20090928 xf - third party networks vf
DESCRIPTION
0090928 XF - Third Party Networks VFTRANSCRIPT
Distribution Networks for M-Banking
CGAP Technology Program
28/Sep/2009
Serving the BOP is a different game: Different customer, different
product
• Stable income
• Purchases multiple products ($$ for
bank)
• Basic literacy – rational decisions
• “Close” relationship (speak same
language)
• Unstable income
• Limited „spare‟ cash – bank has to
compete for share of pocket
• Low literacy – rational and irrational
decisions (only numeric literacy
presumable)
• Relationship through third party
• Frequent interaction with telecom
retailers (usually pre-paid)
“Regular” Bank Customer BOP segments
Understanding customers is critical since how they use the
product drives profitability of the *channel*
Average Balance
500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500
Ave
rage
Tx
/Mo
1 -4 -2 0 3 5 7 10 12 14 17 19
2 -9 -7 -5 -2 0 2 5 7 9 12 14
3 -14 -12 -10 -7 -5 -3 0 2 4 7 9
4 -19 -17 -15 -12 -10 -8 -5 -3 -1 2 4
5 -24 -22 -20 -17 -15 -13 -10 -8 -6 -3 -1
6 -29 -27 -25 -22 -20 -18 -15 -13 -11 -8 -6
7 -34 -32 -30 -27 -25 -23 -20 -18 -16 -13 -11
8 -39 -37 -35 -32 -30 -28 -25 -23 -21 -18 -16
9 -44 -42 -40 -37 -35 -33 -30 -28 -26 -23 -21
10 -49 -47 -45 -42 -40 -38 -35 -33 -31 -28 -26
Salaried
Self-Empl
Student
Business
Estimated profitability of accounts at SBI (on a variable-cost basis)
Rupees/ Month /Account
• Small balance accounts do
not generate income for the
bank, and input/output
transactions make it
expensive to operate
• Getting users to bring
money to the account is
often the basis for attracting
them to use servicer
• Total profitability will depend
on patterns of usage
• However, even successful
products make only small
margins it‟s a game of
scaleBills
payments
(future)
Remittan-
ces
Gov’t
programs
(future)
P2P
transfers
(future)
X%
+XX Rs/Mo
X%
+XX Rs/Mo
X%
+XX Rs/Mo
X%
+XX Rs/Mo
Organizations that serve the poor, setup distribution networks
with distinctive characteristics
Example of Telco distribution network
Telco
Regional
Agency
Area
Manager
Deployment supervisor:
• Coordinate training/recruiting
• Deploy product changes
Sales supervisor
• Relationship management (visit 30-50 points
/day)
• Push sales targets
• Liquidity monitoring
• Identify potential new agents
• Investigate issues in compliance, fraud
Roaming customer support
• Technical support to end-customer through
agencies and retail points
x N
X N
x5
x100
x40
• 22 Million customers
• 2 Mn Retail points
• Visit all retail points 1/month
x3
Own B&M distrib agencies:
• Direct sales, promotion in high traffic areas
• Customer service
• Liquidity management
Key features
• Depth
Reach everywhere leveraging
third parties
• High touch relationship
management with agents
• Scaleable Structure Can
grow steadily by adding new
points
• Micro-liquidity management
(frequent dispensing,
proactive control)
• Close supervision of field
operations (training,
compliance, fraud)
A bank can do this by itself, or it can leverage third-party networks
• 3rd party agent managers HAVE MORE INCENTIVES for
scale:
‒ It is their core business
‒ Scale is only way to recoup investment
• 3rd party agent managers CAN BECOME MORE EFFICIENT:
‒ High focus on efficiency of operations
‒ Often develop internal knowledge (IP) and best practices
Total Cost
Volume (# of
accounts)
Avg Income/
Account
Challenge in running a network – Sample case
Cost as a function of volume
Who is
more likely
to drive
scale
effectively?
Cost/
Account
EXAMPLE
1. Reach minimum
scale for
profitability
2. Be able to scale network
to really achieve impact
in the P&L
Bank or 3rd Party?
Regardless of who
does it, business will
be driven by scale
Case 1: EKO – India
EKO
State Bank of India
(SBI)
S&D
network
Mer-
chant
Mer-
chant
Mer-
chant
Mer-
chant
Mer-
chant
Mer-
chant
Mer-
chant
Mer-
chant
Airtel
S& D
network
Original Airtel
Distribution Network
converted into agent
network
New agents setup
by Eko
(future)
Branding by EKO *
* Branding currently driven by SBI/EKO but in process of changing to a form where EKO will be the primary brand, followed by co-
branding banks.
• Product:
‒ Savings account, opened in the
bank with “mobile number” as a/c
number; transact via mobile
‒ Follows simplified account rules
• Agent:
‒ Opens accounts
(collects forms, performs
1st level KYC)
Mer-
chant
Mer-
chant
Mer-
chant
Mer-
chant
S& D
network
• Started as independent
agent integrator
• Partnered with Airtel as
strategy to build network
• Partnered with SBI to offer
agent network
• IT/NGO structure to comply
with regulation on BC
Part of Airtel‟s
unconverted
S&D network
Other
Banks
(Future)
Case 1: EKO – India (cont.)
EKO
SBI
Mer-
chant
• Agent:
‒ Opens accounts (collects formats,
performs KYC)
‒ Gets fixed fee per transaction
‒ Gets incentive fee on account opening
• Airtel:
‒ Gets fee in return for
“sharing” / supervising
distribution network
‒ Gets normal fee from SMS
messages (certain
transactions)
• SBI pays EKO:
‒ Account:
‒ Opening account fee
‒ Yearly Account
Maintenance fee
‒ Transactional fee (% of
transacted amount)
‒ Services (remittances)
‒ Fixed transactional fee
• User pays:
‒ No cost for withdrawals and deposits
‒ X Fee for remittances
• Contract between Airtel /
EKO: Based on SLA
• Offers “banking grade” operations
(compliance, supervision)
• Back-end services: form collection
and management
• Call center operations
• Agent training
• Remunerates distribution (trade) as
well as all partners
* The choice of a distribution partner should be led by depth of current distribution and efficiency of supervision. Adoption of this
product within the Dist. Org. as a critical product with dedicated sales supervision is critical to success
Case 1: EKO – India (cont.)
Key aspects to highlight:
• Was able to bring together two giants to work on something
that individually, each of them couldn‟t achieve
‒ This talks about the strength of the value proposition to
both institutions
• Has created a new platform not only to reach but to
understand customers based on their use of the account.
• Important two parts of their Intellectual property:
‒ The User Interface (text-based, security method) that can
work on all cell phones
‒ Methodology to convert MNO outlets into bank agents
(training, supervision, IT solution, etc)
• Because interoperability is mandated in India -> service has to
eventually be open to all MNO‟s
Case 2: Monitise – UK
Monitise platform
Banks(HSBC, NatWest, Royal
Bank Scotland )
Mer-
chant
Mer-
chant
Mer-
chant
Mer-
chant
S& D
network
Monitise distribution
network (partners with
existing MNO, retail
chains, etc)
Branding by Monitise
* User can open any M-Wallet (all will appear in the menu on the phone), but if it‟s an MNO
wallet, then he can only open a wallet with his mobile operator.
• Agent:
‒ Opens accounts
(collects forms, performs
1st level KYC)
• Invididual non-bank
electronic accounts
Other:MFIs
Retail chains
MNO’s(T-Mobile,O2,
Vodafone,…)
• Pooled
account
• Marketing (pull)
• Mobile wallet (
‒ Bank branded
‒ MNO branded
(exclusive per phone
users)
• Cash-in /out
• Payments (P2P,
purchases)
• Remittances
Branding by Monitise,
but once the wallet is
opened, then it is the
wallet‟s brand
Multiple M-Wallets
All M-Wallet available
for user to choose
from*
Case 2: Monitise – UK (cont.)
Key aspects to highlight:
• Has managed to setup an interoperable platform in the UK ,
but (probably) largely dependent on market conditions (for
MNOs)
‒ Still not clear that this solution can be adopted by market
actors in environments with large dominant players
• Solution is based on mobile wallets rather than mobile bank
accounts. However, it opens the possibility to have
individualized bank accounts managed by a 3rd party
• Taking up a larg(er) space in mobile payments in developed
markets (UK, US).
‒ Visa has minor equity stake
‒ Recent partnership with Metavante to form Monitise
Americas
Some markets (i.e. Brazil) have seen a major evolution in third
party agent networks
Basic
• Banco do Brasil with
some of its AM
• Bradesco
• Banco do Brazil
with Banco Lemon
(new setup)
Value-added
• Banco Lemon with some of
its sub-agents
• VisaNet for Banco do Brasil
• GTech with HSBC
Bank as agent
manager
• Caixa Economica
Federal and
lottery points
Source: Analysis by Eduardo Diniz and Martin Jayo; Fundacion Getulio Vargas; Sao Paulo, Brazil, 2009
3rd Party Agent Networks
4 51
Bank managing agents
Outsourcing
some activitiesIntermediating
the value chain
Mer-
chant
Mer-
chant
Mer-
chant
Mer-
chant
Bank
• Banco do Brazil
with chain Pao do
Azucar
• Bradesco with
Postal network
Chain becomes
agent for bank
(exclusive)
2
Mer-
chant
Mer-
chant
Mer-
chant
Mer-
chant
Chain
Bank
3rd party managing
bank’s agents
3
Mer-
chant
Mer-
chant
Mer-
chant
Mer-
chant
Bank
AM
Mer-
chant
Mer-
chant
Mer-
chant
Mer-
chant
AM
Bank
Mer-
chant
Mer-
chant
Mer-
chant
Mer-
chant
AM+
Bank
What would make sense for Colombia?
Setup a
Shared Bank
Agent
Network?
Service points vs Transaction points
• What is required to reach the poor?
Both?
Economies of scale vs presence at the
POS
• What kind of brand presence would be
needed at the POS?
Competition/ branding
• Who takes the lead?
• How would banks compete?
Fragmentation vs Concentration
• Is there space for multiple networks?
• The case for agent commissions
What actors
are likely to
become agent
managers?
Issues to think about:
Other
options?
Non-banking actors
• How to involve them
• What role will they play / Incentives to
play?
Advancing financial access for the world’s poor
www.cgap.org
www.microfinancegateway.org