Presentation on theme: "Mobile Payment in Sri Lanka: Market Demand Assessment Dr. Peter Lovelock Director, TRPC."— Presentation transcript:
Mobile Payment in Sri Lanka: Market Demand Assessment Dr. Peter Lovelock Director, TRPC
The Study Methodology: Household survey conducted in Jan-Mar 2013 covering 2,040 households Face-to-face interviews conducted using a structured questionnaire Covered spending habits, mobile use, bank access, preference and mobile money demand Differences across income, expenditure and education levels identified using Socioeconomic Classification (SEC) system 73.2% respondents from rural areas Average household income: LKR 20,000 - 35,000 40.3% of respondents between 15-30 years of age Reasons for the study: Lack of reach to the bottom of the pyramid segments: Financial institutions have been limited in expanding their services to reach more people at the base of the pyramid. High cost and limited infrastructure means that more affordable solutions are needed. Mobile, or branchless banking as a solution: Due to large unbanked population and widespread use of mobile phones, mobile banking offers a new business model and delivery channel, to increase financial access to a wide range of services while reducing transaction costs. Demand for mobile banking in Sri Lanka: With no proven models of mobile baking in Sri Lanka, this study was conducted to understand the demand for mobile based financial solutions, to help establish the availability of a viable business model for such services in the country. Reasons for the study: Lack of reach to the bottom of the pyramid segments: Financial institutions have been limited in expanding their services to reach more people at the base of the pyramid. High cost and limited infrastructure means that more affordable solutions are needed. Mobile, or branchless banking as a solution: Due to large unbanked population and widespread use of mobile phones, mobile banking offers a new business model and delivery channel, to increase financial access to a wide range of services while reducing transaction costs. Demand for mobile banking in Sri Lanka: With no proven models of mobile baking in Sri Lanka, this study was conducted to understand the demand for mobile based financial solutions, to help establish the availability of a viable business model for such services in the country.
Current Context Banking Services: Access to banking services widely acknowledged to be high Financial access in Sri Lanka estimated between 68.5% of population (WB) to 82.5% of households (GTZ) 58% of adults of bottom 40% income group have bank accounts (WB) Macro perspective: By 2012, 33 banks operated 3,378 branches (16.2 branches per 100,000 people) Majority of outlets concentrated in the Western, Central and Southern provinces One-third of population unable to transact through a formal institution; with 50 per cent accessing financial accounts only on a monthly basis Cash is still king in Sri Lanka, and there are significant numbers who would make use of an account if given reasonable access – reasonable in terms of access, price, convenience and trust
Current Context Formal Financial Account Usage: While bank access is relatively high in Sri Lanka, bank use is relatively low 13.7% of accounts inactive in any given month, compared to 6.6% for South Asia 66.7% of account holders make 1-2 deposits per month compared to 70.5% for South Asia Alternative Payment Channels: Cheques and RTGS are effectively the only non-cash payment methods used on a broad scale – 99% total non-cash value (3 rd quarter 2012) Penetration rate for debit/credit cards is low Debit cards: 46% population (10 mill cards) Credit cards: 4.3-4.5% of population (1 million cards) Mobile banking and tele-banking facilities remain nascent Source: CBSL
Mobile Telecoms As of 2013, 5 operators served 22.4 million subscribers i.e. 97% penetration Local estimates place the number of multiple SIM users in Sri Lanka in the range 5-20% of base i.e. total subscriber base of 17.3-18.5 million By contrast, Wireless Intelligence estimated the rate of multiple SIMs in Sri Lanka to be 2.02-2.04, and the (unique) subscriber base to be only around 9.5 million by 2013 i.e. 41.1% penetration, which suggests limited market penetration. At high rates of penetration the mobile phone is an ideal alternative access channel for offering services such as financial access – particularly in the case of remote rural citizens who are otherwise not considered by the banks.
Available Mobile Banking Services In 2013, 8 domestic commercial banks provided m-banking services in Sri Lanka Available services: Range from balance inquiries to paying bills and fund transfers Technologies: Range from SMS-based service and USSD to mobile apps for smartphones In 2011, the Central Bank enabled a bank-led model and a non-bank-led custodian model Available Mobile Banking Services (excluding Foreign Banks) BanksM-Banking Service Technology usedMobile operators able to use the service SMSIVRUSSDAppDialogEtisalatMobitelAirtelHutch Bank of CeylonBOC Paymate Comm Bank of Ceylon Comm Bank M-Banking DFCC BankMbanx Hatton National Bank Hatton Mobile Banking National Development Bank eZ Pay Nations Trust Bank Nations Mobile Banking People's Bank People's M-Banking Sampath BankSampath Mobile Cash Seylan Bank
Mobile Payment Platforms Introduced by Dialog in 2007. Provides m-payments, m- banking, and m-transfer Introduced by Dialog in June 2012. Dialog users can pay utility bills and transfer money even without a bank account An ICT software and service provider for the health sector SMS-based out-of-band payment solution provider with bank and mobile operator interoperability JV between zMessenger and Ambiq Technology, positioned to be the “ideal platform” for NFC services in Sri Lanka SMS-based out-of-band payment solution provider. A key feature is bank and mobile operator interoperability Central clearinghouse, undertaken the common mobile and EFT payment switch rollout; including mobile payments SkyPay branchless banking solution by OpenArc, including m- banking/m-payments POS-based branchless banking module by EpicLanka, based on owning 90% of all POS machines in the country
Key Findings Food, shelter and education comprise >50% monthly expenditure Telecom expenditure the 4 th largest spend item (6.1%) Average mobile phone costs (LKR1,201.65) almost identical to average utilities expenditure (LKR1,209.06) Monthly Average Household Expenditure (LKR):
Key Findings Mobile phone ownership: 94.7% own only one mobile phone with far less multiple phone account usage than usually the case in rapidly growing emerging economies Higher ownership of smartphones by rural than urban respondents Mobile usage: Over-the-air top-up of mobile credit with 70.8% of usage >15% respondents already share e-credits with friends and peers Illustrates high familiarity with mobile credit transfer Notably: a large gap between demand and use for m-banking, m-pay and remittance Usage of banking services: Bank account ownership high: 88.2% including 80% of lower income 20% of least developed still without a bank account Majority of bank accounts being used only once a month or less Use of non-cash payments: Only 16.8% own a debit card; 4.1% own a credit card. Main purposes of card use: withdraw money for cash, shopping bill payments Purpose of using a debit card by SEC (percentage) This presents a substitution opportunity for mobile payments solutions
Key Findings…Mobile Preferences Demand for mobile social media and entertainment stood out with >10% demand Of greater note: the gap between actual use and wanting to use mobile banking, remittance and payments Almost equally true across all demographics suggesting a strong and, as yet, unmet demand for the services Currently there is greater use of mobiles for remittance (3.5%) than for m-banking (1.7%); not surprisingly demand is greater across lower segments Money received through remittance is mostly (52.7%) for personal or emergency needs, which means timely transfers of money are important Socioeconomic Class ABCDE Make calls Using100 Desiring100 Text messages Using63.361.16153.150.2 Desiring68636555 Entertainment Using27.521.219.318.319.1 Desiring2627202115 Social Media Using13.7184.108.40.206 Desiring151613129 M-banking Using220.127.116.11.1 Desiring1310875 Remittance Using0.63.63.42.81.6 Desiring18131214 Make payment Using18.104.22.168.90 Desiring119788 Mobile Phone Use and Desired Use
Key Findings… Awareness of Mobile Money Services High awareness: 63.8% had heard of and were aware But, only 2.1% aware that they were using any m-money services Confusion in understanding eZCash: 2.4% aware, eChanneling: 0.2%, int’l remittances: 0.1% Person-to-Person fund transfers71.3 Bill payments63.9 Purchases21.6 Banking17.1 Air time top-up15.5 Loan application6.3 eZ Cash2.4 eChanneling0.2 Receive money from abroad0.1 Awareness of M-Money Services (%)
Key Findings…M-Money: Drivers ABCDETotal (%) Ease of use1442515171998659.1 Money security1081883791498144.6 Awareness of the service701233071155232.9 Wide accessibility2662136584316 Mobile money drivers Drivers: Ease of use, safe handling of money, and wide accessibility –in other words, convenience and security Demand for Different Type of M-Money Transactions (percent) Note: SEC split for total population = SEC A 10%, SEC B 20%, SEC C 45%, SEC D 18%, SEC E 7%. For example, as per above table, 1.3 mio of Sri Lanka’s population falling into SEC A, demand to pay utilities through M-Money
Key Findings… M-Money: Constraints Barriers: Low ‘awareness’, lack of need, lack of trust, system difficulties, availability and affordability All are perception issues and thus subject to change with experience Awareness, education and relevance can all be addressed through targeted intro of m- money technologies Barriers to mobile money ABCDETotal (%) Lack of need37.239.538.836.336.468.6 Awareness30.730.530.332.631.955.7 Trustworthiness9.18.310.87.14.816 Difficult to use22.214.171.124.69.312.9 Availability9.8126.96.36.1991.3 Affordability188.8.131.52.97.311.2
Gaps to be addressed Communication between key players Small market; too much fragmentation undermines economies of scale. Extensive misunderstanding, disinformation and lack of clarity on what key players are doing, what’s demanded, what ‘s possible, what ‘s an opportunity Understanding of mobile payments (as opposed to general ‘awareness’) ‘How do I use the service?’ ‘Why should I use the service?’ ‘What are the benefits?’ These are not clearly understood Identifying key pockets of demand How much investment required to commercialise and to be able to scale to sustainability? Robust answer required if a mobile payments ‘ecosystem’ is to be built, rather than single closed loop payments solution Pricing and ROI ‘How much should the service provider charge for mobile payments services?’ ‘How much could the market bear?’ ‘If fees are too low how can ROI be achieved?’ Models and existing best practices needed to accelerate current efforts and investments
Opportunities and Next Steps Utility Payments Encompasses payment of government bills, public transport, water bill s, airtime, utilities, car parks, insurance premiums, MFI transactions, payroll distribution, trishaw rides and fuel bills One challenge is partnering with the state run utilities sector Regulatory Clarity for Branchless Banking Providers unclear on how to service the branchless bank opportunity. New guidelines on modes of branchless banking helpful Targeting the Underbanked Banks in general view mobile payments as more appropriate to the middle income market, (exceptions: Lanka Orix) Unintended consequences: small businesses use eZ Cash to fill a transactions gap (Dialog) International Remittance Remittances account for $6 billion (6% of GDP) and via mobile money can challenge existing high-cost or grey-market remittance channels Agent Networks Distinction between where they can and cannot be used for ‘payments’ remains unclear Develop a programme for outsourced agent networks as part of overall market development Encourage long-term thinking in the development of an agent network business to develop as a separate business creating service agent deployments for other providers eGov Services and Payments Very low uptake due to low awareness. Requires buy-in from the top and expansion of services for effective take-off. E-pension, e-local government and e- foreign worker are some of the services that the ICTA is looking to implement
Conclusions Significant enthusiasm for m-payments but little consistent understanding of demand Understanding of mobile payments by Sri Lankans should not be taken as a given even where awareness presents as relatively strong M-payments ecosystem fragmented and in flux Institutional partners often not promoting m-payments; pride and a lack of information appears to prevent companies from working with each other M-payments ecosystem likely to continue to emerge organically Key question is whether that will enable traction or economies of scale Growing recognition that m-payments addresses existing payment gaps Paying for public services online, transportation, etc. Integration with e-government services could be established Central Bank seen to be supportive of development, and inclusive in its process, but further clarity on what players are allowed to do would be beneficial Sri Lanka is still largely a cash-based economy; vast majority of transactions carried out in cash. Mobile payments uptake is increasing but much needs to be done for mass adoption of such services to take place.
Mobile Banking/Payment Interoperability Scenarios for Sri Lanka
Interoperability is considered critical to mobile banking mass adoption To be widely accepted and used, must be as fungible as cash While mobile operators are initiators of mobile money, not drivers of interoperability due to business model conflicts While transfers are a fundamental starting point, banks are most suited to financial service diversification
Value of Interoperable Mobile Transfers Source: NPCI National Payment Corporation of India: Interbank v. Intrabank Mobile Transfers
An interoperability framework must accommodate multiple forms of acceptance points, payment methods, and processing systems Cash Card Phone Cash Account Wallet Cash Agent POS ATM Clearing & Settlement Systems Cash Wallet Account Transfer Device Fund Source Point of Transaction Transfer Systems Fund Destination Transfer DeviceFund SourcePoint of TransactionTransfer SystemsFund Destination Supporting multiple transfer devices can cover a broader range of use cases and leverage existing network investments such as initiating ATM withdrawals via a mobile phones Fund source interoperability, typically encompassed in “product interoperability” is compounded by need for different source (i.e. a mobile wallet and a bank account) compatibility as well as different issuer compatibility. Cash agents are a key focal area of mobile payment and banking interoperability policy Banks who are able to leverage existing payment network arrangements have the opportunity to extend the value of this infrastructure to mobile transactions. Challenge to broader interoperability has been to resolve interconnections with closed loop mobile payment/wallet systems typically run by mobile operators and non-bank financial institutions The counterpart to fund source, product interoperability has important implications for scale and usage. Workarounds provide interim partial solutions such as mobile payments that send a unique “cash out” PIN and cumbersome multistep methods of wallet-to-account- to-account Phone
Example: One of many possible cooperation models LankaClear Bank 1Bank 3 Bank n Bank 5 Bank 4 Bank 2 Scenario 1: Mobile Intrabank transfer Performed as existing ‘on-us’ transaction. Scenario 2: Mobile Interbank transfer Performed through existing LankaClear clearing/settlement, augmented as necessary to support instant transfers Scenario 3: e-Money-to-Account transfer eMoney funds held in escrow purchased/transferred by escrow managing bank to then initiate either ‘on-us’ or interbank transfer Scenario 4: Bill pay Agree to common billing codes conforming to biller’s account number; support directory to map customer’s bill account to bank account. Scenario 1: Mobile Intrabank transfer Performed as existing ‘on-us’ transaction. Scenario 2: Mobile Interbank transfer Performed through existing LankaClear clearing/settlement, augmented as necessary to support instant transfers Scenario 3: e-Money-to-Account transfer eMoney funds held in escrow purchased/transferred by escrow managing bank to then initiate either ‘on-us’ or interbank transfer Scenario 4: Bill pay Agree to common billing codes conforming to biller’s account number; support directory to map customer’s bill account to bank account. 1 2 eMoney Escrow Mobile Operator 3 4
Nepal-hampered by no RTGS Mobile Wallet Mobile Wallet Bank Account Mobile Wallet Bank Account Mobile Wallet Bank Account Partner Banks Only Phone Must register for sending service before cash-out Nepal system supports strong linkages between wallet and account products with two-way transfers, easing cash-in to wallet at retail level and transfer from wallet to account via mobile action. Non-interoperable wallets do create confusion and difficulty to compete with cash; customers need multiple wallets to transact with all and cash agents may/may not serve multiple wallets New initiative, M-Nepal, aims to address this challenge as well as interbank transfer limitations in country
Annex: Demographics: Survey Respondents Survey covered 2,040 households Households used as primary unit Respondents required to own and use a mobile phone. Differences across income, expenditure and education levels identified using Socioeconomic Classification (SEC) system 43.7% within SEC C. The lower the SEC, the higher the rural representation. Fairly wide range across household income. ProvinceDistrictUrbanRural Western 588229359 Central 26056204 Southern 26560205 North Central 12011109 Sabaragamuwa 18437147 Uva 13411123 North Western 23130201 Eastern 1606199 Northern985246 Total20405471493 SEC Frequency Split (%) NumberPercentUrban Rural A23211.438 62 B38618.929 71 C89143.730 70 D34817.017 83 E1839.010 90 Total2040100
Product/ Company- based decisions For the majority of respondents (69.1%), the main source of income is full-time employment, The father/ husband was usually the person in charge of expenditure decisions. The male/ female split was fairly even and most respondents lived in families of 4-6 persons, with an average monthly income and expense range of 20,000- 35,000 Sri Lankan Rupees. The majority of respondents were in the 15-30 year bracket, skewing survey results slightly ‘young’. Annex: Demographics: Key Characteristics
Annex: Demand Characteristics Not surprisingly, basic requirements of food, shelter and education take the top 3 places and by themselves comprise >50% of average monthly household spend. Telecom expenditure cumulatively (fixed line + mobile bills) comes in 4 th, with the mobile component being more than half. Telecoms spend = 6.1% of av monthly spend. Interestingly, the proportion of budget put aside each month for savings according to survey respondents – LKR2455.64 – would have come 4 th on this list.
Annex: Mobile Usage Scratch cards are the most used form for top- ups, but OTA top-up use rising rapidly and now accounts for 70% respondents. Average top-up frequency: once a week; Some 7.5% respondents top-up every day. Average top-up amount = LKR51-100 pm. What this means: Familiarity of mobile money already exists broadly; When built upon behavior already prevalent services take-up looks likely to be dramatic; Healthy nascent demand for m-transfers already emerging; and, Mobile carriers have significant room for reducing costs by shifting the market over to OTA top-ups. Daily8.2 2-3 times per week35.6 Once a week39.1 Once every 2 weeks11.3 Once a month5.4 Once every 2-3 months0.1 Don’t know0.3 Frequency of top-up (%)
Annex: Banking Use & Demand Of 2040 households, 88.2% had a bank account, with 94% of the top socioeconomic bracket banked, and 80% of the SEC E bracket banked. The higher the income class the higher the bank penetration rate. Numbers skewed somewhat because of Samurdhi accounts – with 14.1% of respondents having a Samurdhi (or Samurdhi-style) account, most of these being at the lower ends of the socioeconomic segments. 20% SEC E still without a bank account While ~ 40% without a bank account are living on household income <LKR20,000 pm, 4.6% living on household income <LKR10,000 pm. ABCDETotal Banked948988878088 Without bank acc61112132012 Bank Account Possession by SEC <10,00010,001-20,00020,001-35,00035,001-50,00050,001-75,000Total Banked72%81%89%93% 88 Without bank acc28%19%11%7% 12 Bank Account Possession by Household Income
Annex: Unbanked or Under banked? Sri Lanka comparatively well banked. How active are those bank accounts? How well are they fulfilling the demands of a rapidly growing society? Bank accounts predominantly used for savings. Savings, withdrawals, and pawning are key uses of bank accounts, To a lesser extent: fund transfers and remittances. Most accounts used only once a month or less. Suggests that banks are not used for purchase transactions or to facilitate the flow of funds DailyWeeklyBi-weeklyMonthly<Monthly Savings0.312.452.339.6 Withdrawals0.13.810.94039.4 ATM card use2.81827.333.315.4 Pawning00.50.94.588.9 Debit card use1.71428.539.613.6 Funds Transfer184.108.40.2066.738.8 Remittances220.127.116.117.126.2 Frequency of Usage
Annex: M-Money Demand ABCDETotal Pay utilities 645553 4554 Remittances 353432333033 Other retail payments 342931 2931 Fund transfers 262320212021 General payments 1816 15 16 Phone bill (fixed line) 161211125 Government payments 798151310 Mobile bill 1787768 Pay TV 685736 Public transport 765455 B2B payments 564525 Payroll 654324 Microloan repayments 443624 Demand for Different Type of M-Money Transactions (%) Mobile money services demanded by respondents that would drive adoption are utility payments, remittances, retail payments and phone bills.
Annex: Mobile Payments In 2011, the Central Bank enabled a bank-led model and a non- bank-led custodian model with the following guidelines: i.‘Mobile Payment Guidelines No.1 for Bank-led Mobile Payment Services’ i.‘Mobile Payment Guidelines No.2 for Custodian Account Based Mobile Payment Services’
Annex: Mobile Payments Definitions Understanding the various definitions relating to mobile banking are important: Mobile banking (m-banking): refers to financial transactions undertaken using a mobile device against a bank account accessible from that device; Mobile payments (m-payments): point of sale or remote payments made through a mobile device; Mobile money transfers (m-money): the ability to move stored value from one account to another account using a mobile device; Mobile wallets (m-wallet): an electronic store of value linked to the mobile number or mobile account. They do not require the holder to have a bank account, and can also be used as a payment instrument and a transfer instrument.