Introducing our analytical framework

Transcription

1 Introducing our analytical framework s Capturing the key aspects of the business models Customer value proposition Value chain Who is the target customer? Who owns the customer relationship and brand? Accounts Data / VAS Digital channel Physical channel What sections of the value chain does the business own vs outsource to partners? What is the value proposition for the target customer? Color coding legend Full control Completely owns the value chain item. Not dependent on any partner. Shared control No control Partly owns the value chain item and/or shares it with partners Owns no part of the value chain item. Value chain item may or may not be necessary to the business model Profit model What additional revenue or loyalty benefits does the service bring to the business? What cost or operational efficiency benefits does the service bring to the business? 0

2 Framework: Value Chain in DFS Services Accounts Data / VAS Digital Channel Physical Channel Who is legally responsible for the user accounts? On whose platform do user accounts reside? Whose brand(s) do users see? Who primarily owns the user relationship? Who sees and controls user / transaction data? Are these data being utilized to offer Value-Added Services? Who owns the key communications channel (USSD, SIM, data) used? Can users interact with their accounts at physical touch points (e.g. ATMs or agents)? Who owns these physical touch points? What financial and strategic cost or asset is posed by physical channel? What sections of the value chain does the business own vs outsource to partners? 1

3 Bank model: Equity Bank 2

4 Equity 3.0: the next step in the evolution Licensed as Mobile Virtual Network Operator (MVNO) Rents space on the comms channel from Airtel Issues SIM cards and SIM overlay under Equitel brand Offers regular voice, SMS and data services alongside an integrated financial services product Free P2P between Equity customers and Orange Money wallets 30 day mobile loans up to $2,000 at 1.5% interest Customizable goal savings feature Free educational content and access to Facebook, Wikipedia 3

5 Ownership of the value chain Accounts Data / VAS Digital Channel Physical Channel Customer accounts are fully fledged bank accounts Equity Bank is the only brand visible to customers Equity Bank owns the transactional data No other actor has visibility on the data Mobile loan is based on transactional data Equity Bank initially relied on MNOs for the channel Paid Safaricom $0.06/USSD session plus SMS fees In 2015 launched Equitel MVNO Owns a network of 22,000 agents across Kenya Compared to 166 branches and less than 600 ATMs By far the largest bank agent network The only one to rival Safaricom s 89,000 M-PESA agents 4

6 Profit model: Digital channels drive deposit mobilization, revenue growth Mass deposit mobilization New revenue sources Customer acquisition: From 100,000 depositors in 2001 to over 8 million in 2015 Deposit mobilization Total deposits now $3.1bn Agents in Kenya collected $285m in deposits in Aug 2015 alone Transaction fees: Total transaction fee revenue grew by 29% in 2015 to $166m 8 million transactions per month on Equitel channel (Aug 2015) USSD users average 2 txs / month while Equitel users now average 21 5

7 Majority of cash transactions have been shifted to the agent channel 40 Number of transactions, in millions ATM Branch Agency Percentage of transactions by type, as of Sept Branch 22% ATM 27% Agenc y 51% 0 3Q Q Q Q Q 2015 Source: Equity Bank Investor Briefing Q

8 Key takeaways on the bank business model for DFS 1. DFS can generate significant cost of funds reduction 2. DFS can also drive significant reduction in the average cost of physical infrastructure 3. These adjacencies enable banks to offer cheaper transactions 4. Mass market business is new to most banks and requires learning new skills 5. Lack of control over the communications channel can be a major challenge (and cost) 7

9 MNO Model: Airtel Money 8

10 Airtel Money in Africa Established in August 2012 Live in 16 countries 12m active customers 250,000 active agents 7m txns per day $70m in txns value per day 9

11 Airtel Money: A brief history Digital strategy has evolved in several phases Maturity Evolution Embryonic Airtime Top Up P2P transfers Bill Payments Bank Account Access Push & Pull International Remittances Bulk Payments Corporate Payments Solutions Merchant Payments Proximity & ecommerce Micro Savings & Loans Micro Insurance

12 How are customers using mobile money? Customer Transactions on mobile money 0% 25% 50% 75% 100% Trx Value 2% 5% 3% 31% 27% 1% 32% Trx Count 43% 5% 1% 20% 15% 1% 15% Air Time Bill Pay Bulk Disbursement Cash In Cash Out Merchant Pay P2P Transfers Active customers conduct an average of 11 transactions/month and maintain median account balance of $4.70 Source: GSMA State of the Industry 2015

13 Ownership of the value chain Accounts Data / VAS Digital Channel Physical Channel Hosts all customer accounts on its own e-money platform Airtel Money is the only brand visible to customers All customer funds are held in pooled accounts at a bank Airtel Money owns the transactional data No other actor has visibility on most of the data Airtel Timiza mobile loan is based on transactional data Airtel owns the digital channel Cross promotions with voice business are often used (e.g. free talk time equal to P2P amount sent) Owns a network of 22,000 agents in Kenya and 20,000 in Tanzania 12

14 Early investment pushes breakeven out past 36 months Mobile money profitability over time (months)

15 A broad range of services are emerging around mobile money Some of which are completely new business models Agriculture Energy Water Merchant solutions Faraja Insurance Insurance Credit farijika Savings Mobile Money

16 Key takeaways on the MNO business model for DFS 1. Mobile money can be profitable but getting there can be painful 2. Heavy losses in early years to build agent network and acquire customers 3. Indirect benefits can be significant but not always directly reflected in P&L 4. Increasingly, significant revenue requires an ecosystem-based approach 15

17 Standalone model: bkash 16

18 BRAC: 3 service channels 17

19 bkash: Scale As of October 2015 Accounts 25 million Active Accounts 10 million Transactions Per Month 85 million Value of Transactions Per Month $1.4 billion Average Transaction Size $16 * Source: Bangladesh Bank statistics, estimates for bkash based on 85% market share of industry total. 18

20 Ownership of the value chain Accounts Data / VAS Digital Channel Physical Channel Commissions 100+ distributors that oversee 100,000+ agents bkash accounts can be serviced at BRAC Bank ATMs but not at BRAC Bank Branches or BRAC Branches 19

21 bkash: Profit model REVENUE $84 Million COSTS $79 Million PROFIT $5 Million Interest USSD 2014 Audit Months Fees Corporate Agent Commissions 800 staff 110,000 agents 20

22 Key takeaways on the standalone business model for DFS Startup - neither MNO or Bank - can scale Challenging profit model: No existing business lines to cut cost No adjacencies or cross-sell Profitability relies on transaction fees Strategy and sequencing key: Early scale and profitability come from sharp focus on basic payments Medium term pivot towards broader array of services; connected services 21

23 In a digital business, the physical channel is still important Accounts Data/VAS Digital channel Physical channel Bank brings credit license, expertise and capital Comprehensive play by MNO with subsidiaries M-Shwari (CBA) Globe Instaloan MNO (Safaricom) brings channel, retail presence, and marketing expertise Digital channel from Globe, agents from MM arm GCash Specialised lender that brings credit license and scoring model Jumo Relies on MM/MNO partners for everything else Equity Bank Bank that established its own agent network First outsourced, but now controls its credit business Zoona Kopo Kopo OXXO OTC agent aggregator that offers agents credit based on tx data Merchant aggregator that offers merchants credit b. on tx data Vast retailer offers agency banking and transactional account

24 Time DFS business models are not static but evolve (rapidly) Accounts Data/VAS Digital channel Physical channel OXXO 1.0 OXXO 2.0 Offered retail network as agency provider for banks Issuing card based accounts under joint brand, mining tx data for loyalty, analytics Equity 2.0 Equity 3.0 Est. own agent network for cash in/out to accounts Secured own MVNO license, mining transaction data for advanced products