Understanding Branchless Banking

Business Models – International

Experiences

April 17, 2010

 CGAP Technology Program

14 active projects in 9 countries, 12 policy diagnostics

• Research, Policy and advisory
• Experimentation and communications
• Co-funded by the Bill & Melinda Gates Foundation

Project Locations
Areas of Focus

• Clients: what are the drivers of large-

scale adoption and usage?
• Providers: what incentives for offering
services to large numbers of poor
people?
• Governments and regulators: how can
they develop (1) safe and enabling
regulations (2) policies that promote
adoption?
Agenda

• Emerging models in branchless banking

– Money service provider
– Mobile bank model
– Agent –based Acquirer model

• Business case for key actors

– Business case for MNOs
– Business case for Banks
– Business case for IT provider

• Role of market structure

 Emerging models in branchless banking

Money service provider

1 (M-PESA Kenya, G-Cash Philippines,
Transformation • Consumer-facing
al branchless MTN Mobile Money)
businesses
banking • “family” of
2
Mobile bank models
(EasyPaisa Pakistan)
• Multiple
variations likely
3
Agent-based Acquirer
to exist
Acquiring (Eko India, DD Dedo Colombia)
Networks
4 M-wallet Aggregator
(SMART Money, M-Power Kosovo)

Additional Low cost branch substitute

channel for (Caixa Brazil, BancoEstado Chile)
the bank
Understanding business models

Legal structure Value proposition Prudential

institution
Independent or What is the value to the What is the role of a
subsidiary or service customer? prudentially regulated
institution?

Revenue/Costs Business logic Key partnerships

What are the key
What are the Why the business does relationships explained
distinguishing costs? what it does to make by the value
money? proposition and
business logic?
Agenda

• Emerging models in branchless banking

– Money service provider
– Mobile bank model
– Agent –based Acquirer model
• Business case for key actors
– Business case for MNOs
– Business case for Banks
– Business case for IT provider
• Role of market structure
Money service provider

Legal structure Value proposition Prudential

institution
Independent or “Move
subsidiary of bank, money electronically Holds pooled accounts
MNO or other anywhere”

Revenue/Costs Business logic Key partnerships

Tx fees (revenue) Drive volumes by billers

Agent commissions capturing all payments
(cost) products
 Structures observed today

Independent
e.g., Splash
(limited liability) Sierra Leone

Legal
structures Subsidiary e.g., Wing
Cambodia

Service (by
MNO or Bank e.g., M-Pesa
Kenya
or both)
 Bank in the money service provider model

Holds pooled
e.g., Splash
account Sierra Leone

Sets up e.g., Wing

Role of the Cambodia
subsidiary
bank

Most Serves as e.g., M-Pesa

commonly agent Kenya
observed
role
e.g., Orange
Issues e- Money
money
Expanding beyond domestic transfers

9M $40 M in
121% reported
customers CAGR in
~17,000 revenue
customers (2009)
agents
• Bill payments

• Loan
repayments
$1 M to $300
M monthly • Deposit
tx value
payments

• International
remittances

• Government
payments ?
Significant upfront investment
Cash
costs Marketing and agent set-up

$
Agent commissions

Set-up Launch Growth time

Agenda

• Emerging models in branchless banking

– Money service provider
– Mobile bank model
– Agent –based Acquirer model
• Business case for key actors
– Business case for MNOs
– Business case for Banks
– Business case for IT provider
• Role of market structure
Mobile Bank

Legal structure Value proposition Prudential

institution
Prudentially regulated “Full suite of banking
financial institution services anytime,
Owns the customer
anywhere”

Revenue/Costs Business logic Key partnerships

Similar to MSP on Capture entire profit Between the bank and

payment products but pool from products the MNO
retain profit pool from
additional products
 Mobile Bank: operational view

Higher-level accounting updated

periodicially

$
Traditional Mobile Operations of the accounts Platform to handle
platform accounts outsourced mobile accounts Core
business

Additional
Airtime personnel or
Traditional increased capacity
branches reseller
for financial
network
services

• Independent brand
• Bank name prominent
Traditional
clients
Mobile Bank: financial view

“Virtual” P&L
Bank P&L MNO P&L
For Mobile Bank
Income Income Income
Bank Rev Telco Rev Rev MNO Rev
Rev Transfer
Transfer Bank Rev

Costs Costs Costs

All own costs Tax Direct/ All own costs
Cost Commission costs,
Taxes Comm
Profit Cost

Bottom line Profit Profit

EBITDA Bottom line
top line rev split
EBITDA
at source
Benefits of leveraging costs

Money service Money service Mobile bank

provider provider
(MNO service) (MNO-Bank)

margins

costs
• Distribution
management
• Risk
management
• Account
management
incurred
• Personnel
costs
Agenda

• Emerging models in branchless banking

– Money service provider
– Mobile bank model
– Agent –based Acquirer model
• Business case for key actors
– Business case for MNOs
– Business case for Banks
– Business case for IT provider
• Role of market structure
Agent-Based Acquirer

Legal structure Value proposition Prudential

institution
Independent or “A single network of
subsidiary of bank, agent points that is
One of the providers
MNO or other that easy to integrate with”
manages the network

Revenue/Costs Business logic Key partnerships

Service fees (revenue) Share the cost of Financial providers,

Agent commissions network across multiple both banks and non-
(cost) providers banks
Agent options for banks

BANK BANK BANK

Manager Agent Acquirer

MERCHANT MERCHANT MERCHANT MERCHANT MERCHANT MERCHANT

MERCHANT MERCHANT MERCHANT

Agent-based Acquirer: operational view

State Bank of India

Airtel
(SBI)

EKO

Airtime Airtel-EKO EKO’s

distribution distribution distribution

Branding by EKO Branding by EKO

Agenda

• Emerging models in branchless banking

– Money service provider
– Mobile bank model
– Agent –based Acquirer model
• Business case for key actors
– Business case for MNOs
– Business case for Banks
– Business case for IT provider
• Role of market structure
Business case for MNOs

Market • Biggest benefit in non-saturated markets

• 8% increase in market share for Safaricom
Share
• 0.5% (China) to 6% (India, Philippines)
•
Churn •
Studies cite 30% reduction in churn
No effect for Safaricom from M-Pesa
• Could be offset with market share

• Sharp decline in ARPUs (Ghana and

ARPU Pakistan halved in three years)
• M-Pesa’s contribution to Safaricom revenue
was 4% (FY 2009)
Agenda

• Emerging models in branchless banking

– Money service provider
– Mobile bank model
– Agent –based Acquirer model
• Business case for key actors
– Business case for MNOs
– Business case for Banks
– Business case for IT provider
• Role of market structure
Business case for Banks

• Lower capital expenditure to set-up

Growth infrastructure
• Agent channel is 1/30th the cost of setting up
a branch channel

Seg- • Bank targeting customers transacting at low

values
ments • Mobile channel reduces cost per transaction
to help maximize margins

Differ- • Banks in Pakistan watching Tameer

Microfinance Bank
entiate
Agenda

• Emerging models in branchless banking

– Money service provider
– Mobile bank model
– Agent –based Acquirer model
• Business case for key actors
– Business case for MNOs
– Business case for Banks
– Business case for IT provider
• Role of market structure
 Business case for IT provider

Sell product Upfront

Charge
(w/ integration)

Options for IT
providers
Upfront
($234 K)

Sell service Future flows

($1.90/customer/yr)

Operate
($.40/customer/yr)
Agenda

• Emerging models in branchless banking

– Money service provider
– Mobile bank model
– Agent –based Acquirer model
• Business case for key actors
– Business case for MNOs
– Business case for Banks
– Business case for IT provider
• Role of market structure
 Role of market structure in telecom market

high DOMINANT PLAYER IS THE

STRONG MARKET FORCE
MARKET FORCE
• Significant competition
• Single dominant player
• Little growth left in core
Competitive threat

controls pace of development

business
• Pricing and distribution
• “pocket share mode”
controlled by single player

WEAK MARKET FORCE NO MARKET FORCE

• Significant competition • Single dominant player so no

• Lot of growth left in core imminent competitive threat
business • Lots of room to grow in core
• “subscriber growth mode” business
low
high Degree of fragmentation low
 Role of market structure in telecom market

high
Degree of penetration
(connections)

low
high Herfindahl-Hirschman Index low
(0=fragmented ; 1 = monopolistic)
Advancing financial access for the world’s poor
www.cgap.org
www.microfinancegateway.org