the challenge of ‘co-opetition’ and partnerships: what...

The challenge of ‘co-opetition’ and partnerships:

what makes them work?David Porteous

BFA

6th African Microfinance ConferenceDurban, RSA

2v1

Outline

• A tale of two partnerships and two countries

• Leading to four propositions

• Some observations on platforms and co-opetition: an evolving space

3v1

Spot the difference!

2009

2012

4v1

Comparing structures: 1

M-Kesho(2009)

Partners Safaricom Equity Bank

Market positioning #1 #1 (retail clients)

Regulated entities? Yes Yes

New brand? Yes

Risk/ revenue shared?

No

New entity setup? No

Cannibalization risk?

No Yes

5v1

Comparing structures: 2

M-Shwari (2012)

Partners Safaricom CBA

Market positioning #1 #5 (assets)

Regulated entities? Yes Yes

New brand? Yes

Risk/ revenue shared?

No?

New entity setup? No

Cannibalization risk?

No No

6v1

Comparing structures: summary

M-Kesho (2009)

M-Shwari (2012)

Partners Safaricom Equity Bank Safaricom CBA

Market positioning #1 #1 (retail clients)

#1 #5 (assets)

Regulated entities? Yes Yes Yes Yes

New brand? Yes Yes

Risk/ revenue shared?

No No?

New entity setup? No No

Cannibalization risk?

No Yes No No

7v1

What’s in it for: clients

M-Kesho (2009)

M-Shwari (2012)

Safaricom Equity Safaricom CBA

WIFM factor—clients

Weak: Additional

place to keep funds for larger

customers

Weak: Quick load to M-Pesa; but

clunky signup

Medium/ strong:

Easy signup; credit from

start

Medium: Credit added

Nobody ‘owns’ the client! Partnership is instead about defining who takes

liability for which actions and who can do what with the client

8v1

M-Kesho (2009)

M-Shwari (2012)

Safaricom Equity Safaricom CBA

WIFM—’partners’

Weak: Extra

transactions as result of larger

balances?

Weak: Depends on

attracting new non-Equity customers

Strong:Cements role

in financial eco-system

Strong: Adds to float

and adds additional revenue streams

What’s in it for: partners

9v1

‘Adjacencies’ needed to make a transactional model viable

9

ARPU--Bank

Note: Source: Estimates based on Safaricom Annual Report 2013; BFA Gafis Focus Note No.3 2012

Bank account Mobile money0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

0.8

1.46

$ p

er u

ser

p.m

.

Interest income

$0.13

Churn reduction,

commission saving

ARPU--MNO

10v1

Comparing outcomes

M-Kesho (2009)

M-Shwari (2012)

Safaricom Equity Safaricom CBA

Outcome (2013) 829,000 accounts opened; marketing stopped

1.2m in 6 months; heavy marketing underway

11v1

Haven’t we seen this before? …Country #2: South Africa

• JV created by #2 telco and bank in South Africa

• Own JV entity and platform• Launched in 2005• Extensive marketing spend—

estimated $60m• Closed down in 2011 with barely

any active clients

• JV agreement by #1 telco and #4 retail bank

• Launched in 2010• Extensive marketing spend;

2000 outlets• Due to re-launch in 2013 due

to disappointing takeup

So…it is not sufficient to have different positioning; complementarity with core business matters

12v1

Propositions: partnerships work best when…

1. The parties have complementary, not similar, positioning in their own core markets

2. There is no conflict with partners’ core business

– Or if there is, they create clear ways to address this

3. Each party has strong well defined WIFMs

13v1

And retailers want to join the financial services party…

MNOsWant VAS to

hedge against ARPU decline

RetailersWant loyalty

and information

BanksNeed low

cost distribution

to grow

14v1

Retailer #1: PEP-Hollard funeral insurance JV (RSA, 2008)

See: Finmark/ Cenfri case study (2010) http://www.cenfri.org/documents/microinsurance/2010/Update%20on%20innovation%202010/CaseStudy_Pep%20Hollard.pdfNishid Dosa, Hollard, “How to create inclusive insurance offerings using a retail channel”

15v1

Retailer #2:Walmart & Amex pre-paid card (USA, 2012)

Walmart USALargest retailer

American ExpressUpper end branded

card association

Pre-paid card (2012)• No regular fee

• Allows 4 sub-accounts • Cash in/out at stores

16v1

In new areas, stability sometimes comes through one party taking control

Retailer: setup your own bank

Mexico 2010

Bank: buy control of a

MVNOColombia 2012

MNO: buy control of a bank

Pakistan 2008

Add: Proposition 4. A clear control hierarchy is established

17v1

What about the role of 3rd parties?

Smartypig (USA)• Product & platform management

company which manages branded savings product in USA (2009) and Australia

• Insured bank account as store of value

• Internet enhanced interface:

– Savings goals in sub-wallets

– Reminders

– Social network

– Rewards

Tyme Capital (SA)• Product management co.

with agreements with PnP retailer (cash in/out) and MTN (channel); and alliance banking (SABA)

• Mobile only at present• Launched 2012

?

18v1

Platforms and co-opetition

• Traditional payment paradigm:

– Cooperate on infrastructure; compete on services

– Visa scheme example

• Dominant platforms raise new competition questions about role of platforms in service and price

– Content & platform? Apple and e-books (2013)

–With limited interchange? EC & Visa & Mastercard

19v1

Conclusions

• Partnership is a abused and misused term:

– True partnership is still rare

– “Culture” of partnering matters

• Propositions undergirding partnerships:1. The parties have complementary, not similar, positioning in

their own core markets

2. There is no conflict with partners’ core business

3. Each party has strong well defined WIFMs

4. In new markets, control by one may resolve uncertainties