2009:Product Innovation and Access to Finance

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2009:Product Innovation and Access to Finance

  1. 1. Product Innovation and Access to Finance Keith JefferisEgyptian Banking Institute – 3rd Annual Banking Conference Cairo, November 22-23, 2009
  2. 2. StructureBanking & access to financeChallenges in “banking the unbanked”New business models – mobile phone & branchlessbankingRegulatory issues & implicationsSupportive conditions for new products to reach theunbanked
  3. 3. Access to finance is recognised as important…Supports economic growth by boosting savings &investmentImproves overall economic efficiency, by making financialintermediation more efficientPromotes more inclusive growth, with lower poverty andinequality Enables the poor to better manage their money, accumulate savings from small sums, to borrow to finance investment, and to insure against losses
  4. 4. Access to banking is often low in sub-Saharan Africa sub- % of adults banked Rwanda 08 Source: FinScope Kenya 06 Malawi 08 Botswana 09South Africa 08 0% 10% 20% 30% 40% 50% 60% 70%
  5. 5. Characteristics of the unbankedLow incomeIrregular / volatile incomeUnemployed or irregular employmentDependent upon social welfare grants and/or private remittancesLow wealth/assetsSave by accumulating small sumsPredominantly rural, although often mobile geographicallyLow educationLimited capacity to pay fees/transaction costs for financial services
  6. 6. Conventional banks not well suited to meeting needs of the unbanked Branch- Branch-based Expensive infrastructure (IT, bricks & mortar) Expensive staff High fixed & operational costs Focus on larger, more profitable transactions Geared towards wealthier customers, regular employment & incomes Not well suited to low value txns, poor clients, low density markets – txns, fixed txn & overhead costs too high
  7. 7. “Banking the unbanked” requires new business models & approaches Low fixed per-customer & transaction costs per- Shift towards variable costs/commissions Technology- Technology-based Distribution structure highly fragmented (“granular”), low volume per outlet, and low cost Convergence between financial services and telecomms Shift towards branchless/agency banking
  8. 8. Mobile network operators well-placed well-to provide low cost financial services Experience in low-cost high-volume services low- high- Prepaid airtime -> stored value Secure sim-based front end can be extended to financial services sim- Back- Back-end tx processing systems can encompass financial services - & cheaper than banking systems MNOs have widespread agency networks Agents have KYC experience Rapid technological change -> falling costs Build on MNO marketing/brands
  9. 9. Cellphones more widespread than access to banking in SSA Rwanda Kenya Malawi BotswanaSouth Africa 0% 20% 40% 60% 80% 100% Mobile penetration, % popn, 2008 % of adults banked
  10. 10. Banking & Transactions Needs Remote Proximity Wel-Money fare Mer- Loan Cash Bill In- E-trans- pmts/ chant rep & deps/ pmt store money fers pen- pmts saving with- P2B pmts issua- P2P sions B2B P2F drawal P2B nce G2P s
  11. 11. Key New ProductsMMT (P2P) M-Pesa (Kenya) – 7 million customers M-Pesa Kenya-UK Kenya- MTN mobile money (Uganda, Rwanda, Ghana)P2P & P2B Zain Zap (Kenya, Uganda, Tanzania)Other MMT services in Sierra Leone, Somalia, Senegal, Madagascar, NigeriaFull mobile banking Wizzit, Wizzit, MTN (South Africa)
  12. 12. Two main business modelsMobile phone-based phone- Card/POS systemsservices Merchant- Merchant-based systems Phone as terminal More restricted outlets Very widespread (POS terminals) PIN-based security PIN- Well suited to Well- Well-suited to remote agency/branchless banking transactions – esp. MMT Security advantages Does not need bank partner (biometrics) except as service provider
  13. 13. Key Requirements & InnovatorsRequirements Innovations Telecomms network Innovation being driven by SIM/Smartcards MNOs and technology Retail/agency network companies Terminal devices Banks only needed to (phone/POS) provide support services (trust accounts & access to Access to banking services & settlement system) settlement system Regulatory decisions crucialDoes not require developed in determining businessbanking infrastructure models Progress in challenging environments (Somalia, Sierra Leone, Afghanistan, DRC)
  14. 14. Variety of firms involved & business structures Transformational Additive (existing(unbanked customers) customers) MNO only Bank only M-Pesa Internet banking MNO/bank JV Zain Zap Technology co/bank JV Smartswitch (Botswana) Wizzit (SA)
  15. 15. Meeting the Needs of the Unbanked?Requirements for branchless/mobile banking to betransformational: Use existing infrastructure that already reaches unbanked people (e.g. mobile networks) Driven by new players with different target markets to traditional banks (e.g. MNOs) MNOs) Use new distribution networks for cash transactions (e.g. airtime sellers) Offer lower-cost solutions than conventional banking (yes) lower-
  16. 16. Regulatory RequirementsIssues: Banking license required? Payments service provider (PSP) or e-money license? Balancing prudential regulation and consumer protection Balancing a supportive enabling environment with risk reduction Implementing AML regulations
  17. 17. Regulatory RequirementsOutcomes Regulatory gaps – innovation ahead of regulation No consistent regulatory position “hands- “hands-off” (Kenya) Full bank control (South Africa) Main concerns are with consumer protection: Trust account backing for card/phone balances System integrity (safeguards against IT failure & fraud, audit trails, DRP, handset/card security) Agency network trust/reliability
  18. 18. Supportive Conditions forCellphone / Branchless BankingLow financial penetration, Accommodating regulationshigh cellphone penetration Simple & flexible regulatoryBalanced political influence of structurebanks and MNOs MMT not deposit-taking – deposit- regulate as PSPImportant role for remittances Regulate low value deposits asNational ID system in place e-moneyGovernment supportive – Focus on consumer protectionshifting payments to new - few systemic issuesplatforms Allow outsourcing of banking services (retail/agents) Flexible AML/KYC
  19. 19. Thank You

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