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2013/FMP/WKSP1/010 Session 3
Innovation Towards Financial Inclusion - From Mobile Money to Mass Market Banking
Submitted by: IFC
Workshop on Promoting Financial Access Through Innovative Delivery Channel to
Enhance Financial InclusionJakarta, Indonesia
27-28 February 2013
Jakarta, February 2013
Innovation towards financial inclusion From mobile money to mass market banking
Rachel Freeman
Manager
Access to Finance
East Asia and Pacific
IFC Advisory Services
2
• IFC is the largest global development institution focused exclusively on the
private sector – the global leader in private sector development finance
• We create opportunity for people – to escape poverty and improve their lives
• We invest, advise, mobilize capital, and manage assets – providing solutions for
an inclusive and sustainable world
Who We Are, What We Do
IFC is a member of the World Bank Group
IFC’s Three Businesses
Investment
Services
Advisory
Services
IFC Asset
Management
Company
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• Investment Climate
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Partnerships
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subsidiary of IFC
• Private equity fund
manager
• Invests third-party
capital alongside IFC
$4.5 b
under
mgmt
$56.5 b
portfolio
$200 m
per year
3
4
IFC’s Global Reach 104 country and regional offices worldwide, 3,763 staff of which 56% are outside of Washington
Dakar
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IFC HQ/Regional Hub
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5
• PORTFOLIO: $6.7 billion representing 240 firms in 11
countries (as of June 30, 2012)
• INVESTMENT COMMITTED: A record $2.9 billion
representing 71 projects in 10 countries
• New IFC projects in fiscal 2012 are expected to…
... reach around 130,000 farmers
... improve health and education services for 1.2 million people
... facilitate loans for around 5.4 million micro, small, and medium
enterprises
• ADVISORY SERVICE BUSINESS LINES: Portfolio volume of
close to $113 million across 73 projects
FY12 Key Facts and Results – East Asia Pacific
Innovation towards financial inclusion From mobile money to mass market banking
Contents
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The cycle of innovation driving financial inclusion
A decade of disruptive and complementary innovations
Success and challenges in mobile money
Quiet innovation in the banking sector
Developments that will transform SME banking
Sector and policy level issues for discussion
Banks, Mobile operators, start
to reach new client segments
with basic products
• New products and services
are developed to enhance
usage and generate revenues
From adoption to usage
Lower costs of reaching and
serving new segments attract
new providers to enter the market
Financial deepening
Expanding the effective reach of the financial sector is a long-term process to
which both disruptive and incremental service innovations must contribute
Technology, business innovation,
growth and regulatory reforms
enable or kick-start
new business development
that reaches the un/under-banked
Greater economies of scale
enable providers to reach
more lower income clients
Reinforcing access
First stage – adoption
Financial
Inclusion
Cycle
1
4
3
2
0
Even in markets with broad reach, innovations are creating “variety competition” that
helps address the needs of marginal users and integrates them into the economy
•7
The last decade has ushered in a rich and increasingly diverse array of both
disruptive and complementary innovations across all economies
8
Selected examples
Non-bank innovation has been critical in inciting broader innovation in ways that are
complementary to existing banking practices and more easily adopted by incumbents
Complementary
Disruptive
2000 2005 2010
A lot of innovation started
out in serving new
consumer needs beyond
the focus of incumbents
Incumbents and mobile /
internet innovators are
now integrating with
main-stream banking…
“Disruptive” innovations, particularly by non-banks, have been effective at
boosting adoption of new payment instruments but usage is still limited
9
The industry still faces a big, collective challenge to moving efficiently from
adoption to broader usage
Source: GSMA State of the Industry: Results from the 2011 Global Mobile Money Adoption Survey
Airtime top-ups are the
most heavily used
transaction type
GSMA members have signed up millions of mobile
money users…
…but usage remains low and concentrated on just a couple
of transactions types
The benefits of top-ups for MNOs are
strong and they have power to
promote them through mobile money
But integration with savings,
lending and other financial needs
of clients remains weak
Many innovations in the payments and banking sphere have added to the array of
channels through with financial services providers can acquire and serve clients
10
Retail banking channels
Physical channel Remote channel
Dedicated
store
Re-sellers
and other 3rd
parties
Self-service Employee
service
Branch
Mobile sales
force
ATM Call-center
(IVR)
Internet
Mobile Internet
Interactive TV
Mobile
Call-center
(service agent)
Self Service
Broker
Franchise
Branch
Retailer
TV/video call
centre Agent
EFTPOS From a bank’s perspective, the challenge is to fit these new
channels into their existing operations strategy
New channels becoming
part of mainstream
banking
Using agents in particular can help boost the rate of client acquisition in a cost
effective manner
11
Example from a client bank of recent growth through use of agents Success is of course dependent on other
key factors
A compelling hook product /
offer
Agents well incentivized and
supported
Agent locations, business and
positioning complementary to
the bank or payments offer
Growth in client acquisition - through agents – create more business volume for all
channels
The introduction of agents, mobile channels and related payment innovations can
also offer important opportunities for banks to optimize costs
12
Agents or correspondents are
variable costs in distribution,
lowering financial risk of
starting up the business
Broader channel mix allow
banks to match cost to
marginal contribution – i.e. low
value remotely leaving
branches and staff to do sales
and more complex tasks
Low value clients can be
served and held without losing
money on them
Illustrative range of cost per annum for different bank “channels”
These levels of cost also need to be compared to their related revenue streams
Branch Kiosk Standalone ATM Agent
Thousa
nds
of
Euro
s
Overall though, the business case for new payment services cannot be based on
fees to be levied on consumers
• Globally, as payment innovation increases, direct fee revenue from
users is becoming less important …..
13
…while the less visible value added beyond payments becomes more
essential to making the business work
Above-the-
line fee
revenue
Below the
line
indirect
gains
Competition increasing on remittance fees
Downward pressure on domestic debit card fees
Account maintenance fees squeezed by competition
Pressure from regulators on interchange
Rising value of payment impact on loyalty –
e.g. for MNOs – or marketing by retailers
Payments as source of information and marketing for banks
Transactions as data source for credit scoring and management
New process design of payment helping retailers sell, keep stock
Examples
The agent and customer network can
create synergies with SME banking
The new client base needs to create
synergies with corporate banking,
such as through wage payments
Hence extending financial networks sustainably will require participants to
generate cross-selling revenue, putting banks at the forefront of development
14
Savings and in particular credit need to be
key sources of revenue from the new
captive client base – even if only % of it
Corporate
Banking
SME
Banking
2
3
Consumer
Banking
1
IFC has recently worked with BSP in PNG to boost acquisition and
optimise distribution costs
15
• Papua New Guinea has a population of 6.2m, with 5.27m living in rural areas and 3.8m
over the age of 18 (labor force)
• There are 4 commercial banks in the country, yet less than 10% of the population own a
bank account
• PNG is predominantly a cash based economy, though eftPOS is a widely understood
alternative
• BSP has the largest retail market share and the largest network of branches (36), ATMs
(200) and eftPOS (4,600)
• BSP Rural was established in May 2010
and acts as an agent of BSP to reach
rural customers through a combination
of branch and eftPOS expansion
• There are 3 mobile operators base of 2m,
Digicel has a >65% market share
• The growth of mobile phone usage
provides an opportunity to strengthen
BSP Rural’s overall strategy and reach
The initial results in PNG demonstrate what can be achieved if
innovation is applied with a clear strategy to achieve growth
16
The next steps for BNP involve broader activation of an cross-selling to new clients
IFC is also working to improve access by linking payments into the
service improvements that SMEs, corporates and consumers are
willing to pay for…
17
Sales data and analytics that
can help banks to efficiently
finance the short term
inventory needs of
shopkeepers and suppliers
Payments solution that link
to easy stock and sales tools
for small shopkeepers
Logistical solutions that
insert payments into a
broader approach to
optimizing inventory, sales
and delivery for CGs
Example extending access through retail supply chains
Potential sources of value to link to are:
Overall, policy makers and industry leaders need to embrace innovation and be
ready to participate in long term transformation
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1. We are in the middle of a wave of innovation that is not just in
developing or mature markets but is demonstrating their interconnections
2. Payments are becoming more competitive, forcing value to be sought
somewhere else beyond fees from direct users
3. That means variety competition – creating ways to better meet the needs
of users, including the un- and under-banked
4. Banks will need to see mobile as part of a broader transformation of
banking in order to draw new users into the financial sector
What does this mean for public policy? A few key thoughts
• Regulatory reform: Set the new rules for banks and payment
providers that allow innovations to be applied
• Think beyond payments: what matters is how new payment services
integrate with and support what SMEs and consumers want to do
• Supervision and Support: Be ready to support the long term process,
with cross-departmental technical & market skills necessary to
enable innovation while maintaining stability
• Encourage integration: Begin to focus on the inter-operability and
competition issues that can arise as the market progresses
19
Terima kasih
Thank you
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Rachel Freeman
East Asia and Pacific Manager, Access to Finance Advisory Services
International Finance Corporation
Email: [email protected]
Ivan Mortimer-Schutts
East Asia and Pacific Regional Advisor for Payments and Retail Banking
International Finance Corporation
Email: [email protected]
Anastassiya Marina
Indonesia Program Manager, Access to Finance Advisory Services
International Finance Corporation
Email: [email protected]
