Payment Innovations Working Group April 2012

MOBILE MONEY BUSINESS MODELS

Better understand the diff erent roles NGOs can plan in the mobile money fi eld. Apart from being a consumer of the service, NGOs also play other

roles in the role out and development of mobile money services

Forging strong partnerships with private sector stakeholders Understanding private sector’s motives in mobile money, in order

to better align your own organization’s priorities with potential partners

Due diligence when selecting a partner is key

Business models vary in each case We will discuss the three core business models for mobile money,

but as the field develops, joint ventures are becoming more common

WHY DISCUSS BUSINESS MODELS?

MNO-Led Model Mobile network operator acts as de facto “bank”. This

model places most of the regulatory responsibility on the MNO.

Bank-Led Model Financial services offered from a bank to their account

holders through a network of agents

Independent Model Independent companies that often times establish a joint

venture with MNO or Bank to meet a specific demand not currently being met

THREE CORE BUSINESS MODELS

MOBILE MONEY TRANSFER VALUE CHAIN

And how NGOs can engage

MNO–LED MODELS

MNO incentives for off ering mobile money services Reduced costumer churn (product differentiation) Better brand positioning Reduced distribution costs (ex. Printing of airtime scratch cards) Additional revenues from mobile transactions Providing evidence of good citizenship (In the eyes of regulators

and clients)

MNO barriers to entry into mobile money MNO product cycles are traditionally 3-6 months, mobile

money products can be cash flow positive in three years (M-Pesa)

MNOs face uphill regulatory process with central banks CEO of company is not interested. Leadership from the

executive suite is crucial for mobile money success Segmented market share Achieving scale and active accounts

WHY? MNO-LED BUSINESS DRIVERS

MNOs who decided to enter the mobile money market Had no less than 30% of the voice market Existed in markets that had 20-60% mobile

penetration Already had an extensive air time merchant network Were willing to take on big up front investments and

often times “leave money on the table” in the short term

Had strong and positive executive leadership Made a strong marketing push for the product Wanted to reduce their churn through product

differentiation

WHO?PROFILE OF MNOS WHO TAKE A

PRODUCT TO MARKET

FIRST MOVERS– MARKET SHARE AND MOBILE PENETRATION

CGAP, April 2011, Five Business Case Insights on Mobile Money

MNOs manage any and all relationships with formal fi nancial institutions, and are responsible for regulatory compliance

Agent approval is done through the MNO Client Know Your Costumer (KYC) is often times done

through an agent. Range of products, including P2P (ex. remittances), B2P

(ex. salaries) and P2B (ex. Bill Pay) MNO is required to hold mobile money fl oat in a regulated

fi nancial institution

WHAT? MNO-LED MODEL TRAITS

Data NetworkReceive

cash in/out

Move Money

Hold deposits

Mobile Money Transfer Value Chain

MNO

Advantages Brand recognition and

trust Very well developed

distribution market through voice clientele

Self funded model Flexibility in KYC

process Familiar market

segments Extensive agent

networks provide better access

ADVANTAGES AND CHALLENGES FOR MNO-LED MODEL

Challenges Lack of familiarity to

financial services sector

Regulatory barriers Heavy upfront

investment Lack of short term

profits AML/ATF issues Establishing scale Heavy agent and end

user capacity building costs

Linking MNO needs to NGO program goals

HOW?NGO ENGAGEMENT

MNO Needs Product differentiation Better understanding

markets Risk mitigation through

pilots and testing of models

Agent and end user training

Repetitive payment streams that provide scale and consistency

Meeting CSR goals

NGO Engagement Innovative NGO products that

offer new services to clients NGOs have a strong rural

footprint and understand that market well

NGOs are often times implementing partners for pilots

Training agents can also help improve financial services access

NGO programs that disburse funds on a regular basis to beneficiaries is of interest to MNOs

NGOs can provide MNOs a more socially responsible image

Examples: Juhudi Kilmo MFI, PACT governance program

And how NGOs can engage

BANK–LED MODELS

Bank as a driver of the servicePath to full financial inclusion and financial

footprintService linked to a bank account at financial

institution (may mean interest-bearing deposits, possibility for more sophisticated financial services, etc.).

Real-time settlement of transactions linked to bank account

May use POS, mobile as device– innovation here is the economics related to the agent model and new financial products

Deposit insurance

TRAITS OF AGENT BANKING MODELS

Financial institution (commercial bank, MFI, etc.)

Agents: typically look like MNO-led models– small mom and pops, pharmacies, etc. May also use third parties. Typically proprietary. May also use “roving agents

Clients– linked to bank account or special accounts for low-income groups

MNOs in many cases

PLAYERS IN AGENT BANKING

Transactional account most common (bill pay, loan repayment, etc.)

Depending on regulation, may do account opening at agent level. Typically will be a lower-value account

Increasingly, services such as insurance, loans are offered through mobile

May enable B2B activities such as salary or bill payments for businesses

Increasing value for banks related to G2P payments

In addition to transactions, may drive potential clients to sign up in branch

Airtime top ups

ACTIVITIES

Accessing new markets (client segments and geographies)

New revenue streams (bill pay, G2P, transactions, cross-selling etc.)

Decongesting bank branches Cost savings (particularly compared to ATMs)Additional motivations for linking with existing

mobile money systems (although not traditionally bank-led): new service for clients, operational effi ciency, fraud reduction, etc.

Many banks are also doing this as a competitive and reactive measure, although sustainability of this as a motivator is limited

BUSINESS DRIVERS

Lower cost than brick and mortar branches Potential revenue driver, competitive posturing Unlocking future customer segments Retain advantage in fi nancial services space vs. MNOs

May not have experience managing agents Loss of brand control and building trust May be completely new, unfamiliar client segments—training,

product development, etc. Not in line with banks’ traditional business models (low value,

high volume transactions) KYC and registration in some countries Large, upfront costs Perception of banks Managing customer experience Potential for increase in fraud Maintaining active accounts

ADVANTAGES & CHALLENGES

Programming to link up with formal accounts G2P payments Additional fi nancial services such as insurance and loans Can be card based, which helps in areas of low mobile

penetration, low literacy, etc. It remains to be seen whether bank-led models "outlive”

MNO-led, but fi nancial services is within the core business of banks and refl ects their expertise

Examples: Mercy Corps and BanKO in Philippines MEDA in Nicaragua Save the Children and UBL in Pakistan

What are some other areas to engage?

NGO ENGAGEMENT

New Business Models for Mobile Money

INDEPENDENT MODELS

Business Drivers MNO- and Bank-led models have strengths but also

weaknesses, as we have seen Other players see business opportunity to fill existing gaps

in the market Gaps include:

Interoperability Product Development Demand for customized services

Regulation Often requires a bank partner

WHY?

Credit: Ben Lyon Source: http://technology.cgap.org/2012/01/30/customer-level-interoperability-a-story-of-two-mobile-handsets/

Often call 3 rd party or Hybrid Models Joint Ventures

Eko India (http : / /www.boardofi nnovat ion.com/2011/05/02/eko - ind ia-banking-for- the-poor-v ia-mobi le-and- local -stores /)

MobiPay, Georgia

Start-ups Mobile Transactions Limited, Zambia Splash, Sierra Leona M-Peso, Nicaragua Beam India (pre-paid)

WHO?

Often look like MNO-led models Rely on agent network (often independent, rather than

retail outlets) May or may not partner with existing MNO or bank Range of products including P2P and B2BOutside funding from investors Smaller reach than MNO or bank models (not always)Value-added servicesStarting to blur the line completely between MNO &

Bank-led Ex: Telenor Pakistan investment in 

Tameer Microfinance Bank

WHAT?

Advantages Independence Creative products Flexible partner Clear mission Fewer partners to split revenue (could mean lower prices and/or higher commissions)

DisadvantagesLack of Brand recognition

Lack of Distribution network

FundingRegulation

PROS & CONS

Need to carefully access the capability of an independent company (which may be less clear than established bank or MNO) Ex: M-Peso in Nicaragua

Worth considering, especially for smaller projects not of interest to large MNOs

Workforce development & Livelihoods programs Ex. Splash/IFC

Private Sector development programs Increase competition and support for SMEs

Not an option in every country Good for voucher programs

Ex: Mobile Transactions Limited Zambia

HOW? NGO ENGAGEMENT

Process and Roles

NGO ENGAGEMENT OVERVIEW

Not everyone will be a good partner– often times your market may not be their traditional market.

Understand the gaps NGOs will need to fi ll to complete this program– KYC registration, training, etc…

Understand the partner gaps that will need to be fi lledUnderstand that partners have commercial motivations,

and try to align them with your ownPersonality and connection are importantLook to promote/ suggest engagement that is familiar

to them– i.e., cash for work payments may equate to salary payments

Determine what data you can receive from technology platform, and gage your partner’s willingness to share it

In the end, make absolutely sure everything fi ts within your program’s goals.

Sometimes more traditional methods of disbursing funds will be best, mobile money is not a silver bullet

NGOS–TIPS FOR ENGAGING MOBILE MONEY PARTNERSHIPS

Roles: ConsumerAdvisory (including product development and market

knowledge)Training and education Deployment accelerator Facilitator/Broker Contribute to private sector CSR goals

ROLES OF NGO

Thank You

Cameron Peakecpeake@dc.mercycorps.org

Chrissy Martin cmartin@meda.org

Hamilton McNutt hamilton.mcnutt@nethope.org

QUESTIONS AND ANSWERS