How would you describe the role digital financial services play in financial inclusion?

A. DFS will make traditional financial services irrelevant

B. DFS complement traditional financial services

C. DFS are the current hype, but something new will emerge

D. DFS are important, but not sufficient for achieving financial inclusion

E. Other

1 A. B. C. D. E.

6%

58%

6%

30%

0%

What is your main motivation for attending this event?

A. I would like to know what others are doing in DFS

B. I would like to learn about the latest trends in DFS

C. I would like to know more about what funders can do to support DFS

D. I want to learn the basics – this is completely new to me

E. I wanted to come to Paris F. Other

2 A. B. C. D. E. F.

7%

20%

7%10%

3%

53%

DFS: Key concepts

Digital Financial Services“Branchless Banking”“Mobile money”

“Internet Banking”“Mobile financial services”

Financial services delivered over a digital channel (mobile, internet) using any electronic instrument(card, phone, computer)

Accounts, products and services can be accessed remotely (outside a physical branch or outlet)

Mobile Financial Services

Digital Financial Services

3

FSP

Agen

t

Clie

nt

The basic DFS model

FSP

Clie

nt

The basic DFS model: Cash-in

Client opens DFS account (accessible by POS or phone)

Agent opens DFS account (accessible by POS or phone)

2 Cash-in

3 Agent account debited

Client account credited

1 1

-+

Agen

t

FSP

Clie

nt

The basic DFS model: Cash-out

2 Cash-outAgen

t

1 Agent account credited

Client account debited-+

Key terms: E-moneySt

anda

rd d

efin

ition

Closed-loopstore cards

are not e-money

• Monetary value represented by a claim on an issuer

• Electronically stored (on a server or–rarely–a card) and exchanged

• Widely accepted means of payment by others than the issuer

• Can be redeemed as cash

Stored value accounts also

fit the definition

E-money accounts can be issued by non-banks.They are regulated more lightly than bank products.

Key terms: Agents

• Offer services on behalf of the provider• Are separate entities—not provider staff• Provider typically fully liable for agent

• This liability cannot be contracted away• Usually have different core businesses

• Often small retailers or airtime vendors• In advanced markets, dedicated agents exist

• Transact against own funds in real time• Don’t at any point hold customers’ cash

Verify client identity• Comply with KYC

standards• Guard against

fraud

Help clients transact• Cash-in and

cash-out• OTC payment

transactions

Act as face of the service• Sign up clients• Educate clients

about the service• Troubleshoot

clients’ problems

Agents fulfill 3 important functions in a DFS service

CGAP research on the activity rate of customers registered by best vs. worst agents

Agents are central to the success of the business

Providers often focus on agent quantity, but agent quality is more important:• If agents are weak, customers will not use the service• Registering inactive customers is only a drain on the business

Top 20% of agents by # of registrations

Top 10% by activity rate

Bottom 10% by activity rate

Top

10%

Bot

tom

10%

Activity Rate

Customers registered by these agents make up 5.7% of total customers

Activity Rate

39.9%

0.9%

Profile of customers registered by these agentsAll Agents

Top 20% of agents by # of registrations

Customers registered by these agents make up 5.1% of total customers

Why are DFS transformative?

Traditional financial services are inaccessible to the poor

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

World Developing countries Of adults earning <$2 /day

Global financial inclusion

Excluded Included

Source: World Bank Findex 2012

Why are traditional financial services inaccessible to the poor?

1. High cost of bank branches Branch infrastructure is small & heavily urban

2. High documentation requirements Large share of population cannot qualify Illiterate clients often excluded

3. Low income clients find banks intimidating Products, experience not designed for them Often prefer more familiar informal services

4. Most banks don’t want low-income clients Opening and monthly fees, minimum

balances, etc.DFS models help overcome them all

Technology dramatically lowers cost of outreach

*Includes costs for physical set up (e.g. brick and mortar branches, hardware) only.

1

Lower cost translates directly

to larger scale

Case in point: Financial infrastructure in Kenya

Bank branches have been built over the past 100+ years.

Today, there are 1,200+ bank branches in Kenya.

Case in point: Financial infrastructure in Kenya

The ATM network has been built over the past 24 years.

Today, there are 2,300+ ATMs in Kenya.

Case in point: Financial infrastructure in Kenya

Today, there are 120,000+ DFS agents in Kenya.

DFS agent networks has been built over the past 7 years.

Low cost of infrastructure translates to high access.

The same goes at the global level

Points of presence for traditional financial services…

The same goes at the global level

…are dwarfed by mobile phone connections.

6,800,000,000

Mobile Phone Connections

Source: GSMA Wireless Intelligence

Risk-based KYC has lowered documentation requirements It now aligns with what most people actually have

…in return for restricting those accounts:• Limited maximum balances• Limited transaction amounts • Limited types of transactions

Bank High DFS Low DFSBasic details Y Y YNational ID Y Y -Proof of address Y - -

Regulators are allowing lower Know-Your-Customer (KYC) requirements for DFS accounts:

2

Ghana Low DFS:• $300• $100/day• $1,000/month

Endorsed by global standard setting bodies and watchdogs forAnti-Money Laundering and Combating Funding for Terrorism (AML/CFT)

Changes as ID systems improve

Y

Mohammad Moniruzzaman, 2009 CGAP Photo Contest

Local agents are far more inviting to poor people

• Less formal• No paperwork• No queues• Familiar setting• Often known in

the community• Agent is a peer

3

Distribution of agent transactions by day of the week and hour% of total transactions within a sample of agents

Mon

Tue

Wed

Thu

Fri

Sat

Sun

10 2 3 4 5 6 108 12 14 16 18 20 2221 2397 11 13 15 17 19

22.6%

36.0%1.2% 40.2%

Business hours at Agent Partner

Business hours at bank branch network

Agents are also more accessible and convenient

Source: Akya/CGAP analysis; Note: Based on sample of 3,961 transactions

This isn’t about charity or CSR but real business (and that’s great)

Source: GSMA MMU State of the Industry 2015

…and this is with a single use case! DFS has been primarily centered on domestic remittances (and airtime)

DFS are evolving to become considerably more than that

Advancing financial inclusion to improve the lives of the poor

www.cgap.org