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Cgap - banking on mobiles webinar - oct.01.2008
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Cgap - banking on mobiles webinar - oct.01.2008

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CGAP, mobile banking, webinar

CGAP, mobile banking, webinar

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  • 1. Banking on Mobiles: Why, How, for Whom? Kabir Kumar Ignacio Mas CGAP ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 2. Table of Contents 1. Why: The logic of branchless banking 2. How: Developing and managing branchless banking channels break 3. For whom: customers, banks, operators 4. Summary: The good, the bad, the ugly of m-banking ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 3. Table of Contents 1. Why: The logic of branchless banking 2. How: Developing and managing branchless banking channels 3. For whom: customers, banks, operators 4. Summary: The good, the bad, the ugly of m-banking ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 4. The logic of branchless banking 1. Use existing 2. Deliver trust 3. Use existing retail through deployed infrastructures technology technology Agent Real-time account- to-account transfers Customer ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 5. Any store can potentially be an agent ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 6. The power of using existing infrastructure ~3bn Philippines Panama 1,000 branches Largest bank has 65 7,000 ATMs branches 25,000 POS 850 shared ATMs terminals in stores (many in branches!) 1.1 million prepaid 12,000 prepaid ~25m airtime resellers airtime resellers Worldwide points of presence ~1m 500k 600k 250k Western Bank Post ATMs POS Mobile Union branches offices Phones ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 7. Status of branchless banking COUNTRY PROVIDER MODEL Afghanistan Roshan (mobile operator) M-banking Brazil Caixa Economica Federal (bank) Banco Card-based Bradesco (bank) Card-based Chile BancoEstado (bank) Card-based Colombia Banco Caja Social (bank) Card-based DR Congo Celpay (bank) M-banking India SKS Microfinance (MFI) M-banking State Bank of India (bank) M-banking Kenya Safaricom (mobile operator) M-banking Equity Bank (bank) M-banking Mexico Banamex (bank) Card-based Mongolia XacBank (bank) M-banking Pakistan Tameer Bank (bank) M-banking Russia Beeline (mobile operator) M-Banking Tavrichesky Bank (bank) Senegal Ferlo (third-party) Card-based ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 8. Worldwide ‘league tables’ Status of agent deployments Status of ‘transformational’ m- banking Country # of agents PHILIPPINES: Smart Money +Gcash, Brazil 55,000 9m registered, 3m active. (+66,000) KENYA: M-Pesa, 3.6m registered S Africa 6,500 users (½ transaction/user/month at Kenya 2,600 average €30). Peru 2,400 SOUTH AFRICA: FNB, MTN, ABSA, Wizzit, 4m registered, 1m active. Philippines 2,000 INDIA, PAKISTAN, MONGOLIA: Still Colombia 572 early days… (+3660) India 460 Ecuador 63 Pakistan 30 ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 9. Table of Contents 1. Why: The logic of branchless banking 2. How: Developing and managing branchless banking channels Developing agent networks M-banking applications and usability Data security Regulatory issues and responsibilities 3. For whom: customers, banks, operators 4. Summary: The good, the bad, the ugly of m-banking ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 10. Types of mobile transactions Proximity Remote Personal / Social P2P payments In-store purchases Bill payment Commerce (merchant) E-commerce Cash in / cash out Banking (agent) A2A payments ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 11. Setting up and managing BB channels Agent networks for cash in / Mobile banking cash out Agent segmentation Usability: user interface Characteristics of ‘good’ agents Security: encryption Partnerships to scale up Nature of bank-operator Business model dependencies Online vs. offline usage ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 12. Segmentation of agents “Human “Bank “Branch “Branchless ATM” offspring” substitute” bank” Bank’s Offload Cater to “blue Extend Minimize fixed objective transactions sky” segments geographic cost, faster roll- from branch coverage out Customers Existing People with Rural / remote Any targeted clients lower income populations Customer Convenience A proposition Proximity New concept benefits suited to their no-frills bank needs/means Key - Create & Cash Marketing & challenges market new management sales presence for the products at and selling bank viable prices Examples Bradesco thru Banco do Brasil Bradesco thru Lemon Bank in Brasil Bradesco through Banco Banco Postal Espresso Popular ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 13. Strategic partnering for growth Go for retail franchises? Use network manager Advantages: They can handle: Faster roll-out, more scale Agent selection, legal Prime locations contracting, setup & training Steady, loyal customer flow Monitoring and maintenance of POS/communications Easier to advertise locations equipment Single contract, consolidated Monitoring and reporting on line of credit agent performance Disadvantages: Harder to negotiate equipment Partner with distributors placement and branding arrangements Knowledge of individual stores More costly Cash collections ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 14. M-banking applications Nature of user experience (How user-supplied transaction details are captured) Interactive session, Interactive session, using menu on Single command network-based client Missed call dialing Telephone banking Voice e.g. Eko by IVR/tones Wireless bearer used SMS SMS to short code messaging e.g. G-Cash, STK on SIM card Obopay e.g. Smart Money, MTN Banking, USSD Single USSD to USSD session Celpay, M-PESA messaging short code e.g. WIZZIT e.g. Eko Data WAP session JAVA aplet on (GPRS/EDGE e.g. most phone /WCDMA) mainstream banks e.g. Obopay (US) ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 15. M-banking UI: SMS (G-Cash) Send SMS to REG 1234 / 5082882: From 5082882: Aurora Reyes/ REG M-PIN/ Thank you July Santos for Register July/ Santos/ 5 Mother’s Maiden registering to G-Cash on Name/ First 08/12/04 at 10:30 a.m. You Santol St., Project Name/ Last may now use G-Cash. For 4, QC/ 024261001 Name/ Address/ more info, reply to this msg Landline with INFO. Ref. . 13131 Transfer Send SMS to money 500 1234 5082882: From 5082882: 9175880309 Enter amount to You have received 500 of <space> PIN G-Cash from 958345254 another <space> 11 digit on 8/12/04 at 10:30 a.m.. mobile mobile number Ref. #13134. number of recipient ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 16. M-banking applications Nature of user experience (How user-supplied transaction details are captured) Interactive session, Interactive session, using menu on Single command network-based client Missed call dialing Telephone banking Voice e.g. Eko by IVR/tones Wireless bearer used SMS SMS to short code messaging e.g. G-Cash, STK on SIM card Obopay e.g. Smart Money, MTN Banking, USSD Single USSD to USSD session Celpay, M-PESA messaging short code e.g. WIZZIT e.g. Eko Data WAP session JAVA aplet on (GPRS/EDGE e.g. most phone /WCDMA) mainstream banks e.g. Obopay (US) ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 17. M-banking UI: USSD (Bharti Telesoft) Balance inquiry Enter *211# to receive Menu appears auto- Press “Answer” to Press “Answer” the USSD menu matically on screen select choice “1” Response message Select choice of account Press “Answer” Enter your PIN ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 18. M-banking applications Nature of user experience (How user-supplied transaction details are captured) Interactive session, Interactive session, using menu on Single command network-based client Missed call dialing Telephone banking Voice e.g. Eko by IVR/tones Wireless bearer used SMS SMS to short code messaging e.g. G-Cash, STK on SIM card Obopay e.g. Smart Money, MTN Banking, USSD Single USSD to USSD session Celpay, M-PESA messaging short code e.g. WIZZIT e.g. Eko Data WAP session JAVA aplet on (GPRS/EDGE e.g. most phone /WCDMA) mainstream banks e.g. Obopay (US) ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 19. M-banking UI: SIM Toolkit (M-PESA) ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 20. M-banking applications Nature of user experience (How user-supplied transaction details are captured) Interactive session, Interactive session, using menu on Single command network-based client Missed call dialing Telephone banking Voice e.g. Eko by IVR/tones Wireless bearer used SMS SMS to short code messaging e.g. G-Cash, STK on SIM card Obopay e.g. Smart Money, MTN Banking, USSD Single USSD to USSD session Celpay, M-PESA messaging short code e.g. WIZZIT e.g. Eko Data WAP session JAVA aplet on (GPRS/EDGE e.g. most phone /WCDMA) mainstream banks e.g. Obopay (US) ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 21. M-banking UI: WAP/Java (Bharti Telesoft) Log in Transfer money to another mobile number ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 22. Data integrity: Confidentiality of data Encryption E-security vulnerabilities Quality of encryption protocol Security of key placement Private key versus public key Preloaded encryption Embedded in hardware (chip) Length of encryption key (e.g. vs. software 128bit) Terminal security: Keystroke Scope of encryption capture / viruses End-to-end (SIM-based) = SIM replacements need collaboration of operator Broken chain (SMS, USSD) = need to trust the operator ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 23. Regulatory landscape Outsourcing client contact AML / CFT Who can be an agent, licensing Know Your Customer (KYC) process Reporting of suspicious Bank-agent relationship: roles & transactions responsibilities, permitted & Maintenance of transaction banned activities, contract terms records Sharing agents among banks Data & financial integrity Account issuance E-security, data privacy Account issuance & e-money Transaction authorizations Competition issues Consumer protection Commitment / business continuity ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 24. What can go wrong? Who is responsible? Customer shares his mobile phone and PIN… and is used malevolently Fraudster manages to electronically intercept the client’s PIN Client is robbed inside or near agent’s store The agent’s store is robbed and the cash is stolen The agent is robbed on his/her way to/from the bank branch Client makes a deposit, and value credit to his account is less than what he paid in and also less than what is shown on the receipt Client makes a deposit, and value credited to his account is less than what he paid in but same as what is on the receipt Using P2P transfer capability on mobile phone, the client sends money to the wrong phone number (= bank account number) Client makes a deposit, but the account is empty when the customer goes to withdraw (bank goes, normal prudential regulations apply) Fraudulent agent is set up ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 25. Table of Contents 1. Why: The logic of branchless banking 2. How: Developing and managing branchless banking channels 3. For whom: customers, banks, operators Customer adoption insights and uncertainties Role of mobile operators M-banking scenarios for banks Making it work for MFIs 4. Summary: The good, the bad, the ugly of m-banking ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 26. What providers think of adoption # People in developing countries using mobile phone primary channel for financial services 2 million 5 million 10 million 30 million 29% 50% 7% 14% 0% 50% 100% How many are poor (< $3/day) 300,000 500,000 1.5 million 3 million 7% 21% 36% 36% 0% 50% 100% # Years for 100 million to use cell phones for payments+ 2 years 5 years 10 years 21% 50% 29% 0% 50% 100% ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 27. Early adopters of m-banking South Users Non Users Demographic Indicators African (n=215) (n=300) adults Personal Income < USD 135 / month 30% 71% 64% Household Income < USD 270 / month 43% 50% 39% “Destitute” (LSM 1 and 2) 6% 23% 16% Financially “unsophisticated” (FSM 1 and 2) 28% 93% 45% Own or borrow mobile phone 100% 65% 49% At least high school education 63% 31% 29% Unemployed 15% 45% 27% Male 71% 50% 49% ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 28. Products used Airtime purchases and non-transactional services are used most ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 29. Attitude to m-banking ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 30. Key customer adoption uncertainties Can mobile banking substitute for the human touch? Can mobile banking appeal to more segments than the young and technologically more sophisticated? Can providers walk the tightrope between reliability and customer convenience? Will customers value ubiquity more than credibility? Will government develop practical risk-based approaches to know your customer? What level of financial literacy will be needed? Will interoperability increase adoption? ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 31. Role of banks: m-banking scenarios ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 32. Service delivery roles for mobile operators Telecoms Account hosting Financial Secure Account operator & transaction institution communications issuance authorization WIZZIT (+ Bank of Smart Money (Smart G-Cash (Globe, Athens + all telcos, Comms + Banco de Philippines) S Africa) Oro, Philippines) M-PESA (Safaricom, Barclays India MTN Banking (MTN Kenya) Any bank doing + Standard Bank, S M-Paisa (Roshan, WAP Africa) Afghanistan) ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 33. Access to finance opportunity Strengths Weaknesses Well known, trusted brand Limited experience with controls Many unbanked customers on cash handling SIM card: security + user interface Unsophisticated, single product sales channels Large network of airtime resellers Experience with high volume, low value transactional platforms Threats Opportunities Loosing operational focus Less churn – customer stickiness ‘Creeping regulation’ – banking Branding – innovation regulation Drive data – beyond voice/SMS Breach in data security – liability & reputational risk Cheap distribution of prepaid Customer care burden Extra service revenues ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 34. Policy issues Account issuance Competition issues Bank account vs. e-money vs. Convergence of two oligopolistic prepaid markets: telecoms + banking Arguments in favor of operator: Risk of transfer of market power Store of value vs. means of by mobile operator payment Withholding service from banks Financial robustness of operators Commitment Arguments against operator: Mobile operator’s core business Unfair competition (not subject is voice: to reserve or capital Everyone uses it, frequently requirements) High margin Precedent What if the operator decides to re-focus on core business? ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 35. Making it work for MFIs Issue Potential solutions No real-time accounting system Hosting of back-office (ASP) / inadequate IT platform Too costly / complex to set up Shared agent networks given resources and small scale Insufficient incentive for agents Individuals rather than shops as agents Potential disruption to group ? ethos Customer acceptance Usability vs. value proposition? Customer awareness? MFIs have strengths partners value (local knowledge, product development acumen, handle small loans) ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 36. Mobile banking: Mixed record for MFIs M-PESA with Faulu (Kenya) SKS Microfinance (India) Loan repayment via mobile, Partner w/ Andhra Bank to offer rather than group meeting m-banking to SKS’s 1.5 million Degraded joint liability clients Additional work for credit officers Clients can make deposits/loan repayment remotely Rural Banks with G-Cash SKS can offer deposits, (Philippines) reduces cash handling cost, Loan officers spent more time on LOs concentrate on marketing relationships, delinquency rather than meetings Not always a net gain for clients - costlier for some Working on automated interface from GCash to back office Processing 10,000 transactions / month ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 37. Table of Contents 1. Why: The logic of branchless banking 2. How: Developing and managing branchless banking channels 3. For whom: customers, banks, operators 4. Summary: The good, the bad, the ugly of m-banking ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 38. The good, the bad, the ugly of m-banking ©2008 CGAP. All rights reserved. http://www.cgap.org/technology
  • 39. Advancing financial access for the world’s poor www.cgap.org www.microfinancegateway.org ©2008 CGAP. All rights reserved. http://www.cgap.org/technology