DIGITAL ACCESS: THE FUTURE OF FINANCIAL INCLUSION IN AFRICA ACRONYMS ADC Alternative Delivery Channel ISO International Organization for Standardization AFSD African Financial Sector Database IT Information Technology ARPU Average Revenue Per User KES Kenyan Shilling API Application Programming Interface KPI Key Performance Indicator ATM Automated Teller Machine KYC Know Your Customer B2P Business to Person LAPO MfB Lift Above Poverty Organization BCEAO Central Bank of West Africa (Banque Centrale Microfinance Bank des Etats de l’Afrique de l’Ouest) M-banking Mobile Banking BOI Banking Operations Intermediary M-wallet Mobile Wallet BVN Bank Verification Number MFI Microfinance Institution CEO Chief Executive Officer MM Mobile Money CBA Commercial Bank of Africa MSME Micro, Small and Medium Enterprise CBN Central Bank of Nigeria MTN Mobile Telephone Network CFA West African Franc, or Central African Franc MNO Mobile Network Operator CGAP Consultative Group to Assist the Poor MVNO Mobile Virtual Network Operator CRM Customer Relationship Management NFC Near Field Communication DFS Digital Financial Services OTC Over the Counter DJ Disc Jockey P2B Person to Business DVD Digital Versatile Disc P2P Person to Person E-banking Electronic Banking PC Personal Computer EFT Electronic Funds Transfer PIN Personal Identification Number EMI e-Money Issuer POS Point of Sale E-money Electronic Money PSP Payment Service Provider E-wallet Electronic Wallet E-warehousing Electronic Warehousing QR Quick Response FCMB First City Monument Bank RCT Randomized Control Trial FSD Financial Sector Deepening RFP Request for Proposal FSP Financial Services Provider SACCO Savings and Credit Co-operative Organization G2P Government to Person SGBS Société Générale de Banques au Sénégal GDP Gross Domestic Product SIB La Société Ivoirienne de Banque GhIPSS Ghana Interbank Payments and SIM Subscriber Identification Module Settlement System SME Small and Medium Enterprise GSM Global System for Mobile Communications SMS Short Message Service GSMA GSM Association TZS Tanzanian Shilling HCD Human Centered Design UBA United Bank for Africa IBO Intermediary in Banking Operations UOB United Overseas Bank ICT Information and Communication Technology USD United States Dollar ID Identification Document USSD Unstructured Supplementary Service Data IFC International Finance Corporation WAEMU West Africa Economic and Monetary Union IMF FAS International Monetary Fund Financial Access Survey WAMZ West Africa Monetary Zone Front cover: Mwansa, a Zoona payments service user, in Lusaka, Zambia, on 10 January 2018. 3 DIGITAL ACCESS Mercy Trinidad Lutepu (left), a Zoona agent who owns three outlets, with a teller at one of her booths in Lusaka, Zambia, on 10 January 2018. 4 DIGITAL ACCESS 5 DIGITAL ACCESS access to mobile money services has increased daily per FOREWORD capita consumption levels of households, lifting them out of extreme poverty. Mobile money services have changed lives – for example, helping women to move Financial inclusion is one of from subsistence farming to business occupations and Africa’s great success stories sustainable livelihoods. In total, our partnership with 14 African financial services providers from 2012 to 2016 over the past decade. have resulted in 7.2 million new digital financial services users on the continent (a 250 percent increase from the baseline), 45,000 new banking agents, and $300 million in monthly transactions. The launch and growth of digital financial services has led to an unprecedented increase in the number More than ever, we know that financial inclusion is a of people enjoying access to formal financial services. means to an end. It is a catalyst for equitable development Today, Africa is home to more digital financial and inclusive economic growth. Our ambition with the services deployments than any other region in the Partnership for Financial Inclusion has always been to world, with almost half of the nearly 700 million improve the capacity of the financial sector to better serve individual users worldwide. Mobile money solutions all people in Africa, and to share the lessons learned from and agent banking now offer affordable, instant, those efforts with the global development community. and reliable transactions, savings, credit, and even By working with pioneers of low-cost financial services insurance opportunities in rural villages and urban across the continent to design, develop, and test new neighborhoods where no bank had ever established technological approaches and innovative business a branch. This is, quite literally, banking at your models, we have highlighted both the opportunities and fingertips – for everyone. It is revolutionary. the challenges in furthering financial inclusion. The impact, however, extends beyond the individual. This publication brings to the fore the voices of What makes a difference for a small-scale entrepreneur Africa’s consumers, as well as those of financial services or a smallholder farmer translates into broader gains industry leaders. We believe that they offer deep and for society. Ten years after the breakthrough of thoughtful analysis for everyone working in this area of digital financial services in Sub-Saharan Africa, we international development. We trust that you will find are seeing evidence of this. Field studies show that this a valuable read. Reeta Roy Philippe Le Houérou President and CEO CEO Mastercard Foundation International Finance Corporation (IFC) Rokiatou Doumbia, owner of Café Vert in Abidjan, Côte d’Ivoire, with Steve Bedan, MTN MoMo Pay sales team supervisor, as she learns to use a point-of-sale device. 6 DIGITAL ACCESS 7 DIGITAL ACCESS Acronyms 3 1 l STRATEGY 6 l PRODUCT DEVELOPMENT 9 l DATA ANALYTICS Foreword 7 Strategy is the first crucial step on a DFS journey 44 Customers take the lead on product development 106 Big Data can deliver big impact 148 A word from the Advisory Committee 10 How to date successfully in the DFS era 45 What is a fair price for DFS? 107 Beautiful data, big and small 149 Digital financial services are key to the future Market overview: Ghana 46 Market overview: Zambia 108 Market overview: Cameroon 150 of Africa’s banking sector 14 Industry opinion: Who will be the leading provider of Industry opinion: What product will lead DFS The business case for digital financial services 14 mass market financial services in Sub-Saharan Africa Industry opinion: What constitutes the most useful adoption in the near future? 109 in 10 years’ time? 47 data for DFS providers? 151 From revolution to evolution: digital finance in Africa 22 Research focus: Leveraging alternative data to develop Research focus: Turning digital strategies into reality 48 Research focus: How to deliver data-driven solutions Building a new market with knowledge 30 new credit products 110 Impact feature: Digital loans offer instant growth for financial inclusion 152 Financial inclusion in Africa: what the numbers tell us 33 Impact feature: Ugandan DFS users enjoy a diversity power to Madagascar’s entrepreneurs 52 Impact feature: Data-driven decisions help Zoona of products 114 Industry opinion: What does the future of DFS in agents thrive 156 Africa look like? 34 2 l TECHNOLOGY 7 l CUSTOMER ACQUISITION A tough choice: selecting the right technology 62 10 l AGRICULTURAL VALUE CHAINS Digital banking is not equal to technology 63 Agents are the key to active customers 122 DFS could be the key to banking small-scale farmers 166 Market overview: Kenya 64 We must protect the consumer 123 Finding the sweet spot in digitizing the cocoa Industry opinion: What is the most important Market overview: Uganda 124 value chain 167 application of blockchain technology? 65 Industry opinion: What is the most important factor Market overview: Madagascar 168 Research focus: Twelve steps to leverage new in attracting new DFS users? 125 technology for financial inclusion 66 Industry opinion: Where is the biggest challenge to Research focus: Historical, social and cultural factors banking smallholder farmers? 169 influence uptake of DFS 126 3 l AGENTS Impact feature: Saving for the future – one dollar Research focus: Farmers who save fare better than others 170 DFS providers rely on their agent networks 70 at a time 130 DFS = digital financial services The three keys to a successful agent network 71 Market overview: Democratic Republic of Congo 72 11 l INTEROPERABILITY = financial services accessed 8 l RISK MANAGEMENT Industry opinion: Do you believe that the importance More than a technological challenge 174 and delivered through of agents will decline over time? 73 New opportunities bring new risks 140 Why the industry should take the lead 175 digital channels Research focus: Women make better DFS agents 74 Striking a balance between growth and risk 141 Market overview: Nigeria 142 Market overview: Tanzania 176 4 l MERCHANTS Industry opinion: Which type of fraud do you Industry opinion: What is the most effective approach currently experience as the biggest risk to DFS? 143 for achieving interoperability? 177 Digital merchant payments is the next big step 78 Research focus: The need for a DFS risk Research focus: Achieving interoperability in digital Merchants are the key to a broader digital ecosystem 79 management framework 144 financial services 178 Market overview: Côte d’Ivoire 80 Industry opinion: Who should pay to incentivize adoption of merchant payments? 81 Research focus: Are interoperable DFS merchant payments the future? 82 Our team 184 Impact feature: Mobile money to replace pocket Acknowledgments 186 change in Abidjan’s shops 86 Our publications 187 References 188 5 l MARKET RESEARCH Focusing on the people you serve 98 No single dataset will tell you the market 99 Market overview: Senegal 100 Industry opinion: In what area have you employed market research to change the way you do business? 101 Research focus: The mobile money customer that isn’t 102 8 DIGITAL ACCESS 9 DIGITAL ACCESS At the time, only about a quarter of adult day pursuing the opportunities and benefits A WORD FROM Africans enjoyed the benefits of access to offered by digital financial services, putting the financial tools required to be able to the customer at the center of development.