Product Product Innovation and Innovation and Access to Finance Access to Finance Access to Finance Access to Finance Keith Jefferis Keith Jefferis Egyptian Banking Institute – 3 rd Annual Banking Conference Cairo, November 22-23, 2009
Structure Structure � � Banking & access to finance Banking & access to finance � � Challenges in “banking the unbanked” Challenges in “banking the unbanked” � � New business models � New business models � New business models – New business models – – mobile phone & branchless – mobile phone & branchless mobile phone & branchless mobile phone & branchless banking banking � � Regulatory issues & implications Regulatory issues & implications � � Supportive conditions for new products to reach the Supportive conditions for new products to reach the unbanked unbanked
Access to finance is Access to finance is recognised recognised as as important… important… � � Supports economic growth by boosting savings & Supports economic growth by boosting savings & investment investment � � Improves overall economic efficiency, by making financial � Improves overall economic efficiency, by making financial � Improves overall economic efficiency, by making financial Improves overall economic efficiency, by making financial intermediation more efficient intermediation more efficient � � Promotes more inclusive growth, with lower poverty and Promotes more inclusive growth, with lower poverty and inequality inequality � � Enables the poor to better manage their money, accumulate Enables the poor to better manage their money, accumulate savings from small sums, to borrow to finance investment, savings from small sums, to borrow to finance investment, and to insure against losses and to insure against losses
Access to banking is often low in Access to banking is often low in sub sub- -Saharan Africa Saharan Africa % of adults banked Rwanda '08 Source: FinScope Source: FinScope Kenya '06 Malawi '08 Botswana '09 South Africa '08 0% 10% 20% 30% 40% 50% 60% 70%
Characteristics of the unbanked Characteristics of the unbanked � � Low income Low income � � Irregular / volatile income Irregular / volatile income � � Unemployed or irregular employment Unemployed or irregular employment � � Dependent upon social welfare grants and/or private remittances Dependent upon social welfare grants and/or private remittances � Low wealth/assets � Low wealth/assets Low wealth/assets Low wealth/assets � � Save by accumulating small sums Save by accumulating small sums � � Predominantly rural, although often mobile geographically Predominantly rural, although often mobile geographically � � Low education Low education � � Limited capacity to pay fees/transaction costs for financial services Limited capacity to pay fees/transaction costs for financial services
Conventional banks not well suited to Conventional banks not well suited to meeting needs of the unbanked meeting needs of the unbanked � � Branch Branch- -based based � � Expensive infrastructure (IT, bricks & mortar) Expensive infrastructure (IT, bricks & mortar) � � Expensive staff Expensive staff � � High fixed & operational costs High fixed & operational costs � � Focus on larger, more profitable transactions Focus on larger, more profitable transactions � � Geared towards wealthier customers, regular employment & incomes Geared towards wealthier customers, regular employment & incomes � � Not well suited to low value Not well suited to low value txns txns, poor clients, low density markets , poor clients, low density markets – – fixed fixed txn txn & overhead costs too high & overhead costs too high
“Banking the unbanked” requires new “Banking the unbanked” requires new business models & approaches business models & approaches � � Low fixed per Low fixed per- -customer & transaction costs customer & transaction costs � � Shift towards variable costs/commissions Shift towards variable costs/commissions � Technology � � Technology � Technology- Technology- -based -based based based � � Distribution structure highly fragmented (“granular”), low Distribution structure highly fragmented (“granular”), low volume per outlet, and low cost volume per outlet, and low cost � � Convergence between financial services and Convergence between financial services and telecomms telecomms � � Shift towards branchless/agency banking Shift towards branchless/agency banking
Mobile network operators well Mobile network operators well- -placed placed to provide low cost financial services to provide low cost financial services � � Experience in low Experience in low- -cost high cost high- -volume services volume services � � Prepaid airtime Prepaid airtime - -> stored value > stored value � � Secure Secure sim sim- -based front end can be extended to financial services based front end can be extended to financial services � � Back � Back � Back- Back- -end -end end tx end tx tx processing systems can encompass financial services tx processing systems can encompass financial services processing systems can encompass financial services - processing systems can encompass financial services - - & - & & & cheaper than banking systems cheaper than banking systems � � MNOs MNOs have widespread agency networks have widespread agency networks � � Agents have KYC experience Agents have KYC experience � � Rapid technological change Rapid technological change - -> falling costs > falling costs � � Build on MNO marketing/brands Build on MNO marketing/brands
Cellphones Cellphones more widespread than more widespread than access to banking in SSA access to banking in SSA Rwanda Kenya Malawi Botswana South Africa 0% 20% 40% 60% 80% 100% Mobile penetration, % popn, 2008 % of adults banked
Banking & Transactions Needs Banking & Transactions Needs Remote Remote Proximity Proximity Wel- Wel- Cash Cash Money Money fare fare Mer- Mer- Loan Loan In- In- E- E- Bill Bill deps/ deps/ trans- trans- pmts/ pmts/ chant chant rep & rep & store store money money pmt pmt with- with- pen- pen- fers fers pmts pmts saving saving pmts pmts issua- issua- P2B P2B drawal drawal sions sions P2P P2P B2B B2B P2F P2F P2B P2B nce nce s s G2P G2P
Key New Products Key New Products � � MMT (P2P) MMT (P2P) � � M M- -Pesa Pesa (Kenya) (Kenya) – – 7 million customers 7 million customers � � M M- -Pesa Pesa Kenya Kenya- -UK UK � MTN mobile money (Uganda, Rwanda, Ghana) � MTN mobile money (Uganda, Rwanda, Ghana) � � P2P & P2B P2P & P2B � � Zain Zain Zap (Kenya, Uganda, Tanzania) Zap (Kenya, Uganda, Tanzania) � � Other Other � � MMT services in Sierra Leone, Somalia, Senegal, Madagascar, Nigeria MMT services in Sierra Leone, Somalia, Senegal, Madagascar, Nigeria � � Full mobile banking Full mobile banking � � Wizzit Wizzit, MTN (South Africa) , MTN (South Africa)
Two main Two main b business usiness m models odels � � Mobile phone � Card/POS systems � Mobile phone- -based based Card/POS systems services services � � Merchant Merchant- -based systems based systems � Phone as terminal � � More restricted outlets � Phone as terminal More restricted outlets (POS terminals) (POS terminals) (POS terminals) (POS terminals) � Very widespread � � � Very widespread Very widespread Very widespread � Well suited to � Well suited to � � PIN PIN- -based security based security agency/branchless banking agency/branchless banking � Well � Well- -suited to remote suited to remote � Security advantages � Security advantages transactions transactions – – esp. MMT esp. MMT (biometrics) (biometrics) � Does not need bank partner � Does not need bank partner except as service provider except as service provider
Key Requirements & Innovators Key Requirements & Innovators � � Requirements � Innovations � Requirements Innovations � � Telecomms � Innovation being driven by � Telecomms network network Innovation being driven by MNOs MNOs and technology and technology � SIM/Smartcards � SIM/Smartcards companies companies � Retail/agency network � Retail/agency network � � Banks only needed to Banks only needed to � � Terminal devices � Terminal devices � Terminal devices Terminal devices provide support services provide support services provide support services provide support services (phone/POS) (phone/POS) (trust accounts & access to (trust accounts & access to � Access to banking services & � Access to banking services & settlement system) settlement system) settlement system settlement system � Regulatory decisions crucial � Regulatory decisions crucial � Does not require developed � Does not require developed in determining business in determining business banking infrastructure banking infrastructure models models � � Progress in challenging Progress in challenging environments (Somalia, environments (Somalia, Sierra Leone, Afghanistan, Sierra Leone, Afghanistan, DRC) DRC)
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