Product Product Innovation and Innovation and Access to Finance - - PowerPoint PPT Presentation

Product Product Innovation and Innovation and Access to Finance Access to Finance Access to Finance Access to Finance

Keith Jefferis Keith Jefferis Egyptian Banking Institute – 3rd Annual Banking Conference Cairo, November 22-23, 2009

Structure Structure

• Banking & access to finance

Banking & access to finance

• Challenges in “banking the unbanked”

Challenges in “banking the unbanked”

• New business models

New business models – – mobile phone & branchless mobile phone & branchless

• New business models

New business models – – mobile phone & branchless mobile phone & branchless banking banking

• Regulatory issues & implications

Regulatory issues & implications

• Supportive conditions for new products to reach the

Supportive conditions for new products to reach the unbanked unbanked

Access to finance is Access to finance is recognised recognised as as important… important…

• Supports economic growth by boosting savings &

Supports economic growth by boosting savings & investment investment

• Improves overall economic efficiency, by making financial

Improves overall economic efficiency, by making financial

• Improves overall economic efficiency, by making financial

Improves overall economic efficiency, by making financial intermediation more efficient intermediation more efficient

• Promotes more inclusive growth, with lower poverty and

Promotes more inclusive growth, with lower poverty and inequality inequality

• Enables the poor to better manage their money, accumulate

Enables the poor to better manage their money, accumulate savings from small sums, to borrow to finance investment, savings from small sums, to borrow to finance investment, and to insure against losses and to insure against losses

Access to banking is often low in Access to banking is often low in sub sub-

• Saharan Africa

Saharan Africa

Rwanda '08

% of adults banked

Source: FinScope

0% 10% 20% 30% 40% 50% 60% 70% South Africa '08 Botswana '09 Malawi '08 Kenya '06

Source: FinScope

Characteristics of the unbanked Characteristics of the unbanked

• Low income

Low income

• Irregular / volatile income

Irregular / volatile income

• Unemployed or irregular employment

Unemployed or irregular employment

• Dependent upon social welfare grants and/or private remittances

Dependent upon social welfare grants and/or private remittances Low wealth/assets Low wealth/assets

• Low wealth/assets

Low wealth/assets

• Save by accumulating small sums

Save by accumulating small sums

• Predominantly rural, although often mobile geographically

Predominantly rural, although often mobile geographically

• Low education

Low education

• Limited capacity to pay fees/transaction costs for financial services

Limited capacity to pay fees/transaction costs for financial services

Conventional banks not well suited to Conventional banks not well suited to meeting needs of the unbanked meeting needs of the unbanked

• Branch

Branch-

• based

based

• Expensive infrastructure (IT, bricks & mortar)

Expensive infrastructure (IT, bricks & mortar)

• Expensive staff

Expensive staff

• High fixed & operational costs

High fixed & operational costs

• Focus on larger, more profitable transactions

Focus on larger, more profitable transactions

• Geared towards wealthier customers, regular employment & incomes

Geared towards wealthier customers, regular employment & incomes

• Not well suited to low value

Not well suited to low value txns txns, poor clients, low density markets , poor clients, low density markets – – fixed fixed txn txn & overhead costs too high & overhead costs too high

“Banking the unbanked” requires new “Banking the unbanked” requires new business models & approaches business models & approaches

• Low fixed per

Low fixed per-

• customer & transaction costs

customer & transaction costs

• Shift towards variable costs/commissions

Shift towards variable costs/commissions

• Technology

Technology-

• based

based

• Technology

Technology-

• based

based

• Distribution structure highly fragmented (“granular”), low

Distribution structure highly fragmented (“granular”), low volume per outlet, and low cost volume per outlet, and low cost

• Convergence between financial services and

Convergence between financial services and telecomms telecomms

• Shift towards branchless/agency banking

Shift towards branchless/agency banking

Mobile network operators well Mobile network operators well-

• placed

placed to provide low cost financial services to provide low cost financial services

• Experience in low

Experience in low-

• cost high

cost high-

• volume services

volume services

• Prepaid airtime

Prepaid airtime -

• > stored value

> stored value

• Secure

Secure sim sim-

• based front end can be extended to financial services

based front end can be extended to financial services

• Back

Back-

• end

end tx tx processing systems can encompass financial services processing systems can encompass financial services -

• &

&

• Back

Back-

• end

end tx tx processing systems can encompass financial services processing systems can encompass financial services -

• &

& cheaper than banking systems cheaper than banking systems

• MNOs

MNOs have widespread agency networks have widespread agency networks

• Agents have KYC experience

Agents have KYC experience

• Rapid technological change

Rapid technological change -

• > falling costs

> falling costs

• Build on MNO marketing/brands

Build on MNO marketing/brands

Cellphones Cellphones more widespread than more widespread than access to banking in SSA access to banking in SSA

Kenya Rwanda 0% 20% 40% 60% 80% 100% South Africa Botswana Malawi Mobile penetration, % popn, 2008 % of adults banked

Banking & Transactions Needs Banking & Transactions Needs

Remote Remote Proximity Proximity

Money trans- fers P2P Money trans- fers P2P Bill pmt P2B Bill pmt P2B Wel- fare pmts/ pen- sions G2P Wel- fare pmts/ pen- sions G2P Mer- chant pmts B2B Mer- chant pmts B2B Loan rep & saving P2F Loan rep & saving P2F In- store pmts P2B In- store pmts P2B Cash deps/ with- drawal s Cash deps/ with- drawal s E- money issua- nce E- money issua- nce

Key New Products Key New Products

• MMT (P2P)

MMT (P2P)

• M

M-

• Pesa

Pesa (Kenya) (Kenya) – – 7 million customers 7 million customers

• M

M-

• Pesa

Pesa Kenya Kenya-

• UK

UK

• MTN mobile money (Uganda, Rwanda, Ghana)

MTN mobile money (Uganda, Rwanda, Ghana)

• P2P & P2B

P2P & P2B

• Zain

Zain Zap (Kenya, Uganda, Tanzania) Zap (Kenya, Uganda, Tanzania)

• Other

Other

• MMT services in Sierra Leone, Somalia, Senegal, Madagascar, Nigeria

MMT services in Sierra Leone, Somalia, Senegal, Madagascar, Nigeria

• Full mobile banking

Full mobile banking

• Wizzit

Wizzit, MTN (South Africa) , MTN (South Africa)

Two main Two main b business usiness m models

• dels
• Mobile phone

Mobile phone-

• based

based services services

• Phone as terminal

Phone as terminal

• Very widespread

Very widespread

• Card/POS systems

Card/POS systems

• Merchant

Merchant-

• based systems

based systems

• More restricted outlets

More restricted outlets (POS terminals) (POS terminals)

• Very widespread

Very widespread

• PIN

PIN-

• based security

based security

• Well

Well-

• suited to remote

suited to remote transactions transactions – – esp. MMT

• esp. MMT
• Does not need bank partner

Does not need bank partner except as service provider except as service provider (POS terminals) (POS terminals)

• Well suited to

Well suited to agency/branchless banking agency/branchless banking

• Security advantages

Security advantages (biometrics) (biometrics)

Key Requirements & Innovators Key Requirements & Innovators

• Requirements

Requirements

• Telecomms

Telecomms network network

• SIM/Smartcards

SIM/Smartcards

• Retail/agency network

Retail/agency network

• Terminal devices

Terminal devices

• Innovations

Innovations

• Innovation being driven by

Innovation being driven by MNOs MNOs and technology and technology companies companies

• Banks only needed to

Banks only needed to provide support services provide support services

• Terminal devices

Terminal devices (phone/POS) (phone/POS)

• Access to banking services &

Access to banking services & settlement system settlement system

• Does not require developed

Does not require developed banking infrastructure banking infrastructure

provide support services provide support services (trust accounts & access to (trust accounts & access to settlement system) settlement system)

• Regulatory decisions crucial

Regulatory decisions crucial in determining business in determining business models models

• Progress in challenging

Progress in challenging environments (Somalia, environments (Somalia, Sierra Leone, Afghanistan, Sierra Leone, Afghanistan, DRC) DRC)

Variety of firms involved & Variety of firms involved & business structures business structures

Transformational Transformational (unbanked customers) (unbanked customers)

• MNO only

MNO only

• M

M-

• Pesa

Pesa

• MNO/bank JV

MNO/bank JV

Additive (existing Additive (existing customers) customers)

• Bank only

Bank only

• Internet banking

Internet banking

• MNO/bank JV

MNO/bank JV

• Zain

Zain Zap Zap

• Technology co/bank JV

Technology co/bank JV

• Smartswitch

Smartswitch (Botswana) (Botswana)

• Wizzit

Wizzit (SA) (SA)

Meeting the Needs of the Meeting the Needs of the Unbanked? Unbanked?

• Requirements for branchless/mobile banking to be

Requirements for branchless/mobile banking to be transformational: transformational:

• Use existing infrastructure that already reaches unbanked

Use existing infrastructure that already reaches unbanked people (e.g. mobile networks) people (e.g. mobile networks) people (e.g. mobile networks) people (e.g. mobile networks)

• Driven by new players with different target markets to

Driven by new players with different target markets to traditional banks (e.g. traditional banks (e.g. MNOs MNOs) )

• Use new distribution networks for cash transactions (e.g.

Use new distribution networks for cash transactions (e.g. airtime sellers) airtime sellers)

• Offer lower

Offer lower-

• cost solutions than conventional banking (yes)

cost solutions than conventional banking (yes)

Regulatory Requirements Regulatory Requirements

• Issues:

Issues:

• Banking license required?

Banking license required?

• Payments service provider (PSP) or

Payments service provider (PSP) or e e-

• money license?

money license?

• Balancing prudential regulation and consumer protection

Balancing prudential regulation and consumer protection

• Balancing prudential regulation and consumer protection

Balancing prudential regulation and consumer protection

• Balancing a supportive enabling environment with risk

Balancing a supportive enabling environment with risk reduction reduction

• Implementing AML regulations

Implementing AML regulations

Regulatory Requirements Regulatory Requirements

• Outcomes

Outcomes

• Regulatory gaps

Regulatory gaps – – innovation ahead of regulation innovation ahead of regulation

• No consistent regulatory position

No consistent regulatory position

• “hands

“hands-

• off” (Kenya)
• ff” (Kenya)
• “hands

“hands-

• off” (Kenya)
• ff” (Kenya)
• Full bank control (South Africa)

Full bank control (South Africa)

• Main concerns are with consumer protection:

Main concerns are with consumer protection:

• Trust account backing for card/phone balances

Trust account backing for card/phone balances

• System integrity (safeguards against IT failure & fraud, audit

System integrity (safeguards against IT failure & fraud, audit trails, DRP, handset/card security) trails, DRP, handset/card security)

• Agency network trust/reliability

Agency network trust/reliability

Supportive Conditions for Supportive Conditions for Cellphone / Branchless Banking Cellphone / Branchless Banking

• Low financial penetration,

Low financial penetration, high cellphone penetration high cellphone penetration

• Balanced political influence of

Balanced political influence of banks and banks and MNOs MNOs

• Accommodating regulations

Accommodating regulations

• Simple & flexible regulatory

Simple & flexible regulatory structure structure

• MMT not deposit

MMT not deposit-

• taking

taking – – regulate as PSP regulate as PSP

• Important role for remittances

Important role for remittances

• National ID system in place

National ID system in place

• Government supportive

Government supportive – – shifting payments to new shifting payments to new platforms platforms

regulate as PSP regulate as PSP

• Regulate low value deposits as

Regulate low value deposits as e e-

• money

money

• Focus on consumer protection

Focus on consumer protection

• few systemic issues

few systemic issues

• Allow outsourcing of banking

Allow outsourcing of banking services (retail/agents) services (retail/agents)

• Flexible AML/KYC

Flexible AML/KYC

Thank You Thank You Thank You Thank You