Will Mobile Payments Ever Replace Cash in the Last Mile? Where, when, and how?

Mobile Payments SeriesTM Will Mobile Money ever replace cash in the Last Mile? Where, When, and How? Menekse Gencer Mail: mgencer@mpayconnect.com Skype: meneks80 January 7, 2010 Company: www.mpayconnect.com

mPay Connect Consulting Linked In: Mobile Payment Series – mPay Connect Menekse Gencer Background • 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 • Board Member of Mobile Money Africa, Conference Speaker MMT Dubai, Philippines • Wharton MBA ‘98, Harvard BA Economics ’93 • Triathlete, Bay swimmer, Local singer, Dive Master, Avid traveler For more information mgencer@mpayconnect.com www.mpayconnect.com www.twitter.com/mpayconnect Mobile Payments SeriesTM ©mPay Connect, Inc. January 2010 2 mgencer@mpayconnect.com

Agenda 1. Landscape of Mobile Financial Services & “The Last Mile” 2. Developed World: Lessons from cards 3. Emerging Markets: Opportunities and challenges 4. G-Cash Example 5. Panel Mobile Payments SeriesTM ©mPay Connect, Inc. January 2010 3 mgencer@mpayconnect.com

What are the “First” and the “Last” Miles? Money In Money Out “First Mile” “Last Mile” Customer Mobile Money Transfer (P2P & Remittances) Account Salary Pensions (Mobile Wallet) Remittance Mobile & Retail Purchases Credit/Loans Held by Financial Institution or Mobile Operator or 3rd Party Alerts Mobile Bill Payment Balance History ©mPay Connect, Inc. Mobile Payments SeriesTM ©mPay Connect, Inc. January 2010 4 mgencer@mpayconnect.com

What does it take to replace cash? Card History (100+ years) 1800 1850 1900 1950 2000 2010 Company Money Travelers’ Charge 1 mill Profitable Amex is formed orders checks Cards Card Holders First BankAmerica Visa Global 1 bill Visa Revolving Card Brand ATM Visa Credit (retail) (later Visa) Network cards Visa: 44% credit market share 48% debit market share Non-Cash retail payments in US = Over 1 billion card holders, millions of merchants 15% in 1979 to 40% in 2000 Visa Annual Opex: $3.4 bill Sales, Marketing, and promotions: ~ $1 billion Source: Slideshare.net “Credit Card History”, Form 10K Visa, Nov. 20, 2009 Mobile Payments SeriesTM ©mPay Connect, Inc. January 2010 6 mgencer@mpayconnect.com

The U.S.: #1 in credit and debit card usage • By 2010, US cardholders = 181 million (Source: Census Bureau) • Average American = 5.4 cards. 1:10 > 10 credit cards (Source: Experian marketing insight snapshot, March 2009) • In 15 years, debit card 1%  50% non-cash transactions (Source: Tower Group, August 2009) • 84% of students have credit cards (Source: Sallie Mae, April 2009) • Today, 50% of college undergraduates have 4 or more credit cards (Source: Sallie Mae, April 2009) …and we still have 116 billion cash transactions in the US!!!! Or nearly half of all payments transactions Mobile Payments SeriesTM mPay Connect, Inc. January 2010 7 mgencer@mpayconnect.com

Mobile Money Transfer (P2P) 1.7 Billion unbanked mobile users (2012) In 2 years, mPesa Kenya went from 0 to 8+ million users!!!! Afghanistan Examples of live or on-going projects in Africa (MMT) • Kenya: Safaricom launched M-Pesa in partnership with Vodafone Kenya • Kenya: Zain is re-launching ZAP, their mobile money product; Telkom is preparing the launch of Orange Money • Uganda: MTN has launched MTN Mobile Money • Uganda: Uganda Telecom is investigating mobile financial services with Redknee • Monitise has received a grant to launch mobile financial services in East Africa • DRC: Celpay (bank) launched an M-banking offering • DRC: Zain is initiating talks with the BCC and has partnered with Citibank Tanzania • Ghana: Flash me cash is a mobile banking solution that has been launched in Source: Edgar Dunn, March 2009 Ghana and Nigeria • Ivory Coast: MTN has launched their mobile money offer, Orange Money was launched as well • Nigeria: Zain, MTN, MoneyBoxAfrica are all active present • Tanzania: Vodacom launched the M-Pesa product in the market Source: Amarante Consulting Intelligence Mobile Payments SeriesTM ©mPay Connect, Inc. January 2010 9 mgencer@mpayconnect.com

Mobile Money Transfer systems Cash Agent Sender Mobile Money Transfer Receiver Cash Agent Converts cash to mMoney From one mobile subscriber to another Converts mMoney to Cash ©mPay Connect, Inc. Mobile Payments SeriesTM ©mPay Connect, Inc. January 2010 10 mgencer@mpayconnect.com

What’s the problem with cash-in and cash-out? The economics issue Share of operating expenses for a mobile [bank] (illustrative) . . 90% Agent Commissions . 80% 70% . . 60% Share of opex 50% 40% . . . . . . . . . 30% Registrations Costs for . . 20% Marketing New Customers Costs SIM Card Costs/Agent 10% Acquisition, Call Center / 0% Licensing 1 2 3 4 5 years Consumers pay fee MNO gives 30% to cash-in agent Mobile banking and new business models (some additional thoughts) and 30% to cash-out agent by Kabir Kumar: Thursday, November 12, 2009 Mobile Payments SeriesTM ©mPay Connect, Inc. January 2010 11 mgencer@mpayconnect.com

Attacking the cash-out problem by replacing cash with mobile payments in “The Last Mile” “The Last Mile” Cash Agent Sender Mobile Money Transfer Receiver Converts cash to mMoney… OR From one mobile subscriber to another Salary deposited directly to account In traditional card models, “The Last Mile” Merchant pays 1% to 2% to card network ©mPay Connect, Inc. Mobile Payments SeriesTM ©mPay Connect, Inc. January 2010 12 mgencer@mpayconnect.com

Turning the “last mile” from a cost to a revenue MMT Revenue from Electronic Wallet Revenue Payment Provider Revenue .25% to 3% Interchange Profit Cash Out X% Mobile Payment Commissions Merchant Operations X% Cash In Receives Commissions Losses x% Platform Costs, Opex Transaction Expense X% Profit ©mPay Connect, Inc. Mobile Payments SeriesTM ©mPay Connect, Inc. January 2010 13 mgencer@mpayconnect.com

For mobile operators and remittance co’s, there’s a white elephant in the room… Agents = Mobile Payments = Commissions paid out Free to Payment provider MMT mPayments Cash-in/Cash-out Cash out no longer needed TopUp at Agent location TopUp remotely over phone ©mPay Connect, Inc. Mobile Payments SeriesTM ©mPay Connect, Inc. January 2010 14 mgencer@mpayconnect.com

For merchants and consumers, old habits die hard unless there’s a real reason to change! Fees Lack of Ubiquity Liquidity issues Behavioral change Challenges Anonymity MNO Agent (channel) conflict Safety / Security Faster/ More Convenient Opportunities Privacy Better management & tracking ©mPay Connect, Inc. Mobile Payments SeriesTM ©mPay Connect, Inc. January 2010 15 mgencer@mpayconnect.com

Recent experience with G-Cash One of the oldest mobile payments systems (started in Oct. 2004), ©mPay Connect, Inc. but few merchants accept Mobile Payments SeriesTM ©mPay Connect, Inc. January 2010 17 mgencer@mpayconnect.com

Will mobile payments ever replace cash in the “last mile”? Our Panelists Thor Hauge Toffene B Kama Ben Lyon Vice President President, Willstream Exec. Director Western Union Frontline SMS: Credit Digital Ventures (Mobile) Mobile money initiative for formal financial services to the 'last mile‘ remittances in 160 characters or less Menekse Gencer, Moderator President mPay Connect Consulting ©mPay Connect, Inc. Bus. Dev. & Product Strategy Mobile Payments SeriesTM ©mPay Connect, Inc. January 2010 19 mgencer@mpayconnect.com

Thank you! Linked In Group: “Mobile Payments Series – mPay Connect” Menekse Gencer: mgencer@mpayconnect.com www.mpayconnect.com www.twitter.com/mpayconnect www.mpayconnect.com Mobile Payments SeriesTM ©mPay Connect, Inc. January 2010 20 mgencer@mpayconnect.com

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Will Mobile Payments Ever Replace Cash in the Last Mile? Where, when, and how?

by Menekse Gencer on Jan 10, 2010

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Will Mobile Payments Ever Replace Cash in the Last Mile? Where, when, and how? — Presentation Transcript