Encouraging transformational mbanking in developing countries

1
Encouraging transformational m-banking in
developing countries

• David Porteous
• Asobancaria Regional Seminar
• Cartagena
• 6-7 September 2007

2
The m-banking proposition
97
100
mobile phone penetration

• 2.6bn cell phone subscribers vs. /-1.6bn bank
  account holders globally
• 50 of worlds population within wireless
  coverage (2005)

50
10
10
50
100
banked
Sources Numbers Banked Honohan 2007
m-penetration ITU WireIess Intelligence 42002,
42006
3
The hype?

• Mobile phones revolutionize African banking
• Yahoo News, May 23 2007
• Mobile payments poised to reach critical mass in
  Singapore
• ZD Net Asia, May 22 2007
• Mobiles begin calling the shots on banking and
  payments
• The Banker, 1 Feb 2007
• GSMA links with Mastercard in global pilot
• Mobile Payments World, February 2007
• Cell phones bring banks to the poor
• Business Day, South Africa, 19 March 2007

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CONTENT

• What is happening with m-payments and m-banking?
• Which models are emerging?
• 3. Will m-payments accelerate expansion of
  access to financial services?

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1. Developed country experienceM-payments

• Asia
• Japan DoCoMo Osaifu-Keitai 16m users in 2006
• Europe
• Fragmentation limited use outside of
  micro-payments and in Nordic countries, Austria
• US
• Limited due to internet pervasiveness
• Now various services e.g. PayPal Mobile Obopay
  with niche markets such as youth

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Developing world m-banking models

• Philippines
• SmartMoney (Smart) 2000- (2.4m)
• G-Cash (GXI) 2004- (0.8m)

• South Africa (total 0.5m 2006)
• - MTN Mobile Banking 2005-
• Wizzit 2005-

• Kenya
• M-Pesa (Safaricom) 3/2007 National rollout
  200 000

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Current reality m-payments
Users/ total adults
1
4
3
2
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2. Categorizing the models

• A. Target clients Who is targeted?
• B. Functionality How is it used?
• C. Roles Which party does what?
• D. Business model What drivers?
• E. Technical specification Which bearer
  channels? What security element?

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2. Categorizing the models

• A. Target clients Who is targeted?
• B. Functionality How is it used?
• C. Roles Which party does what?
• D. Business model What drivers?
• E. Technical specification Which bearer
  channels? What security element?

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2A. Target clients

• Additive
• Add on to existing bank channels for banked
  customers
• Transformational
• Client is not required to have a bank account
  and
• Marketing intentionally targets unbanked.
• Features likely to appeal to unbanked
• Safe trusted
• Transaction-related fees no min. balance
• Ability to transfer P2P

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Target group unbanked with mobile
8 adults use an ATM card 21 have transferred
airtime
of adults numbers are in m
Source FinScope 2006 FinAccess 2006
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2C. Roles
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Model 1 Bank driven
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Model 2 Joint venture (NB/B)
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Model 3 Payment platform
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Model 4 Non-bank driven
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Summary
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3. Which model/s are most transformational?

• This will depend on
• Which regulation allows
• Customer proposition ? adoption
• Trust ? security perception?
• Convenience ? simplicity pervasiveness
• Price
• Business model
• All need scale
• What additional services can be sold?

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Fee comparison Send 100 P2P (cash to cash)
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Business model drivers

• Banks
• New customer adoption on lower cost platform
• Fee revenue from transactions float
• But concerns about cannibalizing customers
• ? Primarily defensive niche channel strategy
• Telcos (e.g. 16 GSMA MMT members)
• At first facilitate sale of pre-paid airtime
• Increase ARPU through VAS on data
• Decrease churn on pre-paid voice customers
• Leverage airtime distribution channels

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Key uncertainties Regulatory questions

• Are non-banks allowed to issue e-money on a
  attractive basis?
• Can non-bank agents handle cash in and out on an
  easy basis?
• Branching regulation and AML/CFT
• 3. Can telcos directly access retail payment
  systems?
• If yes, to all three, then environment is more
  likely to be open enabling to innovative
  m-banking

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Conclusions

• Additive models of m-banking are fast emerging in
  many developing countries, in line with growth of
  e-payment channels
• However, the extent to which new models will have
  a transformational impact on access will depend
  on the regulatory space and business incentives
  to harness existing and create new distribution
  channels

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Conclusion M-bankingWhich trajectory?
Enabled
No of consumers