article marafketing research 02
TRANSCRIPT
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Bridges to Cash:Challenges for the retail end of
Mobile Money
Serving customers as
Agency Network Manager
Bogota, 24 November 2011
Frederik Eijkman
PEP Intermedius Ltd
PEP Intermedius Ltd
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http://www.cgap.org/p/site/c/media/?play=1.9.45741
How mobile money works, the M-pesa case
http://www.cgap.org/p/site/c/media/?play=1.9.45741http://www.cgap.org/p/site/c/media/?play=1.9.45741http://www.cgap.org/p/site/c/media/?play=1.9.45741 -
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PEP traces its roots to the developmental needsof the under banked
Mission To deliver financial services in a safe and secure environment, that help to enhancethe welfare of those who have been excluded from, or have had limited access to thecurrent providers of financial services .
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Business at PEP s network of agents hasexperienced strong growth since inception
Rapidly expanding branded networkof branches
PEP currently operates 177 stores inthree different formats:
Supermarket: 30 shop -in-shopoutlets (15 Nairobi and 15 urban)
PEP stores: 7 stores (4 rural and 3urban)
Franchise agents: 140 stores (80%rural and 20% urban)
15,000 transactions per day
450,000 USD daily value moved
30 USD average transaction size
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Currently PEP operates 2 networks totaling 36own agents and 140 franchise agents
Sub -Network Location # Agents
PEP ownedFranchise
Although PEP operates as asingle company with the HeadOffice in Kisumu, itdifferentiates between its subnetworks of agents.
Being a multi-format operator,enables PEP to cater todifferent opportunities to enterthe market, while applying a
common managementapproach to agent supportand liquidity provision
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PEP has successfully built key strategic partnerships with leading financial players
Depending on contractual arrangement PEPagents may be registered to act for single ormultiple money transfer services.
PEP has partnered with leading financial
players such as M-Pesa, YU Mobile, KenyaCommercial Bank, Mukuru.com, OrangeMoney and Western Union/MoneyGram.
The result is that PEP currently offers a broadspectrum of payment services, making it theideal transaction destination for both privateas business customers.
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PEP Value Chain- Offering a broad spectrumof value propositions to a variety of stakeholders
Safaricom
Others
FranchiseAgents
Individuals
Traders
Upstream Customers(Producers of
financial services) PEP
Downstream Partners(PEP Agency
network)
End Users(Main customers
segments)
PEP-OwnedAgents
NakumattStores
Effectively offeringDistribution Channels
Serve as welfareenhancing partner
Managing liquidity andchannel managementsupport
Airtel
Orange
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PEP Value Chain- End Users
Safaricom
Others
FranchiseAgents
Individuals
Traders
Upstream Customers(Producers of
financial services) PEP
Downstream Partners(PEP Agency
network)
End Users(Main customers
segments)
PEP-OwnedAgents
NakumattStores
Effectively offeringDistribution Channels
Serve as welfareenhancing partner
Managing liquidity andchannel managementsupport
Airtel
Orange
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Level 1:End Users
450,000 transactions permonth (+/- 85 transactionsper day per store)
Over $ 13.5M monthly valuemoved (+/- $30 pertransaction)
Private clients (household)and commercial clients(traders)
Client transaction profilesdiffer significantly bygeographic location
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Clients display different transaction profiles;geographic locality makes a difference
City: CBD Kisumu
Peri-urban: in and around twomain city markets and busterminal
District: small towns
Rural: village markets
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Average number of client transactions perstore per trading day
Average client transaction size perstore, in Kshs
Rural clients do fewer and smaller transactions
In the city centre transactions are much larger
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Average daily net value of clienttransactions in Kshs '000
Different domestic remittance patterns
Rural areas are strongly cash out, whereas urban areas tend to be morecash in
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PEP Value Chain- Downstream Partners
Safaricom
Others
FranchiseAgents
Individuals
Traders
Upstream Customers(Producers of
financial services) PEP
Downstream Partners(PEP Agency
network)
End Users(Main customers
segments)
PEP-OwnedAgents
NakumattStores
Effectively offeringDistribution Channels
Serve as welfareenhancing partner
Managing liquidity andchannel managementsupport
Airtel
Orange
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Level 2: Downstream partners
140 agents doing 50 200transactions per day
$200 $1000 commissionrevenue an agent takeshome every month4000 rebalancingtransactions per monthbetween $1000 - $1250
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Two nearby M-PESA stores and their daily cash transactions with clients, in Ksh '000 over a period of 6
months Privacy and security
Friendly and speedy service
Cash and float availability
Cash out
Cash in
Cash out
Cash in
LakeMarket
Cash Joint
Customer Service is a strong determinant of profitability of outlets
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Agencies offset their customers transactions withtheir own cash or e-float
Cash
60,000
E Float
40,000
Cash
30,000
E Float
70,000
Cash
50,000
E Float
50,000
Cash
50,000Cash
60,000
Cash
30,000
Case 1:Client
deposits10,000
Case 2:Client
withdraws30,000
Composition of agent working capital balances
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Managing liquidity is the central aspect of theagent's business
too many cash-in transactions: agent runs out of e-float too many cash-out transactions: agent runs out of cash
In either case, the agent needs to rebalance its liquidity
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Case Study 1. Liquidity Management inUrban Areas
Molly, Lake Market, KisumuMollys shop is located in a busy market area ofKisumu city. Her customers are businessmenwho pay suppliers via m-pesa or salariedworkers who send money home.
Her outlet is typical of urban outlets where thereis an excess of cash
In October 2011:
Total cash out: $ 55,000 (2,000 p/day)Total cash in: $ 122,000 (4,500 p/day)
Difference: $ 67,000 (2,500 p/day)
Molly's working capital: $1,500
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Case Study 2. Liquidity Management in Rural Areas
Evelyn, Siaya MarketEvelyn s outlet is located at a busy corner ofSiaya market and the bus stop. Typical of ruralareas, Evelyn sees more cash withdrawals andconstantly needs to replenish cash.
In October 2011:
Total cash out: $ 81,000 ($3,000 p/day)
Total cash in: $ 51,000 ($1,900 p/day)
Difference: $ 30,000 ($1,100 p/day)
Evelyn's working capital:$ 750
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Case Study 3. Liquidity Management in City Area
Lynet, Karen Supermarket, NairobiLynet s outlet is located in a busy supermarket inKenya's capital Nairobi.
Typical of rural areas, sees more cash deposits and
constantly needs to replenish float.
In October 2011:
Total cash out: $ 240,000 ($8,000 p/day)
Total cash in: $ 100,000 ($3,300 p/day)Difference: $ 140,000 ($4,700 p/day)
Lynet's working capital: $ 3,000 Ksh
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Stores need to rebalance their liquidity holdings daily
Number of transactions with PEP per storeper trading day, by type of store
Daily net value of client transactions in Kshs '000
Frequency with which stores transact withPEP per trading day, by type of store
Agent liquidity management is costly
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PEP Intermedius Ltd
Statement Float Account Aggregator
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Rebalancing Super Agent
PEP Intermedius Ltd
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Cash Distribution Challenges
Stores require quite intense daily liquidity management support:They must rebalance on at least 60% of days and often several times
per day
Rural areas face greater difficulties: lower commissions;
transactions lopsided towards cash out; and high travel and time costsThere is evidence of market discipline between stores: favouringcertain stores offering exceptional service + substantial tradingvolumes
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PEP Value Chain Upstream Customers
Safaricom
Others
FranchiseAgents
Individuals
Traders
Upstream Customers(Producers of
financial services) PEP
Downstream Partners(PEP Agency
network)
End Users(Main customers
segments)
PEP-OwnedAgents
NakumattStores
Effectively offeringDistribution Channels
Serve as welfareenhancing partner
Managing liquidity andchannel managementsupport
Airtel
Orange
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Level 3: Upstream customers
Providing physical infrastructure/ transactionplatform
Customer Channel and Interface; mobilising
and registering
PEP C t i t d t 3
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Core competences
Responsible level Channel management Liquidity management
Front desks Customer interaction andgenerate repeat visits
Local knowledge
Active monitoring and timelymanaging of float
Interact on basis of trust withend-users (ie in someinstances provide advances)
Back Office (Treasury) Timely commission paymentsto agents
Technical supportchannel/back-up
Guarantee availability ofcash for agents
Rebalance agent accounts Provide operational support
and oversight
Management Network selection Product development Agent location Seed capital provision Staff training
Manage overall cost ofcapital
PEP: Core competencies executed at 3operation levels
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Revenue and cost structure in the agency model
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ResultM-Pesa
TurnoverCommission
CostsM-Pesa agents
Number oftransactions
Type oftransactions
Size oftransactions
Relationshipwith PEP
Accomodationcosts
Staff costs
OverheadCosts
WC costs
PEP owned: 100% commission for PEPFranchise: 30% commission for PEP
Commission per transactions
Higher Commission if size is higher
Rent PEP owned Agencies
Salaries and wages PEP owned agencies
Support HQ
WC multiplied by costs of capital
LocationAgency
Urban, District, Rural
Agency prof il e inf lu ences the three dri vers of tur nover :
Other costs Bank Costs, Costs of Sales,Travel Costs.
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Commission per transactions
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Take Aways
Sound business proposition for agents: Compensating themfor the cash solution he/she is offering, considering the risks andresources required.
Incorporation of Aggregator model: Identifying institutionsthat have the financial cloud and presence to quickly rebalanceagencies accounts.
When mobilising rural agents, stick to local people: when itcomes to money, the unbanked prefer to deal with people theyknow
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Thank You
For more information: [email protected]