Mobile Money Opportunities and Challenges. Pierre Pilorge, May 2013

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1 Mobile Money Opportunities and Challenges Pierre Pilorge, May

2 Diversity of Services : Still an open game SERVICE OFFERING: Contributions to community gifts/funds Sending pocket money Making informal loan repayments Petrol stations Drink in a local club School Fees Super market Transport cash in cash out person 2 person transfer airtime Top-Up bill payment ATM withdrawals business to customer payments (salary, social, etc.) retailer payment international remittance access to new financial services (loans, insurance) 1

3 Diversity of Services : What next? Contributions to community gifts/funds Sending pocket money Making informal loan repayments Petrol stations Drink in a local club School Fees Super market Transport SERVICE OFFERING EXTENDED TO SMART COMMERCE: receiving bills vouchers pre-ordering and payment localisation based offerings 2

4 Banks Strategy regarding Smart Commerce Which strategy option shown below is the closest match to your Smart Commerce strategy? D: Smart Commerce solutions provider C: Smart Commerce payment provider 16% 62% D: Smart Commerce solution provider Develop integrated smart-commerce solution incorporating e.g., payment, loyalty, promotion and service B: Smart Commerce sales promoter A: Smart Commerce enabler 3% 19% C: Smart Commerce payment provider Provide your own digital payment solution to your customers Extensive participation B: Smart Commerce sales promoter Provide targeted marketing and loyalty services to your customers, leveraging digital channels 3 A: Smart Commerce enabler Enable your customers to use digital payment and Smart Commerce solutions provided by others Limited participation

5 Key influencing factors Socio-economic issues Estimates that developing world will be 51% urban in 2020 compared to 45% now High proportion of youth who have limited capacity to spend but higher propensity to adopt new technology Resistance to manipulate virtual money Adding value to the customer Understanding new, existing and shifting customer attitudes to mobile money as service propositions mature Most of failures are due to lack of value for the user Facilitating retailers acceptance: retailer is a customer! Product promotion and education is vital Mobile money future considerations External factors Understanding the customer Socio-economic forces Regulatory attitudes Cross-industry partnerships Future considerations Service scalability Increased competition Broader service proposition Industry issues 4 Existing attitudes to financial services Policy aims of maintaining financial stability and boosting financial inclusion need to be reconciled Regulation attitude is key to support and secure such services Rules around who can act as an agent or as a bank and how will affect financial outreach strategies Competition concerns - in some markets, nonbank actors in financial services can use agents but banks cannot

6 Various models have been tried with more or less success COLLABORATIVE STANDALONE COOPERATION MODELS Open Collaboration One operator multiple bank / financial partnerships Restricted Collaboration One operator one bank partnerships Operator - owned The operator essentially takes on a bank-like role Bank - owned The bank goes directly to customer Independent E2E D2C proposition Independent from bank / operators EXAMPLES Zain (Kenya). Partners include Standard Chartered and Citics groups Smart (Philippines) with Banco De Oro (BDO). OltiO (South Africa), 50 : 50 MTN. Standard Bank. Tigo with Orabank (Tchad). Cameroun (MTN/Afriland First Bank - Orange/ BICEC) M-Pesa (Kenya) : partners include now many banks, Werstern Union Globe s G-Cash (Philippines) in partnership with the rural bankers association of the Philippines. Orange (Madagascar) with groceries. Airtel (Madagascar) with Post offices Absa (South Africa). WIZZIT (South Africa) a division of Athens Ban Nigeria (Standard Chartered, First Bank, ) Celplay (Zambia) enables operator and banks, but also has a D2C offer 5

7 How to select the right partnership model? Do you even need a partner? DISTRIBUTION MODEL Which services / Which customers? Which distribution networks? How to create retail acceptance? Up-selling/cross-selling? Who owns the customer? Who ows the brand? ORGANISATION AND PROCESSES How to customise the product to the needs of the distributor? How to link production systems to distributions networks? Which ways for cash in/cash out? What gouvernance? Partnership between banks operators, distribution channels FINANCIAL VALUE What value chain? How to estimate the added value of each partner? What kind of compensation for the partners? (sharing the margin) Who supports the risk? Who runs the risk? 6 LEGAL MECHANISM What is the legal scope of the partnership? What legal framework (JV. Status of bank/insurance, contracts, SLA)? Key question: What partnership model can engage all relevant parties around you?

8 Keep a strong focus on value chain! Provision of mobile money application Product ordering Payment transactions Marketing and customer management Provide hardware Distribute application Activate service Manage application lifecycle Initiate order Deliver product Aggregate Route transaction Debit/credit accounts Acquire payment Account management services Provide associated Offer data mining service Communicate with customers Stronger position for telecom operators Stronger position for merchants Stronger position for banks 7

9 And pay attention to key risks Categories Regulatory and Legal Key Risks Anti-money laundering risks: ensuring the sanctity of the recipient, in case of money transfers; Banking license risks: Providing banking services without license; Litigation or fraud risks due to unclear or insecure ownership and transfers being linked to contractual aspects; Financial Value Taxation and accounting: complexities of tax rules and accounting principles for revenue recognition; Bank receipts versus the Cash In and cash Out; Cash flow management at various touch points; Return on placed money (e.g. through investments etc); Business and Operations Completeness of transaction: existence/completeness of event records generated by platform; Complaints management / customer guarantees Technology security: SIM fraud or hacking; Phishing: users who are volunteering their PINs to unknown callers; 8 9

10 Ten key success factors for a successful launch 1. Clarify why you want to grow in Mobile Money services: benefits for you and for your customers 2. Select services that are adding value to your targeted customers 3. Ensure the service is simple and easy to use and to set up. 4. Develop a business model and financial model that matches both regulatory compliance needs and profitability 5. Select the right partner / provider / alliances that will support both sales and operations 6. Build a dealer network that is ubiquitous across the country so that it doesn t have to advertise as people tell one another. Ensure easy set-up for partners only requiring limited capital and internet access 7. Embed risk approach into the operating model 8. Ensure scalability in systems and processes in selected market and potential new markets. 9. Promote and educate by creating advocacy and word of mouth 10. Do a pilot launch before rolling out large scale 9

11 EY Experience with Mobile Money Ebook Wharton / EY Mobile Money Office Smart Commerce Survey 10 Experience with both Banks and Telcos in very different markets: Asia, India, Africa, Middle East, South America, UK, France, US And with very broad services: strategy, operating model, process, security, risk management, technology support, project deployment