Mobile Financial Services : Perspectives with Agent Networks

Jordan Weinstock, OpenRevolution

Leo Tobias, Grameen Foundation

Discussion Leaders

Session Information

Introductions

Approaching the Business Case

Liquidity Management and Agent

Incentives

Agent Profiles

MFS Business Case : CARD Bank

CARD MRI Center for Agriculture and Rural Development

• Clients Served: 2,082,913 • Persons Insured: 8,811,450 • Branches and Offices: 1,449 • Presence in 16 of 17 Regions in the Philippines

Nanay Violy

rural village

market center

MBO

Nanay Violy

Center Meeting

CARD Bank Branch

Objectives for the Program

Improve operational efficiency

Improve access and convenience

Demonstrate sustainable account and

transaction volume

Objectives for the Pilot

Recommend the manner of integrating

mobile technology to CARD Bank’s

products and services through Matapat

Identify an MFS business case including

an operational model within the context

of improving customer convenience and

access to services.

Business Case

Operational Model

• Customer Acceptance

• Operational Efficiency / Reorganization

Financial Model

Rollout Schedule

Time and cost of making a

withdrawal

0

20

40

60

80

100

120

140

Control Treatment

Withdrawal cost Withdrawal time in Peso

Travel & transaction cost (Php)

Total Cost Saving: P65 + P22 = P87 per withdrawal

Declined aggregate cost

Financial cost decrease: P22

MFS saves time: 103 min (116 minus 13)

Member’s earning capacity: P0.63/min

Opportunity cost saving: P0.63 x 103min = P65

Customer Acceptance

80% prefer MFS to manual system

Almost 90% transacted at least monthly

Change in time allocation of Account

Officers (AOs)

After controlling for the # of clients processing loan renewals, this difference is statistically significant.

Total time spent on field activities over one week, per center, average across AOs

No change in total time spent on center meetings

Less time on re-loan activities (Client Interview, inventory validation, travel) in MFS centers compared to control centers

Potential time saving

(30+ min) for AOs in

the long term

Break down of center meeting activities, per center, average across AOs

Composition of activities in center meetings is different

between MFS and control centers

Change in time allocation of AOs

Global Projections

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

(15,000)

(10,000)

(5,000)

-

5,000

10,000

15,000

20,000

25,000

30,000

1 2 3 4 5

in P

HP

Mill

ion

s

Growth

Assets Deposits Clients

MFS Usage

SUMMARY: KEY INDICATORS 2014 2015 2016 2017 2018 Total Bank customers 1,274,635 1,422,989 1,587,771 1,770,799 1,974,095 Active MM accounts 347,410 1,065,169 1,255,826 1,401,885 1,562,448 % 27% 75% 79% 79% 79% Total Agents 1,985 6,087 7,176 8,011 8,928 Txn per agent per day 25 25 25 25 25 Txn per customer per month 7.3 7.3 7.3 7.3 7.3

Mobile Channel P&L

(400)

(300)

(200)

(100)

-

100

200

2014 2015 2016 2017 2018

in P

HP

Mill

ion

s

Mobile channel revenue Mobile channel fees OPEX Net Channel Income

Revenue and Expenses:

MFS v NonMFS

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2014 2015 2016 2017 2018

in P

HP

mill

ion

s

Revenue and Expenses: MFS vs. Non-MFS

Revenue without MFS Expense without MFS Revenue with MFS Expense with MFS

Projected Personnel Costs

2,579

2,780

2,982

3,183

3,385

2,447

2,158

2,362

2,594

2,849

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2014 2015 2016 2017 2018

without MFS with MFS

Personnel with MFS

75% 67% 68% 69% 70%

18% 24% 24% 23% 23%

7% 9% 8% 7% 7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016 2017 2018

MBO Staff Branch Staff Head Office Staff

Projected Cost to Income Ratio

76% 77% 78% 80% 81%

76% 74% 74% 73% 74%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 2016 2017 2018

Without MFS With MFS

Thank you.

Liquidity Management and Agent Incentives

•

m-$

Currency Inputs

Salary Payment

Current Account

Loan

1

2

3

4

m-$

Spending

Savings

P2P B2B B2C

Network Effect

+ +

Payment Products

Ag Credit SME

+ +

Savings Products

5

Remittances

AGENT Cash-in via Agent

AGENT Cash out via Agent

Mobile Money Ecosystem

• Localized advertising, typically through signage and on-premise materials

• Product education and demonstration Promotion and Education

Registration

Transactions

• Technical capabilities to register new customers (e.g., terminal, handset applications, forms)

• Know your customer and other regulatory compliance

• Transaction assistance for full range of use cases

• Cash in transactions

• Cast out transactions

Role of the Agent

Source: GSMA, CGAP, Benchmark data from other markets, OpenRevolution

Wages and

Salaries

(incl benefits)

11%

Commissions24%

Overhead1%Agent Network

Support (Initial)10%

Agent Network Support (On-

going)

45%

Promotions6%

Regulatory Compliance

1%

Software Maintenance

2%

Operating Expense Breakdown

Why are agents important? Largest operating expense for an MNO

• Typically owned or franchised by the MNO or financial institution

• Represents a single mobile money service and product

• Often is provided technical and financial assistance by the MNO or financial institution

• Agent can be involved in the sale of other non-mobile money products and services

Proprietary

Non-Exclusive • Could be independently owned or part of a third-party network

• Can offer multiple mobile money products and services

• Often sell other non-mobile money products and services

Types of Agent Networks

Super Agents

Agents

Sub Agents

• Liquidity management

• e-Money inventory

• e-Money inventory

• Full transaction set

• Limited transaction set

Agent Hierarchy

• Do I have enough cash on hand to meet customer cash out needs?

• Do I have the necessary resources to procure and maintain adequate e-money inventory?

Liquidity

Incentives

• Are agent incentives and MNO/financial institution incentives align? (e.g., desired transaction types profitable for both agent and entity)

• Are commission payments timely and sufficient given the complexity and risk of mobile money operations?

Agent Issues

What entities in a country typically perform cash management

functions?

Banks

Money transfer organizations

Major retail networks

What do they have to facilitate cash transfers?

Centralized distribution hubs

Daily reconciliation

Cash requirement forecasts based on point of service history

What supporting services do they use to reduce risk?

Armored cars

Insurance

Security guards

Liquidity Management

Logistics

Management processes

Access to cash

Accurate transaction volume forecasts

Security

Agent Liquidity Gap

Registration

Management processes

Access to cash

Accurate transaction volume forecasts

Security

Agent Incentives

What behaviors is the organization trying to promote?

Subscriber growth

Intra-network transactions

Savings

What behaviors is the organization trying to discourage?

Cash outs

Cash ins

Fraud

Incentives and Agent Behavior

Align incentives to desired behaviors

Provide agents with the support needed to be successful

Ensure transparency

Pay commissions promptly

Test programs to ensure agents cannot game the system

How do develop an effective

incentive program