Presentation on theme: "Presented by: Sonja Oestmann, Director of Consulting Four-country mobile money study for the IFC."— Presentation transcript:
Presented by: Sonja Oestmann, Director of Consulting Four-country mobile money study for the IFC
Some key findings upfront In developing countries m-money is an alternative to cash while in a developed country m-money is a complement to existing e-payment options Greatest opportunity for m-money is at stage where m-money provides an alternative means to the traditional existing financial services; this is also where it has biggest development impact While there are also good opportunities in the developed world for NFC-enabled mobile phones (e.g., public transport, retail payments), there is stronger competition from the card industry M-money seems to require major economies of scale to be viable – either through dominant player or through interoperable platform We will show a model that situates each country on a development path & partnership model Progression of ideal business partnerships: MNO-centric Bank/MNO partnership Interoperability and multi-stakeholder collaboration
Overview of presentation Objectives of study, context & key questions Parameter analysis & qualitative research Major money flows in m-money sub-markets User and non-user survey findings Business model analysis – required partnerships Insights from Kenya & Japan – are they unique or replicable developments? Our hypothesis about m-money development paths & needed partnerships
Guiding questions of study Although a number of service providers have emerged around the world, few have reached significant scale Overall, m-money services are still limited compared with their promise of reaching the unbanked, servicing existing banking clients, and fostering a cashless society What are key drivers for m- money to develop? Why have some countries been successful in m- money adoption and others not? How can we identify countries and markets with good m-money potential? How can they supported to take off? How can m-money adoption be accelerated? What business strategies and partnership models?
Scope of the study Regulatory environmentsAgent networks Business models User survey findings Opportunity analysis Parameter analysis Existing major money flows (demand outlook) ThailandNigeria BrazilSri Lanka USAJapanKenya
Definitions m-money: Financial services and transactions made on a mobile phone only electronic money: A broader concept, refers to payments made using prepaid and NFC (contactless) cards, debit cards, loyalty cards, ATM cards, gift cards and store cards, incl. mobile phones M-money is a subset of e-money What makes m-money distinct to credit or other payment cards? Phone is owned by more people Is an interactive device Allows remote, non-face-to-face payment without an additional device (whereas a card requires the Internet or a phone for remote payment) Has other functions as well (e.g., communication) compared to a cards key purpose as a money payment instrument Understanding of m-money
Parameter analysis Based on extensive literature research, a total of 50 parameters were identified The parameters with the greatest impact on mobile money are: Regulation – assessed based on Porteous regulatory environment model Existing financial access – assessed based on ATMs, POS, debit and credit cards, and the size of the unbanked market Existing mobile market situation – assessed on dominance of an operator and investment capacity User perceptions – is there a need to use mobile money? Socio-economic country context Regulation Existing financial access Existing mobile market Nature of retail sector Quality, quantity & nature of payment systems Pricing User perceptions 8 key categories of parameters
Details of parameter analysis Socio-economic country context Population/ Poverty Urbanization; Rural population; GDP/capita; GDP by region Gini coefficient; Geographic areaRemittance flow RegulationClear & risk based regulatory framework KYCAgent regulationID system MM license requirementsBank outsourcingInteroperability requirementsPricing restrictions on accounts Obstacles to international remittances Mandatory services banks must offer Regulations on new branchesLevel of expensive requirements Existing financial access Reach of networks/agentsPenetration/use of cardsPenetration/use of prepaid cardsInternet banking usage Informal financial accessNon-bank provision of financial services Cash-electronic transaction ratio(use of cash) Unbanked population Competitiveness of banking industry Existing mobile market situation Population penetration/ coverage Geographical coverageLevel of competition3G penetration/ usage ChurnLevel of fragmentation of industry Potential demandBill paymentsPublic transportPerson-to-personGovernment-to- person Business-to-businessCredit and micro-creditInternational remittancesSavings rate Retail sectorRetailers with national coverageLevel of fragmentationPostal networkOther distribution networks Payment systemPOS terminal penetration Mass payment acceptance Dominant payment methods in the economy Card Penetration National switch/ Third party payment processors PricingDistortion through intervention/ regulation Banking services pricing User PerceptionsTrust in mobile operatorsWillingness to payCultural factors
Enabling regulation Openness high low high low Certainty Enabling regulatory environment 2. Low certainty; High openness 4. Low certainty; Low openness 4. Low certainty; Low openness 1. High certainty; High openness 3. High certainty; Low openness 3. High certainty; Low openness Sri Lanka Nigeria Thailand Brazil
Financial access indicators Financial sector development indicators Financial dataNigeriaSri LankaThailandBrazil Banking penetration21%59%80%43% POS per 1 mil. inhabitants 801,1733,93316,606 ATM per 1 mil. inhabitants Payment cards per 1 mil. inhabitants 166,774279,343934,8482,711,227
Existing mobile market situation The mobile market parameter influences the mobile money sector mainly in two ways: The competitiveness and health of the sector basically determines the appetite and capacity of MNOs to invest in a m-money business The dominance of a single operator can be conducive to a m- money business, whereas a more competitive market needs to address the thorny issue of interoperability early on to create economies of scale However, uncompetitive mobile markets with strongly dominant operators are the exception rather than the rule Mobile sector parameters CountryHHI Mobile coverage Mobile penetration Nigeria342460%51% Sri Lanka285190%69% Thailand341197%99% Brazil252791%96%
Differentiation of m-money market opportunities Potential m-money markets 1.P2P transfers 2.Government-to-person (G2P) payments 3.Public transport payments 4.Bill payments to major utilities (e.g., electricity and water), postpaid mobile accounts, fixed phone subscribers, pay TV (cable and/or satellite) 5.Payroll payments from small companies in the informal sector 6.Retail payments 7.Business-to-business (B2B) payments 8.Credit and microfinance 9.International remittances 10.Savings Illustrative example: Brazil P2P: 84% of pop. is urban G2P: 150 million payments a year, but MSD no incentive to switch Public transport: 16.8 billion trips in 2008, but depends on NFC-enabled phones Bill payment: efficient and cheap existing channels; 88% usage of correspondent banks is for bills Huge demand for retail credit, micro- finance from unbanked
Major money flows estimates (per month)
Major money flows (Demand perspective) Summary of five quantified markets NigeriaSri LankaThailandBrazilUSAJapanKenya G2P40, mil646, mil4,5 mil3,8 mil60,000 P2P46 milUnknown 38 milUnknown14 mil Payroll (informal sector) 37 mil4,7 mil21 mil48 mil11,3 mil594,00011,6 mil Public transport 10 mil264 mil58 mil1.4 bil858 mil2.3 bil2,4 mil Utilities21,6 mil6,4 mil13 mil164 mil111 mil80 mil1,07 mil Unbanked46 mil4,89 mil5,87 milUnknown20,5 milVery small6,1 mil E- payments Unknown18,2 mil35 milUnknown5.2 bil472 milUnknown
Survey findings – Diversity of use
Survey findings – country comparisons
Business models – key questions Which players have the clearest and strongest incentive to develop m-money services? What is the main value proposition for potential clients: lower- cost services; better, more convenient, and different services; or targeting services to a specific group, for example the unbanked or rural population? What is possible in each country, in terms of the following: Regulation. Is the most incentivized player also allowed to provide m-money services? Demand. Is the market large enough to warrant the cost and investment of establishing an m-money service? Partnership requirements. Can the incentivized player establish an m-money service by itself or does it need major partnerships?
Business models Overview of business model elements among the four main m-money providers Business Model ElementseTranzact, NigeriaDialog, Sri LankaTrueMoney, ThailandOi Paggo, Brazil Business Objective Private payment switch that provides back office processing for electronic transfers through a variety of channels Dialog – reduce distribution costs and bring new revenue streams Ensure profitability and pass off fixed costs to merchants Achieve profitability Secondary objective: increase telecom business – e.g., top-up increased by 30% among Oi Paggo users Strategy Focus on increasing mobile payments transactions through using more agents. Focus on maintaining variable costs and variable revenues (other than marketing costs) though there are high acquisition costs because of SIM swap. Focus on increasing efficiency within the True Corporation group of companies Create a partnership with major bank/ player Once partnered with a bank, offer additional services, such as P2P and prepaid e-wallets Target market All mobile phone users. Ultimately all Dialog and NDB customers. Ideally need 100,000 customers to break even. Target market is anyone that pays a bill. Up to 35 years, both male and females, Demand is the same as the credit card market Model / partners Model: Collaboration model Recommended partners: MNOs and Banks Model: Bank-centric Recommended partners: Banks (other than only NDB Bank) Model: MNO-centric Recommended partners: Banks Model: MNO-centric (current model) Recommended partners: Banks, payment providers
Opportunity analysis Opportunity analysis summary Potential marketsNigeriaSri LankaThailandBrazil Bill payments Public transport P2P transfers G2P Payroll (informal market) B2B, B2C or B2Employees Credit & micro- finance Remittances (international) Significant & unrealised opportunityUnlikely to be any m-money opportunity Potential opportunity, but challenging
Summary of methodology Parameter analysis: Regulation, existing financial access & user needs, mobile market, m-money acceptance network Major money flows, economies of scale (quantitative) Which m-money sub-market? Value proposition, existing alternatives and competition (qualitative) Are the main players incentivized & interested? Can they recruit the partners they need? Can they create a joint business case/ revenue share? Opportunity? Yes/ No/ Maybe
Insights from other countries Why Kenya, Japan and the USA? Kenya is the most successful m-money developing country Japan is the most successful m-money developed country The USA has been added as a known reference point Will developments in these countries become trends in the four developing and emerging market countries that we studied? This also helps to orient the four countries into the wider context of developments in the m-money space. Key metrics for m-money in Kenya and Japan GDP per capita (USD) Value of m- money transactions (billions, USD) m-money as % of GDP m-money customers Number of transactions Ave. value of transaction (USD) Japan38, %18,500,000267,840,0009 Kenya %9,483,408177,688,00524
Kenya – Key drivers Overview Over 9.4 million customers, over 18,000 agents, USD 5.27 billion in P2P transfers since launch in 2007, over 13% of the Kenyan GDP was transferred by M-PESA. Dominant mobile operator When M-PESA was launched in 2007, Safaricom had over 70% of the mobile market in Kenya. This allowed it to launch the service quickly to a large subscriber base. This had enormous benefits in terms of marketing and economies of scale. The impact of M-PESA on Safaricom has been to consolidate its position as the dominant operator in Kenya. Regulatory environment While banks are tightly regulated, non-banks have been allowed to enter the m-money space relatively freely, with little regulatory oversight. Non banks are permitted to perform various payment functions virtually unregulated Changing demand M-PESA is increasingly being used as the platform for a whole range of services that would, in a developed country, be provided by banks.
Japan – Key drivers Overview Electronic money is highly advanced. Japan has the most widespread use of e-money, with the largest number of subscribers. Dominant service providers Like Kenya, the Japanese mobile sector has been dominated by a single operator, NTT DoCoMo. Its market share has been 50% or greater for a number of years. The development of e-money and specifically the FeliCa NFC standard (a proprietary standard owned by Sony) was driven by dominant players in each segment of the value chain. Population density High population density meant that many workers take public transport in order to get to work. Role of government Japanese government played a significant role in bringing the private sector players together. The Japanese Government, via its shareholding in NTT, owns 63.12% of NTT DoCoMo and only sold its shares in Japan Railways East in 2006.
Common drivers in Kenya & Japan Dominant players: Both countries have dominant players that were able to capture a large market share; in the case of Japan, the dominance includes not only the mobile operator, but also the dominance throughout the value chain: exclusivity of proprietary NFC technology, and dominance through the leading credit-card company in Asia, JCB, and the East Japan Railways, which is the dominant player for public transport in and around Tokyo. Massive addressable markets: 2.3 billion monthly transactions for public transport in Japan (compared to 858 million in the USA and very fragmented); while the numbers for Kenya are much smaller – 14.4 million unbanked adults – they are massive compared to the overall country: 14.4 million unbanked adults represent 77.4% of all adults in the country. Helpful regulatory situation: in both countries regulation does not hinder m-money developments; in Japan there were some government support: the Japanese Government, via its shareholding in NTT, owns 63.12% of NTT DoCoMo and only sold its shares in Japan Railways East in It was supportive of the move towards NFC as a standard technology for payments. Single killer application: Initially P2P in Kenya and public transport in Japan, which then allowed the addition of other services. Large acceptance network for m-money: M-PESA in Kenya has more than 18,000 agents, which it was able to establish fairly quickly; and with East Japan Railways a sizeable acceptance network used by a large proportion of inhabitants of Tokyo and surrounds. Tokyo is the largest city in the world with over 35 million inhabitants.
USA – M-money vs e-payment In comparison to both Japan and Kenya, the penetration of m-money is insignificant. However, in terms of electronic payment instruments and including debit and credit cards, the USA is one of the most advanced economies in the world. The mobile market in the USA was historically a fragmented and diverse market, spread across a large geographic area Replicability "The current U.S. model cobbles together the existing infrastructures of mobile operators, the bank network, and payment service providers. The challenge is that there are many alternative payment methods and no differentiating factors or obvious substantial benefits that consumers can see yet from mobile payments".
Best partnerships & strategies C Single platform (collaboration between multiple players – seamless interoperability C Single platform (collaboration between multiple players – seamless interoperability A MNO-centric A MNO-centric B Collaboration between MNO & Bank B Collaboration between MNO & Bank Innovation & differentiation Cost leadershipSegmentation Increasing financial sector development Hypothesis of progressive development of the MNO- centric model: Business models evolve – an analysis of the competitive environment must be dynamic, not static; M-money ventures are linked to certain stages of financial development: MNO-centric: Kenya & Nigeria; Collaboration between MNO & Bank: Sri Lanka & Thailand; Single Platform: Brazil, USA and Japan
M-money demand curves Relative demand for low cost, low speed, infrequent transactions high low highlow Level of Infrastructure Development Mobile Money Demand Curves MNOs BanksMultiple partnersPLAYERS Thailand Nigeria Developed economies Brazil Sri Lanka ALTERNATIVE INFRASTRUCTURE TRANSITION PHASECOLLABORATION Relative demand high speed, high volume transactions Developing economies USA Japan Kenya Orange curve is m-money demand in developing economies - for low-cost, low-speed, infrequent transactions, such as P2P transfers. The orange curve becomes dotted because demand changes from low-cost, low-speed, and infrequent to high-speed and high-volume as represented by the blue curve. The Blue curve starts off dotted because developed countries already have substantial financial infrastructure, thus demand for low- cost, low-speed, infrequent transactions is low.