Access to affordable financial services is critical to our life and our work. Yet, this accessibility is far from universal. Mobile banking can change that. Today there are nearly 5 billion people using mobile phones in the world, but only about 1.6 billion bank accounts, and according to World Bank estimates there are over 2.7 billion adults in the world that can benefit from the dramatic changes mobile banking can bring to their lives. Many of us in the developed world have no idea what life would be like without access to financial services. However, for the vast majority of the world today, that is their reality. According to the Economist Magazine, in countries like India, China, Russia and Brazil over 98% of commerce is still based solely in cash. People that lack access to financial services experience enormous inconveniences and inefficiencies that have a meaningful impact on the quality of their lives and their financial and physical well being. They have to travel great distances, and suffer through long hours of standing in lines simply to pay a bill. In India, for example, there are 700 million people that live 8 hours or more from a bank branch. Carrying cash can also pose security risks for those without access to a bank, and they have difficulty and expense getting money to loved ones when they need to. Fortunately, the best innovations often spring from desperate need in the marketplace. And in this case, that innovation is supported by an opportunity to leverage the existing distribution networks, including vast numbers of independent retailers selling handsets and phone related services, which have successfully brought communication access to nearly every corner of the world. We can use those same networks to extend universal access to financial services to every person on the planet. This can be accomplished by leveraging the mobile phone to efficiently deliver the next generation of financial services. Building and operating a mobile financial service network is complicated and not for the faint of heart. It requires a deep understanding of regulatory requirements; expertise in both mobile and payment technologies; the ability to operate a complex service and make it easy to use for anyone including those that are illiterate; and supporting local distribution networks that can reach those that have previously lacked access to financial services. Equally important, and an even greater challenge, is developing an ecosystem of partners that can address the opportunity and reach mass scale quickly. Collaboration is critical. This ecosystem is critical to success. The more participants in the ecosystem the more value it can deliver; the more distribution points it can reach; and the more use cases and capabilities the service can offer. Mobile financial services need to be offered in partnership with mobile carriers, banks, mobile phone manufacturers, and retailers. Government actors and local businesses can also play a key role. Additionally, national IDs and financial disbursements (pensions, emergency funding, subsidies, food aid, pay to government employees etc.) involve government participation and will ensure key cost elements are reduced and larger adoption is possible – accelerating the “network effect” for those with the greatest need.
The partnerships that we have developed with each of these players and the mobile money services that we have operated around the world now offer on three continents has given us a unique insight into what it takes to build a successful and scalable offering. These insights include: We know from early implementations that mobile‐facilitated branchless banking at scale is a “game‐changer” for financial inclusion. The key factors to scale are: 1. Collaboration 2. Distribution through a broad‐based agent networks 3. Bridge established networks with connections to traditional banking and payment infrastructure and extend them to provide access to new participants 4. Important ‘life valuable‘ use cases for people to save, borrow, transfer and spend 5. Drive consumer awareness and initial use
Collaboration is key Offering universal mobile money solutions is complex and requires deep expertise in a vast number of domains. Many players need to come together and cooperate. Building the right ecosystem can be a very challenging task as each player has their own needs and values, and will view the market and partnership within it differently. A variety of players with different expertise and resources are required to launch a successful market. Therefore, an Open Collaborative Model offers the best way to achieve the benefit of mobile money, facilitating the delivery of more financial offerings and more choice so that branchless banking can scale swiftly. Open, trusted, scalable and interoperable models are essential to maximizing reach and delivering the broadest range of financial service. To achieve this you must recruit the right partners into the network and develop collaborative win‐win business arrangements that incent success for everyone. It is essential that these players recognize the tangible benefits that accrue to the market as a whole, and how this benefits each of them individually. Success will require participation from both banks and non‐banks, and from both mobile network operators and non‐mobile network operators. Having more participants within a market means market shares will be much larger. Having multiple services in a market also helps to drive consumer awareness, customer education and scale. However, the services provided by different players must interoperate (allow payments between the respective participants) this will drive greater adoption and usage‐‐much like carrier based SMS enjoyed when it became interoperable. In that case, people don’t need the same carrier tosend someone an SMS, nor the same bank to send a check. Mobile money solutions need to work just as seamlessly. Interoperability among services also enables both the largest organizations and the smallest grass roots efforts to have a viable offerings for users‐‐driving greater innovation and scale. But to make this work, regulatory, legal and technological frameworks need to be put in place to ensure the smooth operation of any new financial network. Distribution channels through broad‐based agent networks Agent distribution networks are the foundation for any financial service offered in the developing markets, that hopes to include the under and un‐banked. The reasons for this lie in the cost and time inherent in developing a brick‐and‐mortar branch networks and their limitations in profitably serving people outside of the traditional mainstream for financial services solutions. Agent networks enable mobile money providers to extend financial services through new distribution channels. With an agent network, providers can leverage the same types of distribution networks, including vast numbers of retailers, which have successfully brought communication access to nearly every corner of the world
Registering new users; loading cash‐in to accounts and taking cash out; user education and awareness; handling of prepaid plastic; and cross selling other financial services are some of the activities that the agent networks help handle. Our experience clearly shows that the extent of a provider’s agent network, its operational efficiency, and incentives for agents are perhaps the most significant factors in driving user adoption and re‐use. To be effective, agent networks need to reach people where they live and work, and connect to the traditional banking and payment infrastructure (more on this later). The ability to efficiently manage distribution networks require enabling infrastructure such as physical cash‐management; document management (for Know Your Customer fulfillment); and a financial support model that supports intra‐day credit for retailers to ensure they have enough “operating balance” to service users. Bridge to established networks with connections to traditional banking and payment infrastructure and extend them to target new participants Financial solutions are not silos, and much like the internet, their value increases with the number of participants, contributors and connections. It is important for mobile money solutions to interoperate seamlessly with the legacy banking system, to enable greater choice and convenience and drive greater efficiency, while also extending these legacy systems to service new participants. Traditional connections are critical to participation of the traditionally served community. New types of financial services, such as stored value accounts and agent applications, are also important to bringing in new participants. When both new and legacy financial services networks are bridged together it fosters a vibrant ecosystem that benefits both sides, and provides immediate utility. Integration with legacy banking and payment infrastructure needs to be combined with new digital mobile wallets that can enable previously underserved individuals to gain access. To achieve this, a mobile money platform must be integrated into the current customer banking system, while also extending access to the underserved. For the unbanked, prepaid mobile accounts that leverage agent applications for registering new users and enable extensive cash load and unload networks are provided. While consumers that are already banked can be given options that add mobile money services to their existing accounts, making those accounts the anchor for mobile transactions. Integration into the legacy banking system can be done through interfacing with existing banking or debit and credit card networks, or through proprietary interfaces. Our experience has shown that interfaces to legacy banking systems done through open networks such as bank transfer (ACH) networks or debit networks (i.e. STAR or NYCE in the U.S.) are preferred, as these enable new partners to come on board quickly and at relatively low costs as a result of leveraging their existing systems and processes.
Mobile money solutions are typically used by participants to replace cash and checks by providing users with a more convenient way to pay and accept payments. In recognizing that this new model replaces cash, it is important to have a real‐time payment network that operates with the same immediacy as cash. It establishes a level of comfort in technology with users who have long‐entrenched methods of managing their money. In some countries, these real‐time frameworks are already in place: Faster Payments in the UK, National Payment Corporation of India, China Union Pay, BankServ South Africa. But for those that don’t have them, there is a significant investment in time, legislation and operational infrastructure that will be required to create a foundation upon which multiple providers can reach users. When such frameworks are in place, risk management initiatives also require proportional investments both from a systemic risk / solvency in the ecosystem as well as operational and fraud risk management for the participants. It may sometimes take years for central banks and governments to legislate in and around the relevant areas. Important ‘life valuable ‘use cases for people to save, borrow, transfer and spend Adoption of mobile money requires that mobile money providers offer the right ‘use case’ or application in the market to drive consumer utilization. The use case that drives utilization in one place will have less value in another. Once the initial use case that drives adoption establishes a foothold, then utilization can quickly spread and become diversified. In Kenya, the use case that drove initial adoption, which is now over 15 million users, was money transfer. However, today utilization is very diverse. In the Philippians, which now has 8.5 million users, adoption started with mobile phone minutes top up. And, in Thailand, which now has over 5 million users, it started with mobile bill pay. Key to acceptance is identifying the right use case which has ‘life valuable’ qualities. That is to say, it solves a real user problem or fills a need in the market that impacts people’s daily lives. In each market needs will be different. However, people have a common need to save, borrow, transfer money to loved ones, and spend money on goods and services. These areas are where you will uncover the ‘life valuable’ use case in a given market. Users can start with simpler, immediate needs and graduate to savings, micro loans and micro‐insurance products. Take for example, the problems and inconveniences people suffer in a market like Senegal, just to pay a satellite TV bill, something many people around the world take for granted. People travel great distances from their villages carrying cash which can pose a security risk to them, to stand in line for hours just to pay their TV bill so that they can go back home and watch their favorite futbol (soccer) game. If they time their travel and payment carefully they can watch their match, without missing any action as they buy their TV time in increments. However, the cost of travel in time and money, plus lost productivity and wages can be significant. And it can now be avoided with the country’s new mobile money services. Additional ways in which financial service providers can respond to users’ needs and incent adoption include:
• Pay interest on small deposits, thereby encouraging savings and defraying the damaging effects of high inflation which is prevalent in a number of emerging economies. • Create attractive savings products through term‐deposits • Provide direct lending to users through agents and indirect lending through MFI’s and their agents. This ability to create a multi‐tiered hierarchy is important in achieving reach and scale in micro‐ lending as it has long been recognized that local organizations that work closely with community groups have the best success in understanding the user and providing support for their activities, specially where the borrowers have no credit history or even collateral. • Lower the cost of operation to lower the interest rate that users pay. In India, for example, user lending from mainstream banks can vary between 9% for a secured asset to 18% for unsecured loans, while established non‐banking financial institutions in the MFI business lend at rates between 24‐35% and money lenders between 0.5% and 1% per day! Due to the small ticket size and short tenor of MFI loans, operational costs can actually be high which when coupled with access to more expensive capital, translate to very expensive rates to the end user. Therefore bringing more people into formal banking will have a huge benefit to the end user. • Provide a direct model that brings transparency to government disbursements • Provide micro‐insurance products with small regular premium collections as a viable alternative to expensive large ticket products. For example India has farmer insurance for as little $1 per week, however the cost of collecting the $1 is as high as $0.25 Drive consumer awareness and initial use Usage of mobile money services will involve consumers changing their behavior. Moreover, the change will typically involve a task that is critical to them today: a ‘life valuable’ use case. However, changing consumer behavior in this way can be a daunting marketing challenge. Key to successful adoption is first driving the awareness required that the service exists; fostering education around how it works; developing or leveraging a brand that consumer trust; and creating security and comfort around the new service and technology‐‐as well as incenting first usage. However, the good news is that there are examples where this has been done, and when done well, became ‘viral’ with consumers using word of mouth to tell each other of a new and better way to do things. A very small percentage of consumers today have used their phones to make purchases, outside of digital content (ring tones, phone minutes, etc.), and mobile money usage is in its early stages of adoption in most markets. However, this is changing fast as more and more people become comfortable with using their phones for almost everything including ,mobile banking. Mobile money services are also being deployed very quickly with over 200 projects currently either in the market, or being launched shortly according to the GSM Association. The country that has had the greatest success story to date has been Kenya, where over 15 million users are now mobile money subscribers, and nearly 25% of the country’s economy is transacted through mobile money. That success, in large part, was due to consumer awareness. m‐Pesa, which is a subsidiary of the largest phone carrier in the market, spent a lot of time and resource to drive awareness and first usage of the service, and in the process educated the market. A big part of their efforts involved of their agent networks, as both a point of presence to get the word out in a local market, and an educational storefront. Marketing campaign around the country, and incenting consumer usage and agent commissions also played critical roles.
Government and regulators can also help in driving awareness, trust and utilization. Governments can help subsidize the infrastructure in small countries that will struggle to reach critical mass on their own. They can also help to motivate commercial investment through setting the right regulatory climate and through their own investments. And equally important, governments can help drive utilization and trust by using mobile money services for disbursing funds for government programs. In many countries government funds can be a relatively big part of the economy, and governments can facilitate adoption of services by being users of them. Additionally, building enough people and places to pay is essential for the growth of mobile financial services. Small and micro business adoption is essential to usefulness. Those businesses benefit more if they are able to serve more of their customers – therefore merchant acceptance of multiple mobile bank solutions will increase value to the SME and value for users. With the growth of mobile payments, the ability to simply accept payments using something as fundamental as a mobile phone becomes a game changer. Acquiring traditionally un‐acquired merchants is a capital intensive feet – on‐the – street game that requires several years of effort to build a critical mass of merchants to be universally appealing to users. Mechanisms to discount merchant interchange may be required to provide enough incentive for the merchants to adopt electronic payments.
Building Blocks for an Open Collaborative Model In most countries of the world where the need is greatest, success of mobile payment system similar to Kenya’s will be extremely difficult to replicate because of fragmented mobile markets that challenge the creation of a ubiquitous agent and merchant network. In emerging markets with a large number of participants, the investment for any single entity will be huge and those that do invest will struggle to scale if they try and do everything themselves. Once a network is established (critical mass of agents, merchants, users, financial offerings), the Open Collaborative Model will encourage highest value, more choice, more innovation and more utility. It is therefore vitally important to ensure that the basic building blocks for an open collaborative model are developed in concert. The Benefits of a collaborative modelThe clear benefits of a collaborative model are the swift, successful and lasting development of a new market that brings a new source of revenue and profit to the ecosystem partners and a dramatic effect on the economy and the consumers in that market. Working in tandem, partners can help users start with simpler, immediate needs and graduate to savings, micro loans and micro‐insurance products.
How to get involvedIn a world where half the adult population lacks affordable and convenient access to simple banking services, collectively we have an opportunity to significantly expand access to financial services with mobile money. We not only owe it to the underserved to move quickly in delivering solutions that can extend access and improve their lives. In addition, the private and public sectors also stand to benefit greatly, accelerating the move from developing to developed nations. What is at stake is inclusive growth and empowerment of the poor facilitated by a self‐sustainable framework. In order to meet the potential of mobile money solutions, an open collaborative network must be established. Building the right ecosystem is hard work, as each actor has their own interests. However, it is important to do so to achieve the economics and scale required to address the potential of significantly expanding access to financial services. Once a network is established (critical mass of agents, merchants, users, financial offerings), the Open Collaborative Model will encourage the highest value, more choice, more innovation and more utility, and as a result have the highest impact. Today, there is already great interest from the private sector in investment for mobile financial services. Yet these investments, absent an open collaborative approach will achieve only a fraction of their potential. We recommend the creation of funded initiatives that will champion, conceive and execute a collaborative ecosystem, as outlined in this paper, tocountries that have the need, motivated players, and the regulatory environment to make it a real success. What this mean is: • Private sector solutions need to support true interoperability, shared merchant acceptance, and an Open Collaborative Model. Governments and regulators need to also play a role: • Public and private partnerships to increase awareness and aid in on boarding of first time bank users • National ID systems which lower cost and time of enrollment and reduce security risks. • Government utilization of mobile money services for disbursements For those involved or that wish to get involved or learn more contact us at: firstname.lastname@example.org