Leveraging digital to unlock the base of the pyramid market in Africa Waves of digital innovation in financial services May 2017 Contents
Foreword...... 3
Developing a more financially-inclusive Africa...... 4
Digital disruption in the financial services industry is inevitable...... 5
Africa’s large untapped markets require innovative products and business models...... 8
First Wave: Mobile money – paving the way for future financial innovations...... 12
Second Wave: Leveraging First Wave innovations to expand financial service offerings for the base of the pyramid...... 16
Third Wave: Platforms – the convergence and aggregation of financial services...... 20
Success factors...... 22
Concluding remarks...... 24
Endnotes...... 25
Contacts...... 26 Leveraging digital to unlock the base of the pyramid market in Africa
Foreword
Except for South Africa, the level of formal banking and insurance penetration across Africa remains low. However, the industry’s potential – particularly for products that are tailored to the needs of the low-income segment at the base of the pyramid (BoP)1 – remains largely untapped. Half of South Africa’s work force falls into the BoP income bracket.2 This proportion is likely to be much higher in the rest of Africa.
Although BoP consumers represent the majority of spending power in Africa, their low income has been seen as a hindrance to providing products and services through traditional distribution models. For example, traditional financial service providers (FSPs) that rely on bricks-and-mortar branches, ATMs, and the payment infrastructure of banks, have struggled to capture BoP consumers. This is partly because of high costs linked to their traditional models, as well as an element of mistrust that clouds part of the industry.
New market entrants have started to disrupt traditional business models by introducing digital technology at various parts of the value chain. We have unpacked these in three waves of innovation in Africa’s financial services industry. New entrants leverage mobile technology, often through partnerships, cloud computing and advanced data analytics, to bring down costs, achieve reach and increase trust. In particular, partnerships with mobile network operators (MNOs) enable these new entrants to leverage an existing customer base and solutions such as mobile wallets to streamline credit extension, premium collection and claim pay-outs. This is a game changer for the financial services industry and is helping to unlock Africa’s mass market.
As a team we welcome your thoughts and considerations on this report.
Roger Verster Financial Services Industry Leader Deloitte Africa
3 Leveraging digital to unlock the base of the pyramid market in Africa
Developing a more financially-inclusive Africa
The significant impact that digital technology has played in Africa thus far is expected to gain even more momentum.
This will be a key tool for ensuring that all Africans are financially empowered and able to achieve their full potential. From micro merchants and smallholder farmers, to women and those currently discounted, it is critical that all sectors come together to develop robust digital financial ecosystems. Developing a more inclusive Africa will take a combination of strong partnerships, relevant financial solutions and a willingness for governments to move beyond cash. There are a number of trends currently impacting financial inclusion.
1. Mobile as an acceptance tool 4. Electronic identity solutions It is fair to say that technology has completely transformed society in a few short We take for granted the fact that we each have a formal identity – a way to prove decades. Innovations are creating novel ways of engaging with friends and family, who we are, empowering us to open up a bank account, or apply for a loan. Many in but also new ways to do business, both locally and across borders. Mobile in Africa do not have this basic right, and with many governments this is a key priority. particular is driving innovation in how people transact. Africa is moving to the next With new electronic ID cards available, this is the future of financial inclusion. It level of economic interconnectedness with an increasing appetite for simplifying is also providing a safe and convenient way for people to interact with the world the bartering process – whether this is lowering the barriers to the formal financial around them – giving the financial sector an opportunity to overlay with a payment infrastructure, or providing greater access to acceptance solutions. Africans are having their say with their mobile wallets. solution that turns the eID card into a payment tool.
2. Digitising key value chains Although digital payments are key to achieving a more inclusive Africa, debit and Recent industry studies showcase the importance of digitising the value chain. prepaid solutions are helping to overcome initial barriers and levels of comfort with Interestingly, executives consider digital design (and manufacturing) to be a electronic payments. This is an important first step for many that are unbanked or critical driver of competitiveness, and believe digital adoption and adaptation is a under-banked. senior leadership priority. Successful implementation of digital solutions entails fluid digital communication across the value chain. The continuous flow of data is the digital thread. And as the current trend indicates, organisations that do not capitulate to the demands of their customers may cease to be relevant, or even cease to exist, in a few years. Raghu Malhotra President, Middle East and Africa 3. Remittance ensuring more secure money transfer solutions Historically, cross-border currency exchange has been a painful endeavour. Mastercard Surprisingly, this is how the bulk of Africa operates, as well as several markets across Europe, the United Arab Emirates (UAE), and Asia. Today, however, online money transfers have become one of the safest ways to send friends or family members the support they need; it is exceedingly convenient and involves only a nominal cost. Remittance in Africa is in many cases the only way people can transact, and therefore a lifeline.
4 Leveraging digital to unlock the base of the pyramid market in Africa
Digital disruption in the financial services industry is inevitable
Traditional banking and insurance providers face disruption as technology companies leverage digital solutions to the established industry.
Across many sectors, businesses Like other industries, global banking individuals purchase insurance. Figure 1. Deloitte’s Global Disruption Map face increasing competition from and insurance are facing disruption There are various ways that digital players outside their industry that by technology players. However, is disrupting the financial services Short Fuse, Big Bang Long Fuse, Big Bang are leveraging the power of digital we expect this disruption to be industry: to disrupt traditional business imminent and to be sizeable in •• blockchain technology has the Financial models. This is achieved through impact: short fuse and big bang.4 Services potential to provide a fast, cost- Industry the introduction of new technology, effective, and highly reliable ICT & which in turn forces the incumbents In recent years, technology-driven Media alternative to traditional databases Banking to change the way they think and companies have entered the in the banking and insurance Retail Insurance operate. financial services industry, applying Education sector Manufacturing digital solutions to an established
In Digital disruption – Short fuse, big and at times sluggish industry, and •• data analytics allow companies Professional Impact (% of change in business) Healthcare 3 Services bang?, in 2012 Deloitte predicted bringing disruption to different parts to gain new customer insights Utilities Transportation the extent to which an industry will of the value chain. Due to the high and tailor products to the specific Real Estate be disrupted by digital across two level of regulation in the financial needs of their customers Agriculture dimensions: the size or degree of sector, the room for innovation and Government •• digital communications such Leisure impact, and the imminence or timing change seemed limited for many as chatbots enhance customer of change. This prediction is coming traditional FSPs. Regulation also led Food Services engagement by simplifying Timing (years) to fruition. to high barriers to entry, shielding applications for users. the incumbents from new market Degree of impact – the bang: entrants. Construction Companies that embrace digital Mining, Oil, Gas, The degree of impact is expressed disruption are well positioned to Chemicals as a percentage of changes in Digital solutions allow companies become leaders in their respective business. The higher the percentage, to provide services at a lower industries and will be able to unlock the greater the impact. The bigger cost, and to be more flexible and Short Fuse, Small Bang Long Fuse, Small Bang new markets and improve their the bang, the bigger the impact. customer-centric. The entry of digital margins. disrupters is accelerating the rate of Timing of the impact – the fuse: change and is increasing the impact Source: Deloitte, 2015 In Africa, these digital disruptors The fuse is the timeframe within of change. are best positioned to unlock the which the disruption is expected. currently under-serviced mass The shorter the fuse, the shorter the While fintech players are changing market. timeframe. the way consumers transact, save and access credit, in the insurance industry, digital is changing the way 5 Leveraging digital to unlock the base of the pyramid market in Africa
Digital disruptors in the global financial services sector
Digital disruptors tend to have different objectives depending on the maturity of their markets.
Figure 2. Examples of digital disruptors in the financial services sector in the rest of the world
UK Germany Cuvva Friendsurance Pay-as-you-go car insurance Peer-to-peer car, home contents, legal expenses and private liability coverage. Atom Bank Partnerships with 70 insurance providers Developed/ Developing Branchless, digital bank mature markets Spixii markets Digital insurance agency deploying chatbots
China Zhongan Attract customers away Attract unserved first Off-beat insurance products (covering alcohol poisoning, heat and flight delays) and e-commerce from incumbent providers time customers return insurance. Backed by Alibaba, Tencent and Ping An
Huize Insurance Online insurance agency platform connected to the internal systems of over 60 insurance companies allowing consumers to compare and purchase In established and mature Digital products/services more than 700 insurance products markets, new market entrants offered in developing countries Alipay Online payment system handling half of China’s offering digital products/ tend to have the objective to online transactions and part of the Alibaba services tend to lure customers reduce costs to a level that the ecosystem USA away from traditional financial products become accessible Lemonade service providers due to more to low-income groups that Peer-to-peer household/rental insurance. Leverages AI to sell insurance and to settle claims attractive prices, more flexible are perceived to be not India Kabbage Telenor Suraksha and consumer-friendly models. viable for traditional financial Online automated lending platform for small Free life insurance for business subscribers to Telenor’s products. They also introduce network. Partnership with Sriram Life new distribution models and Trov On-demand household insurance. Insurance and MicroEnsure payment channels that tend Partnership with traditional insurance company to Brazil target the UK market PayTM to make their products more NuBank India’s largest mobile Betterment Branchless, digital FSP. payments and commerce aligned to the needs and Robot-advisor investment app Issues Mastercard credit cards platform. Over 200m users requirements of low income Youse 100% online based insurance provider Australia consumers. Prospa Online lending platform to small business
6 Leveraging digital to unlock the base of the pyramid market in Africa
7 Leveraging digital to unlock the base of the pyramid market in Africa
Africa’s large untapped markets require innovative products and business models
Tech-driven companies and digital business models are well positioned to disrupt the formal financial services market as they offer cost-effective and scalable solutions that can capture the mass market.
Research by the World Bank,5 The and has shown that servicing the that affordability is fundamental to designing solutions to overcome rapid adoption of mobile phones Centre for Financial Regulation and BoP can be commercially viable. unlocking the BoP market, products these challenges and to capture (Figure 5 and 6). Mobile phones Inclusion (Cenfri),6 The Mastercard The model of mobile payment need to be offered at the right price the largely unserved market in play an important role in delivering Foundation,7 Swiss Re Foundation8 solutions independent from bank point and designed to be rapidly Africa. The use of digital technology digital services to the BoP at and Munich Re Foundation9 have accounts has been replicated by scalable. The reliance on bricks-and- enables companies to scale their more affordable prices. Insurance shown the positive socio-economic other MNOs in various markets mortar branches, ATMs or broker operations rapidly and efficiently companies and credit providers impact of access to affordable across Africa and beyond. networks undermine the ability of and to extend their reach at lower can piggy-back on MNOs’ mobile financial products such as credit, established FSPs to reduce the cost costs compared to FSPs that rely on infrastructure to more effectively savings and insurance. These play As with banking, insurance of service and limit the reach these physical branch networks. reach customers and use mobile a crucial role, both in unlocking penetration remains below 2%10 in companies can achieve, as new payment channels for premium economic opportunities and in most African markets (see Figure physical branches require sizeable Following in the footsteps of collection and claim pay-outs or reducing poverty, by helping BoP 4).11 According to the National additional investments. Given the fintech companies, insurtech credit extension without being consumers to mitigate the effects Insurance Commission of Nigeria, low banking penetration, insurance companies have started to dependent on banks. of negative financial shocks, and in 3 million adults in Nigeria had companies are not able to rely on disrupt the insurance market in doing so reducing vulnerability and insurance cover, while more than the traditional payment channels a second wave of disruption, by Taking into account the dominance avoiding the poverty trap. 14 million adults indicated in a 2014 provided by banks for premium leveraging some of the innovative of feature phones, players in study conducted by Enhancing collection and claim pay-outs. technologies from the first wave the industry use basic mobile In a first wave of disruption in Financial Innovation & Access, such as mobile payment systems. technology including USSD codes Africa’s financial services sector, a financial sector development An additional consideration for the Similar to the fintech companies to service the BoP. The increasing fintech companies started, mainly organisation in Nigeria, that they insurance industry is the aspect of disrupting the payments space, adoption of smartphones provides off the back of telecommunication were interested in insurance cover.12 trust by consumers in insurance insurtech companies are developing alternative distribution and companies’ distribution capabilities, This mismatch of cover and interest products. This is linked strongly insurance products that are engagement channels and opens to disrupt the banking sector for low-cost insurance products to low levels of financial literacy targeted at the BoP. By adopting new avenues for FSPs to service the by developing innovative digital reflects the sizeable potential among BoP consumers, the high innovative approaches to risk BoP market. banking and payment solutions. affordable insurance offerings in complexity of financial products and assessment, distribution, payments, While formal banking penetration under-serviced markets. The low the cumbersome claims process. administration and product design, We expect the current models for remains low in Africa, the robust penetration rate also reflects the Insurance products remain largely insurtech companies are able to servicing the BoP will lead to the uptake in mobile wallets as an inability of traditional insurance ‘invisible’ to the consumer as they achieve the scale that is required emergence of a new type of digital alternative to traditional transaction providers to service the BoP provide a financial promise for the to service the low-income mass disruptor. In this third wave, digital services reflects the strong demand profitably. future and the benefit is only seen market. disruptors will create marketplaces for financial products tailored to the once an adverse event occurs. for FSPs to offer a host of services needs of the BoP (see Figure 3). Financial products for the BoP have The key enabler and catalyst for to an aggregated client base. The case of Safaricom’s mobile to consider the unsteady cash flow Recognising the potential of the digital disruption in the financial wallet, m-Pesa, is well documented of low income consumers. Given BoP market, fintech companies are services sector has been the 8 Leveraging digital to unlock the base of the pyramid market in Africa
Figure 3. Accounts, 2014 (% of population 15 years and older) Figure 4. Insurance penetration, 2016 (%)* Figure 5. Mobile penetration, 2016 (%) Figure 6. Mobile phone market in Africa by technology, 2010-20f
outh Africa outh Africa outh Africa enya enya hana igeria enegal enya anda hana igeria hana ambia anda ambia anda ambia ganda an ania an ania an ania ganda enegal igeria ganda
Accounts with financial institution umber of uni ue subscribers m obile accounts martphone of connections right a is obile accounts among poorest eature phone of connections right a is
Source: The World Bank, 2017 *Insurance penetration is measured as gross premiums as % of GDP Source: The World Bank, 2017 Source: GSMA, 2016 Source: BMI, 2017
9 Leveraging digital to unlock the base of the pyramid market in Africa
Waves of digital innovation at the base of the pyramid
A number of innovative firms are disrupting Africa's financial services industry. We take a look at these companies in three waves.
10 Leveraging digital to unlock the base of the pyramid market in Africa
First Wave Mobile money – paving the way for future financial innovations
Second Wave Leveraging First Wave innovations to expand financial service offerings for the base of the pyramid
Third Wave Platforms – the convergence and aggregation of financial services
11 Leveraging digital to unlock the base of the pyramid market in Africa
Mobile money – paving the way for future financial innovations Mobile money has been driving financial inclusion at the BoP in Africa by providing basic money transfer and payment services to the unbanked.
In the past, BoP consumers were and enabled mobile phone users According to the World Bank, in In other markets, including Nigeria, remittances, basic savings and
First Wave largely excluded from formal to transfer money to other users. 10 years of m-Pesa 2014 approximately 20% of adults a bank-led model was adopted in credit services. financial services. This impacted As the service does not rely on the in East Africa had a mobile money which a bank acts as the initiator of negatively on their overall welfare, traditional payment infrastructure account compared to 12% in sub- the service. The role of the mobile In addition to P2P transfers, as they were mostly unable to: of banks or bank accounts, it 287,400 Saharan Africa (SSA), 3% in South operators is limited to the provision payment facilitation for government •• have access to day-to-day caters to the needs of the largely agents Asia, 2% in Latin America and less of the infrastructure and hence or municipal services as well as transactions unbanked BoP population. Since 529 than 1% in all other world regions. reduced the incentives for MNOs to customer-to-business payments its launch 10 years ago, m-Pesa transactions Mobile money services have develop the technology and drive are increasingly offered by mobile •• remit money to family members has been rolled out in 10 countries per second contributed to deepening financial customer acquisition. money service providers. • enable and protect savings • and has reached a customer base inclusion in SSA from 24% to 34% •• smooth unsteady cash flow of approximately 30 million active between 2011 and 2014.15 In South Africa mobile money Mastercard for instance is 13 •• fund commercial activities users. failed to gain traction due to a currently rolling out Masterpass e.g. working capital for small Available Depending on the market, mobile combination of factors. Firstly, QR across Africa. Masterpass QR Given the successful uptake of money transfer systems typically similar to the bank-led model, is an interoperable, mobile-driven businesses in 10 m-Pesa, mobile money services rely either on USSD codes or on local regulations require MNOs person-to-merchant solution that •• plan recurring payments e.g. countries have been introduced in other SIM application tool kit technology to partner with FSPs in order to allows small, medium and micro- school fees, utility bills parts of the world by a wide range which can be accessed on basic provide mobile money services. sized enterprises (SMMEs) to accept •• mitigate shocks e.g. medical of operators, including leading feature phones or smartphones. Secondly, due to the relatively high secure payments and consumers emergencies, death of family MNOs such as Orange, Airtel, The simplicity of the interface banking penetration the need to make safe, simple and fast member, natural disasters. million Tigo and MTN. Globally there are 614 has contributed to the success of for mobile payment systems is payments for in-store purchases. transactions approximately 270 live mobile mobile money given the low levels lower compared to markets where Through its strategic partnerships The rapid adoption of mobile per month money services in more than 90 of financial literacy. banking penetration is much across Africa with Ecobank, United phones in Africa enables innovators countries servicing close to half a 6 billion lower. Thirdly, alternative money Bank for Africa, Kopo Kopo and to provide BoP consumers with billion users.14 transactions The uptake of mobile money transfer systems had already Wari, Mastercard has showcased basic mobile-based financial in 2016 services varies across countries and been established by, for instance, its resolve in terms of driving a services such as mobile payments Partly due to the low banking is strongly linked to the regulatory retailers and the South African Post more financially included Africa, and savings products. The use of penetration, mobile money is environment and the depth of Office providing direct competition displacing cash across the continent mobile-based services make the attractive in African markets. The banking penetration. In Kenya to mobile money services. and connecting previously excluded dependency on physical banking continent accounts for more than and Tanzania, for example, the consumers to the formal financial infrastructure less pronounced. half of all mobile money providers regulatory environment supported Initially designed to facilitate sector with a secure and convenient 29.5 million and close to two-thirds of all active the roll-out of the service, driven by domestic person-to-person (P2P) way of transacting. In 2007, Kenya’s Safaricom kicked active customers accounts. MNOs. This operator-led model transfers between mobile phone off the mobile money transfer underpinned the rapid uptake of users and to store money, mobile revolution in Africa by launching the service and has led to mobile money service providers have since its m-Pesa service. This service money penetration surpassing then added a range of additional was the first of its kind in Africa banking penetration (Figure 3). functions including cross-border Source: Vodafone, 2017 12 Leveraging digital to unlock the base of the pyramid market in Africa
MNO-led mobile money: How it works 4 •• Recipient receives notification of fund receipt and PIN number on her mobile phone Receiver
3 •• The subscriber accesses the mobile wallet through her mobile phone •• The subscriber selects the
Sender amount and recipient of fund transfer 1 2 5 •• An agent registers •• The subscriber •• Agent pays out funds the mobile subscriber deposits cash into her in cash based on for the mobile money mobile wallet through mobile number and service and a mobile the agent PIN generated by Agent wallet is created mobile wallet
4.1 MNO input •• MNO provides payment infrastructure for MNO mobile payments
Bank-led mobile money: How it works 4.2 MNO input •• MNO provides data infrastructure for mobile
MNO money service
4 •• Recipient receives notification of fund receipt and PIN number on her
Receiver mobile phone 3 •• The subscriber accesses the mobile wallet through her mobile phone •• The subscriber selects the amount
Sender and recipient of fund transfer •• 1 2 5 •• An agent registers •• The subscriber •• Agent pays out funds the mobile subscriber deposits cash into her in cash based on for the mobile money mobile wallet through mobile number and service and a mobile the agent PIN generated by Agent wallet is created mobile wallet
4.1 Bank input •• Bank provides payment infrastructure for transfer
Bank •• Bank provides banking licence 13 Leveraging digital to unlock the base of the pyramid market in Africa
HomeSend
HomeSend acts as a link between different payment service providers across countries for affordable cross-border money transfers and payments, helping to displace cash in Africa and globally. First Wave
HomeSend, a joint venture between of receiving and sending money. wallets are made in real time, Mastercard, eServGlobal and BICS, Additionally, the remittance solution while payments that involve bank provides a safe, convenient and provides an easy way for micro- or accounts may take one day or longer cost-effective way to transfer funds small business owners to receive depending on the turnaround time across borders to 54 countries. payment for goods and services, of the bank involved. HomeSend is a channel-agnostic driving efficiency and ensuring cash hub that connects money transfer is a thing of the past. HomeSend acts as the link between operators (MTOs), MNOs, banks and different payment service providers other payment service providers. It Users can send money to and across countries. Payments are builds on the successful deployment from a range of digital endpoints, settled through HomeSend’s central of domestic mobile-enabled person- including mobile money accounts, account in Belgium. In order to to-person transfers and provides an payment cards, bank accounts and participate as a payment service extension of these transfer services cash outlets, regardless of their provider, network participants are across borders. location or that of the recipient. required to hold all the necessary Given the inter-operability of its licences, authorisations and Currently HomeSend links payment network, HomeSend is able to approvals in the countries they service providers in 11 African scale its service rapidly as users operate in and have to comply with countries, actively supporting can send and receive remittances applicable laws and regulations in financial inclusion in Africa by across different mobile networks those countries. ensuring more people have globally through their mobile access to a secure digital method phones. Payments between mobile
14 Leveraging digital to unlock the base of the pyramid market in Africa
Orange Collecte
Value-add to Orange Money users, providing a 100% mobile crowd-sourcing function.
In 2015 Orange, in partnership seeking to raise funds through Once a pre-agreed donation target with HelloAsso, launched Orange Orange Collecte. Users can set has been reached, the funds are Collecte, Africa’s first 100% mobile up a fund on Orange Collecte transferred directly to the user’s crowd-funding service, in Côte either via an USSD menu or via or organisation’s Orange Money d’Ivoire. HelloAsso is France’s the Collecte website. The USSD account. By leveraging its mobile leading crowd-funding site for technology provides access to money service, Orange is able to charitable giving that has raised the service for both feature and offer its crowd-sourcing service more than €49m for close to smartphone users. to its 12 million subscribers 27,000 organisations.16 Orange throughout the country without Collecte enables users with All contributions to fundraising relying on traditional banking Orange Money accounts to send campaigns are made via infrastructure. and receive funds via their mobile Orange Money mobile wallets. wallets. Contributors can choose a This service is part of Orange’s campaign and the amount they drive to support innovative The crowd-funding platform want to contribute. Users are solutions aligned to the needs of can be used by either private also able to invite other mobile its subscribers.17 individuals or charitable wallet holders to contribute to the organisations. A dedicated mobile campaign. wallet has to be set up by charities
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Life and hospital insurance by BIMA18
BIMA delivers simple but quality insurance to BoP consumers via mobile technology, 19 with cover of up to US$1,100 for as little as US$0.30 per month. of BIMA’s customers live 93% on less than US$10/day
on less than US$2.5/day Headquartered in Sweden, BIMA’s Employing a large and well-trained The application of digital technology 54% first service was launched in network of local agents enables gives BIMA the flexibility to Ghana in 2011. By the beginning BIMA to educate unserved low- accommodate the low and unsteady of 2017 the firm operated in four income consumers about the cash flows of its customers by African, eight Asia-Pacific and benefits of basic hospital and deducting the monthly premiums of BIMA’s customers four Latin American markets life cover. While more than 95% from subscribers’ airtime balances 75% access insurance for with approximately 24 million of subscribers are registered by in small increments. the first time subscribers. BIMA agents, the company also utilises mobile technology to sign The affiliation with MNOs has BIMA’s service was set up to provide up customers, verify registration, also increased customer trust by million affordable and easy-to-understand receive premium payments and allowing the firm to pay out claims 24 customers in 16 countries, with life and hospital insurance products pay out claims. BIMA’s registration via mobile wallets within 72 hours. 60% between 18 and 35 years that offer great value to low income process is fully paperless and can consumers. be completed within two minutes. The firm’s strong customer-centric focus ensures that it is able to Second Wave While traditional insurance Its partnership with MNOs provides provide the best value to its Up to 500,000 new companies tend to regard the BoP BIMA with a much larger and more customers. This has proved crucial customers per month across market as unviable, BIMA identified cost-effective reach compared given that BIMA’s target client base the global network a gap in the market and targets this to insurance providers that rely is usually unfamiliar with traditional market segment with tailored and on bricks-and-mortar offices or insurance products.20 affordable products. BIMA provides brokers. insurance cover of up to US$1,100 of registrations done in for as little as US$0.30 per month. +95% person through 3,500 agents Key success factors
Client-centricity Customer engagement Simplicity of product Partnerships and trust A client-centric culture Strong focus on customer Removing product complexity Through partnerships with ensures delivery of best engagement through well- makes the product more MNOs, BIMA gains access value for consumers trained local agents and quality acceptable and easier to sell to a large customer base assurance calls
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Company and product/ Digital solutions service description Mobile Data analytics
BIMA’s target markets typically premiums in small increments, •• BIMA’s digital technology is integrated into MNOs’ systems (i.e. via USSD) •• BIMA uses advanced analytics and payment have an insurance penetration accommodating the low and erratic allowing BIMA to deduct premiums in small increments from airtime balances, algorithms to leverage its large emerging rate of less than 3%, reflecting a cash flow of its customers. accommodating the cash flow of its customers consumer database significant opportunity for mass •• Mobile technology including digital signatures is used to sign up customers •• Analysis of airtime consumption data is used to market life and hospital insurance Initially BIMA followed a model identify potential customers to be targeted by offerings. Traditional insurance that was free of charge for the •• Communication via text messages is used to confirm validity of registration call centre agents companies are unable to efficiently subscribers of its partner MNOs, •• The use of mobile money guarantees pay-out of claims within 72 hours, which provide services to BoP consumers which subsidised the product, and •• Data analytics are used to track the claim ratio, has been supportive in building trust in the market due to cost structures, limited cover was based on their airtime which is used to enhance the product once a reach, complexity of products and spend. This allowed BIMA to build •• Mobile technology allows BIMA to offer eHealth services linked to the certain minimum threshold is reached low financial education. BIMA has scale, trust and awareness of the insurance products developed insurance products benefits of insurance. Later, BIMA that are tailored to the needs of moved to a subsidised model BIMA operates a hybrid model combining physical distribution and low-income consumers, such as where customers could opt to BIMA: How it works life insurance cover at affordable double their cover by contributing education via an agent network, with technology platforms that premiums. to the premium. Today, the digitalise the customer experience and drive scale. products offered are paid for fully Partnerships with MNOs provide by the customers. The transition BIMA with the necessary reach and to a fully-paid-for model has also 1 The customer is signed 2 •• The customer activates a policy 6 allow it to gain consumers’ trust. contributed to removing complexity up at a MNO branch via a USSD code •• The claim is paid These key partnerships also enable from BIMA’s products as there is via the mobile platform •• A control sample receives a into the customer’s answering five questions quality assurance call from BIMA mobile wallet BIMA to use reliable payment now fixed amount of cover that is MNO channels via airtime balances and not linked to airtime spend. or mobile wallets to collect premiums 1 3 4 5 •• A BIMA field agent or call centre agent •• The premium is •• The policy is activated •• In the event of a claim, and pay out claims. Given the large number of first time explains the product to the customer deducted from on the first day of the customer contacts insurance buyers, BIMA remains •• The customer is signed up via the the airtime the next month the BIMA call centre and Through mobile technology BIMA reliant on its own agent network BIMA mobile platform answering five balance after registration is submits documents questions confirmed was able to scale its operations for customer acquisition, but the 4.1 and customer base rapidly. The company plans to strengthen its Insurance input use of digital technology also digital marketing strategy. •• In countries where BIMA does not have an insurance licence, it enables BIMA to deduct monthly partners with an insurance company
partner to underwrite the policies Insurance
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Life and hospitalisation insurance by Cornerstone – Airtel21
Cornerstone has partnered with Airtel to provide Nigeria’s first life and hospitalisation insurance policy to subscribers based on their airtime spend.
Insurance penetration in Nigeria The platform was launched in 2013 hospital cash insurance policy open is low at approximately 0.4%, as a with car insurance but has since to all subscribers at no additional common perception in the country then expanded into other product cost. The size of the insurance cover is that insurance companies offerings. Online sales increased is based on the amount of airtime 1.8 million refuse or delay claim payments. In by more than 25 times within spend per month. Registering customers successfully signed addition, due to strong cultural and three years of the inception of the for insurance cover is done via up within 18 months of launch religious beliefs, the acceptance of e-platform. the subscriber’s mobile phone insurance remains low. using USSD technology within 180 The company has made major seconds. Traditionally, insurance companies headway in penetrating the market, First free life and hospital sold insurance products and especially for those who previously Another important element of cash insurance policy via mobile services through brokers and did not have any insurance cover. Cornerstone’s drive to digitalise its in Nigeria agents. This still accounts for the Initially, Cornerstone did not services was the launch in 2013 of majority of policy sales. However, specifically focus on low-income a platform that eased registration
Second Wave there has been a shift towards earners, but sought to increase for customers and provided quick Cornerstone launched alternative channels and an insurance penetration on a large transaction time. It processes an its platform in 2013. increase in customer touch points. scale. online transaction in four minutes. Gross premiums grew by Cornerstone was the first insurance 2,441% in three years company in Nigeria to provide In order to achieve the desired scale customers with an online platform and to reduce its dependency on with end-to-end transaction agents, Cornerstone partnered with processing for insurance. Airtel in 2014 to launch a life and
Key success factors
Partnerships Ease of use Customer service with digital Demonetisation Airtel has provided a large The use of the USSD interface Development of digital Customers benefit from cover customer base and increased enables all qualifying subscribers solutions is aimed at increasing without paying for it directly as trust among customers due to to register on their mobile phone responsiveness and reducing premiums are paid for by Airtel high brand equity turnaround time
18 Leveraging digital to unlock the base of the pyramid market in Africa
Company and product/ Digital solutions service description Mobile Data analytics
Cornerstone is Nigeria’s twelfth- post-paid customers the cover is •• Subscribers can register via an easy-to-use USSD interface without submitting •• Cornerstone uses data analytics to track the largest insurance company by gross activated by the monthly usages of any supporting documents and regardless of the type of phone used registration success rate and is able to follow up premiums (as at 2015). Like the at least N1,000 in airtime. Insurance with subscribers that failed to subscribe via the •• Registration and amount of monthly cover are confirmed via text message rest of the insurance industry in cover lasts for one month at a time USSD menu Nigeria, Cornerstone used to depend and is automatically renewed each once a month heavily on brokers and agents. This month when the minimum recharge •• Cover is based on airtime spend or usage and accommodates changing cash dependency made it difficult to (prepaid subscriber) or usage (post- flows increase reach to the BoP. paid subscriber) threshold has been reached.22 •• Identification for claim pay-out is done via the mobile number and requires no The introduction in 2014 of its free additional proof of identification life and hospitalisation insurance In the first 18 months there were •• The use of an interactive voice response system enhances the customer product in partnership with Airtel 4.2 million attempts to register experience by allowing claim officers to call back policy holders has been aimed at improving for the product, although only 1.8 financial inclusion among low- and million were successful. However, middle-income earners. This is done Cornerstone was able to follow-up Subscribers use their mobile phones to sign up to free life by leveraging mobile technology, on the 2.4 million unsuccessful Cornerstone – Airtel and hospital insurance. The insurance cover is activated which is a much cheaper method attempts as their data was Insurance: How it works of product distribution. The captured through the Subscriber when a monthly minimum airtime spend is reached. partnership with Airtel provided Identity Module (SIM) registration Cornerstone with access to a large initiative required by the Nigerian 1 2 3 • The subscriber 5 •• In the event of a claim, the subscriber potential market, given Airtel’s Communications Commission (NCC). The subscriber dials •• The subscriber is then presented • *259# on mobile phone with options on a USSD menu recharges airtime contacts the call centre to report it account with at least close to 33 million subscribers who •• The subscriber enters subscriber •• A claims officer informs the subscriber N1,000 a month to information and receives SMS about required documents and where to represent approximately 21% of Policy holders have to claim via MNO activate cover confirming registration submit them Nigeria’s GSM market. an interactive voice response number and claims are paid 4 6 The combined life and promptly via bank drafts, cheques •• The policy is active from •• The policy holder or first day of the next beneficiary submits the hospitalisation insurance is free of or electronic funds transfers. Last calendar month after required documents charge and available to registered year, Cornerstone paid N3.4bn registration and minimum airtime recharge Airtel subscribers between 18 and (US$10.2m) in claims. Cornerstone 65 years of age. Airtel subscribers 7 •• Claim pay-out occurs can register via USSD code. Once Cornerstone is progressing to the in less than 72 hours a subscriber is registered and paid-for version once it receives via bank drafts,
FSP cheque or electronic recharges with at least N1,000 per approval from the regulator as the funds transfer month the cover is active from the free version is no longer active. following month after activation. For
19 Leveraging digital to unlock the base of the pyramid market in Africa
JUMO: Low-cost financial services platform23
Launched in 2015, JUMO has provided a mobile platform for the BoP consumer and SMMEs, giving access to savings and credit products, and working capital, contributing towards financial inclusion.
The BoP consumer (i.e. solving these problems by an important role as JUMO which have different repayment individuals) and SMMEs in partnering with MNOs and connects its millions of methods. emerging markets are under- leveraging omnipresent mobile customers to various financial Staff numbers grew24 times served by traditional FSPs. money ecosystems with products offered by multi-FSPs. JUMO continues to innovate to reach 250 in two years Traditional FSPs have failed to high penetration among BoP within the sector, providing create financial products that consumers and SMMEs. The Geographic expansion and the solutions that give opportunity meet the requirements of low- company has experienced introduction of new products to include financially the lowest income consumers and SMMEs, high levels of growth operating will see JUMO reaching new income consumers and SMMEs. as it is costly to offer loans and across six African countries and customers across the globe. Through its innovations and Handles approximately 70% of savings products at the small has acquired 5 million active The company is fast becoming partnerships with FSPs and Tanzania’s credit flows since inception value or amount they require. users in just over two years. a global player, offering its MNOs, a low-income consumer Also, due to their reliance on services in Pakistan and with is a viable customer. bricks-and-mortar branch The continent’s high level ongoing plans to expand networks, traditional FSPs to of mobile penetration further in Asia. The company is date have struggled to acquire together with JUMO's strong extending its product offerings JUMO plans to target BoP consumers effectively. partnerships with MNOs has into new short- and long-term 1 billion customers been crucial to the success savings products, insurance across the globe in the JUMO, an innovative of JUMO thus far. In addition, features based on savings next five years technology company, is FSP partnerships have played products and longer-term loans
Key success factors
Partnerships High mobile penetration Regulation alignment Experimental culture MNOs and agents have High penetration provides Regulation aligns to A risk-taking culture, driving provided a large customer mobile marketing capabilities JUMO’s ambitions to innovation and encouraging base with FSPs providing the and access to a scalable include individuals and experimentation, has credit to users customer base SMMEs financially contributed to success Third Wave Third
20 Leveraging digital to unlock the base of the pyramid market in Africa
Company and product/ Digital solutions service description Mobile Data analytics Cloud computing
•• Mobile penetration is high in JUMO’s target markets with BoP •• The use of digital technology gives JUMO the •• JUMO has benefited from Approximately 80% of JUMO’s not use. Through better scoring consumers having access to mobile devices and mobile wallets ability to analyse behavioural data such as cloud computing, which has customer base had limited or no the company has been able to GSM data (voice and SMS) and mobile wallet given it the flexibility and interaction with formal financial minimise non-performing loans •• JUMO integrates with mobile money ecosystems to provide transaction history to better understand scalability to handle high institutions. This is largely due to to a rate of 4%. JUMO provides customers with a mobile-based interface utilising USSD technology their customers levels of customer growth BoP consumers and SMMEs being financial products (i.e. savings and which can be accessed across all cellular devices unbanked across the continent. working capital) that are better •• The company has access to a wide range •• The technology provides an •• The service is plugged directly into the interface of the USSD menu suited to their customers when of data points (e.g. location and calling opportunity for scale and of the mobile wallet, which allows disbursements of unsecured JUMO identified an opportunity to compared to traditional FSPs. patterns) some of which are not available to cost reduction credit within 30 seconds after approval serve BoP consumers and SMMEs traditional FSPs, thus allowing it to generate through digital technology using a Through offering such services, •• Repayment of the loan occurs via the mobile wallet, creating a more accurate credit scores based on this mobile USSD self-service interface. the company has experienced cashless process alternative data Through strong partnerships with high growth rates reaching 5 MNOs and FSPs, JUMO provides a million active users across six JUMO utilises USSD technology when interacting with its customers mobile based interface to connect countries since inception in 2015. JUMO: How it works SMMEs and individuals to financial The average loan size is as low as and leverages the MNO's brand to create trust throughout the products. These partnerships have US$16 with the company providing process. been a large contributor towards up to 50,000 loans daily. JUMO’s success in emerging 1 2 4.1 5.2 •• The customer dials •• The customer is then MNO input Cash out markets. a specific USSD presented with options •• The MNO provides •• Money is either cashed out via number (e.g. *123#) on the USSD menu customer data (e.g. GSM, the Mobile Money Agent or on mobile phone mobile wallet history) transferred by the customer to •• One of the options is: another mobile wallet Customer/ The company leverages Benefactor “Request a Loan” behavioural data and digital 4 5 6 technology in order to develop 3 •• Customer selects •• Using JUMO’s algorithm and •• The loan amount is paid into Repayment credit scores of customers that the “Request a Loan” behavioural capabilities, the customer’s mobile wallet •• Repayment occurs as option the loan assessment •• Details pertaining to the per the agreement are more accurate compared to is completed and the •• A new menu is then repayment date and •• If the customer misses customer is presented with traditional FSPs’ scores. JUMO JUMO presented giving repayment terms are the repayment due date, the outcome of the loan developed a method of scoring the user three loan provided a once-off fee is charged amount options application and the amount individuals and small businesses to be repaid* 5.1 by utilising alternative data FSP input points that traditional FSPs do •• The financial institution backed loan is paid into the customer's mobile wallet Retailer
*No interest rates are presented but rather the total value to be repaid.
21 Leveraging digital to unlock the base of the pyramid market in Africa
Success factors
Providing financial services to the BoP requires a business model that focuses on affordability, access, reach and trust. Successful companies tailor products based on customer needs and insights.
Partnerships
Reach Trust Access Customer insights
Mobile
Simplicity Flexibility Needs alignment
Data analytics
Needs Customer Tailored alignment insights products
Cloud technology
Scalability Flexibility Affordability
22 Leveraging digital to unlock the base of the pyramid market in Africa
By developing partnerships with companies, such as MNOs and banks, fintech and insurance or lending can help to diversify operators’ income streams and can enhance insurtech companies can tap into the partners’ existing customer base and quickly and loyalty and revenue. Partnerships with MNOs provide digital disruptors access to a efficiently increase its reach. Partnerships with MNOs also allow fintech and insurtech new set of data points that can be used to better understand the customers’ needs companies to benefit from the partner’s brand recognition and to strengthen trust and risk profiles. in the market. Partnerships are beneficial for MNOs as the value-added service of
Mobile technology such as USSD codes and text messages contribute to the provides additional flexibility in the collection of premiums as it is better suited to simplification of the user interface and are device and network agnostic. Consumers accommodate unsteady and low cash flows compared to the use of bank transactions. are familiar with basic mobile technology, and hence the use of it can increase trust Mobile wallets ensure fast, reliable and cost-effective pay-out of claims or extension of and open new avenues of customer engagement. For example, mobile technology credit without being dependent on traditional banking infrastructure or accounts.
Insurance and credit providers are exposed to information asymmetries as consumers companies to reduce the asymmetry by using non-traditional data points to create tend to have more information about themselves than the financial services provider. a better picture of the customer. It allows companies to better understand their Data analytics combined with first principle thinking allows fintech and insurtech customers and to tailor products to the customers’ needs.
Traditional banks and insurance companies rely on physical infrastructure to service case demand rises and does not require major investments in hardware. Cloud-based their customers. Companies that embrace digital technology are able to scale their technology also allows companies to replicate their business models in new markets at operations quickly and efficiently by leveraging cloud technology. Cloud technology low cost. provides flexibility and drastically reduces capital expenditure costs as it is scaled in
23 Leveraging digital to unlock the base of the pyramid market in Africa
Concluding remarks
The examples of the three identified waves of innovation demonstrate that it is possible and viable to design financial products and services for the BoP.
Part of their success is that engagement and distribution channels, pricing and premium structures as well as payment channels are aligned to the needs and circumstances of low-income consumers in their respective target markets. By leveraging the power of digital innovation these companies have managed to increase access, affordability, reach and trust.
Going forward, we expect digital disruption to gain further momentum and to lead to exciting new business models in an increasingly converging industry. A glimpse into the future shows that platform companies will emerge as key industry players creating marketplaces for a host of financial services and blurring the lines between financial services and technology providers.
24 Leveraging digital to unlock the base of the pyramid market in Africa
Endnotes
1 The International Finance Corporation (IFC) defines the BoP as the population 12 Enhancing Financial Innovation & Access (2014) living on less than $3,000 in purchasing power parity per year EFInA Access to Financial Services in Nigeria 2014 Survey http://www.efina.org.ng/our-work/research/access-to-financial-services-in-nigeria- 2 National Treasury of South Africa (2016) survey/ A National Minimum Wage for South Africa http://www.treasury.gov.za/publications/other/NMW%20Report%20Draft%20 13 Vodafone website (2017) CoP%20FINAL.PDF www.vodafone.com
3 Deloitte (2012) 14 GSMA (2016) The Mobile Economy – Africa 2016 Digital Disruption – Short fuse, big bang? http://www.gsma.com/mobileeconomy/africa/ www2.deloitte.com/content/dam/Deloitte/au/Documents/Building%20Lucky%20 Country/deloitte-au-consulting-digital-disruption-whitepaper-0912.pdf 15 The World Bank (2015) The Global Findex Database 2014 4 Deloitte (2015) http://documents.worldbank.org/curated/en/187761468179367706/pdf/ Building your digital DNA WPS7255.pdf https://www2.deloitte.com/content/dam/Deloitte/be/Documents/technology/ deloittedigital/Deloitte-Digital-BE_Building-your-digital-DNA_download_HR.pdf 16 HelloAsso website (2017) www.helloasso.com 5 The World Bank (2017) http://www.worldbank.org/en/topic/financialinclusion 17 Orange website (2017) www.orange.com 6 Centre for Financial Regulation and Inclusion (2017) http://cenfri.org/ 18 Information is based on interview with company representatives
7 Mastercard Foundation (2017) 19 Based on BIMA’s policies in Ghana and exchange rate in mid-March 2017 www.mastercardfnd.org 20 BIMA website (2017) 8 Swiss Re Foundation (2017) www.bimamobile.com www.swissrefoundation.org 21 Information is based on interview with company representatives 9 Munich Re Foundation (2017) www.munichre-foundation.org 22 Airtel Nigeria website (2017) www.africa.airtel.com/nigeria 10 Insurance penetration is measured in gross premiums as share of GDP 23 Information is based on interview with company representatives 11 Business Monitor International (2017) http://bmiresearch.com
25 Leveraging digital to unlock the base of the pyramid market in Africa
Contacts
Roger Verster Dr Martyn Davies Raghu Malhotra Director | Financial Services Industry Leader Managing Director | Emerging Markets & Africa President Deloitte Africa Deloitte Africa Middle East and Africa Email: [email protected] Email: [email protected] Mastercard Email: [email protected] Darren Shipp Bola Asiru Partner | Banking Assurance Leader Strategy & Operations Leader Daniel Monehin Deloitte Africa Deloitte West Africa Division President for Sub-Saharan Africa Email: [email protected] Email: [email protected] Financial Inclusion Lead for International Markets Mastercard Dirk Kotze Thomas Njeru Email: [email protected] Director | Banking Advisory Leader Associate Director| Actuarial and Insurance Consulting Deloitte Africa Deloitte East Africa Mark Elliott Email: [email protected] Email: [email protected] Division President for Southern Africa Mastercard Carl van der Riet Alicia Beilings Email: [email protected] Director | Actuarial and Insurance Solutions Chief of Staff | Financial Services Industry Insurance Assurance Sector Leader | Deloitte Africa Deloitte Africa Email: [email protected] Email: [email protected]
Andrew Warren Director | Actuarial and Insurance Solutions Insurance Advisory Sector Leader | Deloitte Africa Email: [email protected]
Research team
Hannah Edinger Yasin Masha Ronke Adepoju Associate Director Senior Manager Consultant Deloitte Africa Deloitte Africa Deloitte West Africa Email: [email protected] Email: [email protected] Email: [email protected]
Simon Schaefer Steve Xabanisa Manager Senior Consultant Deloitte Africa Deloitte Africa Email: [email protected] Email: [email protected] 26 Leveraging digital to unlock the base of the pyramid market in Africa
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