e-MITRA

Agent Network Models: Lessons from Other Countries Agent Network Strategy Workshop December 6th 2012

The challenge is to create a mobile financial services model that is profitable

Mobile Financial Services Lifecycle Cost Curve

Mass transaction volumes • Profitability requires going through multiple Significant float

stages of development Profit P2B transactions Time • Enabling an evolving New Accounts ecosystem that meets Capex customer’s needs is of Partner with Staff training critical importance P2P transactions competitors Agent recruitment • Agent training User incentives Overcoming the mobile financial services Agent Education G2P transactions User education (BTL) Mass marketing (ATL) lifecycle requires Mass Marketing anticipating expenses, Agent incentives revenues and important Mass marketing strategic decisions Agent and user education

Source: ShoreBank International (2010) 2 Pakistan: UBL Omni

• ~14% of Pakistanis hold formal bank accounts (~25 mln.) • However, mobile phone ownership is high: 98 mln. mobile phone connection across 6 mobile network operators • UBL is the second largest private bank with assets of $7.5 bln, and operates a networks of over 1,121 branches across the country, with 17 overseas branches and nearly 14,000 employees • UBL built their mobile banking platform internally

Challenges Best practices • Creating a new business line within a • Leveraging government contracts (G2P) to commercial bank roll out agents • Rapid scaling and customer uptake • Appropriate agent selection • Building an agent network in remote or • Offering services to both walk in and conflict areas account holding users • Understanding a new market segment • Appropriate products for target market

3 Pakistan: Easypaisa

• Telenor Pakistan, a major MNO, bought Tameer Microfinance Bank to enter the mobile financial services market in Pakistan, as the regulator did not allow MNOs to offer these services • Regulator (State Bank of Pakistan) allowed a flexible approach to launch, now “bank-led” model • Focused on Over-The-Counter (non-account based) remittance and bill payment transactions. Now trying to find ways to move from Over-The-Counter to account-based transactions • 20,000 agents, 160,000 transactions per day, 4 million users per month • Licensed an internationally recognized mobile financial services software platform to offer services (Fundamo) Challenges Best practices • Moving from over-the-counter to account • Easy to use service aimed at low literacy based to offer full financial services levels • Good relation with regulator • Online real-time KYC validation with centralized national ID authority

Source: www.easypaisa.com.pk (November 2012); CGAP (2011) 4 Bangladesh: bKash

• In Bangladesh: 83% of the population lives under $2 a day; less than 15% is formerly “banked”. • bKash is a join venture of BRAC Bank and Money in Motion. • Mobile network cover 99% of Bangladesh and mobile phone ownership rates as high as 83% for urban Bangladeshis and almost 60% of the rural populations. • bKash was set up as a separate company to provide mobile financial services, giving it more flexibility and autonomy than a traditional division of a bank.

Challenges Best practices • Striking the right deal with a vendor and • Creating an enabling regulatory customizing technology environment • Negotiating an agreements with Telcos • Strategy partnership with Banks and • Developing a go to market strategy that NGOs to build business case ensures customer uptake • Leveraging networks of partners (e.g. • Developing a robust agent network Telcos, NGOs) to expand agent network

5 Mobile financial services business models

Role Account provider Safaricom/M-PESA State Bank of India and other banks Transaction provider Safaricom/M-PESA FINO

MNO Safaricom Any company

Third-party operators Banks Government, insurance ATM networks companies Utility companies ANMs Aggregators, superagents, FINO and Top Image all play an agent management role Agents Independent cash Trusted community merchants members

Source: CGAP (2011) 6 Key takeaways

• Local delivery is essential for extending the outreach of the bank • Convincing customers that local/ agent banking is credible requires appropriate targeted marketing • Designing appropriate products customized for the delivery channels and for the low income market is key • Costs are very much lower with agent banking initial experience shows that costs are about 80% less than branch based banking • However, profits for agents/ intermediaries are through the transaction volumes. Hence, scaling the number of accounts fast becomes necessary in order to reach profitability – to scale, technology is the solution • However, technology in and of itself is not a panacea for branchless banking – its value to the bank and customer is directly related to trust and functionality • Training of the agents that deliver services to: – Serve the customer properly/respectful – Provide consistent experience to customers through out agent network – Cross sell to add value and keep the account/customer "sticky" • Creating awareness among the target market about the available services and products is an important cornerstone for success Source: ShoreBank International (2011) 7 A profitable mobile financial services model requires thorough strategic planning

• Who are the competitors and other • What type of platform is required? Review market players? Market • What are key risk and challenges in • What are the options for an agent Landscape strategy implementing the strategy? network?

• What is the market demand and • What type of partnership or Market need? implementation structure is most • What is the value add of the proposed Business case research sustainable and scalable? services? For customers?

• Internal What internal capabilities should be • Which products are demanded? built? Products • Which products should be offered? Capacity • What internal systems are necessary?

Marketing Investment & • What are the required investments and • How can you generate awareness and who will provide it? rapid scale among customers? resources awareness

• What technology is required for the Technology strategy? • Who are the available vendors?

Source: ShoreBank International (2010) 8