1. 11 The Cellphone and the Mattress Technology and Access to Finance February 5, 2007

2. 22 Source: WB 2005; VISA; UPU 2005 25m 1.5bn “In Uganda, the model which showed the greatest potential and return was the agent model in which merchants were designated as virtual bankers” Firpo 2005:7 New touchpoints

3. 33 Rapidly-growing coverage Source: GSM Association

4. 44 Fastest-growing markets Source: Wireless Intelligence

5. 55  Disaggregating the value chain of traditional banking Reducing cost

6. 66 Santa Rosa do Purus - AC 500km to branch by boat or plane (Far distances) Waterpoort, South Africa Migrant laborers from Zimbabwe (Narrow product range) Why do people prefer the mattress??

7. 77 Rachel Nyambura Kangemi slum, Nairobi (Low income) (Low education) More reasons… Gema Paho Talakag, Philippines (No credit information)

8. 88 More reasons… Anonymous Wizzit Customer Gauteng, South Africa (Negative perceptions of banking) Young couple Pernambuco, Brazil (Channel design)

9. 99 Advantage, mattress …  High distances / low population density  Low income relative to cost of service  Low education and illiteracy  Lack of credit history  Poor product / channel design  Narrow range of products offered  Negative perception of banking

10. 10 Can technology help beat the mattress? Maybe: 1. If the approach overcomes CONSTRAINTS to accessing financial services. 2. If the approach can be VIABLE in delivering financial services. 3. Will the approach have a social IMPACT similar to “high- touch” microfinance approaches?

11. 11 Which approaches to test?  High distance / low population density  Low income relative to cost of service  Low education and illiteracy  Poor product / channel design  Use existing infrastructure  Subsidize demand  Develop text-free interfaces / processes for illiterate users  Blend “human touch” and technology  Share technology platforms across MFIs, etc.  Develop partnerships between MFIs and formal players  Piggy-back off government payment distribution

12. 12 Special interface design Raku raku phone (Japan)

13. 13 Kenya – piggy-back off social payments Allpay THE CHALLENGE: Deliver social protection payments to food-insecure Kenyans at low cost while offering a basic transaction account. (FSD Kenya)

14. 14 Waterpoort, South Africa nearest bank branch 100km Wizzit South Africa – existing infrastructure

15. 15  Early adopters love the service, use mainly for bill payments, airtime top-up and balance enquiry  50,000 active users after 2 years – not yet viable  Few low-income people are aware of m-banking, most perceive as costly and difficult to use – constraints How does it meet the criteria? CGAP’s survey of 515 low-income people in S Africa shows that a human touch is still important. M-banking, once adopted, is preferred way of banking.

16. 16  51% of WIZZIT nonusers and 49% of users prefer to deal face-to-face with a person rather than an electronic device, even if the device is faster  Don’t understand or too complicated – top reasons by those who stopped using WIZZIT  Unemployment and no personal income – top reasons for not having a bank account given by unbanked nonusers of WIZZIT who wish to have a bank account Perceptions of technology/banking matter too

17. 17  “Correspondentes bancarios” (Brazil)  “Cajeros corresponsales” (Peru)  “Corresponsales” (Mexico)  “Corresponsales no bancarios” (Colombia)  “Caja Vecinas” (Chile)  Bank@Post (Australia)  Point Vert (France) Retail outlets/chains, post offices deliver financial services on behalf of banks. Banking agents

18. 18 Brazil’s banking agent network

19. 19  Banking agents are popular:  Used by 90% of sample, especially in urban areas  61% use lottery houses  50% mainly used branches before  13% of users are illiterate / no education  …but used for limited set of products: Does it overcome constraints? %

20. 20 Banking agents reach new customer segments (C, D, and E), but many of these clients do not see the value of financial services. Banking agents reach new clients… None of these products: 48% 40% 38% SEC E SEC D SEC C  Segments D and E prefer agents to bank branches

21. 21 Clients are using banking agents to pay their bills and receive their benefits, but do not understand the value of access. Limited product usage %  87% of respondents hold accounts to receive money  Only 4% of respondents hold accounts to save money  One in three claims not to need a bank account

22. 22 Need for more experience  Developing viable business models  Achieving uptake of a range of products  Overcoming perception barriers  Understanding development impact of “low- touch” models  Attaining scale

23. 23 What are the regulatory issues? Are agents liable for meeting AML/CFT? Should her telco be allowed to take deposits? Can this agent safely handle cash for a bank? How easy for a startup to offer anywhere transfers? Can others use her credit history to assess risk? Should the telecoms regulator care? What can she do if de-frauded? Is her PIN valid as signature? Will a leading mobile co become a monopoly? Are there FX constraints on transfers?

24. 24 Need supportive regulation in… AML/CFT Prudential Regulation Use of Agents Payments System Credit/Data Privacy E-Commerce Telecom Consumer Protection Competition

25. 25 Basic regulatory issues in “mattress-land”  account-opening requirements not risk-based  all non-bank e-money issuance prohibited  use of agents for banking prohibited  excise / sales taxes on telecom products

26. 26 How can we push the access frontier? 1. Have now 2. Market can reach now 3. Market likely to reach, future 4. Beyond market reach 5. Don’t want it usage Time elapsed REQUIRES… Deep understanding of constraints Supportive regulation and business environment More experience with new models 95% Transaction account plus credit, insurance, etc.

27. 27