Cgap - banking on mobiles webinar - oct.01.2008

Banking on Mobiles:
Why, How, for Whom?

Kabir Kumar
Ignacio Mas
CGAP

©2008 CGAP. All rights reserved. http://www.cgap.org/technology

Table of Contents
1. Why: The logic of branchless banking

2. How: Developing and managing branchless banking channels
break

3. For whom: customers, banks, operators

4. Summary: The good, the bad, the ugly of m-banking


Table of Contents





The logic of branchless banking

1. Use existing 2. Deliver trust 3. Use existing
retail through deployed
infrastructures technology technology

Agent

Real-time account-
to-account transfers

Customer


Any store can potentially be an agent


The power of using existing infrastructure
~3bn
Philippines Panama
1,000 branches Largest bank has 65
7,000 ATMs branches
25,000 POS 850 shared ATMs
terminals in stores (many in branches!)
1.1 million prepaid 12,000 prepaid ~25m
airtime resellers airtime resellers

Worldwide points of presence
~1m
500k 600k
250k

Western Bank Post ATMs POS Mobile
Union branches offices Phones


Status of branchless banking
COUNTRY PROVIDER MODEL
Afghanistan Roshan (mobile operator) M-banking
Brazil Caixa Economica Federal (bank) Banco Card-based
Bradesco (bank) Card-based
Chile BancoEstado (bank) Card-based
Colombia Banco Caja Social (bank) Card-based
DR Congo Celpay (bank) M-banking
India SKS Microfinance (MFI) M-banking
State Bank of India (bank) M-banking
Kenya Safaricom (mobile operator) M-banking
Equity Bank (bank) M-banking
Mexico Banamex (bank) Card-based
Mongolia XacBank (bank) M-banking
Pakistan Tameer Bank (bank) M-banking
Russia Beeline (mobile operator) M-Banking
Tavrichesky Bank (bank)
Senegal Ferlo (third-party) Card-based

Worldwide ‘league tables’

Status of agent deployments Status of ‘transformational’ m- banking

Country # of agents PHILIPPINES: Smart Money +Gcash,
Brazil 55,000 9m registered, 3m active.
(+66,000) KENYA: M-Pesa, 3.6m registered
S Africa 6,500 users (½ transaction/user/month at
Kenya 2,600 average €30).

Peru 2,400 SOUTH AFRICA: FNB, MTN, ABSA,
Wizzit, 4m registered, 1m active.
Philippines 2,000
INDIA, PAKISTAN, MONGOLIA: Still
Colombia 572
early days…
(+3660)
India 460
Ecuador 63
Pakistan 30


Table of Contents

Developing agent networks
M-banking applications and usability
Data security
Regulatory issues and responsibilities




Types of mobile transactions

Proximity Remote

Personal
/ Social P2P payments

In-store purchases Bill payment
Commerce (merchant) E-commerce

Cash in / cash out
Banking (agent) A2A payments


Setting up and managing BB channels

Agent networks for cash in /
Mobile banking
cash out

Agent segmentation Usability: user interface
Characteristics of ‘good’ agents Security: encryption
Partnerships to scale up Nature of bank-operator
Business model dependencies

Online vs. offline usage


Segmentation of agents
“Human “Bank “Branch “Branchless
ATM” offspring” substitute” bank”
Bank’s Offload Cater to “blue Extend Minimize fixed
objective transactions sky” segments geographic cost, faster roll-
from branch coverage out
Customers Existing People with Rural / remote Any
targeted clients lower income populations
Customer Convenience A proposition Proximity New concept
benefits suited to their no-frills bank
needs/means
Key - Create & Cash Marketing &
challenges market new management sales presence
for the products at and selling
bank viable prices
Examples Bradesco thru Banco do Brasil Bradesco thru Lemon Bank
in Brasil Bradesco through Banco Banco Postal
Espresso Popular


Strategic partnering for growth

Go for retail franchises? Use network manager

Advantages: They can handle:
Faster roll-out, more scale Agent selection, legal
Prime locations contracting, setup & training

Steady, loyal customer flow Monitoring and maintenance
of POS/communications
Easier to advertise locations equipment
Single contract, consolidated Monitoring and reporting on
line of credit agent performance
Disadvantages:
Harder to negotiate equipment Partner with distributors
placement and branding
arrangements Knowledge of individual stores

More costly Cash collections


M-banking applications
Nature of user experience
(How user-supplied transaction details are captured)
Interactive session,
Interactive session, using menu on
Single command network-based client

Missed call dialing Telephone banking
Voice
e.g. Eko by IVR/tones
Wireless bearer used

SMS SMS to short code
messaging e.g. G-Cash, STK on SIM card
Obopay e.g. Smart Money,
MTN Banking,
USSD Single USSD to USSD session Celpay, M-PESA
messaging short code e.g. WIZZIT
e.g. Eko
Data WAP session JAVA aplet on
(GPRS/EDGE e.g. most phone
/WCDMA) mainstream banks e.g. Obopay (US)


M-banking UI: SMS (G-Cash)

Send SMS to
REG 1234 / 5082882: From 5082882:
Aurora Reyes/ REG M-PIN/ Thank you July Santos for
Register July/ Santos/ 5 Mother’s Maiden registering to G-Cash on
Name/ First 08/12/04 at 10:30 a.m. You
Santol St., Project
Name/ Last may now use G-Cash. For
4, QC/ 024261001
Name/ Address/ more info, reply to this msg
Landline with INFO. Ref. . 13131

Transfer Send SMS to
money 500 1234 5082882: From 5082882:
9175880309 Enter amount
to You have received 500 of
<space> PIN G-Cash from 958345254
another <space> 11 digit on 8/12/04 at 10:30 a.m..
mobile mobile number Ref. #13134.
number of recipient


M-banking UI: USSD (Bharti Telesoft)
Balance inquiry

Enter *211# to receive Menu appears auto- Press “Answer” to Press “Answer”
the USSD menu matically on screen select choice “1”

Response message Select choice of account Press “Answer” Enter your PIN


M-banking UI: SIM Toolkit (M-PESA)


M-banking UI: WAP/Java (Bharti Telesoft)

Log in

Transfer
money to
another
mobile
number


Data integrity: Confidentiality of data
Encryption E-security vulnerabilities

Quality of encryption protocol Security of key placement
Private key versus public key Preloaded
encryption Embedded in hardware (chip)
Length of encryption key (e.g. vs. software
128bit) Terminal security: Keystroke
Scope of encryption capture / viruses
End-to-end (SIM-based) = SIM replacements
need collaboration of operator
Broken chain (SMS, USSD) =
need to trust the operator


Regulatory landscape

Outsourcing client contact AML / CFT

Who can be an agent, licensing Know Your Customer (KYC)
process Reporting of suspicious
Bank-agent relationship: roles & transactions
responsibilities, permitted & Maintenance of transaction
banned activities, contract terms records
Sharing agents among banks

Data & financial integrity Account issuance

E-security, data privacy Account issuance & e-money
Transaction authorizations Competition issues
Consumer protection Commitment / business
continuity


What can go wrong? Who is responsible?
Customer shares his mobile phone and PIN… and is used malevolently
Fraudster manages to electronically intercept the client’s PIN
Client is robbed inside or near agent’s store
The agent’s store is robbed and the cash is stolen
The agent is robbed on his/her way to/from the bank branch
Client makes a deposit, and value credit to his account is less than what
he paid in and also less than what is shown on the receipt
Client makes a deposit, and value credited to his account is less than
what he paid in but same as what is on the receipt
Using P2P transfer capability on mobile phone, the client sends money to
the wrong phone number (= bank account number)
Client makes a deposit, but the account is empty when the customer goes
to withdraw (bank goes, normal prudential regulations apply)
Fraudulent agent is set up


Table of Contents


Customer adoption insights and uncertainties
Role of mobile operators
M-banking scenarios for banks
Making it work for MFIs



What providers think of adoption
# People in developing countries using mobile phone primary
channel for financial services
2 million 5 million 10 million 30 million
29% 50% 7% 14%

0% 50% 100%

How many are poor (< $3/day)
300,000 500,000 1.5 million 3 million
7% 21% 36% 36%

0% 50% 100%

# Years for 100 million to use cell phones for payments+
2 years 5 years 10 years
21% 50% 29%

0% 50% 100%


Early adopters of m-banking
South
Users Non Users
Demographic Indicators African
(n=215) (n=300)
adults
Personal Income < USD 135 / month 30% 71% 64%

Household Income < USD 270 / month 43% 50% 39%

“Destitute” (LSM 1 and 2) 6% 23% 16%

Financially “unsophisticated” (FSM 1 and 2) 28% 93% 45%

Own or borrow mobile phone 100% 65% 49%

At least high school education 63% 31% 29%

Unemployed 15% 45% 27%

Male 71% 50% 49%


Products used
Airtime purchases and non-transactional services are used most


Attitude to m-banking


Key customer adoption uncertainties
Can mobile banking substitute for the human touch?
Can mobile banking appeal to more segments than the young and
technologically more sophisticated?
Can providers walk the tightrope between reliability and customer
convenience?
Will customers value ubiquity more than credibility?
Will government develop practical risk-based approaches to know your
customer?
What level of financial literacy will be needed?
Will interoperability increase adoption?


Role of banks: m-banking scenarios


Service delivery roles for mobile operators

Telecoms Account hosting Financial
Secure Account
operator & transaction institution
communications issuance
authorization

WIZZIT (+ Bank of Smart Money (Smart G-Cash (Globe,
Athens + all telcos, Comms + Banco de Philippines)
S Africa) Oro, Philippines) M-PESA (Safaricom,
Barclays India MTN Banking (MTN Kenya)
Any bank doing + Standard Bank, S M-Paisa (Roshan,
WAP Africa) Afghanistan)


Access to finance opportunity
Strengths Weaknesses
Well known, trusted brand Limited experience with controls
Many unbanked customers on cash handling
SIM card: security + user interface Unsophisticated, single product
sales channels
Large network of airtime resellers
Experience with high volume, low
value transactional platforms
Threats
Opportunities
Loosing operational focus
Less churn – customer stickiness ‘Creeping regulation’ – banking
Branding – innovation regulation
Drive data – beyond voice/SMS Breach in data security – liability
& reputational risk
Cheap distribution of prepaid
Customer care burden
Extra service revenues


Policy issues

Account issuance Competition issues

Bank account vs. e-money vs. Convergence of two oligopolistic
prepaid markets: telecoms + banking
Arguments in favor of operator: Risk of transfer of market power
Store of value vs. means of by mobile operator
payment Withholding service from banks
Financial robustness of
operators Commitment
Arguments against operator: Mobile operator’s core business
Unfair competition (not subject is voice:
to reserve or capital Everyone uses it, frequently
requirements)
High margin
Precedent
What if the operator decides to
re-focus on core business?

Making it work for MFIs
Issue Potential solutions

No real-time accounting system Hosting of back-office (ASP)
/ inadequate IT platform
Too costly / complex to set up Shared agent networks
given resources and small scale
Insufficient incentive for agents Individuals rather than shops as
agents
Potential disruption to group ?
ethos
Customer acceptance Usability vs. value proposition?
Customer awareness?

MFIs have strengths partners value (local knowledge,
product development acumen, handle small loans)


Mobile banking: Mixed record for MFIs
M-PESA with Faulu (Kenya) SKS Microfinance (India)
Loan repayment via mobile, Partner w/ Andhra Bank to offer
rather than group meeting m-banking to SKS’s 1.5 million
Degraded joint liability clients
Additional work for credit officers Clients can make deposits/loan
repayment remotely
Rural Banks with G-Cash SKS can offer deposits,
(Philippines) reduces cash handling cost,
Loan officers spent more time on LOs concentrate on marketing
relationships, delinquency rather than meetings
Not always a net gain for clients -
costlier for some
Working on automated interface
from GCash to back office
Processing 10,000 transactions /
month

The good, the bad, the ugly of m-banking


Advancing financial access for the world’s poor
www.cgap.org
www.microfinancegateway.org


Cgap - banking on mobiles webinar - oct.01.2008

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