn reduction, increase in average revenue per, or savings on airtime distribution can be significant, and this also indirectly adds to revenue potential. Out of 48 mobile operators surveyed in a recent study, 79% reported selling more than 1% of airtime through mobile money, and 31% of respondents reported selling more than 10% of their airtime through mobile money. Figure: Percentage of revenues generated by mobile money for telcos Less than 1% 28% 50% 50% 1% 5% 35% 29% 32% 5% 10% 4% 7% 12% Over 10% 11% 18% 26% Jun 15 Jun 14 Jun 13 Source: GSMA One of Kenya s leading telco reduced its traditional airtime distributor commission outgoings by an estimated US$64 million, by selling 38% of its total airtime through its MFS platform in FY14. 1 State of the Industry Report Mobile Money, GSMA, accessed 25 February Decoding mobile financial services

11 1.3. Opportunity matrix for telcos and financial institutions Recent years have witnessed notable progress in driving financial inclusion globally. Yet, many people continue to be excluded from the financial system. There is a large untapped populace, which is a direct addressable market to cover under the financial net, especially through the mobile platform. Figure: Opportunity matrix for MFS based on degree of mobile penetration and financial inclusion Increasing mobile penetration Pakistan Madagascar Chad Malawi Peru Zimbabwe Ethiopia Vietnam Philippines India South Korea US Singapore Sweden UK Norway Limited opportunity for MFS Growth markets: driven by innovations to increase financial inclusion High revenue base: driven by innovations to offer better customer experience Focus on improving mobile penetration and collaborative financial institution-telco offerings to aid in faster delivery of financial services Limited opportunity for MFS Increasing financial inclusion (accounts for percentage of people over 15 years of age) Note: Select countries cited as examples; financial inclusion based on people having an account at any type of financial institution or a mobile money account Source: ITU 2014, Global Findex Database 2014, World Bank, EY analysis Decoding mobile financial services 11

12 Globally, among the people who still lack access to the financial system, approximately 620 million belong to countries that have already introduced regulatory frameworks or encourage non-bank entities to participate in the financial services domain. Additionally, most of these countries have a considerable gap in their levels of mobile penetration and financial inclusion. An analysis of the potential market reflects that approximately 434 million of this unbanked population can be served by MFS in the near term. Figure: Potential opportunity size: serving the next segment of unbanked people Mobile penetration (%) Financial inclusion* Financially not included # Population (million, over 15 years of age) Unbanked opportunity (million) Opportunity for MFS (million) Bolivia Burundi Colombia Democratic Republic of Congo India Madagascar Malawi Namibia Peru Philippines Rwanda Tanzania Uganda Zambia Zimbabwe Total opportunity Notes and methodology: Financial inclusion is based on people having an account at any type of financial institution or a mobile money account * Percentage of people over 15 years of age who are financially included # Percentage of people over 15 years of age who are not financially included On the basis of data from 15 countries, which have introduced enabling regulatory frameworks or where financial sector authorities allow participation of non-bank entities in the financial services domain. Additionally, these countries have relatively higher levels of mobile penetration as compared to their degree of financial inclusion Opportunity for MFS has been calculated with assumption that a portion of population will continue to be served through traditional products Source: ITU 2014, Global Findex Database 2014, World Bank, GSMA, EY analysis 12 Decoding mobile financial services

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14 2 Synergies through financial services and telco collaboration The partnership between telcos and financial institutions for offering MFS come with a set of natural advantages. Players at both ends invest in mutually complementing or parallel infrastructure, which can be cross leveraged. Both require a common pool of assets and internal processes, which can be developed in close collaboration, leading to a robust platform for MFS delivery. Also, sharing and collaboration of infrastructure are likely to lead to faster and more cost effective go to market strategies. Figure: Infrastructure that can be cross leveraged by financial service institutions and telcos Data analytics Technology (billing and customer relationship management) Application development and deployment Retail and distribution Customer acquisition and management Branding, marketing and awareness Source: EY analysis Figure: Assets owned by financial service institutions and telcos that strengthen MFS delivery Telco assets Tangible assets: Large user base, especially in unbanked emerging economies Ubiquitous SIM and airtime distribution and retail network Control over the data channel to customer Intangible assets: Brand recognition in emerging economies seen as trusted partners by consumers Financial services assets Tangible assets: Full suite of financial services Deposit-taking license and pool of liquidity Liquidity management Secure core financial platform ATM or cash presence Intangible assets: Regulatory compliances Financial service licences competencies Strong brand name associated with safety and security Source: EY analysis 14 Decoding mobile financial services

15 2.1. The cost benefits of a collaborative approach Mobile is also a cost-effective platform for providing financial services. While targeting the low income segment, the brickand-mortar model for financial service delivery is not always cost efficient. When moving from a branch-only to mobile space, there would be initial capex to build a robust MFS platform. However, this capex is offset by the drop in cost per transaction and the profit made from offering core financial products to a larger customer base accessible via mobile devices. Further, mobile banking projects on an average turn cash-flow-positive in about five years from making the investment. 2 Also, the population density that can be covered in sparsely populated or remote areas is not enough to justify the business case to set up a physical infrastructure. Mobile phones lend the convenience of catering to a much larger group at a much lower infrastructure cost. The overall service delivery cost can be significantly reduced with MFS, right from capex savings in terms of infrastructure, to day-to-day operational costs efficiencies. For instance, mobile banking channels cost considerably less than traditional channels a mobile banking transaction can be done at 10%-15% of the branch banking cost. 3 The cost involved in financial infrastructure also witnesses significant decline, from US$250,000 for a branch bank to US$400 for agent-enabled branchless banking. Figure: Costs involved in financial infrastructure: branch compared to branchless banking US$250,000 Declining costs US$50,000 US$10,000 US$2,000 US$400 Traditional branch Branch in store ATM Agent with POS terminal Source: USAID Agent with mobile 2 Mobile Financial Services, IFC, accessed 20 January Mobile Financial Services, IFC, accessed 20 January Decoding mobile financial services 15

16 The setup and maintenance cost also declines if we shift from a branch banking infrastructure to a MFS platform. A branch bank needs maintenance in terms of physical infrastructure, technology as well as the manpower costs. In comparison, the cost for a telco agent-enabled mobile banking service is much lower. Maintenance cost comparison Channel Number of people Maintenance cost Branch US$5,000 US$10,000 Agent 1 US$200 US$500 Source: IFC For a bank, the cost to serve customers declines when moving from a branch infrastructure to a mobile platform. Average cost per transaction via mobile is even lower than an ATM s transaction cost. Figure: Cost to serve customers through different bank channels (US$) Branch teller ATM Mobile Source: Value Partners 16 Decoding mobile financial services

17 2.2. A mobile-first approach to financial services infrastructure Traditionally, financial institutions have considered physical branches and agent networks as their core service delivery methods. Online and mobile platforms stemmed as a channel extension, yet physical presence remained the key. This approach was rational as well, as internet connectivity and personal computer penetration was limited. Further, the ecosystem support was not available to offer integrated and complex digital financial services, which could be accessed by a common user. Today, with technological advancement, ubiquity of mobile devices and network connectivity, a more mature ecosystem is now in place to offer a digital financial services delivery platform. Consumer preferences have also changed, with many favoring mobile platforms for their financial transactions, stemming from the ease of use and on-the-move connectivity. Particularly, with the mobile device being a household commodity, a mobile-first approach is vital to the future development path for financial services. In this scenario, mobile can be developed as a core financial service delivery platform. Especially with the advent of smartphone sophistication, this platform can thrive on lower investment, or upgrade costs. The majority of spending in this case would be on the technology platform, while telco partnerships can foster the need to set up a separate parallel infrastructure for billing, customer care, retail presence, and even marketing. Case study Poland-based bank pioneers the virtual bank concept Poland has a classic case of launching a fully internetbased bank with the direction of development focused on moving toward complete branchless banking. In 2000, the Poland-based bank launched its retail operations on a fully internet-based platform, offering services through call centers and mobile-based solutions. In 2013, the bank introduced a modern and upgraded user-friendly internet platform, with multiple new features. For instance, the digital platform enabled better customer-centric interfaces, advanced money management features, gamification and video banking. Service agents interacting with customers through over-the-top video messaging platforms 86% of sales made online or through call centers, compared with 20% made by western lenders Around 130 retail and 47 corporate branches, much lower than traditional banking models The bank continues to introduce innovative solutions. For instance, it has launched a retail advice and discounting service, which utilizes customer behavior patterns and location data from mobile phones to provide offers at particular shops. Today, the bank is one of the largest retail banks in the country and is developing new standards for financial services delivery: Loan approvals in 30 seconds through smartphones Source: GSMA, company website, news articles Decoding mobile financial services 17

18 Factors driving the mobile-first approach Ubiquity of mobile devices Mobile phone penetration can be viewed as a key driver for financial inclusion in emerging economies, especially in the African sub-continent. The next level of evolution in MFS is expected to be backed by smartphones that can offer a richer customer experience. Factors such as continuing price reductions in feature-rich smartphones, along with affordable data pricing plans, suggest that MFS can become an even more attractive proposition for end users. Figure: Smartphone penetration growth Projected smartphone penetration growth (2017) Global average From 19% to 32%; a 1.7-fold increase Latin America From 20% to 44%; a 2.2-fold increase Sub-Saharan Africa From 4% to 20%; a five-fold increase Source: GSMA Pervasive network connectivity with telco focus on high speed mobile data and Wi-Fi networks On the high speed network front, there is a huge worldwide push for investment in 3G and 4G networks. Globally, operators invested approximately US$216 billion to enhance network capacity in Investment levels are forecast to grow at a CAGR of 2.5% through In particular, there is a considerable focus on network deployments in emerging markets, driven by investments in mobile broadband networks. For instance, telcos in Sub-Saharan Africa (SSA) invested US$9 billion in network infrastructure development in 2014, a 16% increase y-o-y. 6 This is expected to grow at a CAGR of 6.8% during In addition, data tariffs are being regularized by both telcos and regulators, and internet access to consumers is a priority for most governments. 4 One billion new unique mobile subscribers by 2020, finds new GSMA study, GSMA, accessed 28 April The Mobile Economy 2015, GSMA, accessed 28 April Mobile contribution to sub-saharan african economy surpasses US$100 billion, finds new GSMA study, GSMA, mobile-contribution-to-sub-saharan-african-economy-surpasses-us100-billion-finds-new-gsma-study/, accessed 28 April Decoding mobile financial services

19 Further, Wi-Fi networks are also in focus, with Wi-Fi already accounting for around 50% of smartphone and tablet data traffic globally. 7 Such networks are an essential means of connectivity indoors and in high-traffic-segmented locations such as shopping areas, multi-dwelling units, parks and stadiums. Today, there are around seven million public Wi-Fi hotspots globally, and the growing availability of Wi-Fi networks will also help deliver better connectivity and user experience for MFS services. 8 Consumers go mobile-first In the last few years, digitization has transformed consumer preferences, and their service delivery expectations. Due to the pervasiveness and ease of use, consumers are connected to their mobile devices to an extent unmatched by any other technology. For many, mobile is increasingly becoming the primary method of interaction with their financial services providers. The mobile-first millennia are emerging as users who are likely to have their primary interactions with financial services via handheld devices. In such a setting, mobile can no longer be a mere channel extension for financial services, given that emerging economies and their young populations are mobile first. Accordingly, it is fitting for financial institutions to develop a strategic digital or mobile plan, and consider mobile as their key infrastructure platform for service delivery. Case study Consumer focus is key to driving future MFS growth Today, the consumer is back being the king. As the market continues to be flooded with multiple competing offerings from various players, consumer preferences are becoming important for future success. A discussion with Kenyan MFS consumers brings out interesting insights on their behaviour and preferences. Ease of use was highlighted as one of the key benefits of using MFS, as it makes financial transactions less cumbersome and adds the convenience of anytimeanywhere usage The limit on the amount of money that can be transacted at once was cited as a key challenge Also, in Kenya, some of the leading MFS service providers charge a fee per transaction, which was cited as a pain-point by consumers Services that the customer would wish to have in the future: Availability of a direct clearing house to transfer money across different providers no need of a mobile money agent Interoperability of services between various MFS platforms Low charges for money withdrawal and transactions Enhanced security is high on the consumer wish-list. There are chances of identity theft when customers fill their personal details in forms. Such forms can be digitized, thus making the process paperless and increasing security Who owns the customer is the big question Moreover, given the market scenario, customer ownership is becoming an important factor for MFS. Ensuring customer stickiness is becoming difficult as multiple players are eyeing the consumer s mind-share. In such a scenario, both banks and telcos need to strategize on what role they aim to play in the MFS infrastructure value-chain and how they want to innovate to keep themselves relevant in the current business scenario. 7 Juniper: 60% of smartphone, tablet data traffic will run over Wi-Fi by 2019, FierceWireless, accessed 3 February Telecoms_Media_and_Entertainment_Outlook 2015, Ovum, accessed 28 April Decoding mobile financial services 19

20 3 Possible innovations and business models in MFS led by telcofinancial institutions 3.1. Potential innovations in MFS Innovation in MFS is expected to lead to faster service delivery, cost reduction, higher speed of processing, and increased safety and security of platforms. Further, technology has brought in reliability and scalability in the delivery of MFS, with consumers being the ultimate beneficiaries. Thus far, maximum innovation in MFS has been seen in the mobile payments space. Going forward, it is expected that focus will also come to mobile banking services, mobilizing deposits and developing digital banks which provide a complete range of services over the mobile channel. In terms of new products and services, there is a considerable opportunity for innovation. For instance, currently, mobile payment products are used to make small payments and transfers. Further, newer products can be designed to cater to use cases such as big ticket transactions. In such cases, robust anti-money laundering (AML), cyber-security and regulatory aspects will be even more important. Another area with considerable opportunity is around big data and analytics. In this, both financial services institutions and telcos can work together with retailers to understand customer needs and develop targeted offerings. As new information channels such as social media and location-based services develop, the sophistication of MFS services will further increase, with new product and service innovations ushered in by both financial institutions and telcos. Figure: New product and service innovations via financial institution-telco partnerships Newer credit scoring models, using telcos data for credit insights (airtime top-ups, location data, social network patterns) Telco-based virtual mobile wallet, integrating credit or debit card information via partnerships with banks, e-commerce players and payment gateways SME-centric MFS, such as free access to partner bank s mobile app for the telcos customers Potential product and service innovations via financial institution-telco partnerships Targeted mobile advertising using location tracking data, via telco-bank-retailer partnerships Mobile insurance products such as those based on mobile customers airtime top-up (such as accident, hospital and life insurance products) Using mobile money platform for microfinance, can also utilize crowd-funding opportunities using mobile apps Source: EY analysis 20 Decoding mobile financial services

21 3.2. Potential business models for telcos and financial institutions On the basis of market dynamics, strategic positioning, service rationale, and position in the market, financial institutions and telcos can choose their approach toward MFS. The collaboration between a telco and a financial institution for MFS is already a reality. The level of partnership may vary from a completely independent operating model, where one takes over the other s role, to a collaborative approach, where each has an equal contribution. Figure: MFS business models for telcos and financial institutions Telco becomes a financial institution Telco-led approach along with a bank partnership or acquiring stake in a bank A partnership approach between the bank and the telco Financial servicesled approach with a telco partnership or stake acquisition in a telco Financial institution becomes a telco Increasing level of involvement for a telco Increasing level of involvement for financial services A telco becoming a fully functional financial institution is likely to be seen predominantly in emerging markets, where financial coverage is low and telecom penetration is high. With a leaner business model in terms of infrastructure cost, this model can allow for service delivery at lower price-points and find favor with low-income economies. Example: Countries such as India have already witnessed a regulatory go-ahead for telcos to operate as payment banks. Under this approach, the telco is the front face for MFS, and it either partners with or acquires a financial institution to offer MFS. This approach is well-suited to geographies where telco penetration and brand name is strong, and the regulations mandate a partnership with a financial institution for compliance. Example: A case in point is the recent announcement from a France-based telco to acquire a French insurance group to enter banking services and then launch a bank under its own brand name. According to this approach, the telco and financial institution are equal stakeholders and jointly offer MFS. Both the parties play an equal role, and bring in their core competencies to strengthen the end offering. Example: An example is the partnership between a Kenya-based bank and a telco to jointly offer MFS. The telco and the bank jointly developed a mobile payment and banking platform. The service offers a suite of financial services on a mobile platform, via a mobile virtual network operator based on the telco s network. Here, the financial institution is the front face for MFS and it either partners with or acquires a telco to offer MFS. This approach is well-suited to geographies where financial penetration is moderate to high, and the financial institution wants to extend mobile-based services, for channel extension, or to offer a superior customer experience. Example: Poland has the first fully internet-based bank with the direction of development focused on mobile banking development. Launched in 2012, it is already the number one mobile banking provider and has a strong 29% market share, which makes it the third-largest retail bank in Poland. A financial institution becoming a fully functional telco is likely to be seen in the following cases: In an emerging market to spread financial services through mobile platform, and develop a mobile-based financial infrastructure In a developed market to build a secure channel, with higher control in terms of safety and security (with SIM ownership) Source: EY analysis Decoding mobile financial services 21

22 4 Service-wise opportunities for MFS The global financial services sector encompasses a wide array of products and services, and at varying levels of maturity. In particular, basic services such as money transfers, remittances and bill payments are increasingly going mobile for instance, 255 mobile money services were live across 89 countries as of Figure: Opportunity matrix for MFS implementation in key financial services domains Financial service domain Payments Sub-types Remote mobile payments Proximity mobile payments Potential opportunity to be redefined via MFS Deposits Deposits Credits or loans Microfinance Long-term loans Insurance Micro insurance Generic insurance policies Investments Long term, short term Equity, debt, mutual funds Legend: High Low Source: EY analysis 4.1. Mobile payments On the payments front, both remote and proximity payments are set for strong growth. Globally, mobile money providers continue to invest in improving and expanding their services via platform migrations and extending application programming interfaces to third-party users. So far, the major traction for mobile payments has come from person-to-person (P2P) or person-to-business (P2B) transfers. Going forward, the next phase of growth is expected to come from the business-to-consumer (B2C), governmentto-consumer (G2C) and consumer-to-government (C2G) domains, as well as from agreements between mobile money providers for cross-border remittances. Further, use of data analytics for mobile commerce still remains an untapped space State of the Industry Mobile Financial Services for the Unbanked, GSMA, SOTIR_2014.pdf, accessed 28 April Decoding mobile financial services

23 Figure: Uptake of different types of mobile payment services C2B P2P B2C C2G G2C Data analytics Mobile payments today are dominated by consumer-to-business (C2B) and P2P business cases. As mobile payments become more mainstream and sophisticated, focus for the next phase of growth is likely to shift.. Source: EY analysis Figure: Mobile payment users expected to grow at a CAGR of 47% until ,000 Mobile payment users (million) 4,000 3,000 2,000 1,000 0 Source: Ovum F 2015F 2016F 2017F 2018F 2019F Asia & Oceania Americas Europe Middle East & Africa Figure: Remote payments account for the bulk of mobile payment users Mobile payment users by segment (million) F Remote payments Consumer-to-business payments Person-to-person payments , ,071.5 Proximity payments Near Field Communication (NFC) Non-NFC Source: Ovum Decoding mobile financial services 23

24 Case study Industry collaboration to help tap the merchant payments opportunity Merchant payments present a relatively less tapped opportunity in the gamut of mobile money services. As of 2014, these accounted for only 1.3% by volume and 3.7% by value of total the mobile money transactions. However, this domain is increasingly witnessing traction merchant payments were the fastest growing payment transaction types in 2014, growing at 58.5% by volume, and had 78.6% global increase in value transacted. For tapping into the merchant payments opportunity and thereby facilitating customers daily expenditures on goods and services, mobile money providers are focusing on merchant acquisition drives. As next step, it is important to have registered merchants who are also active users of the mobile money services. Currently, merchant payments domain is skewed toward a minority of players, with four mobile money providers handling 79.6% of the total merchant payments volume. Further, these four providers are also the dominant GSM and mobile money players in their respective markets. This indicates the need for greater industry collaboration to successfully drive scale in merchant payments ecosystem. For instance, players in Pakistan have entered new partnership models to scale merchant payments. In one case, two mobile money service providers have partnered with a third party payment and technology service provider, which acquires merchants who offer a full-fledged point-of-sale (POS) or mobile POS (mpos) machines accepting NFC and card payments. It also covers the cost of the device. Separately, another telco in Pakistan has launched a new mpos, which accepts swipe and chip card payments. It is further aiming to introduce a solution which accepts all banking cards and NFC payments as well. Such a proposed open-loop solution is expected to enable merchants to control and monitor daily transactions through an online portal. Source: GSMA, EY analysis 24 Decoding mobile financial services

25 Case study Account to account interoperability and cross-border remittances to expand scope of mobile money services With increasing adoption of mobile money services, there is a growing need for interoperability between different service providers as well as the ability to make payments across markets. Account-to-account (A2A) interoperability Over the past few years, telcos have already started interconnecting their mobile money services within countries. Today, telcos in Indonesia, Madagascar, Pakistan, Rwanda, Sri Lanka, Tanzania and Thailand have mobile money interoperability. Further, mobile money services in countries such as Bolivia, Peru and Mexico are also interoperable with the banking sector. As next step, these countries are focusing on full A2A interoperability in mobile money. With this, customers can transact between different mobile money schemes, thus expanding the scope of the service to a larger addressable market as well as enabling enhanced customer experience. Cross-border mobile money remittances Apart from greater industry collaboration within countries, collaboration between mobile money providers across borders is also gaining momentum. At the end of 2015, there were around 29 crossborder mobile money remittance corridors, connecting 19 countries. Adoption of cross-border mobile money services is driven by both regular as well as seasonal remittances from economic migrants, as well as by cross-border trade. In particular, markets such as those in West Africa have been the hub of such initiatives, given that the member states of the West African Economic Monetary Union are socio-economically integrated. Also, countries with high proportion of international migrants, such as Qatar, are expected to benefit most with easy to use and real-time cross-border mobile money transfer services. Source: GSMA, EY analysis Decoding mobile financial services 25

26 4.2. Mobile savings and mobile insurance In addition to basic money transfer and payment services, innovative use cases of MFS include sophisticated services such as savings and insurance, which are also gaining scale. For instance, in 2014, 10 new mobile insurance services were launched globally, bringing the number of available live services to 100. There is significant opportunity for crosssector collaboration in this domain as well 56% of these services are being marketed by telcos in partnership with insurance companies. 10 On the mobile savings front, both financial institutions and telcos are increasingly leveraging their mobile money infrastructure to offer savings capabilities. Globally, around 10 million dedicated mobile savings accounts have been opened. 11 Case study Promoting mobile savings through mobile money accounts In some countries, telcos are offering incentives to customers to save money on their mobile money. For instance, in Tanzania, a telco distributed US$8.7 million to 3.5 million customers in September 2014, on account of interest returns generated on its trust fund. Further, the telco announced plans to make these payments every quarter. With this, the telco successfully created a win-win situation: For customers, who would receive substantial returns on their investments in mobile money For the telco, which developed a platform to increase customer loyalty and to gradually grow mobile money service uptake and transactions with time Source: GSMA From insurance services perspective, the mobile platform enables different ways of offering traditional products as well as opens opportunities to provide innovative services. For instance, areas such as claim management, micro-insurance, travel and home insurance can benefit from mobile integration. Claim management forms one of the key touch-points of insurance customers with insurers, and it is also one of the pain points. In particular, claim filings can be considerably difficult in remote locations, which have limited number of agents. In addition, the subsequent procedure is often dependent on the customers with customers following-up with the insurers on updates of their claims. To have a much smoother process, several insurers and InsurTech players are seeking to leverage the mobile technology. For instance, enabling submission of claim evidence through the mobile phone medium, and receiving updates and communications via messages or mobile internet are some of the steps that have been thought of. Another MFS area with significant potential is the microinsurance domain. Given the small ticket size, such transactions are more feasible using the MFS products and services. In particular, mobile insurance platforms have significant appeal in low-income and developing countries, where the cost of distribution of traditional products is relatively higher to serve low-income individuals. For instance, in Africa, the number of mobile subscribers is almost 15 times the number of lives and properties covered by insurance, which is only 44 million. 12 In such cases, higher mobile penetration provides the foundation for achieving economies of scale to administer low-value policies. Case study Telcos offering free life insurance products targeting the masses Market need: Bangladesh has low insurance penetration, especially in less affluent market segments. Telco response: Two leading telcos launched mobile insurance services, targeting the mass population. Subscribers who spend more than US$3.23 a month receive free insurance for the following month. The level of life insurance coverage depends upon the level of monthly airtime usage. Source: GSMA State of the Industry Mobile Financial Services for the Unbanked, GSMA, SOTIR_2014.pdf, accessed 28 April Mobile savings and credit: Riding the rails of mobile money, GSMA, accessed 28 April State of the Industry Mobile Financial Services for the Unbanked, GSMA, SOTIR_2014.pdf, accessed 28 April 2016, ITU. 26 Decoding mobile financial services

27 Additionally, the use of location-tracking data for targeted mobile advertising holds significant relevance for the insurance domain. This will enable products which offer coverage based on location and for a limited time. For instance, geo-location data from telcos can be leveraged by insurers to offer travel insurance when an individual is at an airport or in holiday destinations. Another product can offer time-bound home insurance to individuals for the duration when they are on holidays. Globally, although some players have started focusing on such innovative offerings, but there still remain many more opportunities yet to be tapped by leveraging data analytics and mobile platform. Overall, the key is to generate more engagement between the customers and the insurance service providers as well as to make the transactions more likely with the help of low premiums associated Mobile financing Another growing field of MFS is mobile credit services, which witnessed a 50% increase in the number of services in Many of the new service launches are driven by strategic partnerships between financial institutions and telcos. Going forth, the opportunity presented by mobile financing services can be seized through innovative use cases. Seizing the opportunity for mobile micro-financing services through innovative use cases Telcos and financial institutions can seize the opportunity presented by mobile micro-financing by developing innovative use cases which focus on uniqueness of these services. For instance, both telcos and financial institutions have significant customer data, which can be used to develop stronger credit scoring models. Further, these can be used to target specific niche segments such as first-time formal borrowers, as well as help reduce the number of nonperforming loans. Additionally, mobile based delivery of small ticket microfinancing needs can be commercially more viable as compared to traditional branch banking. In this, crowdfunding approach using mobile applications is one of the nextgen methods to cater to specific micro-financing needs. Going forward, one of the important aspects of mobile credit services will be on how to change the structure of the lending product. For instance, moving from an itemized one-to-one lending product to a more of a float or limit or credit line type of product is expected to drive uptake in this arena. Source: GSMA, EY analysis 4.4. Key challenges in MFS service delivery for telcos and financial institutions Despite the multiple benefits presented by MFS for telcos and financial institutions, there are numerous impediments which hamper viability of MFS delivery models. For instance, growing competition, challenges in customer monetization, legacy cost structures and compliance with regulatory norms are some of the key issues. There is a lingering threat from OTT service providers, especially FinTech players, merchants and handset providers, as they can disrupt the market. They are nimble in their approach, and are proving to be strong competitors in the domain. Legacy cost structures are also a challenge, especially for telcos. Currently, most telcos have created huge cost structures. Going forward, it will be important to understand how to leverage this cost. For this, telcos can collaborate with financial institutions to jointly utilize the infrastructure (e.g. retail stores, etc.) Regulatory compliances and document management is also a key challenge, especially due to regional subjectivity attached with it. Customer monetization is gradually becoming a challenge with multiple competing services trying to grab a share in the consumer s mind State of the Industry Mobile Financial Services for the Unbanked, GSMA, SOTIR_2014.pdf, accessed 28 April Decoding mobile financial services 27

28 5 Role of MFS in developing financial dividend Recent years have witnessed notable progress in financial inclusion globally, with the percentage of adults having a bank account or mobile money account increasing from 50.6% in 2011 to 61.5% in Yet, 38% of adults globally continue to be excluded from the financial system. 15 Clearly, this presents a large gap and forms a direct addressable market to cover under the financial net. Figure: Financial inclusion is increasingly becoming a key priority for economies Among bank regulators in 143 jurisdictions have a mandate to promote financial inclusion 67% 50 Countries have set formal targets and ambitious goals for financial inclusion Source: World Bank This gap in financial inclusion can be addressed by propagating MFS. Today, a distinct disparity exists between mobile penetration and financial services penetration, especially in emerging markets. Figure: Disparity between mobile penetration and financial institution penetration in select countries Vietnam 147.1% 30.9% Indonesia 35.9% 128.8% Bangladesh 29.1% 80.0% India Kenya 52.8% 55.2% 74.5% 73.8% Pakistan 8.7% 73.3% Tanzania 19.0% 62.8% Mobile penetration (%) Account at a financial institution (% age 15+) Source: ITU 2014, Global Findex Database 2014, World Bank 14 Global Findex Database 2014, World Bank. 15 Financial inclusion overview, World Bank, accessed 4 February, Decoding mobile financial services

29 The mobile platform has witnessed marked success in reaching even rural and remote areas, and the ongoing decline in handset costs has further fuelled the growth of mobile services usage. This clearly represents an opportunity gap that can be addressed by using MFS to increase the financial dividend of an economy. The overall GDP flow in an economy can be mobile-based using MFS platform In some countries, MFS has witnessed widespread uptake and is one of the key methods for money transfers and payments. For instance, mobile money contributes more than 65% of the total National Payments System throughput volume in Kenya, which highlights the importance of mobile money compared with other payments instruments. Likewise, in countries such as Tanzania and Uganda, a significant amount of transactions is done through mobile platforms the total value of mobile money transactions is equivalent to more than 30% of Tanzania s gross domestic product (GDP) and 20% of Uganda s GDP. Source: GSMA, IFC Kenya is a classic case of financial coverage turnaround via the mobile platform. In 2006, only 26.4% of people had access to formal financial services. The availability of mobile money services saw financial inclusion nearly double to 66.7% by Figure: Mobile leads as the preferred financial access point in Kenya Financial access points by type and location in Kenya Total access points Mobile money agent 24% 76% 83% Commercial banks 45% 55% 2% Off-site ATMs 46% 54% 1% Saving and Credit Co-operative Society 23% 77% 1% MFIs 27% 73% 1% Post-bank 28% 72% 0% Bank agent 17% 83% 23% Source: GSMA Urban Rural 16 Enabling Mobile Money Policies in Kenya Fostering a Digital Financial Revolution, ITU GSMA, MMU_Enabling-Mobile-Money-Policies-in-Kenya.pdf, accessed 28 April Decoding mobile financial services 29

30 Case study Growing uptake of mobile-based financial services in SSA SSA is one of the leading regions in the adoption of MFS. In 19 markets of SSA, there are more registered mobile money accounts than bank accounts, making mobile the key platform for financial inclusion. The region has received encouraging participation from all spheres in the MFS ecosystem. On supply side, it accounted for more than half of the 255 live mobile money services globally in On the consumer side, over one-fifth of mobile connections were linked to a mobile money account at the end of Technological innovations continue to garner momentum, and most countries have enabling regulatory environment, which encourage continued growth of MFS to drive further financial inclusion. Proportion of global mobile money services in SSA (2014) Live services Planned services Active users Number of transactions 48% 52% 58% 42% 30% 70% 46% 54% Sub-Saharan Africa Rest of world The region claims a significant portion of mobile subscriber growth as well. For instance, it recorded the highest growth in subscriber base across regions, growing at a CAGR of 13%, as compared to the global average of 6% during Subscriber growth by region: CAGR ( ) Sub-Saharan Africa 13% Asia-Pacific 9% Global average 6% Middle East and North Africa 5% Latin America Commonwealth of Independent States 3% 3% Europe Northern America 1% 1% According to a 2014 survey with data from around 14,000 users across 14 countries, including Nigeria, Kenya and South Africa approximately 83% of consumers plan to conduct mobile commerce over the next 12 months. This depicts a substantial increase of 15 percentage points compared with 2013 data. Going forward, SSA is expected to remain the focus region for innovative MFS delivery use cases. Source: GSMA 30 Decoding mobile financial services

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32 32 Decoding mobile financial services

33 6 Regulation and cybersecurity remain key pivots for sustainable MFS models Although innovation is leading to an upswing of innovative MFS business models, their uptake and sustainability hinge on multiple parameters. For instance, the target country s macroeconomic and demographic profile, pertinent policy guidelines and availability of a favorable ecosystem have a significant impact on the degree of acceptance of the new services. In addition, the ability of the new offerings to combat the challenges posed by cybersecurity is equally important. An enabling regulatory framework can play a significant role in fostering MFS With the financial sector being the backbone of a country s socio-economic development, and given the privacy and security aspects involved, it is one of the most highly regulated sectors globally. Countries have adopted varying sets of policy guidelines depending on their contextual requirements. Similarly, with the growing use of mobile and other digital platforms for financial services, countries are putting in place frameworks to regulate the MFS domain. Against this backdrop, differential regulations have impacted MFS differently in different regions. For instance, many regulators are increasingly recognizing the role that nonbank entities can play in fostering financial inclusion and are establishing enabling regulatory frameworks. According to reports, 47 of 89 mobile money markets allow both banks and non-banks to provide mobile money services in a sustainable way. 17 Regulators guiding involvement of different players in the MFS ecosystem Given the fact that financial institutions are, in general, better placed to comply with the guidelines of central banks and have consumer trust for delivery of financial services, many regulators are promoting MFS delivery in partnership with banks. For instance, regulators specifically mandate having a banking license for MFS delivery, which ensures participation of a banking entity. Likewise, some countries are also laying down clear regulatory frameworks with a view to boost MFS. A recent example is India, which introduced a new regime on payment bank license. In August 2015, 11 entities received approval to open payment banks, five of which are telcos or affiliates, and these telcos have partnered with banks for delivery of services. Leading Indian telcos already have a presence in the MFS domain through open or semi-closed mobile wallets, and are rendering basic services of recharges and money transfers. With the aforesaid development, the gamut of services is expected to widen immensely as well as provide better monetization opportunities. It enables them to offer services such as debit cards, investment banking, deposits, remittances, cash in or cash out, mutual funds, as well as insurance and pension products. The need for a test and learn approach by regulators Formulating regulations for newly proposed services is clearly a demanding task for any regulator. It is, therefore, natural to form protective guidelines to manage potential risks, specifically when the policy directly impacts the monetary flow and financial system of the country. Alternatively, there is a yet another approach that regulators can adopt the test and learn approach, i.e., to test the deployment of the service and monitor the developments. In this, regulators let innovation flourish by providing an open turf to players, while putting in place minimal requisite rules. As the services develop, the regulators build more comprehensive regulations based on the lessons learnt. This is an important approach, as it gives the service ample space to develop without too many restrictions, and has worked in under banked economies State of the Industry Mobile Financial Services for the Unbanked, GSMA, accessed 28 April Decoding mobile financial services 33

34 Case study Tanzanian regulator following the test and learn approach; rules follow innovation An example of the test and learn approach is the development of regulations around MFS in Tanzania. Here, the regulator made a progressive decision by letting regulation follow innovation. The Bank of Tanzania (BOT) engaged closely with industry players, providing them adequate freedom to roll out new products and services. With time, BOT responded with the required safeguards and applied the lessons learnt to develop more detailed guidelines on the delivery of MFS. The availability of such a regulatory environment has supported the unprecedented uptake of MFS in the country with access to MFS growing from less than 1% of the adult population in 2008 to around 90% by September Source: GSMA, IFC While innovation in MFS has led to better user convenience and increasing uptake of new digital services, it has also brought new privacy and security challenges to the surface Recent examples of cyber-attacks reflect the extent of damage that can be caused to organizations. These range from substantial financial damage to dent in reputation and share price drop. Companies may not only lose their customer base, but also be affected by regulatory levies for noncompliance to protect customer data. According to reports, organizations that house significant amounts of personal data or are ill-prepared to deal with a cyber-attack are at the greatest risk to experience large-scale data theft attacks, resulting in reputational and financial damage. 18 This directly brings the financial services sector in the radar, where cybersecurity assumes an even greater degree of importance with the high sensitivity of consumer data involved. Case study Cybersecurity a prime concern for the financial services sector in the US market The average annualized cost of financial services cybercrime in the US remained elevated at US$20.8 million in Despite a decrease of 11.9% y-o-y, the gravity of the issue continues to challenge the sector the number of attacks targeting financial services networks is increasing, as 83% of those surveyed experienced more than 50 attacks per month. Average annualized cost of cybercrime for financial services firms in the US (US$ million) % y-o-y 43.9% y-o-y -11.9% y-o-y 18.5% FY10 FY11 FY12 FY13 FY4 Average annualized cost of cybercrime for financial services firms in the US (US$m) Source: Ponemon Institute 18 Credit rating agency Moody s Corp and S&P report. 34 Decoding mobile financial services

35 In addition, MFS is even more vulnerable to cyber-attacks, given the involvement of multiple form factors as well as multiple user interfaces. Accordingly, extensive security measures are necessary at each layer of data transit and storage, such as the m-wallet applications, multiple payment gateways and data centers. Case study Losses due to internet and telephone banking fraud on a rise in the UK In the UK, losses from internet and telephone banking fraud rose 59% to 35.9 million in the first six months of Among these, vishing attacks have been one of the fastest growing types of fraud, which involve hoaxers calling the customer and posing as a bank or credit card security team to trick people out of their personal details. Source: Financial Fraud Action UK Further, mobile device theft in itself is also a factor that can expose personal data to fraudulent activities. To combat this, both in-built protection features, such as password patterns and biometric scanning to lock phones, as well as add-on software are available to track mobile phones. In addition, many mobile insurance companies are now coming up with innovative offerings, which cover data and identity protection besides device protection. Robust know-your-customer (KYC), AML and transaction authentication procedures remain a key focus to combat cyber threats With the growing use of mobile payments and virtual currencies as an alternative to traditional banking, there is a significant need to clarify how regulations on pertinent grounds will be enforced on mobile and digital transactions. For instance, policies on KYC, AML and transaction authentication processes are some of the key areas where a robust, yet customer-friendly, approach is necessary to prevent cybercrimes. Unlocking identity assurance through digital platforms Many countries are revising their KYC policies by developing faster and more secure authentication systems to combat fraud. On its part, digitization of services has helped in online submission of KYC documents, which enables faster implementation of the procedures. For this, many financial institutions have incorporated changes in their KYC process to include mobile and digital channels of form submissions. Going forward, mobile and other digital platforms will be increasingly used for proper identity assurance. For this, online identity verification services are expected to increase. In light of the continuing decentralization of authentication and payment functionality using multiple channels and form factors, robust standards for security and regulatory compliance are inevitable. Newer ways of transaction authentication offer both security and user convenience Globally, there is a significant thrust on secure procedures for transaction authentication. Techniques such as two-factor authentication are prevalent for most high-value transactions on online or mobile platforms. However, as consumers want more convenience and faster processing, many regulators and central banks are relaxing the norms for low-value money transfers and payments. In view of changing consumer preferences and needs, organizations need to adapt to technological advancements and introduce new processes that help create a balance between user convenience and security aspects. For instance, in the near future, tokenization and biometric authentication are likely to have a strong impact on the digital payment industry: Tokenization helps secure credit card data, by substituting credit card numbers by tokens. The original number is securely stored on a tokenization server, and only the tokens are used during the payment process. For payment authentication, biometric processes such as voice recognition and finger scanners provide both security as well as user-convenience. Dealing with the cybersecurity challenge: readiness is the key In light of the challenges around cybersecurity, companies need to be proactive in prepping themselves for a potential threat. In most scenarios, companies neglect the initial signs of cyber breaches, which later amplify and have greater impact. It is important to be watchful of initial indications and take preventive steps by establishing appropriate systems and mechanisms. Decoding mobile financial services 35

36 Developing robust IT systems and regulatory compliance is a must for companies Strong inside: develop robust IT systems and cybersecurity divisions Companies need to allocate resources spend on developing IT systems and processes as well as hire or train specialist staff to work in the area of cybersecurity. Globally, the spending on information security is expected to reach US$75.4 billion in 2015, increasing by 4.7% y-o-y. Of this, security testing, IT outsourcing, and identity and access management form the key areas. Companies must adapt to technological advancements and introduce new processes to ensure security and convenience. For instance, in the near future, tokenization and biometric authentication are likely to have a strong impact on the digital payment industry. Regulatory compliance: follow the set rules to safeguard own self Compliance with applicable country-specific regulations on curbing cyber-attacks is equally important. For instance, regulations in India, such as the IT Act Amendment 2008, the Reserve Bank of India Guidelines on Information Security, and the Amendment to Unified Access Service License mandate steps to be taken to prevent data security breaches. Source: news articles, EY analysis Harnessing regulatory guidelines and cybersecurity for the MFS opportunity Although most countries are promoting MFS by revisiting the traditional regulations, some regulators continue to impose restrictions. Typically, these confine participation of non-bank entities for financial services, either by imposing very stringent conditions or restricting to only basic services. Given the varying regulatory norms prevalent across regions, companies with a presence in more than one geography need to be cognizant and assess their MFS strategy accordingly. All in all, considerate regulatory guidelines and preparedness to tackle cybersecurity issues will remain the two key pillars that determine the success of MFS models in the years to come. As the MFS ecosystem evolves, the relevant regulatory norms need to evolve in parallel. The availability of enabling ground-level frameworks and their regular review for potential changes are essential to sustainably grow these services. 36 Decoding mobile financial services

37 7 An integrated approach to lead the way for MFS So far, the propagation of MFS has happened at varying levels and in a more unstructured way in different regions. The MFS story has been led by isolated innovations mushrooming in silos. While there exists substantial opportunity in almost each of the sub-services, the business models will vary among markets, depending on the local needs and demographics. Overall, in the near term, both traditional financial services as well as MFS will continue to co-exist. Going forward, an integrated approach from the various players telcos, financial institutions, app developers, technology platforms and device vendors will be vital for MFS to build on the initial success which has achieved so far. Decoding mobile financial services 37

38 Contacts Telecommunications Prashant Singhal Global Telecommunications Sector Leader Ernst & Young India EYPL Olivier Lemaire EMEIA Telecommunications Sector Leader Ernst & Young Luxembourg Myhan Naidoo TMT Leader Africa Ernst & Young South Africa Burgess S. Cooper Partner, Advisory, Risk Ernst & Young India EYPL Sanjay Bachchani Partner, Assurance, Telecommunications Ernst & Young India EYPL Mohit Prabhakar Partner, Risk, Telecommunications Ernst & Young India EYPL William Delylle Executive Director, Advisory, TMT Ernst & Young United Kingdom Ajay Bali Director, Risk, Ernst & Young Luxembourg Joel Ghosalkar Director, Advisory, Telecommunications Ernst & Young India EYPL Financial Services Bill Schlich Global Banking & Capital Markets Leader Ernst & Young Canada John Weisel Deputy Banking & Capital Markets Leader Ernst & Young LLP United States Jan Bellens Global Banking & Capital Markets Emerging Markets and Asia Pacific Leader Ernst & Young - Singapore Shaun Crawford Global Insurance Sector Leader scrawford2@uk.ey.com Ernst & Young United Kingdom Rohan Sachdev Global Insurance Emerging Markets Leader rohan.sachdev@in.ey.com Ernst & Young India EYPL Pierre Pilorge Advisory Partner, Banking & Capital Markets pierre.pilorge@fr.ey.com Ernst & Young Advisory Andrew Bates Financial Services Leader, Africa andy.bates@za.ey.com Ernst & Young United Kingdom Steve Osei-Mensah Partner, Financial Services, Africa steve.osei-mensah@ke.ey.com Ernst & Young Kenya Susan Breytenbach Partner, FIDS, Africa susan.breytenbach@za.ey.com Ernst & Young South Africa James Gachihi Director, Banking Advisory, Africa james.gachihi@ke.ey.com Ernst & Young Kenya 38 Decoding mobile financial services

39 Acknowledgement EY Knowledge team Adrian Baschnonga Global Lead Analyst, Telecommunications Balakumar Rengaswamy Analyst, Banking & Capital Markets Fadzayi M Musanhu Senior Analyst, Insurance Li-May Chew Strategic Analyst, Global Banking & Capital Markets Sachin Sharma Analyst, Banking & Capital Markets Steven Lewis Market Developments & Insights Leader, Banking and Capital Markets Swapnil Srivastava Global Knowledge Leader, Telecommunications Swati Mahajan Analyst, Telecommunications Yukti Mittal Analyst, Telecommunications Connect with us at globaltelecommunicationsector@eyg.ey.com Decoding mobile financial services 39