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Decoding mobile financial servicesInnovation and collaboration to drive growth


Executive summary 4

Methodology 6

Highlights from the report: a view on the MFS opportunity 7

1. The MFS opportunity and dynamics of a telco-financial institution relationship 8

1.1. MFS: an introduction 8

1.2. Economic analysis of the benefits of MFS for telcos and financial institutions 8

1.3. Opportunity matrix for telcos and financial institutions 11

2. Synergies through financial services and telco collaboration 14

2.1. The cost benefits of a collaborative approach 15

2.2. A mobile-first approach to financial services infrastructure 17

3. Possible innovations and business models in MFS led by telco-financial institutions 20

3.1. Potential innovations in MFS 20

3.2. Potential business models for telcos and financial institutions 21

4. Service-wise opportunities for MFS 22

4.1. Mobile payments 22

4.2. Mobile savings and mobile insurance 26

4.3. Mobile financing 27

4.4. Key challenges in MFS service delivery for telcos and financial institutions 27

5. Role of MFS in developing “financial dividend” 28

6. Regulation and cybersecurity remain key pivots for sustainable MFS models 33

7. An integrated approach to lead the way for MFS 37

Contents

3Decoding mobile financial services

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Meth odologyDecoding mobile financial services has been

as fi s - a a s c ifrom industry practitioners, inputs from EY ’ s s c a si s c s isc ssi sa is s i si s s s cprofessionals and secondary research. It attempts

ass ss i a scaindustry , with a focus on opportunities which are a isi c a a i s c s afi a cia i s i i s

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c ici a i i s a s cc ssfactors.

F urther, the report discusses ex amples and case studies from across the world to supplement the

i a i si s s s aas si s c a s a c a a sis

a i si s i

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Highlights from the report: a view on the MFS opportunity

Two billion adults, or 38% of adults globally,

continue to be excluded from the financial

system

There is a potential near-term opportunity for MFS in 15 select countries to include

434 million unbanked people in the financial system

Service providers can achieve 96% cost savings in

the average cost per transaction through mobile

bank channels

Sixty-seven percent among bank regulators in 143 jurisdictions have a

mandate to promote financial inclusion

Globally, approximately 10 million dedicated

mobile savings accounts have been

opened so far

Mobile credit witnessed a 50% increase in the number

of services in 2014

Fifty countries have set formal targets and ambitious goals for financial inclusion

Users of mobile payments are expected to grow at a CAGR of 47% until 2019

38%

50%

67%

47% 50%50

50%10

50%15

96%

The market potential for

MFS


1e o o tunit an na ics o a

telco-financial institution elations i an int o uction

cono ic anal sis o t e enefits o o telcos an financial institutions

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reach, decrease in capex due to lesser need for phy sical i as c a i a sac i c s a

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c s a fi a cia i s i i s a s ac s ia s si s ac i c ic aof mobile money , while telcos are the bandwidth holders.

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enefits o financial institutions

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ssessin t e enefits o o ile an in to financial institutions

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Benefits for telcos1

From a business standpoint, MFS holds considerable potential for telcos — both in terms of direct and indirect revenue gains, as well as the cost efficiencies which it brings along.

Direct financial gains for telcos

The revenue from mobile money has been on a rise in the past few years. In 2015, 25.6% of the telco-led deployments (11 out of 43 deployments) reported earning more than 10% of total revenues from mobile money. Of this revenue, for telcos almost 76.5% is derived from customer fees.

Figure: Percentage of revenues generated by mobile money for telcos

1 “State of the Industry Report Mobile Money,” GSMA, http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2016/02/SOTIR_2015.pdf, accessed 25 February 2016.”

One of Kenya’s leading telco reduced its traditional airtime distributor commission outgoings by an estimated US$64 million, by selling 38% of its total airtime through its MFS platform in FY14.

Source: GSMA

Less than 1%

1%–5%

5%–10%

Over 10%

28%

50%

35%29%

32%

12%4%

7%

18%11%

50%

26%

Jun 15 Jun 14 Jun 13

Indirect gains

For telcos, the indirect benefits of MFS — churn reduction, increase in average revenue per, or savings on airtime distribution — can be significant, and this also indirectly adds to revenue potential. Out of 48 mobile operators surveyed in a recent study, 79% reported selling more than 1% of airtime through mobile money, and 31% of respondents reported selling more than 10% of their airtime through mobile money.

10 Decoding mobile financial services

http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2016/02/SOTIR_2015.pdf

1.3. Opportunity matrix for telcos and financial institutions

Recent years have witnessed notable progress in driving financial inclusion globally. Yet, many people continue to be excluded from the financial system. There is a large untapped

populace, which is a direct addressable market to cover under the financial net, especially through the mobile platform.

Note: Select countries cited as examples; financial inclusion based on people having an account at any type of financial institution or a mobile money account

Source: ITU 2014, Global Findex Database 2014, World Bank, EY analysis

Increasing financial inclusion (accounts for percentage of people over 15 years of age)

EthiopiaMalawi

ChadMadagascar

Limited opportunity for MFS

Peru

Philippines

Zimbabwe

Vietnam

Pakistan India

Singapore

US

UKSweden

NorwaySouth Korea

Growth markets: driven by innovations to increase financial inclusion

High revenue base: driven by innovations to offer better customer experience

Focus on improving mobile penetration and collaborative financial institution-telco offerings to aid in faster delivery of financial services

Limited opportunity for MFS

Incr

easi

ng m

obile

pen

etra

tion

Figure: Opportunity matrix for MFS based on degree of mobile penetration and financial inclusion


Mobile penetration (% )

Financial inclusion*

Financially not included#

Population (million, ov er 1 5 years of age)

U nbank ed opportunity (million)

O pportunity f or MFS (million)

i ia 96. 3 4 1. 8 58 . 2 7 . 1 4 . 1 2 . 9

B urundi 30 . 5 7 . 1 92 . 9 6. 0 5. 6 3. 9

Colombia 113. 1 39. 0 61. 0 36. 0 2 2 . 0 15. 4

D emocratic R epublic 53. 5 17 . 5 8 2 . 5 4 0 . 3 33. 3 2 3. 3

India 7 4 . 5 53. 1 4 6. 9 916. 9 4 2 9. 6 30 0 . 8

a a asca 4 1. 2 8 . 6 91. 4 13. 7 12 . 5 8 . 7

Malawi 33. 5 18 . 1 8 1. 9 9. 1 7 . 5 5. 2

a i ia 113. 8 58 . 8 4 1. 2 1. 5 0 . 6 0 . 4

P eru 10 3. 6 2 9. 0 7 1. 0 2 2 . 2 15. 8 11. 1

P hilippines 111. 2 31. 3 68 . 7 67 . 2 4 6. 2 32 . 3

R wanda 64 . 0 4 2 . 1 57 . 9 6. 6 3. 8 2 . 7

a a ia 62 . 8 39. 8 60 . 2 2 8 . 4 17 . 1 12 . 0

a a 52 . 4 4 4 . 4 55. 6 19. 5 10 . 8 7 . 6

Z ambia 67 . 3 35. 6 64 . 4 8 . 5 5. 5 3. 8

Z imbabwe 8 0 . 8 32 . 4 67 . 6 8 . 9 6. 0 4 . 2

T otal opportunity 6 2 0 . 4 4 3 4 . 3

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c a i a a as a A a a sis



2Synergies through financial services and telco collaboration The partnership between telcos and financial institutions for offering MFS come with a set of natural advantages. Players at both ends invest in mutually complementing or parallel infrastructure, which can be cross leveraged. Both require a common pool of assets and internal processes, which can

be developed in close collaboration, leading to a robust platform for MFS delivery. Also, sharing and collaboration of infrastructure are likely to lead to faster and more cost effective go to market strategies.

Figure: Infrastructure that can be cross leveraged by financial service institutions and telcos

Application development and deployment

Retail and distribution

Branding, marketing and awareness

Data analytics

Technology (billing and customer relationship management)

Customer acquisition and management

Source: EY analysis

Source: EY analysis

Figure: Assets owned by financial service institutions and telcos that strengthen MFS delivery

Telco assetsTangible assets:• Large user base, especially in unbanked emerging

economies

• Ubiquitous SIM and airtime distribution and retail network

• Control over the data channel to customer

Intangible assets:• Brand recognition in emerging economies — seen as

trusted partners by consumers

Tangible assets:• Full suite of financial services

• Deposit-taking license and pool of liquidity

• Liquidity management

• Secure core financial platform

• ATM or cash presence

Intangible assets:• Regulatory compliances

• Financial service licences competencies

• Strong brand name associated with safety and security

Financial services assets


e cost enefits o a colla o ati e a oac

i is a s a c s - c i a i i fi a cias ic s i a i i c s ic -a - a fi a cia s ic i is a a sc s fici

i a a c - i s aci i ia ca i a s a is

capex is offset by the drop in cost per transaction and the fi a i c fi a cia c s a a

c s as acc ssi ia i ic s ia i c s a a a cas - - si i i

a fi a s a i i s 2

A s a i si a ca c i s a sa a as is s i

business case to set up a phy sical infrastructure. Mobile s c i c ca i a c aa a c i as c c s

a s ic i c s ca si ifica ci i ca sa i s i s i as c

a - - a a i a c s s fici ci s i s a ci a i c a s c s c si a ss a

a i i a c a s a i a i a sac i caa - a c a i c s 3 T he cost

i i fi a cia i as c a s i ss s si ificac i a a c a

a - a a c ss a i

i i a cia ic s i c s c c c c c - a i s P s a i a -A P , accessed 2 0 J anuary 2 0 16.

i i a cia ic s i c s c c c c c - a i s P s a i a -A P , accessed 2 0 J anuary 2 0 16.

i u e s s i i fi a cia i as c a c c a a c ss a i

Source: U SAID

c i i c s s

T raditional branch B ranch in store AT M A i Pterminal

A i i


http://www.ifc.org/wps/wcm/connect/5e24430042b925809415bc0dc33b630b/M-Banking_Workshop_Presentation_Jan28-2014_ENG.pdf?MOD=AJPERES




T he setup and maintenance cost also declines if we shift from a a c a i i as c a a A a cbank needs maintenance in terms of phy sical infrastructure,

c as as a c s s c a isc s a c a - a i a i s ic is

much lower.

a a c s s c s s c i s ia a c i as c a i a A a

c s a sac i ia i is a a A stransaction cost.

i u e s s c s s i a c a s

Maintenance cost comparison

Ch annel Number of people Maintenance cost

B ranch

A 1

Source: IF C

Source: V alue P artners

3

0 . 65

B ranch teller AT M Mobile

0 . 1


Traditionally, financial institutions have considered physical branches and agent networks as their core service delivery methods. Online and mobile platforms stemmed as a channel extension, yet physical presence remained the key. This approach was rational as well, as internet connectivity and personal computer penetration was limited. Further, the ecosystem support was not available to offer integrated and complex digital financial services, which could be accessed by a common user.

Today, with technological advancement, ubiquity of mobile devices and network connectivity, a more mature ecosystem is now in place to offer a digital financial services delivery platform. Consumer preferences have also changed,

with many favoring mobile platforms for their financial transactions, stemming from the ease of use and on-the-move connectivity. Particularly, with the mobile device being a household commodity, a “mobile-first” approach is vital to the future development path for financial services.

In this scenario, mobile can be developed as a core financial service delivery platform. Especially with the advent of smartphone sophistication, this platform can thrive on lower investment, or upgrade costs. The majority of spending in this case would be on the technology platform, while telco partnerships can foster the need to set up a separate parallel infrastructure for billing, customer care, retail presence, and even marketing.

2.2. A mobile-first approach to financial services infrastructure

Source: GSMA, company website, news articles

Poland-based bank pioneers the ”virtual bank” concept

Poland has a classic case of launching a fully internet-based bank with the direction of development focused on moving toward complete branchless banking.

• In 2000, the Poland-based bank launched its retail operations on a fully internet-based platform, offering services through call centers and mobile-based solutions.

• In 2013, the bank introduced a modern and upgraded user-friendly internet platform, with multiple new features. For instance, the digital platform enabled better customer-centric interfaces, advanced money management features, gamification and video banking.

• Today, the bank is one of the largest retail banks in the country and is developing new standards for financial services delivery:

• Loan approvals in 30 seconds through smartphones

• Service agents interacting with customers through over-the-top video messaging platforms

• 86% of sales made online or through call centers, compared with 20% made by western lenders

• Around 130 retail and 47 corporate branches, much lower than traditional banking models

The bank continues to introduce innovative solutions. For instance, it has launched a retail advice and discounting service, which utilizes customer behavior patterns and location data from mobile phones to provide offers at particular shops.

Case

stu

dy


acto s i in t e o ile-fi st a oac

i uit o o ile e ices

i a i ca i as a ifi a cia i c si i i c i s s cia iAfrican sub-continent.

i i is c acby smartphones that can offer a richer customer ex perience. ac s s c as c i i ic c i s i a - ic

s a s a i a a a a ici a ss s a ca c a a ac iproposition for end users.

e asi e net o connecti it it telco ocus on i s ee o ile ata an i- i net o s

i s is a is i s i a s a

a s i s a i a i ienhance network capacity in 2 0 14 . 4 s sa cas a a A 5

In particular, there is a considerable focus on network s i i a s i i s s

in mobile broadband network s. F or instance, telcos in

0 . 0 1. 3 2 . 5 3. 8 5. 0

a - i c as

a - i c as

a fi - i c as- a a a A ica

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a a a

Proj ected smartph one penetration grow th (2 0 1 7 )

i u e a a i

c A

i i i i s sc i s fi s A s s a c s ss- as - i i - - i - i -s sc i s- - - s a A acc ss A i

i c A s a i c c A a i c , accessed 2 8 April 2 0 16.

i c i i s -sa a a a ica c s ass s i i fi s A s A s a c s ss- asi -c i i - -s -sa a a -a ica - c -s ass s- - i i -fi s- - s a-s , accessed 2 8 April 2 0 16.

- a a a A ica A i s i i ii as c i a i c as - - 6

is is c a a A ia i i a a a i s a i a i c s

a a s a i acc ss c s s is a i is s


http://www.gsma.com/newsroom/press-release/one-billion-new-unique-mobile-subscribers-by-2020-gsma/

http://www.gsma.com/newsroom/press-release/one-billion-new-unique-mobile-subscribers-by-2020-gsma/

http://www.gsmamobileeconomy.com/GSMA_Global_Mobile_Economy_Report_2015.pdf

http://www.gsma.com/newsroom/press-release/mobile-contribution-to-sub-saharan-african-economy-surpasses-us100-billion-finds-new-gsma-study/

http://www.gsma.com/newsroom/press-release/mobile-contribution-to-sub-saharan-african-economy-surpasses-us100-billion-finds-new-gsma-study/

7 “Juniper: 60% of smartphone, tablet data traffic will run over Wi-Fi by 2019,” FierceWireless, http://www.fiercewireless.com/story/juniper-60-smartphone-tablet-data-traffic-will-run-over-wi-fi-2019/2015-06-16, accessed 3 February 2016.

8 “Telecoms_Media_and_Entertainment_Outlook 2015, Ovum, http://info.ovum.com/uploads/files/Ovum_Telecoms_Media_and_Entertainment_Outlook_2015.pdf, accessed 28 April 2016.

Further, Wi-Fi networks are also in focus, with Wi-Fi already accounting for around 50% of smartphone and tablet data traffic globally.7 Such networks are an essential means of connectivity indoors and in high-traffic-segmented locations such as shopping areas, multi-dwelling units,

parks and stadiums. Today, there are around seven million public Wi-Fi hotspots globally, and the growing availability of Wi-Fi networks will also help deliver better connectivity and user experience for MFS services.8

Consumers go mobile-first

In the last few years, digitization has transformed consumer preferences, and their service delivery expectations. Due to the pervasiveness and ease of use, consumers are connected to their mobile devices to an extent unmatched by any other technology.

For many, mobile is increasingly becoming the primary method of interaction with their financial services providers. The mobile-first millennia are emerging as users who are likely

to have their primary interactions with financial services via handheld devices.

In such a setting, mobile can no longer be a mere channel extension for financial services, given that emerging economies and their young populations are “mobile first.” Accordingly, it is fitting for financial institutions to develop a strategic “digital” or “mobile” plan, and consider mobile as their key infrastructure platform for service delivery.

Consumer focus is key to driving future MFS growth

Today, the consumer is back being the king. As the market continues to be flooded with multiple competing offerings from various players, consumer preferences are becoming important for future success. A discussion with Kenyan MFS consumers brings out interesting insights on their behaviour and preferences.

• Ease of use was highlighted as one of the key benefits of using MFS, as it makes financial transactions less cumbersome and adds the convenience of anytime-anywhere usage

• The limit on the amount of money that can be transacted at once was cited as a key challenge

• Also, in Kenya, some of the leading MFS service providers charge a fee per transaction, which was cited as a pain-point by consumers

• Services that the customer would wish to have in the future:

• Availability of a direct clearing house to transfer money across different providers – no need of a mobile money agent

• Interoperability of services between various MFS platforms

• Low charges for money withdrawal and transactions

• Enhanced security is high on the consumer wish-list. There are chances of identity theft when customers fill their personal details in forms. Such forms can be digitized, thus making the process paperless and increasing security

Who owns the customer is the big question

Moreover, given the market scenario, customer ownership is becoming an important factor for MFS. Ensuring customer stickiness is becoming difficult as multiple players are eyeing the consumer’s mind-share. In such a scenario, both banks and telcos need to strategize on what role they aim to play in the MFS infrastructure value-chain and how they want to innovate to keep themselves relevant in the current business scenario.

Case

stu

dy


http://www.fiercewireless.com/story/juniper-60-smartphone-tablet-data-traffic-will-run-over-wi-fi-2019/2015-06-16

http://www.fiercewireless.com/story/juniper-60-smartphone-tablet-data-traffic-will-run-over-wi-fi-2019/2015-06-16

http://info.ovum.com/uploads/files/Ovum_Telecoms_Media_and_Entertainment_Outlook_2015.pdf

3Possible innovations and business models in MFS led by telco-financial institutions

Innovation in MFS is expected to lead to faster service delivery, cost reduction, higher speed of processing, and increased safety and security of platforms. Further, technology has brought in reliability and scalability in the delivery of MFS, with consumers being the ultimate beneficiaries.

Thus far, maximum innovation in MFS has been seen in the mobile payments space. Going forward, it is expected that focus will also come to mobile banking services, mobilizing deposits and developing digital banks — which provide a complete range of services over the mobile channel.

In terms of new products and services, there is a considerable opportunity for innovation. For instance, currently, mobile

payment products are used to make small payments and transfers. Further, newer products can be designed to cater to use cases such as big ticket transactions. In such cases, robust anti-money laundering (AML), cyber-security and regulatory aspects will be even more important.

Another area with considerable opportunity is around big data and analytics. In this, both financial services institutions and telcos can work together with retailers to understand customer needs and develop targeted offerings. As new information channels such as social media and location-based services develop, the sophistication of MFS services will further increase, with new product and service innovations ushered in by both financial institutions and telcos.

3.1. Potential innovations in MFS

Figure: New product and service innovations via financial institution-telco partnerships

Potential product and service innovations via

financial institution-telco partnerships

Newer credit scoring models, using telcos’ data for credit insights (airtime top-ups, location data, social network patterns)

SME-centric MFS, such as free access to partner bank’s mobile app for the telcos’ customers

Mobile insurance products such as those based on mobile customers’ airtime top-up (such as accident, hospital and life insurance products)

Telco-based virtual mobile wallet, integrating credit or debit card information via partnerships with banks, e-commerce players and payment gateways

Targeted mobile advertising using location tracking data, via telco-bank-retailer partnerships

Using mobile money platform for microfinance, can also utilize crowd-funding opportunities using mobile apps

Source: EY analysis


On the basis of market dynamics, strategic positioning, service rationale, and position in the market, financial institutions and telcos can choose their approach toward MFS. The collaboration between a telco and a financial institution

for MFS is already a reality. The level of partnership may vary from a completely independent operating model, where one takes over the other’s role, to a collaborative approach, where each has an equal contribution.

3.2. Potential business models for telcos and financial institutions

Figure: MFS business models for telcos and financial institutions

• A telco becoming a fully functional financial institution is likely to be seen predominantly in emerging markets, where financial coverage is low and telecom penetration is high.

• With a leaner business model in terms of infrastructure cost, this model can allow for service delivery at lower price-points and find favor with low-income economies.

• Example: Countries such as India have already witnessed a regulatory go-ahead for telcos to operate as payment banks.

• Under this approach, the telco is the front face for MFS, and it either partners with or acquires a financial institution to offer MFS.• This approach is well-suited to geographies where telco penetration and brand name is strong, and the regulations mandate a

partnership with a financial institution for compliance. • Example: A case in point is the recent announcement from a France-based telco to acquire a French insurance group to enter banking

services and then launch a bank under its own brand name.

• According to this approach, the telco and financial institution are equal stakeholders and jointly offer MFS.• Both the parties play an equal role, and bring in their core competencies to strengthen the end offering.• Example: An example is the partnership between a Kenya-based bank and a telco to jointly offer MFS. The telco and the bank jointly

developed a mobile payment and banking platform. The service offers a suite of financial services on a mobile platform, via a mobile virtual network operator based on the telco’s network.

• Here, the financial institution is the front face for MFS and it either partners with or acquires a telco to offer MFS.• This approach is well-suited to geographies where financial penetration is moderate to high, and the financial institution wants to

extend mobile-based services, for channel extension, or to offer a superior customer experience. • Example: Poland has the first fully internet-based bank with the direction of development focused on mobile banking development.

Launched in 2012, it is already the number one mobile banking provider and has a strong 29% market share, which makes it the third-largest retail bank in Poland.

• ►A financial institution becoming a fully functional telco is likely to be seen in the following cases:• In an emerging market – to spread financial services through mobile platform, and develop a mobile-based financial

infrastructure• In a developed market – to build a secure channel, with higher control in terms of safety and security

(with SIM ownership)

Source: EY analysis

Telco becomes a financial institution

Telco-led approach along with a bank

partnership or acquiring stake

in a bank

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the bank and the telco

Financial services-led approach with a telco partnership or stake acquisition

in a telcoFinancial institution

becomes a telco

Increasing level of involvement

for a telco

Increasing level of involvement for financial services


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countries as of 2 0 14 . 9

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o ile a ents

i u e i a i i a i i fi a cia s ic s ai s

a s i i a cia ic s a A s a c i -c a s, accessed 2 8 April 2 0 16.

Source: EY analy sis

Financial serv ice domain S ub-typesPotential opportunity to be redefined via MFS

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Source: EY analy sis

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In addition to basic money transfer and payment services, innovative use cases of MFS include sophisticated services such as savings and insurance, which are also gaining scale. For instance, in 2014, 10 new mobile insurance services were launched globally, bringing the number of available live services to 100. There is significant opportunity for cross-sector collaboration in this domain as well — 56% of these

services are being marketed by telcos in partnership with insurance companies.10

On the mobile savings front, both financial institutions and telcos are increasingly leveraging their mobile money infrastructure to offer savings capabilities. Globally, around 10 million dedicated mobile savings accounts have been opened.11

4.2. Mobile savings and mobile insurance

10 “2014 State of the Industry — Mobile Financial Services for the Unbanked,” GSMA, http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/03/SOTIR_2014.pdf, accessed 28 April 2016.

11 “Mobile savings and credit: Riding the rails of mobile money,” GSMA, http://www.gsma.com/mobilefordevelopment/programme/mobile-money/mobile-savings-and-credit-riding-the-rails-of-mobile-money, accessed 28 April 2016.

12 “2014 State of the Industry — Mobile Financial Services for the Unbanked,” GSMA, http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/03/SOTIR_2014.pdf, accessed 28 April 2016, ITU.

From insurance services perspective, the mobile platform enables different ways of offering traditional products as well as opens opportunities to provide innovative services. For instance, areas such as claim management, micro-insurance, travel and home insurance can benefit from mobile integration.

Claim management forms one of the key touch-points of insurance customers with insurers, and it is also one of the pain points. In particular, claim filings can be considerably difficult in remote locations, which have limited number of agents. In addition, the subsequent procedure is often dependent on the customers — with customers following-up with the insurers on updates of their claims.

To have a much smoother process, several insurers and InsurTech players are seeking to leverage the mobile technology. For instance, enabling submission of claim

evidence through the mobile phone medium, and receiving updates and communications via messages or mobile internet are some of the steps that have been thought of.

Another MFS area with significant potential is the micro-insurance domain. Given the small ticket size, such transactions are more feasible using the MFS products and services. In particular, mobile insurance platforms have significant appeal in low-income and developing countries, where the cost of distribution of traditional products is relatively higher to serve low-income individuals.

For instance, in Africa, the number of mobile subscribers is almost 15 times the number of lives and properties covered by insurance, which is only 44 million.12 In such cases, higher mobile penetration provides the foundation for achieving economies of scale to administer low-value policies.

Source: GSMA

Promoting mobile savings through mobile money accounts

In some countries, telcos are offering incentives to customers to save money on their mobile money. For instance, in Tanzania, a telco distributed US$8.7 million to 3.5 million customers in September 2014, on account of interest returns generated on its trust fund. Further, the telco announced plans to make these payments every quarter.

With this, the telco successfully created a win-win situation:

• For customers, who would receive substantial returns on their investments in mobile money

• For the telco, which developed a platform to increase customer loyalty and to gradually grow mobile money service uptake and transactions with timeCa

se s

tudy

Source: GSMA

Telcos offering free life insurance products targeting the masses

• Market need: Bangladesh has low insurance penetration, especially in less affluent market segments.

• Telco response:

• Two leading telcos launched mobile insurance services, targeting the mass population.

• Subscribers who spend more than US$3.23 a month receive free insurance for the following month.

• The level of life insurance coverage depends upon the level of monthly airtime usage.

Case

stu

dy




http://www.gsma.com/mobilefordevelopment/programme/mobile-money/mobile-savings-and-credit-riding-the-rails-of-mobile-money

http://www.gsma.com/mobilefordevelopment/programme/mobile-money/mobile-savings-and-credit-riding-the-rails-of-mobile-money



Another growing field of MFS is mobile credit services, which witnessed a 50% increase in the number of services in 2014.13 Many of the new service launches are driven by strategic

partnerships between financial institutions and telcos. Going forth, the opportunity presented by mobile financing services can be seized through innovative use cases.

Despite the multiple benefits presented by MFS for telcos and financial institutions, there are numerous impediments which hamper viability of MFS delivery models. For instance, growing competition, challenges in customer monetization, legacy cost structures and compliance with regulatory norms are some of the key issues.

• There is a lingering threat from OTT service providers, especially FinTech players, merchants and handset providers, as they can disrupt the market. They are nimble in their approach, and are proving to be strong competitors in the domain.

• Customer monetization is gradually becoming a challenge with multiple competing services trying to grab a share in the consumer’s mind.

• ► Legacy cost structures are also a challenge, especially for telcos. Currently, most telcos have created huge cost structures. Going forward, it will be important to understand how to leverage this cost. For this, telcos can collaborate with financial institutions to jointly utilize the infrastructure (e.g. retail stores, etc.)

• ► Regulatory compliances and document management is also a key challenge, especially due to regional subjectivity attached with it.

Seizing the opportunity for mobile micro-financing services through innovative use cases

Telcos and financial institutions can seize the opportunity presented by mobile micro-financing by developing innovative use cases which focus on uniqueness of these services.

For instance, both telcos and financial institutions have significant customer data, which can be used to develop stronger credit scoring models. Further, these can be used to target specific niche segments such as first-time formal borrowers, as well as help reduce the number of non-performing loans.

Additionally, mobile based delivery of small ticket micro-financing needs can be commercially more viable as compared to traditional branch banking. In this, crowd-funding approach using mobile applications is one of the next-gen methods to cater to specific micro-financing needs.

Going forward, one of the important aspects of mobile credit services will be on how to change the structure of the lending product. For instance, moving from an itemized one-to-one lending product to a more of a float or limit or credit line type of product is expected to drive uptake in this arena.

4.3. Mobile financing

4.4. Key challenges in MFS service delivery for telcos and financial institutions

Source: GSMA, EY analysis


Additionally, the use of location-tracking data for targeted mobile advertising holds significant relevance for the insurance domain. This will enable products which offer coverage based on location and for a limited time. For instance, geo-location data from telcos can be leveraged by insurers to offer travel insurance when an individual is at an airport or in holiday destinations. Another product can offer time-bound home insurance to individuals for the duration when they are on holidays.

Globally, although some players have started focusing on such innovative offerings, but there still remain many more opportunities yet to be tapped by leveraging data analytics and mobile platform. Overall, the key is to generate more engagement between the customers and the insurance service providers as well as to make the transactions more likely with the help of low premiums associated.




5ole o in e elo in financial i i en

c a s a i ss a ss i fi a ciai c si a i c a a s a i a aacc i acc i c asii i 14 a s a

c i c fi a cia s s 15 Clearly , is s s a a a a s a i c a ssaa c fi a cia

is a i fi a cia i c si ca a ssa a i a a is i c is a i is s

i a i a fi a cia s ic s a is cia i i a s

i u e i a cia i c si is i c asi c i a i i c i s

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c a

c a i a a as a

a i a a as a

i a cia i c si i a a ic fi a cia i c si i , accessed 4 F ebruary , 2 0 15.

A mong bank regulators in 1 4 3 j urisdictions h av e a mandate to promote financial inclusion

6 7 % 5 0Countries h av e set f ormal targets and ambitious goals f or financial inclusion

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Indonesia

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http://www.worldbank.org/en/topic/financialinclusion/overview

T he mobile platform has witnessed mark ed success in ac i a a a as a ic i i a s c s s as

i s ic s sa is c a s s a ia a ca a ss si i c as

fi a cia i i a c

i u e i a s as fi a cia acc ss i i a

In some countries, MF S has witnessed widespread uptak e and is one of the k ey methods for money transfers and pay ments.

i s a c i c i s aa a i a Pa s s i aic i i s i a c i c a

with other pay ments instruments.

i is i c i s s c as a a ia a a a asi ifica a a sac i s is i

a s a a i a sac i s isi a a a a ia s ss s ic

c P a a a s P

e o e all o in an econo can e o ile- ase usin lat o

c A

a i i P ici s i a s i a i i a i a cia i A s i i - c s s s c sa i - i - -P ici s-i - a , accessed 2 8 April 2 0 16.

c A

a is a c assic cas fi a cia c a a iai a a

acc ss a fi a cia s ic s a ai a i i i

s ic s sa fi a cia i c si aby 2 0 13. 16

Financial access points — by type and location in K enya T otal access points

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https://www.itu.int/en/ITU-T/focusgroups/dfs/Documents/2015_MMU_Enabling-Mobile-Money-Policies-in-Kenya.pdf

https://www.itu.int/en/ITU-T/focusgroups/dfs/Documents/2015_MMU_Enabling-Mobile-Money-Policies-in-Kenya.pdf

c A

Growing uptake of mobile-based financial services in SSA

A is a i i s i a ia s A a is iacc s a a acc s a i i

a fi a cia i c si

i as c i c a i a ici a iall spheres in the MF S ecosy stem. O n supply side, it acc a a i i

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i acc a c icai a i s c i a a sc i s a a i a i ic

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a a A as c a a a ai

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a a A ica a i ac s s a c c i c c

nex t 12 months. T his depicts a substantial increase of c a i s c a i a a i

a A is c ai c s ii a i i s cas s

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Commonwealth of Independent States

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13%

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S ub-S ah aran A f ricaRest of w orld


31Decoding mobile financial services 31Decoding mobile financial services

32 Decoding mobile financial services32 Decoding mobile financial services

6Regulation and cybersecurity remain key pivots for sustainable MFS models Although innovation is leading to an upswing of innovative MFS business models, their uptake and sustainability hinge on multiple parameters. For instance, the target country’s macroeconomic and demographic profile, pertinent policy guidelines and availability of a favorable ecosystem have a significant impact on the degree of acceptance of the new services. In addition, the ability of the new offerings to combat the challenges posed by cybersecurity is equally important.

An enabling regulatory framework can play a significant role in fostering MFS

With the financial sector being the backbone of a country’s socio-economic development, and given the privacy and security aspects involved, it is one of the most highly regulated sectors globally. Countries have adopted varying sets of policy guidelines depending on their contextual requirements. Similarly, with the growing use of mobile and other digital platforms for financial services, countries are putting in place frameworks to regulate the MFS domain.

Against this backdrop, differential regulations have impacted MFS differently in different regions. For instance, many regulators are increasingly recognizing the role that non-bank entities can play in fostering financial inclusion and are establishing enabling regulatory frameworks. According to reports, 47 of 89 mobile money markets allow both banks and non-banks to provide mobile money services in a sustainable way.17

Regulators guiding involvement of different players in the MFS ecosystem

Given the fact that financial institutions are, in general, better placed to comply with the guidelines of central banks and have consumer trust for delivery of financial services, many regulators are promoting MFS delivery in partnership with banks. For instance, regulators specifically mandate having a banking license for MFS delivery, which ensures participation of a banking entity.

Likewise, some countries are also laying down clear regulatory frameworks with a view to boost MFS. A recent example is India, which introduced a new regime on payment bank license. In August 2015, 11 entities received approval to open payment banks, five of which are telcos or affiliates, and these telcos have partnered with banks for delivery of services.

Leading Indian telcos already have a presence in the MFS domain through open or semi-closed mobile wallets, and are rendering basic services of recharges and money transfers. With the aforesaid development, the gamut of services is expected to widen immensely as well as provide better monetization opportunities. It enables them to offer services such as debit cards, investment banking, deposits, remittances, cash in or cash out, mutual funds, as well as insurance and pension products.

The need for a “test and learn” approach by regulators

Formulating regulations for newly proposed services is clearly a demanding task for any regulator. It is, therefore, natural to form protective guidelines to manage potential risks, specifically when the policy directly impacts the monetary flow and financial system of the country.

Alternatively, there is a yet another approach that regulators can adopt — the “test and learn” approach, i.e., to test the deployment of the service and monitor the developments. In this, regulators let innovation flourish by providing an open turf to players, while putting in place minimal requisite rules. As the services develop, the regulators build more comprehensive regulations based on the lessons learnt. This is an important approach, as it gives the service ample space to develop without too many restrictions, and has worked in under banked economies.





ile inno ation in as le to ette use con enience an inc easin u ta e o ne i ital se ices it as also

ou t ne i ac an secu it c allen es to t e su ace

c a s c -a ac s ca a a ca ca s a i a i s s a

s s a ia fi a cia a a i a i ashare price drop. Companies may not only lose their customer as a s a c a i s -

compliance to protect customer data.

Acc i s a i a i s a s si ificaamounts of personal data or are ill-prepared to deal with a c -a ac a a a s is i c a -scaa a a ac s s i i a i a a fi a ciaa a 18 is i c i s fi a cia s ic s s c

i a a c s c i ass s a ai a c i i s si i i c s

a a i

i a i a c s a P

c A

T anz anian regulator f ollow ing th e “ test and learn” approach ; rules f ollow innov ation

An ex ample of the “ test and learn” approach is the a i s a i a a ia

a a a ssi cisii a i i a i a a a ia

a c s i i s a s i ithem adeq uate freedom to roll out new products and s ic s

i i s i i sa a sa a i ss s a ai

i i s i a ai a i is c a a i as s

c a i c iacc ss i ss a a

a i i a

ase

stu

Source: P onemon Institute

Cybersecurity a prime concern for the financial services sector in the US market

a a a a i c s fi a cia s ic sc c i i ai a a

i i i s i a c as- - a i iss c i s

c a s c a ac s a ifi a cia s ic s s is i c asi as ss i c a a ac s

ase

stu

e a e annuali e cost o c e c i e o financial se ices fi s in t e illion

1 8 . 5 %

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FY 1 0 FY 1 2 FY 1 3 FY 4FY 1 1

2 0 . 8

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A a a a i c s c c i i a cia s ic s i s i


In addition, MFS is even more vulnerable to cyber-attacks, given the involvement of multiple form factors as well as multiple user interfaces. Accordingly, extensive security

measures are necessary at each layer of data transit and storage, such as the m-wallet applications, multiple payment gateways and data centers.

Further, mobile device theft in itself is also a factor that can expose personal data to fraudulent activities. To combat this, both in-built protection features, such as password patterns and biometric scanning to lock phones, as well as add-on software are available to track mobile phones. In addition, many mobile insurance companies are now coming up with innovative offerings, which cover data and identity protection besides device protection.

Robust know-your-customer (KYC), AML and transaction authentication procedures remain a key focus to combat cyber threats

With the growing use of mobile payments and virtual currencies as an alternative to traditional banking, there is a significant need to clarify how regulations on pertinent grounds will be enforced on mobile and digital transactions. For instance, policies on KYC, AML and transaction authentication processes are some of the key areas where a robust, yet customer-friendly, approach is necessary to prevent cybercrimes.

Unlocking identity assurance through digital platforms

Many countries are revising their KYC policies by developing faster and more secure authentication systems to combat fraud. On its part, digitization of services has helped in online submission of KYC documents, which enables faster implementation of the procedures. For this, many financial institutions have incorporated changes in their KYC process to include mobile and digital channels of form submissions.

Going forward, mobile and other digital platforms will be increasingly used for proper identity assurance. For this, online identity verification services are expected to increase. In light of the continuing decentralization of authentication and payment functionality using multiple channels and form factors, robust standards for security and regulatory compliance are inevitable.

Newer ways of transaction authentication offer both security and user convenience

Globally, there is a significant thrust on secure procedures for transaction authentication. Techniques such as two-factor authentication are prevalent for most high-value transactions on online or mobile platforms. However, as consumers want more convenience and faster processing, many regulators and central banks are relaxing the norms for low-value money transfers and payments.

In view of changing consumer preferences and needs, organizations need to adapt to technological advancements and introduce new processes that help create a balance between user convenience and security aspects. For instance, in the near future, tokenization and biometric authentication are likely to have a strong impact on the digital payment industry:

• Tokenization helps secure credit card data, by substituting credit card numbers by tokens. The original number is securely stored on a tokenization server, and only the tokens are used during the payment process.

• For payment authentication, biometric processes such as voice recognition and finger scanners provide both security as well as user-convenience.

Dealing with the cybersecurity challenge: readiness is the key

In light of the challenges around cybersecurity, companies need to be proactive in prepping themselves for a potential threat. In most scenarios, companies neglect the initial signs of cyber breaches, which later amplify and have greater impact. It is important to be watchful of initial indications and take preventive steps by establishing appropriate systems and mechanisms.

Source: Financial Fraud Action UK

Losses due to internet and telephone banking fraud on a rise in the UK

In the UK, losses from internet and telephone banking fraud rose 59% to £35.9 million in the first six months of 2014. Among these, vishing attacks have been one of

the fastest growing types of fraud, which involve hoaxers calling the customer and posing as a bank or credit card security team to trick people out of their personal details.

Case

stu

dy


D ev eloping robust I T systems and regulatory compliance is a must f or companies

t on insi e e elo o ust s ste s an c e secu it i isions

• a i s a ca s c s si s s s a c ss s as as i ai

specialist staff to work in the area of cy bersecurity .

• a s i i a i s c i is cac i i i i c asi - -is s c i s i s ci a i i a

acc ss a a a as

• a i s s a a c ica a a c sand introduce new processes to ensure security and c i c i s a c i a i a ia i ic a ica i a i a a si ac i i a a i s

e ulato co liance ollo t e set ules to sa e ua o n sel

• ia c i a ica c -s cific a i sc i c -a ac s is a i a

• i s a c a i s i ia s c as AcA s a ia i i s

a i c i a A ifiAcc ss ic ic s a a s s a

a a s c i ac s

Source: news articles, EY analy sis

a nessin e ulato ui elines an c e secu it o t e o o tunit

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36 c i i fi a cia s ic s36 c i i fi a cia s ic s

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t e a o a a a i as a a a i s

a i a s c a i i i ss as is a i a i s s i isi s i is s s s a ia i i a sac s -s ic s si ss s i a aa s i ca s a a ics

a i a a i i a fi a cia s ic sas as i c i c - is i aa i a a ac a i s a s c sfi a cia i s i i s a s c a sa ic s i i a i i i ias cc ss ic as ac i s a

37c i i fi a cia s ic s 37c i i fi a cia s ic s

TelecommunicationsPrashant Singhal Global Telecommunications Sector Leader [email protected] Ernst & Young — India EYPL

Olivier Lemaire EMEIA Telecommunications Sector Leader [email protected] Ernst & Young — Luxembourg

Myhan Naidoo TMT Leader Africa [email protected] Ernst & Young — South Africa

Burgess S. Cooper Partner, Advisory, Risk [email protected] Ernst & Young — India EYPL

Sanjay Bachchani Partner, Assurance, Telecommunications [email protected] Ernst & Young — India EYPL

Mohit Prabhakar Partner, Risk, Telecommunications [email protected] Ernst & Young — India EYPL

William Delylle Executive Director, Advisory, TMT [email protected] Ernst & Young — United Kingdom

Ajay Bali Director, Risk, [email protected] Ernst & Young — Luxembourg

Joel Ghosalkar Director, Advisory, Telecommunications [email protected] Ernst & Young — India EYPL

Financial ServicesBill Schlich Global Banking & Capital Markets Leader [email protected] Ernst & Young — Canada

John Weisel Deputy Banking & Capital Markets Leader [email protected] Ernst & Young LLP United States

Jan Bellens Global Banking & Capital Markets Emerging Markets and Asia Pacific Leader [email protected] Ernst & Young - Singapore

Shaun Crawford Global Insurance Sector Leader [email protected] Ernst & Young — United Kingdom

Rohan Sachdev Global Insurance Emerging Markets Leader [email protected] Ernst & Young — India EYPL

Pierre Pilorge Advisory Partner, Banking & Capital Markets [email protected] Ernst & Young Advisory

Andrew Bates Financial Services Leader, Africa [email protected] Ernst & Young — United Kingdom

Steve Osei-Mensah Partner, Financial Services, Africa [email protected] Ernst & Young — Kenya

Susan Breytenbach Partner, FIDS, Africa [email protected] Ernst & Young — South Africa

James Gachihi Director, Banking Advisory, Africa [email protected] Ernst & Young — Kenya

Contacts


AcknowledgementEY Knowledge teamAdrian Baschnonga Global Lead Analyst, Telecommunications

Balakumar Rengaswamy Analyst, Banking & Capital Markets

Fadzayi M Musanhu Senior Analyst, Insurance

Li-May Chew Strategic Analyst, Global Banking & Capital Markets

Sachin Sharma Analyst, Banking & Capital Markets

Steven Lewis Market Developments & Insights Leader, Banking and Capital Markets

Swapnil Srivastava Global Knowledge Leader, Telecommunications

Swati Mahajan Analyst, Telecommunications

Yukti Mittal Analyst, Telecommunications

Connect with us at [email protected]


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