Essential Ingredients for Building a Shared Agent Network DAVID PORTEOUS EFINA Agent Banking Breakfast Series 19 September 2013
Outline What is a shared agent network? Different models Pros and cons A way forward for scale in Nigeria? 2
Agent use cases • Origination and sales – Seldom successfully shared due to incentive conflicts – However, administration functions (documentation collation, delivery of tokens) can be shared • Cash handling functions – More standardized and can be shared as ‘cash merchants’ but need remuneration formula – Cash in/Cash Out – Bill pay – Remittance 3
Shared agent models A: Defacto shared B: Interoperable C: JV Acquirer Bank A Bank B Bank A Bank B Bank A Bank B S JV acquirer Agent Agent Agent 4
Outline What is a shared agent network Different models Pros and cons A way forward for scale in Nigeria? 5
Dimensions of shared agent models A. De facto sharing 1. Agent setup Each bank 2. Agent branding Mixed 3. Acquirer (legal) Each bank 4. IT System — agent Each bank management 5. Pricing set by Each bank 6. Who pays for agent setup Each bank capex? Example MM agents, Tanzania 6
Dimensions of shared agent models A. De facto sharing B. Interoperable 1. Agent setup Each bank Acquirer 2. Agent branding Mixed Acquirer/ scheme 3. Acquirer (legal) Each bank Acquirer 4. IT System — agent Each bank Acquirer management (and switch) 5. Pricing set by Each bank Scheme agreement 6. Who pays for Each bank Acquirer agent setup capex? Example MM agents, Planned — but none Tanzania existing 7
Dimensions of shared agent models A. De facto sharing B. Interoperable C. Joint acquiring 1. Agent setup Each bank Acquirer JV Co 2. Agent branding Mixed Acquirer/ scheme JV brand 3. Acquirer (legal) Each bank Acquirer JV Co 4. IT System — agent Each bank Acquirer JV Co management (and switch) 5. Pricing set by Each bank Scheme agreement Agreement 6. Who pays for Each bank Acquirer Shareholders of JV agent setup capex? Co Example MM agents, Planned — but none Various — ANMs and Tanzania existing Cielo, Brazil 8
Comparing models Many A Agent network managers can work with any model, No of acquirers depending on their scope B C One Few Many No of issuers 9
Model A: Tanzania MMOs De facto exclusivity emerges Effect on agent volumes Source: Mas & John, CGAP Blog March 2013 http://www.cgap.org/blog/mobile-money-agents-tanzania-how-busy- how-exclusive 10
Model B: Defining the use case precisely: cash in and out Cash Authorized depository accounts 1. Store of E-money accounts value Credit Credit Card 2. Payment Direct Debit Cash transfers - transfers payments instrument - batch real time Mobile 3a.Bearer Satellite VPN 3. Channels channels SMS USSD Data Mobile Cash handling 3b. Service PC phone Channels Branch ATM Agent Basic Feature Smart 11
B. NOU Mobile Originated Push Transaction Receiving Sending Incoming Mobile originated Issuer Push transaction Issuer Translator Where the definition has not been made or the destination account at Pass-through the Receiving Issuer is known the transaction destination is not 2.Mobile Bank Bank translated and the push payment 2.Account 2.Card routed directly by the transaction 2.CashMerchant switch (passes- through unchanged 2.Business at translator) 2.Biller Interface M.2.Account Interface translator Transaction PSP PSP Switch Route able CMID.2.Account transaction translator MID.2.Account translator BID.2.Account Once clients have defined where they translator want transactions paid to their ‘mobile MNO MNO M.2.Card number / CM_ID / MID / BID’ to be sent translator * and that relationship stored in the SWITCH translation database. SWITCH then translates the destination ‘mobile number / CM_ID / MID / BID’ into an Translatio account number at the client’s n definition Receiving Issuer and then routes the database transaction to the RI 12
Transaction flow: Use case 2ii: Push CI – from CM’s device to client’s mobile number CM2P Cash Merchant device initiated Push Payment to Client for Cash-in Cash Sending Issuer Switch Receiving Issuer EV recipient Merchant (Acquirer) (Issuer) (payee) 1 a. Receives cash from b. Authenticates, checks c. SWITCH receives instruction, d. Receives SWITCH e. Receives client. Sends funding, detects that the looks up issuer and account instruction; immediately message from Electronic Value (EV) phone number is not on us associated with phone no and credits receiver account their issuer for Cash-in as per PSP NoU — passes instruction to sends instruction to Receiving and sends message to confirming menu on CM’s mobile SWITCH Issuer to credit account recipient receipt of EV or POS or PC to payee funds phone number 2 g. CM receives e. SI commits transaction c. SWITCH receives message, a. RI debits SWITCH payment and deducts payment from sends to Sending Issuer settlement account confirmation & the CM’s balance and credits d. SWITCH logs transaction in SI b. RI Confirms credit to balance update SWITCH settlement account and RI settlement files SWITCH f. SI sends message on to CM to confirm receipt 3 d. Receives a. SI credits commission to c. SWITCH charges fees to SI b. RI charges fees to the commission credit CM and passes necessary and RI recipient (if applicable) and entries wrt SWITCH and passes necessary entries internal charging wrt SWITCH and internal charging 4 All amounts owing settled through daily process Fees grossed up to a monthly invoice Source; BFA Report for FSDK (2012) 13
Model C1. 3 rd party: Globokas Peru • Founded in 2007 to extend the presence and coverage of financial and business institutions at the national level. • Owned by foreign (Accion Frontier) and local capital KasNet agent network service features: • National coverage with over 1,000 agents. • Claims the flexibility to deploy an agent in any urban and/or semi-urban area, using either main MNO’s GPRS network. • Serves a range of banks and non-banks: Mibanco, BBVA Banco Continental, Backus, Caja Nuestra Gente, Caja Sullana, Financiera TFC and Caja Huancayo. 14
Model C2. Bank owned acquirer: Cielo Brazil Source: Cielo Investor Presentation 2013: http://www.cielo.com.br/ir/ • 1.6m POS installed (44% GPRS) • MDR: Debit: 80bp; Credit: 116bps • Net margin 40% 15
Possible roles: JV as facilitator/ supporter • Discretional programs: – Assistance to acquirers to identify, sign up train & support merchants • E.g. merchant toolkits, bootcamp training sessions, first line customer call center – Funding to banks for acquiring drives – Incentive schemes for consumers to user e.g. instant lottery at POS • Additional future: – value added software • E.g. consumer credit scoring algorhythms based on tx • Merchant benchmarking or real time performance alerts • Distributor data on sales and reordering 16
Split out technology from acquiring ACQUIRER JV Platform Any Could be a utility entity to house Legal form (could be a bank division focused licensing of technology on acquiring or specialist co.) Governance Depends on legal form Board appointed by funders Revenue Merchant fees which vary by type Transaction fees from acquirers base of merchant using the platform Software platform setup and Software, hardware Expense operation Staff structure to acquire and base Incentive and subsidy programs manage merchants as allowed by funds 17
Outline What is a shared agent network Different models Pros and cons A way forward for scale in Nigeria? 18
Economics of sharing — or not Net margin per tx (c) 5 5.00 Cost to acqire agent ($) 250 Depreciated over (mos) 24 No fixed costs 4.00 Net revenue to acquirer per agent per day $ 3.00 2.00 1 acquirer 2 acquirers 1.00 3 acquirers 0.00 100 90 80 70 60 50 40 30 20 10 0 -1.00 -2.00 At Tz agent vols, only 2 Transactions per agent per day acquirers can survive 19
Shared agent models: for banks A. De facto sharing Pros Pricing freedom Low cost for 2 nd mover No interchange to agree or pay Cons Low oversight of agents Contagion of poor service High fixed costs to channel Issues Does not allow specialization Fixed costs not spread De facto exclusivity can arise 20
Shared agent models: for issuer banks B. Interoperable C. Joint acquiring • • Pros Better oversight of agents Better oversight of agents • • Don’t need systems or Don’t need systems or capacity to manage capacity to manage • Fixed costs spread • • Cons Less flexibility on pricing: i/c Monopoly supplier sets prices sets floor • Can i/c accommodate agent commission structures? Issues How is i/c set? Governance of entity 21
Shared agent models: for clients A. De facto sharing B. Interoperable C. Joint acquiring • • Pros ? Like ATM Like ATM • • • Cons Agent float Like ATM Like ATM inadequate more frequently • Search costs higher • Pricing confusing • Trust levels? Issues Agents have to keep multiple floats, but can arbitrage acquirers 22
Outline What is a shared agent network Different models Pros and cons A way forward for scale in Nigeria? 23
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