Digital Finance Use Cases
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Why should people use digital finance? Many add-on services, powered by digital finance, help improve the lives of people around the world.
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Digital Finance Use Cases
- 1. Digital Finance: Use Cases Paris, 10 March 2016
- 2. Case Study: DigiLand Each group is a consulting team; and should develop ideas/concepts to drive financial inclusion for the following audiences: 1. Banks and/or MFIs: what new services should banks innovate to add clients/revenue? 2. Government: what digital capabilities should be leveraged that improve social safety nets and make links to financial inclusion? 3. MNOs (and their mobile payment subsidiaries): what are promising new services to improve market share and add new revenue? 4. FinTech Start-ups: what opportunities could be pursued in digital finance and which partners should they prioritize? 2
- 3. Digital Finance+ The use of digital financial services to make basic, essential services and utilities - in energy, health, education, and water - more accessible. Finance is not an end itself but a means to help solve significant development challenges in order to improve the lives of the poor.
- 4. PAYG Solar – Off-Grid:Electric Customer signs up for “solar-as-a- service” contract Technician installs solar system at customer’s home Customer enjoys low-risk, prepaid energy services Customer enters code, product unlocks for prepaid time Automatically disables service when credit expires Customer pre-pays for energy days via mobile money Receives unique usage code via SMS 5
- 5. Water ATM – Sarvajal Customer tops up RFID card via Agent Sarvajal Water Dispenser is connected to a water source and includes a water purification mechanism GPRS device to connect Water ATM to cloud- based software 6
- 6. Digital Finance Plus – Sector Overview • >100 DF+ Enterprises across energy, water, health, agriculture, education • High concentration in East Africa • Startups drive innovation, but need digital payments and distribution partners • Massive un-tapped markets, limited competition
- 7. • Grants/risk capital for model demonstration • Equity investment, innovations in off-balance- sheet financing and structured debt • Energy/water access policies that embrace DF+ business models • Improved mobile money integration tools (APIs) What is needed?
- 9. Digital Credit Conventional Credit People’s Judgment Automated In Person Remote Days Instant sending information & payments risk management process time to take decisions Definitions 10
- 10. Small Business/ Farmer Variety of Digital Credit Approaches Individual Direct to Individuals …. who may also run small businesses or farm • Credit risk on individual • Initially reliance on alternative data • Track record builds shifts to behavioral data 1 Lender + Its Partners Digital credit 11
- 11. Variety of Digital Credit Approaches Individual Small Business Indirect: Merchant Acquirer or Distributor • Credit risk on business volumes • Embedded in distribution relationship • Collections from electronic sales 2 Lender + Its Partners Merchant Acquirer or Distributor Digital credit 12
- 12. Variety of Digital Credit Approaches Individual Farmer Indirect: Value Chain Aggregator • Credit risk on business volumes • Embedded with aggregator relationships 3 Lender + Its Partners Value Chain Aggregator Digital credit 13
- 13. M-Shwari: a savings and loan bank account exclusively accessed through M-PESA
- 14. Customer Interface Kenya (2012)Country/Launch Providers . 8 Sec Turn around time on account activation 6 Sec Turn around time on transaction processing
- 15. Instantly opened Interest bearing, 2 – 5% Insured Only accessible via M-PESA 1 2 3 4 4 REASONS FOR HCD IMPACT:M-Shwari Savings Account
- 16. Instantly opened Interest bearing, 2 – 5% Insured Only accessible via M-PESA 1 2 3 4 4 REASONS FOR HCD IMPACT:M-Shwari Savings Account
- 17. Instantly opened Interest bearing Insured Only accessible via M-PESA 1 2 3 4 4 REASONS FOR HCD IMPACT:M-Shwari Savings Account Interest bearing, 2 – 5%
- 18. Instantly opened Interest bearing Insured Only accessible via M-PESA 1 2 3 4 4 REASONS FOR HCD IMPACT:M-Shwari Savings Account Interest bearing, 2 – 5%
- 19. Fast– 6 seconds turnaround, credit scoring based on MNO data Small – Average $30 Short-term– 30 day loan (7.5% facilitation fee) 1 2 3 4 REASONS FOR HCD IMPACT:M-Shwari Loan
- 20. Fast– 6 seconds turnaround, credit scoring based on MNO data Small – Average $30 Short-term– 30 day loan (7.5% facilitation fee) 1 2 3 4 REASONS FOR HCD IMPACT:M-Shwari Loan
- 21. Fast– 6 seconds turnaround, credit scoring based on MNO data Small – Average $30 Short-term– 30 day loan (7.5% facilitation fee) 1 2 3 4 REASONS FOR HCD IMPACT:M-Shwari Loan
- 22. Loan Uptake Total Kenyans with personal bank loans Q1 2013 M-Shwari active loans Q4 2014 • Total of $782 million disbursed (about 26m loans) • Non-performing loans about 2% 700k 1.8m 63,000 loans disbursed daily Source: FinAccess 2013, CBA 2014
- 23. M-Shwari has catapulted CBA from focus on narrow elite into mass market banking Prior to M-Shwari, CBA had: Just 89,000 loan accounts $20,000 average deposit balance
- 25. Children missed school 5 times in one year due to shortfall in school fees August 2012 October 2013 Eldest daughter misses important exams due to shortfall of $40 $250 $200 $150 $50 Monthly income Source: Kenya Financial Diaries
- 26. M-Shwari offers easy access to small amounts of liquidity in a way that fits how low-income people think about finances.
- 27. “My son was bleeding a lot from the nose and I was just back from the market and had used all of the money. I needed $12 and that money helped a lot.” “I am in transport business. Not all the time do I have money so I can borrow money to help out my drivers when they are caught by the police.”
- 28. Easy, accessible and private Simple and clear rules Highly engaging Matches the way low-income people think about their finances 1 2 3 4 4 REASONS FOR HCD IMPACT:Why so popular?
- 29. Easy, accessible and private Simple and clear rules Highly engaging Matches the way low-income people think about their finances 1 2 3 4 4 REASONS FOR HCD IMPACT:Why so popular?
- 30. Easy, accessible and private Simple and clear rules Highly engaging Matches the way low-income people think about their finances 1 2 3 4 4 REASONS FOR HCD IMPACT:Why so popular? “All I do is just play with my money by moving it back and forth. I love to play that game between M-Shwari and M-PESA.”
- 31. Easy, accessible and private Simple and clear rules Highly engaging Matches the way low-income people think about their finances 1 2 3 4 4 REASONS FOR HCD IMPACT:Why so popular?
- 32. Digital Credit: A Global Trend Tanzania Zimbabwe China Mexico Rwanda Philippines Ghana Pakistan? Chile DRC Uganda Kenya Niger Venezuela 34
- 34. In Kenya, just 1% of expenditures are made electronically (Even though 2/3 of the population are active mobile money users) Based on 300 low-income households, Kenya Financial Diaires
- 35. Safaricom struggles with activity rates amongst merchants Only 16% of merchants are active 37
- 36. Greater recognition that digital payments are a “hard sell” to small merchants who have other needs and challenges
- 37. No clear value proposition in digitizing merchant payments Using mobile money is not solving a pain point for either side. Thus there’s no clear reason to bear the cost of switching. Cash works very well in the retail space Going digital involves new learning, processes, issues 39
- 38. But merchants have pain points that digital can address If providers offer some of these features in a bundled product, merchants consistently say they would use it. MSMEs struggle with basics • Customer Relationship Management in a highly competitive space • Bookkeeping and accounting • Sales tracking and employee monitoring • Business intelligence • Inventory management • Payment to suppliers • Store credit / layaway for customers • Access to capital
- 39. Merchant needs consistent across countries • CRM • Loyalty • Promotions • Store credit • Layaway • Sales tracking • Accounting • Staff tracking • Peer stats • Forecasting • Inventory management • Paying suppliers • Working capital Customer relationships Business intelligence Inventory and capital $ 41
- 41. Customer relationship management If you give customers a special incentive to come on their birthday, 40% will come in to redeem their gift 44
- 42. $ 010010010110101001011101100101011101000 Inventory and Capital Digitizing FMCG suppliers creates new ways to incentivize both customers and merchants The working capital loan factor is very strong Merchants much more willing to push digital payments if linked with working capital loan $ $ 46
- 43. Early proof points show that offering VAS does drive transaction volumes Change in transaction volume with Value Added Services in place Source: Kopo Kopo Kenya and CGAP analysis
- 44. Could store credit be the killer app? Merchant Acquirer may already extend credit to the small business Individuals sometimes need credit from the small businesses they visit “Can I pay next week?” Small businesses need to stay in business and so will extend credit to individuals A formal lender stands to gain vetted customers because of the small business’ credit history reports. This could remove store credit from merchants’ worries and provide a more reliable, private source of credit to customers. “Let me check my records.” RELIABLE! ✔ “Me too?” $
- 45. Merchants consistently say they would use these features. With these features digital payment acceptance would naturally increase CRM Sales tracking Inventory management Customer relationships Business intelligence Layaway Loyalty Promotion Store credit Inventory and capital Working capital Paying suppliers $ Accounting Staff tracking Peer stats Forecasting