Malith Gunasekara Senior Consultant Increasing access to finance using mobile banking services: What are the factors MFIs should consider before engaging in m-banking solutions?

SBI advises its partners – all types of financial institutions in emerging economies – in inclusive finance Utilizing commercial finance practitioners Focusing on the fundamentals of banking and financial institutions Delivering innovative and market-driven products and services Building capacity in our partners’ ability to increase access to finance locally Sustaining long-term partnerships Introduction to ShoreBank International

Presentation Overview Who are the competition and other market players? What are the options for an network of agent operators? Review Landscape What is the market demand and need? What is the value add of the proposed services? For MFIs? For customers? Market research Where are the key gaps in the MFI’s internal capacity? What internal systems are necessary for mobile banking? Internal Capacity What investment is required and who will provide the investment? Investment and resources What technology is appropriate for the strategy? Who are the available vendors? Technology What type of platform is needed? What are key concerns or challenges in implementing this strategy? Market strategy What type of partnership or implementation structure is most sustainable for the MFI? Business case Which products are demanded? Which products should be offered by MFIs and via mobile banking? Products How can the MFI generate awareness and rapid, to-scale uptake among customers? Marketing and awareness How can MFIs successfully prepare for entering the mobile banking market?

Review Landscape Who are the competitors? Courier companies Money transfer agents Other informal means Who are market players to consider? Financial institutions Retail network Telcos What is the existing network of agent operators? Leverage existing branch network Supplement branch network What is the regulatory environment? Are non-banks allowed to offer banking services, and to what extent?

Market Research What is the need? What is the demand? Long term success will require developing products that help consumers build and save wealth Consider the portion of the population without a bank account and with access to mobile phones Consider the current costs and convenience of financial transactions What is the value add? For customers For the financial institution What is the best way to conduct market research? Focus groups are often more effective than a quantitative survey

Internal Capacity Infrastructure Real-time communication is necessary for mobile banking – upgrade systems, must have a good core banking system Efficient cash management systems Staff Experts in retail banking, marketing, mobile technology, and cash management Knowledge Best practices from mobile banking efforts Sourcing technical assistance from international experts Training Training agents to understand mobile transactions, cash management, and customer service

Resources and Investment Mobile banking/ agent banking requires committed investment, both internally and from outside investors o Ex: KBS in India expanding branchless banking services required a strong backend system New initiatives require buy-in from top management, but resources may come from outside o Ex: In Pakistan, a MFB wanted to acquire software that costs $6-7 million to do branchless banking, but its Board rejected this The amount of investment required can be very high o An MNO-led model in East Africa spent $30 million scaling their service o Another telco in Uganda has spent $10.5 million

Technology Requirements MFIs need to be able to understand the technology and have the capacity to negotiate flexibility for functionality with the vendors What technology is appropriate? o Flexibility, functionality, and cost effective Consider and weigh vendor options o Early negotiations are crucial, as mobile banking services are often locked into a specific vendor Off-the-shelf solutions vs. ability to cater to MFI and products Technology is not a panacea for all issues and is only as good as the people using it and benefiting from it; its value to the MFI and customer is related to their trust and its functionality

Develop Market Strategy Developing a “go to market” strategy requires understanding of the product, placement, pricing, and promotion Marketing strategy can include phased roll outs with different market segments Institutional platform needs to be developed for effective marketing Leveraging another platform – financial institution, telco, or third party operator – can help expand reach The agent network itself is a key part of marketing, messaging, and branding Must protect FI’s clients and personal client data

Business Case Can mobile banking be a profitable business? Can a FI form a profitable partnership with a larger bank or Telco? o Ex: A leading provider in East Africa charges fees that are too high for MFIs to profitably partner o Ex: Large telcos may buy a bank How large does an MFI have to be to do it alone? o Ex: MFB in Pakistan debated partnering v. individual provision (requires investment in network and platform)

Products Development of products depends on the business case Complementary products can leverage mobile banking data and clients – mobile banking and MFIs are not competing MFIs can leverage an existing mobile banking platforms to disburse its own loans o Ex: MFIs in East Africa can leverage existing platforms MFIs are strong in providing credit, and mobile banking can offer other services Currently, m-banking providers do not provide credit but allow for transfer and savings, so they are not competing with the MFIs o Ex: A bank in Pakistan (transfer, storing money) and an MFI that SBI is working with (can bring in new users as credit clients)

Marketing and awareness Marketing delivery channels: Village meetings Sponsorship of local events Marketing van with audio-visual capabilities Print, television, billboards Branding: “Reaching the unreached” “Your local bank at your doorstep” Creating awareness among the target market about the available services and products is an important cornerstone for success

Outreach of Mobile Banking Providers (From CGAP FN 66) In eight branchless banking pioneers, 37% (on average 1.39 million) of active clients were previously unbanked. In five of the eight cases, the branchless banking provider reaches more previously unbanked people than the largest MFI in the same country: on average 79% more. The same five providers grew rapidly, needing on average three years to acquire more unbanked clients than the largest MFI in the same market. Mobile banking is cheaper than traditional banking, but the price advantage may not be as wide as one might anticipate. On average, branchless banking is 19% cheaper than comparable products offered by banks via traditional channels. The Potential of Mobile Banking: Financial Inclusion