Product Product

Innovation and Innovation and

Access to FinanceAccess to FinanceAccess to FinanceAccess to FinanceKeith JefferisKeith Jefferis

Egyptian Banking Institute – 3rd Annual Banking

Conference

Cairo, November 22-23, 2009

StructureStructure

�� Banking & access to financeBanking & 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

bankingbanking

�� Regulatory issues & implicationsRegulatory 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 recognisedrecognised as as

important…important…

�� Supports economic growth by boosting savings & Supports economic growth by boosting savings &

investmentinvestment

�� 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 efficientintermediation more efficient

�� Promotes more inclusive growth, with lower poverty and Promotes more inclusive growth, with lower poverty and

inequalityinequality

�� 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

subsub--Saharan AfricaSaharan Africa

Rwanda '08

% of adults banked

Source: FinScope

0% 10% 20% 30% 40% 50% 60% 70%

South Africa '08

Botswana '09

Malawi '08

Kenya '06Source: FinScope

Characteristics of the unbankedCharacteristics of the unbanked

�� Low incomeLow income

�� Irregular / volatile incomeIrregular / volatile income

�� Unemployed or irregular employmentUnemployed or irregular employment

�� Dependent upon social welfare grants and/or private remittancesDependent upon social welfare grants and/or private remittances

Low wealth/assetsLow wealth/assets�� Low wealth/assetsLow wealth/assets

�� Save by accumulating small sumsSave by accumulating small sums

�� Predominantly rural, although often mobile geographicallyPredominantly rural, although often mobile geographically

�� Low educationLow education

�� Limited capacity to pay fees/transaction costs for financial servicesLimited 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 unbankedmeeting needs of the unbanked

�� BranchBranch--basedbased

�� Expensive infrastructure (IT, bricks & mortar)Expensive infrastructure (IT, bricks & mortar)

�� Expensive staffExpensive staff

�� High fixed & operational costsHigh fixed & operational costs

�� Focus on larger, more profitable transactionsFocus on larger, more profitable transactions

�� Geared towards wealthier customers, regular employment & incomesGeared towards wealthier customers, regular employment & incomes

�� Not well suited to low value Not well suited to low value txnstxns, poor clients, low density markets , poor clients, low density markets ––fixed fixed txntxn & overhead costs too high& overhead costs too high

“Banking the unbanked” requires new “Banking the unbanked” requires new

business models & approachesbusiness models & approaches

�� Low fixed perLow fixed per--customer & transaction costscustomer & transaction costs

�� Shift towards variable costs/commissionsShift towards variable costs/commissions

�� TechnologyTechnology--basedbased�� TechnologyTechnology--basedbased

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

volume per outlet, and low costvolume per outlet, and low cost

�� Convergence between financial services and Convergence between financial services and telecommstelecomms

�� Shift towards branchless/agency bankingShift towards branchless/agency banking

Mobile network operators wellMobile network operators well--placed placed

to provide low cost financial servicesto provide low cost financial services

�� Experience in lowExperience in low--cost highcost high--volume servicesvolume services

�� Prepaid airtime Prepaid airtime --> stored value> stored value

�� Secure Secure simsim--based front end can be extended to financial servicesbased front end can be extended to financial services

�� BackBack--end end txtx processing systems can encompass financial services processing systems can encompass financial services -- & & �� BackBack--end end txtx processing systems can encompass financial services processing systems can encompass financial services -- & &

cheaper than banking systemscheaper than banking systems

�� MNOsMNOs have widespread agency networkshave widespread agency networks

�� Agents have KYC experienceAgents have KYC experience

�� Rapid technological change Rapid technological change --> falling costs> falling costs

�� Build on MNO marketing/brandsBuild on MNO marketing/brands

CellphonesCellphones more widespread than more widespread than

access to banking in SSAaccess 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 NeedsBanking & Transactions Needs

RemoteRemote ProximityProximity

Money trans-

fersP2P

Money trans-

fersP2P

Bill pmt P2B

Bill pmt P2B

Wel-fare

pmts/pen-sionsG2P

Wel-fare

pmts/pen-sionsG2P

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-

drawals

Cash deps/with-

drawals

E-money issua-

nce

E-money issua-

nce

Key New ProductsKey New Products

�� MMT (P2P)MMT (P2P)�� MM--PesaPesa (Kenya) (Kenya) –– 7 million customers7 million customers

�� MM--PesaPesa KenyaKenya--UKUK

�� MTN mobile money (Uganda, Rwanda, Ghana)MTN mobile money (Uganda, Rwanda, Ghana)

�� P2P & P2BP2P & P2B�� ZainZain Zap (Kenya, Uganda, Tanzania)Zap (Kenya, Uganda, Tanzania)

�� OtherOther�� MMT services in Sierra Leone, Somalia, Senegal, Madagascar, NigeriaMMT services in Sierra Leone, Somalia, Senegal, Madagascar, Nigeria

�� Full mobile bankingFull mobile banking�� WizzitWizzit, MTN (South Africa), MTN (South Africa)

Two main Two main bbusiness usiness mmodelsodels

�� Mobile phoneMobile phone--based based

servicesservices

�� Phone as terminalPhone as terminal

�� Very widespreadVery widespread

�� Card/POS systemsCard/POS systems

�� MerchantMerchant--based systemsbased systems

�� More restricted outlets More restricted outlets

(POS terminals)(POS terminals)�� Very widespreadVery widespread

�� PINPIN--based securitybased security

�� WellWell--suited to remote suited to remote

transactions transactions –– esp. MMTesp. MMT

�� Does not need bank partner Does not need bank partner

except as service providerexcept as service provider

(POS terminals)(POS terminals)

�� Well suited to Well suited to

agency/branchless bankingagency/branchless banking

�� Security advantages Security advantages

(biometrics)(biometrics)

Key Requirements & InnovatorsKey Requirements & Innovators

�� RequirementsRequirements�� TelecommsTelecomms networknetwork

�� SIM/SmartcardsSIM/Smartcards

�� Retail/agency networkRetail/agency network

�� Terminal devices Terminal devices

�� InnovationsInnovations�� Innovation being driven by Innovation being driven by

MNOsMNOs and technology and technology companiescompanies

�� 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 systemsettlement system

�� Does not require developed Does not require developed banking infrastructurebanking 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 modelsmodels

�� 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 structuresbusiness structures

Transformational Transformational

(unbanked customers)(unbanked customers)�� MNO only MNO only

�� MM--PesaPesa

�� MNO/bank JVMNO/bank JV

Additive (existing Additive (existing

customers)customers)�� Bank onlyBank only

�� Internet bankingInternet banking

�� MNO/bank JVMNO/bank JV

�� ZainZain ZapZap

�� Technology co/bank JVTechnology co/bank JV

�� SmartswitchSmartswitch (Botswana)(Botswana)

�� WizzitWizzit (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. MNOsMNOs))

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

airtime sellers)airtime sellers)

�� Offer lowerOffer lower--cost solutions than conventional banking (yes)cost solutions than conventional banking (yes)

Regulatory RequirementsRegulatory Requirements

�� Issues:Issues:

�� Banking license required?Banking license required?

�� Payments service provider (PSP) or Payments service provider (PSP) or ee--money license?money license?

�� Balancing prudential regulation and consumer protectionBalancing prudential regulation and consumer protection�� Balancing prudential regulation and consumer protectionBalancing prudential regulation and consumer protection

�� Balancing a supportive enabling environment with risk Balancing a supportive enabling environment with risk

reductionreduction

�� Implementing AML regulationsImplementing AML regulations

Regulatory RequirementsRegulatory Requirements

�� OutcomesOutcomes

�� Regulatory gaps Regulatory gaps –– innovation ahead of regulationinnovation ahead of regulation

�� No consistent regulatory positionNo consistent regulatory position

�� “hands“hands--off” (Kenya)off” (Kenya)�� “hands“hands--off” (Kenya)off” (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 balancesTrust 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/reliabilityAgency network trust/reliability

Supportive Conditions for Supportive Conditions for

Cellphone / Branchless Banking Cellphone / Branchless Banking

�� Low financial penetration, Low financial penetration,

high cellphone penetrationhigh cellphone penetration

�� Balanced political influence of Balanced political influence of

banks and banks and MNOsMNOs

�� Accommodating regulationsAccommodating regulations

�� Simple & flexible regulatory Simple & flexible regulatory

structurestructure

�� MMT not depositMMT not deposit--taking taking ––

regulate as PSPregulate as PSP�� Important role for remittancesImportant role for remittances

�� National ID system in placeNational ID system in place

�� Government supportive Government supportive ––

shifting payments to new shifting payments to new

platformsplatforms

regulate as PSPregulate as PSP

�� Regulate low value deposits as Regulate low value deposits as

ee--moneymoney

�� Focus on consumer protection Focus on consumer protection

-- few systemic issuesfew systemic issues

�� Allow outsourcing of banking Allow outsourcing of banking

services (retail/agents)services (retail/agents)

�� Flexible AML/KYCFlexible AML/KYC

Thank YouThank YouThank YouThank You