Mobile Money for the Unbanked in Developed Markets

Mobile Money Transfer Conference: Dubai 2009

Addressing the Unbanked in Developed Markets
with Mobile Money Transfer Services

IMF

Menekse Gencer
Mail: mgencer@mpayconnect.com MMT Conference
Skype: meneks80 Dubai
Company: www.mpayconnect.com October 28, 2009

mPay Connect Consulting

Menekse Gencer
• 16 years in Wireless, High Tech, and Financial Services

• PayPal Mobile: Led Business Development. Closed PP’s first mobile deal (Sprint “Send Money”)

• mPay Consulting: US prepaid mobile operator, SKTelecom, Citi, Wells Fargo, EARN

• Mobile Payments SeriesTM Producer (co-hosted by Harvard & Wharton Alumni Clubs)

• Linked In Group: Mobile Payments Series – mPay Connect for upcoming panel events

• Wharton MBA ‘98, Harvard BA Economics ’93

For more information
mgencer@mpayconnect.com
www.mpayconnect.com
www.twitter.com/mpayconnect
Mobile Money Transfer Conference, Dubai: Oct. 28, 2009 ©mPay Connect, Inc.
Addressing the Unbanked in Developed Markets 2 mgencer@mpayconnect.com

Addressing the Unbanked in Developed Markets

• Defined
• Why care?
• Who are they and why are they unbanked?
• MMT: How is it different than and similar to emerging markets?
• Key principles to consider
• Case study


Definitions

Developed Market: 40 countries identified as “Advanced Economies” by IMF (& CIA)
• Australia • Netherlands • Canada • Ireland • San Marino[20] • Finland • * Andorra
• Germany • Spain • Iceland • Portugal • United Kingdom • Japan • Faroe Islands
• Malta • Belgium • Norway • Taiwan • Denmark • Slovakia • Monaco
• South Korea • Hong Kong • Switzerland • Czech Republic • Italy • France • Bermuda
• Austria • New Zealand • Cyprus • Israel • Singapore • Luxembourg • Holy See
• Greece • Sweden • Ireland • San Marino[20] • United States • Slovenia • Liechtenstein

Unbanked: no checking or savings account with a financial institution (Edgar, Dunn)

Under-banked: have a checking or savings account with a financial institution, but
they are still heavy users of non-bank financial products (e.g., check cashers) (Edgar, Dunn)

*The CIA has a modified version of an old version of the IMF's list of Advanced Economies. The CIA notes that the IMF's Advanced Economies list "would presumably also cover"[15] some smaller countries.


Agenda

• Defined
• Why care?
• Who are they?
• Case study


Why Care?
1. Big Market

EU (25)= 116 mm**

US = 70mm
to 111mm*

Source: Ages 18 and over. Unbanked and Underbanked. * Edgar Dunn & CFSI, ** EU 2008 Financial Exclusion Study


Why Care?
2. Highest Mobile Penetration Rates

Highest
Penetration
Rates

In US, 65% of
unbanked have a
mobile phone
Source: CFSI

Source: ITU


Why Care?
3. Need financial services

Phases of Financial Services for
(Unbanked) Migrant Workers

1. Initial 2. Savings & 3. Stable 4.
Settlement Transfer Settlement Consolidation

•Hand-to-Mouth •Accrue savings •Accrue savings •Manage finances (such as
•Cash checks •Remit •Accrue credit retirements savings) to build
•Receive money generations in new country

Source: EU 2008 Financial Services Exclusion Study

Why Care?
4. Open to non-banks for money matters

Source: Edgar, Dunn & Company research, August 2007. Data based on U.S. previously banked


Agenda

• Defined
• Why care?
• Who are they?
• Case study


Who are they?
Average American vs. Unbanked American

Average American Unbanked American
• Credit / Debit = 56% • Cash = 75%
• Most = 5.4 credit cards in wallet • Most = no credit card
• Average = $55k / yr • Average = $25K / yr
• Less likely to remit • Share financial resources

• Older • Skews young
• Substantial credit history • No credit history
• 87% non-immigrant • Majority are ethnic
• Family in LatAm (Hispanic sub-segment)

• Average SMS & Low WAP • High SMS & WAP
• Fixed Line phones • No fixed line phone
• PCs at home • No PC at home

Source: Edgar Dunn Study


Who are they?
Average Unbanked European

Unbanked European
• Lower income / Unemployed
• Skews young
• Single Parent
• Migrant workers

Source: EU 2008 Financial Services Exclusion Study


Agenda

• Defined
• Why care?
• Who are they?
• Case study


Considerations for MMT

Network
Regulatory Effect Value Chain Business
Environment? (customers and and Case & Ops?
places to use) partnership
model?
What services to roll
How will cash in and Costs and Revenues?
out? What’s needed?
cash out be Who are they? Churn Reduction?
Geography?
conducted? Market Share/Power? Strategic Reasons?
Banked or Unbanked?
Conducive toward Retail footprint? Implications toward
Current behavior?
MFS? Relationship with other P&Ls?
Mobile Usage?
How to work with customer? Org design?
What UI?
bank? Brand? Exec commitment?
How to achieve critical
Limitations of MNOs? Interoperability?
mass/network effect?
Agent Commissions?

M
F
Platform I
N Co.
O

©mPay Connect, Inc. MNO? Platform Co.?

Mobile Payments Series Kickoff ©mPay Connect, Inc.
Sept. 3, 2009 14 mgencer@mpayconnect.com

How is it different?
Regulatory not as much of a hurdle
Regulatory not as much of a hurdle
30%
Mobile Domestic Money Transfers: Hurdles to growth
% of Survey Respondents

25%

20%

15%

10%

5%

0%
Consumer Regulatory Business Cash in / Cash Security Poor fit Ecosystem Risk Usability Agent
acceptance Model Out Model with Onboarding
existing
banking
(1) (2) Source: 2008 EDC/GSMA system in
country


Customers to use v.s.
Places to use

Customers to use Places to use

Banked Unbanked Banked Unbanked
• Value Proposition? • Commission structure?
• User Interface ? • Speed of settlement?
• Data service usage? • Points of presence?

©mPay Connect, Inc.


Similar to?
Customer: migrant workers


Similar to?
Customer: Cash-based population

Source: Edgar, Dunn & Company research, January & April 2008 (based on 347 unbanked respondents)


Similar to?
Customer: Skews toward lower income (<50% average)

Source: Edgar, Dunn & Company research, January & April 2008 (based on 347 unbanked respondents in US)


Similar to?
Customer: Money Transfer is important

Remittance Senders without Bank Accounts
Do you have a bank No
account? 75 % of Mexican
Mexico 75.20% remittance
Honduras 70.70% senders have no
Guatemala 68.80%
bank account
El Salvador 64.30%
Columbia 53.00%
Nicaragua 49.30%
Cuba 41.70%
Dominican Republic 38.00%
Source: data reported from survey of immigrants in NY, LA, Miami commission by the author, administered by Emmanuel Sylvestre and Assoc.
Partial results reported in Orozco, Manuel (2004), Distant but close: Guyanese transnational communities and their remittances from the U.S.,
Inter-American Dialogue, Washington DC, January 2004


Customer: Adoption may be harder
Distinguishing between access to finance and use
Users of formal
financial services
No Need
Voluntary
Self-Exclusion
Cultural / religious reasons
not to use / indirect access
Population

Insufficient income /
High risk
Non-users of
formal financial
services
Discrimination
Involuntary
exclusion
Contractual / Informational
framework

No access to financial services
Price / product features
Access to financial services

Source: World Bank


Places to use: Already exist

Source: Aite Group 2007, United Nations, Western Union


M
F
Platform I
N Co.
O

Less do-it-alone, more FI partnerships
Who’s in the Driver’s Seat?

MNO- JV or FI-
Driven 3rd Party Driven
• Market Power, Brand Power, & Footprint
• Regulatory environment in geography
• Existing infrastructure in region



M
F
Platform I
N Co.
O

Sophisticated value chain with
many players already
Transaction
Cost of Electronic Wallet Expense and
Purchase Provider Revenue “Blended Mix”
.25%
Interchange
to
4% Profit
X%

Credit &
• MNO?
Debit Card
Recipient Operation • Platform Provider?
Gets s • Agent Network for
X% Cash-in and Cash-out?
(Merchant
or Person)
Losses x% PIN Debit
Transacti ACH
on
Expense Pre-Paid
X% (Cash In)



Agenda

• Defined
• Why care?
• Who are they?
• Case study


Key Principles for MMT for Unbanked
in Developed World

Principles
1. Unbanked = sum of sub-segments (may be more similar to emerging markets)

2. May have voluntary exclusion from banks, but pay a lot for services elsewhere

3. Dynamics of market = sophisticated FI infrastructure

4. Alternative competitors and partners

5. Baby steps  customer adoption


Agenda

• Defined
• Why care?
• Who are they?
• Case study


Case Study:
MMT for the Unbanked in the US


Unbanked market in the US

Banking Status

Under-banked
56 Mill Banked

Unbanked
111 Mill
52 Mill

Source: CFSI


US = #1 country in remittances sent
…and many are unbanked
(and have mobile phones)

U.S. Immigrant Population and Outgoing Flows of Remittances

U.S. 2006 Demographics Total in USA 34,860,000
75%
Mexico 9,600,000
unbanked
13% China 1,900,000
Philippines 1,700,000
India 1,610,000
87% Vietnam 1,200,000
Cuba 1,100,000
Immigrants Source: United Nations, International Organization for Migration, US Census

Source: World Bank. Orozco, Manuel (2004)


The poorest pay the most

Average fees for the Unbanked in U.S.
1. Remittance = $20 fee
Domestic Money Transfer = $10 fee
Prepaid cards = $4.95 reload fee
Prepaid cards = $3.00 cash out

2. Check Cashers = Up to 12% of check value paid in fees

3. Non-bank locations = $2 to $5 convenience fee for bill payment

4. No bank relationship = No way to grow credit

5. No bank account = Resort to cash-in-hand as method to control finances


But over 60% have mobile phones


Summary

1. Large opportunity

2. Money transfers needed (senders of remittances)

3. Today’s alternatives costly and inconvenient

4. Unbanked = sum of sub-segments

5. May have voluntary exclusion from bank

6. Dynamics of market = sophisticated FI infrastructure

7. Alternative competitors and partners

8. Baby steps  customer adoption


Thank you!
Questions?

mPay Connect
Consulting Services
Linked In Group: “Mobile Payments Series – mPay Connect”

Menekse Gencer
mgencer@mpayconnect.com


Mobile Money for the Unbanked in Developed Markets

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