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Business Models in Digital Financial Services

The document discusses different business models for digital financial services (DFS). It analyzes the bank model using Equity Bank as an example, the mobile network operator (MNO) model using Airtel Money, and the standalone model using bKash. For each model, it examines ownership and control over various parts of the DFS value chain including accounts, data, digital and physical channels. It finds that the bank model has the most control while the MNO model relies on partnerships. The standalone model falls between the two.

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Business Models in DFS Claudia McKay, Greg Chen, and Peter Zetterli 9 March 2016
Agenda 1. Bank Business Model – Equity Bank 2. MNO Business Model – Airtel Money 3. Standalone Model – bKash 4. Diversity of Business Models 2
Links in the DFS value chain Data / VAS Digital Channel Physical Channel What sections of the value chain does the business own or control? Who is legally responsible for the user accounts? Whose brand(s) do users see? Who ’owns’ the user relationship? Accounts Who sees and controls user / transaction data? Are these data being utilized to offer Value-Added Services? Who controls the key comms channel (USSD, SIM, data) used? Who controls the physical touch points (e.g. agents or ATMs), who controls these? 3
Differing levels of controls Data / VAS Digital Channel Physical Channel What sections of the value chain does the business own vs outsource to partners? Accounts Shared control Full control No control Completely controls the value chain item. Not dependent on any partner. Partly controls the value chain item and/or shares it with partners Controls no part of the value chain item. Value chain item may or may not be important for the business model 4
Bank model: Equity Bank 5
In 2011, Equity Bank saw 6% of its cash transactions take place in the agent channel. What is the share today? A. 15% B. 25% C. 40% D. 50% A. B. C. D. 6% 39% 45% 10% 6
Majority of cash transactions have been shifted to the agent channel Source: Equity Bank Investor Briefing Q3 2015 0 10 20 30 40 3Q 2011 3Q 2012 3Q 2013 3Q 2014 3Q 2015 Number of transactions, in millions ATM Branch Agency Agenc y 51% ATM 27% Branch 22% Percentage of transactions by channel, as of Sept. 2015 7
Since 2004, Equity Bank has grown its deposit base by 40x and its total loan portfolio by 60x. How much has its branch footprint grown in the same period? A. 0 – In fact, it’s shrunk by 5% B. 5x C. 10x D. 20x A. B. C. D. 26% 10% 23% 42% 8
Target customer Mass-market consumers • Largest retail bank in Kenya • 8.5m customers (2014) • Half of all banked Kenyans are Equity customers • 94% of accounts have <$100 balance Small & medium enterprises • More recent focus of the bank • Now over 70% of total loan book • Over $1.8bn in SME lending 10
Digital Strategy has evolved in several phases 11
Equity 3.0: the next step in the evolution • Licensed as Mobile Virtual Network Operator (MVNO) • Rents space on the comms channel from Airtel • Issues SIM cards and SIM overlay under Equitel brand • Offers regular voice, SMS and data services alongside an integrated financial services product • Free P2P between Equity customers and Orange Money wallets • 30 day mobile loans up to $2,000 at 1.5% interest • Free educational content 13
Client Accounts Ownership of the value chain Accounts Client Data / VAS Digital Channel Physical Channel Customer accounts are fully fledged bank accounts Equity Bank is the only brand visible to customers Accounts 15
Ownership of the value chain Accounts Data / VAS Digital Channel Physical Channel Customer accounts are fully fledged bank accounts Equity Bank is the only brand visible to customers Equity Bank owns the transactional data No other actor has visibility on the data Mobile loan is based on data 16
Ownership of the value chain Accounts Data / VAS Digital Channel Physical Channel Customer accounts are fully fledged bank accounts Equity Bank is the only brand visible to customers Equity Bank owns the transactional data No other actor has visibility on the data Mobile loan is based on data Equity Bank initially relied on MNOs for the channel Paid Safaricom $0.06/USSD session In 2015 launched Equitel MVNO Digital Channel 17
Ownership of the value chain Accounts Data / VAS Digital Channel Physical Channel Customer accounts are fully fledged bank accounts Equity Bank is the only brand visible to customers Equity Bank owns the transactional data No other actor has visibility on the data Mobile loan is based on data Equity Bank initially relied on MNOs for the channel Paid Safaricom $0.06/USSD session plus SMS fees In 2015 launched Equitel MVNO Owns a network of 22,000 agents across Kenya Compared to 166 branches and less than 600 ATMs Only network to rival Safaricom’s 89,000 M-PESA agents 18
Profit model: Digital lowers CAPEX and marginal costs to expand reach Reduce infrastructure cost Lower transaction costs • An agent transaction costs Equity $0.88 less than a branch tx • Moving away from Safaricom USSD to Equitel MVNO saved Equity $0.06 per mobile tx • Rapid scale up of agent network since 2010 150x 3000x 19
Profit model: Digital channels drive deposit mobilization, revenue growth Mass deposit mobilization New revenue sources Transaction fees: • Total transaction fee revenue grew by 29% in 2015 to $166m • 8 million transactions per month on Equitel channel (Aug 2015) • USSD users average 2 txs / month while Equitel users now average 21 Total deposits now $3.1bn Agents collected $285m in deposits in Aug 2015 alone 20
Equity has grown larger with ever lower reliance on expensive branches and branch staff 0 5 10 15 20 2005 2007 2010 2014 Access points to 10k / 100k customers Staff /10k Branches /100k (G) Agents /10k ATMs /100k Source: Equity Bank annual reports 21
Key takeaways on the bank business model for DFS 1. DFS drives significant reduction in the cost of physical infrastructure 2. DFS can generate significant cost of funds reduction 3. These adjacencies enable banks to offer cheaper transactions 4. Lack of control over the communications channel can be a major challenge (and cost) 22
MNO Model: Airtel Money 23
What is the average amount of time it takes for an MNO to break even on a mobile money service? A. Less than one year – these guys are money making machines! B. Between one and three years C. Between three and five years D. More than five years – it’s a tough business A. B. C. D. 10% 7% 31% 52% 24
What share of total revenue are the top quarter of Mobile Money deployments making for the network operator? A. 2% B. 10% C. 25% D. 50% A. B. C. D. 0% 8% 50% 42% 25
11% EcoCash Zimbabwe 26% Mobile money is growing as share of total revenue for MNOs MM share of total revenues for respondents to GSMA SOTIR 2015 Source: GSMA State of the Industry 2015 of MNO-led services earn more than 10% of total revenue from mobile money 22% M-Pesa Tanzania 20% M-PESA Kenya 26
Airtel Money in Africa Established in August 2012 – Live in 16 countries – 12m active customers – 250,000 active agents – 7m txns per day – $70m in txns value per day 27
Target customer and value proposition Mass-market voice customers • DFS was devised primarily as a loyalty play aimed at the existing mobile telephony user base • Increasing competition has led to customer churn • In addition, new voice customer growth is set to fall from 8% to 4% as markets near saturation • So customer retention will grow further in importance Target customer 0% 1% 2% 3% 4% 5% Q1 2000 Q1 2002 Q1 2004 Q1 2006 Q1 2008 Q1 2010 Q1 2012 Q1 2014 Customer churn rates 2000-2015 World Developed 0% 2% 4% 6% 8% Voice customer growth 2010-15 2016-20 Source: GSMA Intelligence 2016 29
Target customer and value proposition Value proposition Low-barrier formal account • Lower KYC than bank account • Remote signup via agents or directly on the mobile phone Convenient access to services • Transact on phone 24/7 • Cash transactions at tens of thousands of agent locations Rapidly expanding offering • Data driven credit and insurance • Evolving ecosystem of services 30
How are customers using mobile money? Customer Transactions on mobile money Source: GSMA State of the Industry 2015 2% 43% 5% 5% 3% 1% 31% 20% 27% 15% 1% 1% 32% 15% 0% 25% 50% 75% 100% Trx Value Trx Count Air Time Bill Pay Bulk Disbursement Cash In Cash Out Merchant Pay P2P Transfers Active customers conduct an average of 11 transactions/month and maintain median account balance of $4.70
Ownership of the value chain Accounts Client Data / VAS Digital Channel Physical Channel Hosts all customer accounts on its own e-money platform Airtel Money is the only brand visible to customers All customer funds are held in pooled accounts at a bank Accounts 32
Ownership of the value chain Accounts Data / VAS Digital Channel Physical Channel Hosts all customer accounts on its own e-money platform Airtel Money is the only brand visible to customers All customer funds are held in pooled accounts at a bank Airtel Money owns the transactional data No other actor has visibility on most of the data Airtel Timiza mobile loan is based on transactional data 33
Ownership of the value chain Accounts Data / VAS Digital Channel Physical Channel Hosts all customer accounts on its own e-money platform Airtel Money is the only brand visible to customers All customer funds are held in pooled accounts at a bank Airtel Money owns the transactional data No other actor has visibility on most of the data Airtel Timiza mobile loan is based on transactional data Airtel owns the digital channel Cross promotions with voice business are often used (e.g. free talk time equal to P2P amount sent) Digital Channel 34
Ownership of the value chain Accounts Data / VAS Digital Channel Physical Channel Hosts all customer accounts on its own e-money platform Airtel Money is the only brand visible to customers All customer funds are held in pooled accounts at a bank Airtel Money owns the transactional data No other actor has visibility on most of the data Airtel Timiza mobile loan is based on transactional data Airtel owns the digital channel Cross promotions with voice business are often used (e.g. free talk time equal to P2P amount sent) Owns a network of 22,000 agents in Kenya and 20,000 in Tanzania 35
• Most transactions (except cash-in) come at a fee • 77% of MNOs derive most revenue from customer fees • In LAC and South Asia, get more fees from businesses Profit model - Revenues Indirect Benefits – Reducing customer churn and cost of airtime distribution Direct Benefits – Transaction Fees • High customer churn contributes to price wars and falling margins on the voice business • Selling airtime and data bundles via MM can be at least 20% cheaper than through physical scratch cards Transaction fee revenue Source: GSMA (2014) and GSMA Intelligence (2016) 0% 1% 1% 2% 2% 3% 3% 4% 4% 5% 5% Safaricom Telesom MTN Uganda Churn before MM vs. today Before After 36
Profit Model - Costs • Relatively little capex needed to launch, but significant opex to run • Upon launch, MNOs invest 6-8 times the revenue generated to drive scale of agents and users 1. Agent commissions 2. Marketing 3. Personnel Need time and resources to deploy robust agent network and acquire customers 54% of top 10 provider revenue goes to agent commissions
Early investment pushes breakeven out past 36 months Mobile money profitability over time (months)
Key takeaways on the MNO business model for DFS 1. Mobile money can be profitable but getting there can be painful 2. Heavy losses in early years to build agent network and acquire customers 3. Indirect benefits can be significant but not always directly reflected in P&L 4. Increasingly, significant revenue requires an ecosystem-based approach 43
Standalone model: bKash 44
A. B. C. 27% 37%37% What is the split between transaction fees and interest income for bKash? A. 15% transaction fees, 85% interest income B. 50% transaction fees, 50% interest income C. 85% transaction fees, 15% interest income 45
bKash: A brief history 2009 Two Partners Inspired by East Africa: 1. BRAC: world’s largest NGO – mass market social service delivery with two large retail financial services businesses • BRAC Microfinance • BRAC Bank 2. Money in Motion: Investment vehicle of Iqbal Qaudir (MIT), Kamal Qaudir (Cell Bazaar), and Arun Gore (Grey Ghost). 46
bKash: A brief history BRAC Enterprise 1 Enterprise 2 BRAC Bank bKashMinority Investors (49%) 47
BRAC: 3 distinct retail channels 48
bKash: A brief history Regulatory conditions • 2011 launch – license for Mobile Financial Services held by BRAC Bank • bKash cannot lend: value of bKash mobile accounts deposited in full with commercial banks Initial Capital and Investors • BRAC Bank 51%; Money in Motion 49% • $10m from Gates + TA from ShoreBank/Enclude • 2013 IFC and Gates Foundation invest 49
bKash: A brief history A standalone independent operation • Hires its own staff,CEO and CTO (recruited outside BRAC and outside of Banking) • BRAC assistance in year 1 Seconded 4 staff First 5,000 agents from BRAC borrowers • By year 2 few links to BRAC or BRAC Bank "build it alone" "if it relies on BRAC it will not succeed" 50
bKash: Scale As of October 2015 Accounts 21 million Active Accounts 9 million Transactions Per Month 90 million Value of Transactions Per Month $1.4 billion Average Transaction Size $16 51
Ownership of the value chain Accounts Client Data / VAS Digital Channel Physical Channel “Mobile accounts“ issued by bKash; redeemed by bKash. Value of deposits sit in pooled accounts at commercial banks bKash primary visible brand; BRAC Bank subordinate Accounts 55
Ownership of the value chain Accounts Data / VAS Digital Channel Physical Channel bKash owns the transactional data bKash holds the customer identification Data will be used to develop new services with bank, insurance and MFI partners 56
Ownership of the value chain Accounts Data / VAS Digital Channel Physical Channel MNOs provide USSD access bKash pays MNOs 7% of fee revenue for access to their USSD bKash manages a call center bKash will launch a smartphone application independent of MNOs 57
Ownership of the value chain Accounts Data / VAS Digital Channel Physical Channel Commissions 100+ distributors that oversee 100,000+ agents bKash accounts can be serviced at BRAC Bank ATMs but not at BRAC Bank Branches or BRAC Branches 58
bKash: Profit model Fees Interest 2014 Audit Months 30-42 REVENUE $84 Million Agent Comm- issions USSD Corporate COSTS $79 Million PROFIT $5 Million 800 staff 110,000 agents 60
Key takeaways on the standalone business model for DFS • Startup - neither MNO or Bank - can scale • Challenging profit model: • No existing business lines to cut cost • No adjacencies or cross-sell • Profitability relies on transaction fees • Strategy and sequencing key: • Early scale and profitability come from sharp focus on basic payments • Medium term pivot towards broader array of services; connected services 61
Diversity of Business Models 62
• The digital channel is not in itself a business model • It is a tool that enables innovation and diversity of models: • New ways to deliver existing services • New services that weren’t possible in the past • New partnerships based on specialization and interconnection • A successful DFS ecosystem allows and even requires a diverse set of players and business models to succeed • This session presents three quick cases just to give a flavor of the range of DFS business models that are possible There are myriad potential DFS models 64
Value chainCustomer value proposition Profit model Introducing our analytical framework Capturing the key aspects of the business models What cost or operational efficiency benefits does the service bring to the business? Who is the target customer? Who owns the customer relationship and brand? Data / VAS Digital channel Physical channel What is the value proposition for the target customer? What sections of the value chain does the business own vs outsource to partners? Accounts What additional revenue or loyalty benefits does the service bring to the business? • s Shared control Full control No control Completely owns the value chain item. Not dependent on any partner. Partly owns the value chain item and/or shares it with partners Owns no part of the value chain item. Value chain item may or may not be necessary to the business model Color coding legend 65
Commercial Bank of Africa Powering digital credit on the back-end M-Shwari is a mobile-only deposit and credit account offered as a partnership between an MNO mobile money provider (Safaricom in Kenya) and a bank (Commercial Bank of Africa) 66
Value chainCustomer value proposition Profit model Value proposition: Commercial Bank of Africa Powering digital credit on the back-end Target customer: Mass- market consumers Issues full bank accounts Holds regulatory compliance Only accessed via M-PESA and this is the brand most customers know Customer ownership: Safaricom M-PESA • Brings mass market Kenyans (about 50% of which were previously unbanked) the full benefits of a banking product (interest, deposit insurance, access to credit) – using mobile money as a gateway. Credit scoring on MNO data Underwrites the loans on own books Owns repayment history data, but MNO partner also has visibility Owns and runs the credit scoring algorithm in- house The M-Shwari account is only accessible via M- PESA wallet Available to 15.7m active Safaricom users Cash-in and cash-out services only accessible via 91k M-PESA agents (not via CBA branches) Increase revenue through profitable digital credit Exact nature of Safaricom-CBA profit sharing is not public • Total value of loans disbursed since launch (as of Feb 2016): $782 million • Average loan size: $30 • Loan facilitation fee or 7.5% • Deposit balance (Feb 2016): $73 million • Average account balance (90 day active accounts): $5 • Interest rate on M-Shwari deposits 2 – 5%, above the 1.5% weighted average reported by CBK • CBA has minimal retail presence/infrastructure as its traditional target market has been the corporate sector • M-Shwari partnership allows access to a mass market retail customer base by outsourcing channels Reduce costs through low cost deposits Accounts Data/VAS Digital channel Physical channel Customer-facing digital and physical channels are owned by Safaricom 67
Value chainCustomer value proposition Profit model Value proposition: Instaloan E-money wallets belong to Globe (GCash) Lending license also with Globe (Fuse) Credit scoring on Globe (MNO and Gcash) data Completely owns the repayment history data Disbursement and repayment via Globe (GCash) wallets Uses only Globe communications channels Cash in/out takes place via Globe (GCash) agents Accounts Data/VAS Digital channel Physical channel Similar model, except: • Controls entire value chain • Subsidiaries playing all the key roles required by the model • MM (accounts + CICO) • MNO (comms) • Lender (scoring + credit) 68
Value chainCustomer value proposition Profit model Value proposition: All accounts belong to MNO partner – just e- wallets, not bank accounts Credit scoring on MNO data Owns and runs the credit scoring algorithm Underwrites the credit on own books Owns repayment history data, but MNO partner also has visibility Disbursement and repayment via MNO partner wallets Relies on MNO partner comms channel for transactions Reliant on MNO partner agents for cash in/out Accounts Data/VAS Digital channel Physical channel Similar model, except: • Controls almost none of the value chain • Highly specialized on only • Analytics • Lending • Reliant on MNO partner for accounts, CICO, comms and access to customer data 69
Oxxo Leveraging retail infrastructure for financial services Oxxo is Mexico’s largest retailer by number of outlets with high traffic, long opening hours, and many unbanked customers. They are now leveraging their retail infrastructure to offer Saldazo, a debit card linked to bank account, in partnership with Banamex bank. 1,506 1,623 1,801 12,597 7-Eleven Banamex Bancomer Oxxo # of retail outlets Banking sector total: 11,000 70
Value chainCustomer value proposition Profit model Value proposition: Oxxo Leveraging retail infrastructure for financial services Target customer: Mass- market retail consumers Low KYC account at partner bank Banamex Cards & ads co- branded Oxxo and Banamex Customers think of it as an Oxxo card product Customer ownership: Oxxo • Low-barrier Saldazo “savings card” to store money safely • Special discount offers and loyalty bonuses for Oxxo stores • Better control of money with SMS alerts, digital statements • Use at any VISA enabled merchant Banamex owns customer data, shares reports with Oxxo Oxxo utilizes user data for loyalty rewards and improved marketing Transactions happen at regular POS devices Account may be linked to Telcel phone for mobile P2P, airtime and bill pay CICO at 12,597 Oxxo stores Oxxo has long opening hours (minimum 12h/7 days, some 24/7) Retail payments at any VISA POS Direct revenue from transaction fees • Agency banking: 3.8m txs/mth • 41% of the national market share • Remittances: 200,000 txs/mth after 6 months • Expecting to reach at least 1.5m • Projected to generate 17% of total operating profit in 2-3 years • Convenience stores are fairly commoditized, so Oxxo uses this as a competitive advantage • Gives people a reason to choose Oxxo • Oxxo previously didn’t have much data on cash customers, but can now • Incentivize customers via loyalty rewards • Use data analytics to design better promos and marketing campaigns • Aimed at mass market retail consumer base • Oxxo has 12m purchases daily (~1 per minute per store) • Mostly FMCGs with average ticket size ~$3 USD • Leverages existing business for cost efficiencies • Large retail footprint already in place, staffed and equipped • Extensive cash handling processes Generate traffic and data for core business Accounts Data/VAS Digital channel Physical channel 71
Zoona Third party agent network with over-the-counter transfers Zoona enables MSE businesses to offer over-the counter payments and remittance services, access working capital and purchase inventory through digital channels. 72
Value chainCustomer value proposition Profit model Value proposition: Zoona Third party agent network with over-the-counter transfers Target customer: Micro and small enterprises Hosts internal agent wallets Float is held by a banking partner Does NOT offer consumer wallets (yet) Customer ownership: Zoona • Consumers: • Instant money transfer, bill pay and MM deposit or withdrawal over-the-counter (OTC) with no need to register an account • Agents: • New transaction revenue and increased footfall • Access to working capital • Digital payment of inventory Agent credit based on tx data to accelerate the growth of its physical channel Credit scoring on basis of Zoona transaction data Kiva.org provides lending capital Relies on SMS and data services by MNOs for transactions End customers do not interact directly with any digital channel, since service is over-the-counter Zoona acquires, manages and owns all its agents 650 agents and 1,100 outlets in Zambia Revenue is driven by transaction fees • Consumer services • $9m in transactions per month • Domestic money transfer (5-10% of tx value, capped at $9) • Bill payments, airtime sales • Agent services • Working capital loans to agents (21% APR) • Supply chain distributor payments (e.g. SABMiller) • Fixed costs: • Agents finance the costs for rent and operating expenses • Loan capital for agents is provided by Kiva.org and it’s crowdsourcing network • Zoona pays for staff, agent training, and marketing • Marginal costs: • Most costs are marginal, reducing risk for Zoona • Agents receive between 20% - 60% of transaction fees • As a startup with no existing infrastructure, Zoona has built its agent network through entrepreneurs and existing retailers • Pure agents (Zoona franchise) • Retail outlets with agency as a side business • Distributors who use Zoona for B2B (FCMG and airtime) CAPEX is kept low by “outsourcing” to agents Accounts Data/VAS Digital channel Physical channel 73
Value chainCustomer value proposition Profit model Value proposition: Kopo Kopo Value added services for retail SMEs Target customer: MSE retail merchants Hosts internal merchant accounts Float is held by a bank partner Controls settlement of merchant funds, allowing for automated repayments of cash advance loans Customer ownership: Kopo Kopo • Merchants: • Reduce costs of cash handling (eg: leakage) • Electronic record of all transactions • Access to loans and other value added services Partners (Mobile money providers) • Increase transaction revenue while outsourcing investment in merchant focused ops and tech Utilizes tx data to offer various VAS directly to merchants Merchant credit based on KK tx data is a major revenue source Owns and runs the credit scoring algorithm in- house Kopo Kopo owns the merchant web platform for completing transactions, managing account, and accessing VAS Safaricom controls the customer payments instrument (M-PESA) Kopo Kopo acquires, runs and owns the relationship with all merchants on their platform Total 10,000+ merchants Consumer transaction fees • Merchants in Kenya charged 1% of transactions received via M-PESA • Fee split evenly between Kopo Kopo and M-PESA • Primary costs are: • acquisition and servicing of merchants • development and maintenance of technology platform • Extends working capital loan to merchants based on transaction history • Loan has no maturity, but it repaid as an additional merchant fee on transaction volume • This incentivizes merchants to push txs onto the channel so as to repay quickly • Direct revenue from credit product has already surpassed transaction fee revenue • Kopo Kopo offers digital payment acceptance to a wide variety of merchants, from micro-enterprises up to large retailers • Kopo Kopo aggregates merchants for mobile money systems like M-PESA, but the consumer relationship and experience remains with the MNO Merchant credit product Accounts Data/VAS Digital channel Physical channel Similar model, except: • Focused on merchants (not agents) as immediate users • Stronger focus on credit product in the core profit model 74
Accounts Data/VAS Digital channel Physical channel Legend Shared control Full control No control Completely controls the value chain item. Not dependent on any partner. Partly controls the value chain item and/or shares it with partners Owns no part of the value chain item. Value chain item may or may not be necessary to the business model Is moving partially into controlling the value chain item Is moving significantly into controlling the value chain item
Accounts Data/VAS Digital channel Physical channel Business models focused on company strengths and assets Range of models that specialize in a narrow part of the DFS value chain OXXO Vast retailer offers agency banking and transactional account M-Shwari (CBA) MNO (Safaricom) brings channel, retail presence, and marketing expertise Bank brings credit license, expertise and capital Zoona OTC agent aggregator that offers agents credit based on tx data Globe InstaloanComprehensive play by MNO with subsidiaries Digital channel from Globe, agents from MM arm GCash Jumo Specialised lender that brings credit license and scoring model Relies on MM/MNO partners for everything else Kopo Kopo First outsourced, but now controls its credit business Merchant aggregator that offers merchants credit b. on tx data Equity Bank Bank that established its own agent network
Accounts Data/VAS Digital channel Physical channel In a digital business, the physical channel is still important OXXO Vast retailer offers agency banking and transactional account M-Shwari (CBA) MNO (Safaricom) brings channel, retail presence, and marketing expertise Bank brings credit license, expertise and capital Zoona OTC agent aggregator that offers agents credit based on tx data Globe InstaloanComprehensive play by MNO with subsidiaries Digital channel from Globe, agents from MM arm GCash Jumo Specialised lender that brings credit license and scoring model Relies on MM/MNO partners for everything else Kopo Kopo First outsourced, but now controls its credit business Merchant aggregator that offers merchants credit b. on tx data Equity Bank Bank that established its own agent network
Accounts Data/VAS Digital channel Physical channel DFS business models are not static but evolve (rapidly) Time Equity 2.0 OXXO 1.0 Equity 3.0 OXXO 2.0 Offered retail network as agency provider for banks Issuing card based accounts under joint brand, mining tx data for loyalty, analytics Est. own agent network for cash in/out to accounts Secured own MVNO license, mining transaction data for advanced products
Advancing financial inclusion to improve the lives of the poor www.cgap.org

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Business Models in Digital Financial Services

  • 1.
    Business Models inDFS Claudia McKay, Greg Chen, and Peter Zetterli 9 March 2016
  • 2.
    Agenda 1. Bank BusinessModel – Equity Bank 2. MNO Business Model – Airtel Money 3. Standalone Model – bKash 4. Diversity of Business Models 2
  • 3.
    Links in theDFS value chain Data / VAS Digital Channel Physical Channel What sections of the value chain does the business own or control? Who is legally responsible for the user accounts? Whose brand(s) do users see? Who ’owns’ the user relationship? Accounts Who sees and controls user / transaction data? Are these data being utilized to offer Value-Added Services? Who controls the key comms channel (USSD, SIM, data) used? Who controls the physical touch points (e.g. agents or ATMs), who controls these? 3
  • 4.
    Differing levels ofcontrols Data / VAS Digital Channel Physical Channel What sections of the value chain does the business own vs outsource to partners? Accounts Shared control Full control No control Completely controls the value chain item. Not dependent on any partner. Partly controls the value chain item and/or shares it with partners Controls no part of the value chain item. Value chain item may or may not be important for the business model 4
  • 5.
  • 6.
    In 2011, EquityBank saw 6% of its cash transactions take place in the agent channel. What is the share today? A. 15% B. 25% C. 40% D. 50% A. B. C. D. 6% 39% 45% 10% 6
  • 7.
    Majority of cashtransactions have been shifted to the agent channel Source: Equity Bank Investor Briefing Q3 2015 0 10 20 30 40 3Q 2011 3Q 2012 3Q 2013 3Q 2014 3Q 2015 Number of transactions, in millions ATM Branch Agency Agenc y 51% ATM 27% Branch 22% Percentage of transactions by channel, as of Sept. 2015 7
  • 8.
    Since 2004, EquityBank has grown its deposit base by 40x and its total loan portfolio by 60x. How much has its branch footprint grown in the same period? A. 0 – In fact, it’s shrunk by 5% B. 5x C. 10x D. 20x A. B. C. D. 26% 10% 23% 42% 8
  • 9.
    Target customer Mass-market consumers •Largest retail bank in Kenya • 8.5m customers (2014) • Half of all banked Kenyans are Equity customers • 94% of accounts have <$100 balance Small & medium enterprises • More recent focus of the bank • Now over 70% of total loan book • Over $1.8bn in SME lending 10
  • 10.
    Digital Strategy hasevolved in several phases 11
  • 11.
    Equity 3.0: thenext step in the evolution • Licensed as Mobile Virtual Network Operator (MVNO) • Rents space on the comms channel from Airtel • Issues SIM cards and SIM overlay under Equitel brand • Offers regular voice, SMS and data services alongside an integrated financial services product • Free P2P between Equity customers and Orange Money wallets • 30 day mobile loans up to $2,000 at 1.5% interest • Free educational content 13
  • 12.
    Client Accounts Ownership ofthe value chain Accounts Client Data / VAS Digital Channel Physical Channel Customer accounts are fully fledged bank accounts Equity Bank is the only brand visible to customers Accounts 15
  • 13.
    Ownership of thevalue chain Accounts Data / VAS Digital Channel Physical Channel Customer accounts are fully fledged bank accounts Equity Bank is the only brand visible to customers Equity Bank owns the transactional data No other actor has visibility on the data Mobile loan is based on data 16
  • 14.
    Ownership of thevalue chain Accounts Data / VAS Digital Channel Physical Channel Customer accounts are fully fledged bank accounts Equity Bank is the only brand visible to customers Equity Bank owns the transactional data No other actor has visibility on the data Mobile loan is based on data Equity Bank initially relied on MNOs for the channel Paid Safaricom $0.06/USSD session In 2015 launched Equitel MVNO Digital Channel 17
  • 15.
    Ownership of thevalue chain Accounts Data / VAS Digital Channel Physical Channel Customer accounts are fully fledged bank accounts Equity Bank is the only brand visible to customers Equity Bank owns the transactional data No other actor has visibility on the data Mobile loan is based on data Equity Bank initially relied on MNOs for the channel Paid Safaricom $0.06/USSD session plus SMS fees In 2015 launched Equitel MVNO Owns a network of 22,000 agents across Kenya Compared to 166 branches and less than 600 ATMs Only network to rival Safaricom’s 89,000 M-PESA agents 18
  • 16.
    Profit model: Digital lowersCAPEX and marginal costs to expand reach Reduce infrastructure cost Lower transaction costs • An agent transaction costs Equity $0.88 less than a branch tx • Moving away from Safaricom USSD to Equitel MVNO saved Equity $0.06 per mobile tx • Rapid scale up of agent network since 2010 150x 3000x 19
  • 17.
    Profit model: Digital channelsdrive deposit mobilization, revenue growth Mass deposit mobilization New revenue sources Transaction fees: • Total transaction fee revenue grew by 29% in 2015 to $166m • 8 million transactions per month on Equitel channel (Aug 2015) • USSD users average 2 txs / month while Equitel users now average 21 Total deposits now $3.1bn Agents collected $285m in deposits in Aug 2015 alone 20
  • 18.
    Equity has grownlarger with ever lower reliance on expensive branches and branch staff 0 5 10 15 20 2005 2007 2010 2014 Access points to 10k / 100k customers Staff /10k Branches /100k (G) Agents /10k ATMs /100k Source: Equity Bank annual reports 21
  • 19.
    Key takeaways onthe bank business model for DFS 1. DFS drives significant reduction in the cost of physical infrastructure 2. DFS can generate significant cost of funds reduction 3. These adjacencies enable banks to offer cheaper transactions 4. Lack of control over the communications channel can be a major challenge (and cost) 22
  • 20.
  • 21.
    What is theaverage amount of time it takes for an MNO to break even on a mobile money service? A. Less than one year – these guys are money making machines! B. Between one and three years C. Between three and five years D. More than five years – it’s a tough business A. B. C. D. 10% 7% 31% 52% 24
  • 22.
    What share oftotal revenue are the top quarter of Mobile Money deployments making for the network operator? A. 2% B. 10% C. 25% D. 50% A. B. C. D. 0% 8% 50% 42% 25
  • 23.
    11% EcoCash Zimbabwe 26% Mobile money isgrowing as share of total revenue for MNOs MM share of total revenues for respondents to GSMA SOTIR 2015 Source: GSMA State of the Industry 2015 of MNO-led services earn more than 10% of total revenue from mobile money 22% M-Pesa Tanzania 20% M-PESA Kenya 26
  • 24.
    Airtel Money inAfrica Established in August 2012 – Live in 16 countries – 12m active customers – 250,000 active agents – 7m txns per day – $70m in txns value per day 27
  • 25.
    Target customer andvalue proposition Mass-market voice customers • DFS was devised primarily as a loyalty play aimed at the existing mobile telephony user base • Increasing competition has led to customer churn • In addition, new voice customer growth is set to fall from 8% to 4% as markets near saturation • So customer retention will grow further in importance Target customer 0% 1% 2% 3% 4% 5% Q1 2000 Q1 2002 Q1 2004 Q1 2006 Q1 2008 Q1 2010 Q1 2012 Q1 2014 Customer churn rates 2000-2015 World Developed 0% 2% 4% 6% 8% Voice customer growth 2010-15 2016-20 Source: GSMA Intelligence 2016 29
  • 26.
    Target customer andvalue proposition Value proposition Low-barrier formal account • Lower KYC than bank account • Remote signup via agents or directly on the mobile phone Convenient access to services • Transact on phone 24/7 • Cash transactions at tens of thousands of agent locations Rapidly expanding offering • Data driven credit and insurance • Evolving ecosystem of services 30
  • 27.
    How are customersusing mobile money? Customer Transactions on mobile money Source: GSMA State of the Industry 2015 2% 43% 5% 5% 3% 1% 31% 20% 27% 15% 1% 1% 32% 15% 0% 25% 50% 75% 100% Trx Value Trx Count Air Time Bill Pay Bulk Disbursement Cash In Cash Out Merchant Pay P2P Transfers Active customers conduct an average of 11 transactions/month and maintain median account balance of $4.70
  • 28.
    Ownership of thevalue chain Accounts Client Data / VAS Digital Channel Physical Channel Hosts all customer accounts on its own e-money platform Airtel Money is the only brand visible to customers All customer funds are held in pooled accounts at a bank Accounts 32
  • 29.
    Ownership of thevalue chain Accounts Data / VAS Digital Channel Physical Channel Hosts all customer accounts on its own e-money platform Airtel Money is the only brand visible to customers All customer funds are held in pooled accounts at a bank Airtel Money owns the transactional data No other actor has visibility on most of the data Airtel Timiza mobile loan is based on transactional data 33
  • 30.
    Ownership of thevalue chain Accounts Data / VAS Digital Channel Physical Channel Hosts all customer accounts on its own e-money platform Airtel Money is the only brand visible to customers All customer funds are held in pooled accounts at a bank Airtel Money owns the transactional data No other actor has visibility on most of the data Airtel Timiza mobile loan is based on transactional data Airtel owns the digital channel Cross promotions with voice business are often used (e.g. free talk time equal to P2P amount sent) Digital Channel 34
  • 31.
    Ownership of thevalue chain Accounts Data / VAS Digital Channel Physical Channel Hosts all customer accounts on its own e-money platform Airtel Money is the only brand visible to customers All customer funds are held in pooled accounts at a bank Airtel Money owns the transactional data No other actor has visibility on most of the data Airtel Timiza mobile loan is based on transactional data Airtel owns the digital channel Cross promotions with voice business are often used (e.g. free talk time equal to P2P amount sent) Owns a network of 22,000 agents in Kenya and 20,000 in Tanzania 35
  • 32.
    • Most transactions(except cash-in) come at a fee • 77% of MNOs derive most revenue from customer fees • In LAC and South Asia, get more fees from businesses Profit model - Revenues Indirect Benefits – Reducing customer churn and cost of airtime distribution Direct Benefits – Transaction Fees • High customer churn contributes to price wars and falling margins on the voice business • Selling airtime and data bundles via MM can be at least 20% cheaper than through physical scratch cards Transaction fee revenue Source: GSMA (2014) and GSMA Intelligence (2016) 0% 1% 1% 2% 2% 3% 3% 4% 4% 5% 5% Safaricom Telesom MTN Uganda Churn before MM vs. today Before After 36
  • 33.
    Profit Model -Costs • Relatively little capex needed to launch, but significant opex to run • Upon launch, MNOs invest 6-8 times the revenue generated to drive scale of agents and users 1. Agent commissions 2. Marketing 3. Personnel Need time and resources to deploy robust agent network and acquire customers 54% of top 10 provider revenue goes to agent commissions
  • 34.
    Early investment pushesbreakeven out past 36 months Mobile money profitability over time (months)
  • 35.
    Key takeaways onthe MNO business model for DFS 1. Mobile money can be profitable but getting there can be painful 2. Heavy losses in early years to build agent network and acquire customers 3. Indirect benefits can be significant but not always directly reflected in P&L 4. Increasingly, significant revenue requires an ecosystem-based approach 43
  • 36.
  • 37.
    A. B. C. 27% 37%37% Whatis the split between transaction fees and interest income for bKash? A. 15% transaction fees, 85% interest income B. 50% transaction fees, 50% interest income C. 85% transaction fees, 15% interest income 45
  • 38.
    bKash: A briefhistory 2009 Two Partners Inspired by East Africa: 1. BRAC: world’s largest NGO – mass market social service delivery with two large retail financial services businesses • BRAC Microfinance • BRAC Bank 2. Money in Motion: Investment vehicle of Iqbal Qaudir (MIT), Kamal Qaudir (Cell Bazaar), and Arun Gore (Grey Ghost). 46
  • 39.
    bKash: A briefhistory BRAC Enterprise 1 Enterprise 2 BRAC Bank bKashMinority Investors (49%) 47
  • 40.
    BRAC: 3 distinctretail channels 48
  • 41.
    bKash: A briefhistory Regulatory conditions • 2011 launch – license for Mobile Financial Services held by BRAC Bank • bKash cannot lend: value of bKash mobile accounts deposited in full with commercial banks Initial Capital and Investors • BRAC Bank 51%; Money in Motion 49% • $10m from Gates + TA from ShoreBank/Enclude • 2013 IFC and Gates Foundation invest 49
  • 42.
    bKash: A briefhistory A standalone independent operation • Hires its own staff,CEO and CTO (recruited outside BRAC and outside of Banking) • BRAC assistance in year 1 Seconded 4 staff First 5,000 agents from BRAC borrowers • By year 2 few links to BRAC or BRAC Bank "build it alone" "if it relies on BRAC it will not succeed" 50
  • 43.
    bKash: Scale As ofOctober 2015 Accounts 21 million Active Accounts 9 million Transactions Per Month 90 million Value of Transactions Per Month $1.4 billion Average Transaction Size $16 51
  • 44.
    Ownership of thevalue chain Accounts Client Data / VAS Digital Channel Physical Channel “Mobile accounts“ issued by bKash; redeemed by bKash. Value of deposits sit in pooled accounts at commercial banks bKash primary visible brand; BRAC Bank subordinate Accounts 55
  • 45.
    Ownership of thevalue chain Accounts Data / VAS Digital Channel Physical Channel bKash owns the transactional data bKash holds the customer identification Data will be used to develop new services with bank, insurance and MFI partners 56
  • 46.
    Ownership of thevalue chain Accounts Data / VAS Digital Channel Physical Channel MNOs provide USSD access bKash pays MNOs 7% of fee revenue for access to their USSD bKash manages a call center bKash will launch a smartphone application independent of MNOs 57
  • 47.
    Ownership of thevalue chain Accounts Data / VAS Digital Channel Physical Channel Commissions 100+ distributors that oversee 100,000+ agents bKash accounts can be serviced at BRAC Bank ATMs but not at BRAC Bank Branches or BRAC Branches 58
  • 48.
    bKash: Profit model Fees Interest 2014Audit Months 30-42 REVENUE $84 Million Agent Comm- issions USSD Corporate COSTS $79 Million PROFIT $5 Million 800 staff 110,000 agents 60
  • 49.
    Key takeaways onthe standalone business model for DFS • Startup - neither MNO or Bank - can scale • Challenging profit model: • No existing business lines to cut cost • No adjacencies or cross-sell • Profitability relies on transaction fees • Strategy and sequencing key: • Early scale and profitability come from sharp focus on basic payments • Medium term pivot towards broader array of services; connected services 61
  • 50.
  • 51.
    • The digitalchannel is not in itself a business model • It is a tool that enables innovation and diversity of models: • New ways to deliver existing services • New services that weren’t possible in the past • New partnerships based on specialization and interconnection • A successful DFS ecosystem allows and even requires a diverse set of players and business models to succeed • This session presents three quick cases just to give a flavor of the range of DFS business models that are possible There are myriad potential DFS models 64
  • 52.
    Value chainCustomer valueproposition Profit model Introducing our analytical framework Capturing the key aspects of the business models What cost or operational efficiency benefits does the service bring to the business? Who is the target customer? Who owns the customer relationship and brand? Data / VAS Digital channel Physical channel What is the value proposition for the target customer? What sections of the value chain does the business own vs outsource to partners? Accounts What additional revenue or loyalty benefits does the service bring to the business? • s Shared control Full control No control Completely owns the value chain item. Not dependent on any partner. Partly owns the value chain item and/or shares it with partners Owns no part of the value chain item. Value chain item may or may not be necessary to the business model Color coding legend 65
  • 53.
    Commercial Bank ofAfrica Powering digital credit on the back-end M-Shwari is a mobile-only deposit and credit account offered as a partnership between an MNO mobile money provider (Safaricom in Kenya) and a bank (Commercial Bank of Africa) 66
  • 54.
    Value chainCustomer valueproposition Profit model Value proposition: Commercial Bank of Africa Powering digital credit on the back-end Target customer: Mass- market consumers Issues full bank accounts Holds regulatory compliance Only accessed via M-PESA and this is the brand most customers know Customer ownership: Safaricom M-PESA • Brings mass market Kenyans (about 50% of which were previously unbanked) the full benefits of a banking product (interest, deposit insurance, access to credit) – using mobile money as a gateway. Credit scoring on MNO data Underwrites the loans on own books Owns repayment history data, but MNO partner also has visibility Owns and runs the credit scoring algorithm in- house The M-Shwari account is only accessible via M- PESA wallet Available to 15.7m active Safaricom users Cash-in and cash-out services only accessible via 91k M-PESA agents (not via CBA branches) Increase revenue through profitable digital credit Exact nature of Safaricom-CBA profit sharing is not public • Total value of loans disbursed since launch (as of Feb 2016): $782 million • Average loan size: $30 • Loan facilitation fee or 7.5% • Deposit balance (Feb 2016): $73 million • Average account balance (90 day active accounts): $5 • Interest rate on M-Shwari deposits 2 – 5%, above the 1.5% weighted average reported by CBK • CBA has minimal retail presence/infrastructure as its traditional target market has been the corporate sector • M-Shwari partnership allows access to a mass market retail customer base by outsourcing channels Reduce costs through low cost deposits Accounts Data/VAS Digital channel Physical channel Customer-facing digital and physical channels are owned by Safaricom 67
  • 55.
    Value chainCustomer valueproposition Profit model Value proposition: Instaloan E-money wallets belong to Globe (GCash) Lending license also with Globe (Fuse) Credit scoring on Globe (MNO and Gcash) data Completely owns the repayment history data Disbursement and repayment via Globe (GCash) wallets Uses only Globe communications channels Cash in/out takes place via Globe (GCash) agents Accounts Data/VAS Digital channel Physical channel Similar model, except: • Controls entire value chain • Subsidiaries playing all the key roles required by the model • MM (accounts + CICO) • MNO (comms) • Lender (scoring + credit) 68
  • 56.
    Value chainCustomer valueproposition Profit model Value proposition: All accounts belong to MNO partner – just e- wallets, not bank accounts Credit scoring on MNO data Owns and runs the credit scoring algorithm Underwrites the credit on own books Owns repayment history data, but MNO partner also has visibility Disbursement and repayment via MNO partner wallets Relies on MNO partner comms channel for transactions Reliant on MNO partner agents for cash in/out Accounts Data/VAS Digital channel Physical channel Similar model, except: • Controls almost none of the value chain • Highly specialized on only • Analytics • Lending • Reliant on MNO partner for accounts, CICO, comms and access to customer data 69
  • 57.
    Oxxo Leveraging retail infrastructurefor financial services Oxxo is Mexico’s largest retailer by number of outlets with high traffic, long opening hours, and many unbanked customers. They are now leveraging their retail infrastructure to offer Saldazo, a debit card linked to bank account, in partnership with Banamex bank. 1,506 1,623 1,801 12,597 7-Eleven Banamex Bancomer Oxxo # of retail outlets Banking sector total: 11,000 70
  • 58.
    Value chainCustomer valueproposition Profit model Value proposition: Oxxo Leveraging retail infrastructure for financial services Target customer: Mass- market retail consumers Low KYC account at partner bank Banamex Cards & ads co- branded Oxxo and Banamex Customers think of it as an Oxxo card product Customer ownership: Oxxo • Low-barrier Saldazo “savings card” to store money safely • Special discount offers and loyalty bonuses for Oxxo stores • Better control of money with SMS alerts, digital statements • Use at any VISA enabled merchant Banamex owns customer data, shares reports with Oxxo Oxxo utilizes user data for loyalty rewards and improved marketing Transactions happen at regular POS devices Account may be linked to Telcel phone for mobile P2P, airtime and bill pay CICO at 12,597 Oxxo stores Oxxo has long opening hours (minimum 12h/7 days, some 24/7) Retail payments at any VISA POS Direct revenue from transaction fees • Agency banking: 3.8m txs/mth • 41% of the national market share • Remittances: 200,000 txs/mth after 6 months • Expecting to reach at least 1.5m • Projected to generate 17% of total operating profit in 2-3 years • Convenience stores are fairly commoditized, so Oxxo uses this as a competitive advantage • Gives people a reason to choose Oxxo • Oxxo previously didn’t have much data on cash customers, but can now • Incentivize customers via loyalty rewards • Use data analytics to design better promos and marketing campaigns • Aimed at mass market retail consumer base • Oxxo has 12m purchases daily (~1 per minute per store) • Mostly FMCGs with average ticket size ~$3 USD • Leverages existing business for cost efficiencies • Large retail footprint already in place, staffed and equipped • Extensive cash handling processes Generate traffic and data for core business Accounts Data/VAS Digital channel Physical channel 71
  • 59.
    Zoona Third party agentnetwork with over-the-counter transfers Zoona enables MSE businesses to offer over-the counter payments and remittance services, access working capital and purchase inventory through digital channels. 72
  • 60.
    Value chainCustomer valueproposition Profit model Value proposition: Zoona Third party agent network with over-the-counter transfers Target customer: Micro and small enterprises Hosts internal agent wallets Float is held by a banking partner Does NOT offer consumer wallets (yet) Customer ownership: Zoona • Consumers: • Instant money transfer, bill pay and MM deposit or withdrawal over-the-counter (OTC) with no need to register an account • Agents: • New transaction revenue and increased footfall • Access to working capital • Digital payment of inventory Agent credit based on tx data to accelerate the growth of its physical channel Credit scoring on basis of Zoona transaction data Kiva.org provides lending capital Relies on SMS and data services by MNOs for transactions End customers do not interact directly with any digital channel, since service is over-the-counter Zoona acquires, manages and owns all its agents 650 agents and 1,100 outlets in Zambia Revenue is driven by transaction fees • Consumer services • $9m in transactions per month • Domestic money transfer (5-10% of tx value, capped at $9) • Bill payments, airtime sales • Agent services • Working capital loans to agents (21% APR) • Supply chain distributor payments (e.g. SABMiller) • Fixed costs: • Agents finance the costs for rent and operating expenses • Loan capital for agents is provided by Kiva.org and it’s crowdsourcing network • Zoona pays for staff, agent training, and marketing • Marginal costs: • Most costs are marginal, reducing risk for Zoona • Agents receive between 20% - 60% of transaction fees • As a startup with no existing infrastructure, Zoona has built its agent network through entrepreneurs and existing retailers • Pure agents (Zoona franchise) • Retail outlets with agency as a side business • Distributors who use Zoona for B2B (FCMG and airtime) CAPEX is kept low by “outsourcing” to agents Accounts Data/VAS Digital channel Physical channel 73
  • 61.
    Value chainCustomer valueproposition Profit model Value proposition: Kopo Kopo Value added services for retail SMEs Target customer: MSE retail merchants Hosts internal merchant accounts Float is held by a bank partner Controls settlement of merchant funds, allowing for automated repayments of cash advance loans Customer ownership: Kopo Kopo • Merchants: • Reduce costs of cash handling (eg: leakage) • Electronic record of all transactions • Access to loans and other value added services Partners (Mobile money providers) • Increase transaction revenue while outsourcing investment in merchant focused ops and tech Utilizes tx data to offer various VAS directly to merchants Merchant credit based on KK tx data is a major revenue source Owns and runs the credit scoring algorithm in- house Kopo Kopo owns the merchant web platform for completing transactions, managing account, and accessing VAS Safaricom controls the customer payments instrument (M-PESA) Kopo Kopo acquires, runs and owns the relationship with all merchants on their platform Total 10,000+ merchants Consumer transaction fees • Merchants in Kenya charged 1% of transactions received via M-PESA • Fee split evenly between Kopo Kopo and M-PESA • Primary costs are: • acquisition and servicing of merchants • development and maintenance of technology platform • Extends working capital loan to merchants based on transaction history • Loan has no maturity, but it repaid as an additional merchant fee on transaction volume • This incentivizes merchants to push txs onto the channel so as to repay quickly • Direct revenue from credit product has already surpassed transaction fee revenue • Kopo Kopo offers digital payment acceptance to a wide variety of merchants, from micro-enterprises up to large retailers • Kopo Kopo aggregates merchants for mobile money systems like M-PESA, but the consumer relationship and experience remains with the MNO Merchant credit product Accounts Data/VAS Digital channel Physical channel Similar model, except: • Focused on merchants (not agents) as immediate users • Stronger focus on credit product in the core profit model 74
  • 62.
    Accounts Data/VAS Digitalchannel Physical channel Legend Shared control Full control No control Completely controls the value chain item. Not dependent on any partner. Partly controls the value chain item and/or shares it with partners Owns no part of the value chain item. Value chain item may or may not be necessary to the business model Is moving partially into controlling the value chain item Is moving significantly into controlling the value chain item
  • 63.
    Accounts Data/VAS Digitalchannel Physical channel Business models focused on company strengths and assets Range of models that specialize in a narrow part of the DFS value chain OXXO Vast retailer offers agency banking and transactional account M-Shwari (CBA) MNO (Safaricom) brings channel, retail presence, and marketing expertise Bank brings credit license, expertise and capital Zoona OTC agent aggregator that offers agents credit based on tx data Globe InstaloanComprehensive play by MNO with subsidiaries Digital channel from Globe, agents from MM arm GCash Jumo Specialised lender that brings credit license and scoring model Relies on MM/MNO partners for everything else Kopo Kopo First outsourced, but now controls its credit business Merchant aggregator that offers merchants credit b. on tx data Equity Bank Bank that established its own agent network
  • 64.
    Accounts Data/VAS Digitalchannel Physical channel In a digital business, the physical channel is still important OXXO Vast retailer offers agency banking and transactional account M-Shwari (CBA) MNO (Safaricom) brings channel, retail presence, and marketing expertise Bank brings credit license, expertise and capital Zoona OTC agent aggregator that offers agents credit based on tx data Globe InstaloanComprehensive play by MNO with subsidiaries Digital channel from Globe, agents from MM arm GCash Jumo Specialised lender that brings credit license and scoring model Relies on MM/MNO partners for everything else Kopo Kopo First outsourced, but now controls its credit business Merchant aggregator that offers merchants credit b. on tx data Equity Bank Bank that established its own agent network
  • 65.
    Accounts Data/VAS Digitalchannel Physical channel DFS business models are not static but evolve (rapidly) Time Equity 2.0 OXXO 1.0 Equity 3.0 OXXO 2.0 Offered retail network as agency provider for banks Issuing card based accounts under joint brand, mining tx data for loyalty, analytics Est. own agent network for cash in/out to accounts Secured own MVNO license, mining transaction data for advanced products
  • 66.
    Advancing financial inclusionto improve the lives of the poor www.cgap.org