Mobile Money Business Models Payment Innovations Working Group April 2012

Why discuss business models? Better understand the different roles NGOs can plan in the mobile money field. Apart from being a consumer of the service, NGOs also play other roles in the role out and development of mobile money services Forging strong partnerships with private sector stakeholders Understanding private sector’s motives in mobile money, in order to better align your own organization’s priorities with potential partners Due diligence when selecting a partner is key Business models vary in each case We will discuss the three core business models for mobile money, but as the field develops, joint ventures are becoming more common

Three Core Business Models MNO-Led Model Mobile network operator acts as de facto “bank”. This model places most of the regulatory responsibility on the MNO. Bank-Led Model Financial services offered from a bank to their account holders through a network of agents Independent Model Independent companies that often times establish a joint venture with MNO or Bank to meet a specific demand not currently being met

Mobile Money transfer Value chain

MNO–led models And how NGOs can engage

Why? MNO-Led Business drivers MNO incentives for offering mobile money services Reduced costumer churn (product differentiation) Better brand positioning Reduced distribution costs (ex. Printing of airtime scratch cards) Additional revenues from mobile transactions Providing evidence of good citizenship (In the eyes of regulators and clients) MNO barriers to entry into mobile money MNO product cycles are traditionally 3-6 months, mobile money products can be cash flow positive in three years (M-Pesa) MNOs face uphill regulatory process with central banks CEO of company is not interested. Leadership from the executive suite is crucial for mobile money success Segmented market share Achieving scale and active accounts

Who? Profile of MNOS who take a product to market MNOs who decided to enter the mobile money market Had no less than 30% of the voice market Existed in markets that had 20-60% mobile penetration Already had an extensive air time merchant network Were willing to take on big up front investments and often times “leave money on the table” in the short term Had strong and positive executive leadership Made a strong marketing push for the product Wanted to reduce their churn through product differentiation

First Movers– Market share and mobile penetration CGAP, April 2011, Five Business Case Insights on Mobile Money

What? MNO-Led Model traits MNOs manage any and all relationships with formal financial institutions, and are responsible for regulatory compliance Agent approval is done through the MNO Client Know Your Costumer (KYC) is often times done through an agent. Range of products, including P2P (ex. remittances), B2P (ex. salaries) and P2B (ex. Bill Pay) MNO is required to hold mobile money float in a regulated financial institution Data Network Receive cash in/out Move Money Hold deposits Mobile Money Transfer Value Chain MNO

Advantages and Challenges for MNO-Led Model Brand recognition and trust Very well developed distribution market through voice clientele Self funded model Flexibility in KYC process Familiar market segments Extensive agent networks provide better access Challenges Lack of familiarity to financial services sector Regulatory barriers Heavy upfront investment Lack of short term profits AML/ATF issues Establishing scale Heavy agent and end user capacity building costs MNOs are often times a trusted brand in rural areas, as they have actually targeted that market where banks have not…

How? Ngo engagement Linking MNO needs to NGO program goals MNO Needs Product differentiation Better understanding markets Risk mitigation through pilots and testing of models Agent and end user training Repetitive payment streams that provide scale and consistency Meeting CSR goals NGO Engagement Innovative NGO products that offer new services to clients NGOs have a strong rural footprint and understand that market well NGOs are often times implementing partners for pilots Training agents can also help improve financial services access NGO programs that disburse funds on a regular basis to beneficiaries is of interest to MNOs NGOs can provide MNOs a more socially responsible image Examples: Juhudi Kilmo MFI, PACT governance program

Bank–led models And how NGOs can engage

Traits of Agent banking models Bank as a driver of the service Path to full financial inclusion and financial footprint Service linked to a bank account at financial institution (may mean interest-bearing deposits, possibility for more sophisticated financial services, etc.). Real-time settlement of transactions linked to bank account May use POS, mobile as device– innovation here is the economics related to the agent model and new financial products Deposit insurance

Players in agent banking Financial institution (commercial bank, MFI, etc.) Agents: typically look like MNO-led models– small mom and pops, pharmacies, etc. May also use third parties. Typically proprietary. May also use “roving agents Clients– linked to bank account or special accounts for low-income groups MNOs in many cases

activities Transactional account most common (bill pay, loan repayment, etc.) Depending on regulation, may do account opening at agent level. Typically will be a lower-value account Increasingly, services such as insurance, loans are offered through mobile May enable B2B activities such as salary or bill payments for businesses Increasing value for banks related to G2P payments In addition to transactions, may drive potential clients to sign up in branch Airtime top ups

Business drivers Accessing new markets (client segments and geographies) New revenue streams (bill pay, G2P, transactions, cross-selling etc.) Decongesting bank branches Cost savings (particularly compared to ATMs) Additional motivations for linking with existing mobile money systems (although not traditionally bank-led): new service for clients, operational efficiency, fraud reduction, etc. Many banks are also doing this as a competitive and reactive measure, although sustainability of this as a motivator is limited

Advantages & Challenges Lower cost than brick and mortar branches Potential revenue driver, competitive posturing Unlocking future customer segments Retain advantage in financial services space vs. MNOs May not have experience managing agents Loss of brand control and building trust May be completely new, unfamiliar client segments—training, product development, etc. Not in line with banks’ traditional business models (low value, high volume transactions) KYC and registration in some countries Large, upfront costs Perception of banks Managing customer experience Potential for increase in fraud Maintaining active accounts

NGO engagement Programming to link up with formal accounts G2P payments Additional financial services such as insurance and loans Can be card based, which helps in areas of low mobile penetration, low literacy, etc. It remains to be seen whether bank-led models "outlive” MNO-led, but financial services is within the core business of banks and reflects their expertise Examples: Mercy Corps and BanKO in Philippines MEDA in Nicaragua Save the Children and UBL in Pakistan What are some other areas to engage?

New Business Models for Mobile Money Independent models New Business Models for Mobile Money

WhY? Business Drivers Regulation MNO- and Bank-led models have strengths but also weaknesses, as we have seen Other players see business opportunity to fill existing gaps in the market Gaps include: Interoperability Product Development Demand for customized services Regulation Often requires a bank partner

Credit: Ben Lyon Source: http://technology. cgap

who? Often call 3rd party or Hybrid Models Joint Ventures Start-ups Eko India (http://www.boardofinnovation.com/2011/05/02/eko-india-banking-for-the-poor-via-mobile-and-local-stores/) MobiPay, Georgia Start-ups Mobile Transactions Limited, Zambia Splash, Sierra Leona M-Peso, Nicaragua Beam India (pre-paid)

What? Often look like MNO-led models Rely on agent network (often independent, rather than retail outlets) May or may not partner with existing MNO or bank Range of products including P2P and B2B Outside funding from investors Smaller reach than MNO or bank models (not always) Value-added services Starting to blur the line completely between MNO & Bank-led Ex: Telenor Pakistan investment in Tameer Microfinance Bank

ProS & cons Advantages Disadvantages Independence Creative products Flexible partner Clear mission Fewer partners to split revenue (could mean lower prices and/or higher commissions) Disadvantages Lack of Brand recognition Lack of Distribution network Funding Regulation

How? Ngo engagement Need to carefully access the capability of an independent company (which may be less clear than established bank or MNO) Ex: M-Peso in Nicaragua Worth considering, especially for smaller projects not of interest to large MNOs Workforce development & Livelihoods programs Ex. Splash/IFC Private Sector development programs Increase competition and support for SMEs Not an option in every country Good for voucher programs Ex: Mobile Transactions Limited Zambia

NGO engagement Overview Process and Roles

NGOs–Tips for engaging mobile money partnerships Not everyone will be a good partner– often times your market may not be their traditional market. Understand the gaps NGOs will need to fill to complete this program– KYC registration, training, etc… Understand the partner gaps that will need to be filled Understand that partners have commercial motivations, and try to align them with your own Personality and connection are important Look to promote/ suggest engagement that is familiar to them– i.e., cash for work payments may equate to salary payments Determine what data you can receive from technology platform, and gage your partner’s willingness to share it In the end, make absolutely sure everything fits within your program’s goals. Sometimes more traditional methods of disbursing funds will be best, mobile money is not a silver bullet

Roles of NGO Roles: Consumer Advisory (including product development and market knowledge) Training and education Deployment accelerator Facilitator/Broker Contribute to private sector CSR goals

Questions and Answers Thank You Cameron Peake cpeake@dc.mercycorps.org Chrissy Martin cmartin@meda.org Hamilton McNutt hamilton.mcnutt@nethope.org