Presented by:

Sonja Oestmann, Director of Consulting

Four-country mobile money study for the IFC

Some key findings upfront• In developing countries m-money is an alternative to cash while in a developed

country m-money is a complement to existing e-payment options• Greatest opportunity for m-money is at stage where m-money provides an

alternative means to the traditional existing financial services; this is also where it has biggest development impact

• While there are also good opportunities in the developed world for NFC-enabled mobile phones (e.g., public transport, retail payments), there is stronger competition from the card industry

• M-money seems to require major economies of scale to be viable – either through dominant player or through interoperable platform

• We will show a model that situates each country on a development path & partnership model

• Progression of ideal business partnerships: MNO-centric Bank/MNO partnership Interoperability and multi-stakeholder collaboration

Overview of presentation• Objectives of study, context & key questions • Parameter analysis & qualitative research• Major money flows in m-money sub-markets• User and non-user survey findings• Business model analysis – required partnerships• Insights from Kenya & Japan – are they unique or

replicable developments?• Our hypothesis about m-money development paths

& needed partnerships

Guiding questions of study

Although a number of service providers

have emerged around the world, few have reached significant scale

Overall, m-money services are still

limited compared with their promise

of reaching the unbanked, servicing

existing banking clients, and fostering

a cashless society

What are key drivers for m-

money to develop? Why have some countries been successful in m-money adoption and others not?

How can we identify countries and markets with good m-money

potential? How can they supported to

take off?

How can m-money adoption be

accelerated? What business strategies

and partnership models?

Scope of the study

Regulatory environmentsAgent networks

Business models User survey findingsOpportunity analysis

Parameter analysis

Existing major money flows (demand outlook)

ThailandNigeria

BrazilSri Lanka

USAJapanKenya

Definitions

• m-money: Financial services and transactions made on a mobile phone only

• electronic money: A broader concept, refers to payments made using prepaid and NFC (contactless) cards, debit cards, loyalty cards, ATM cards, gift cards and store cards, incl. mobile phones

• M-money is a subset of e-money

What makes m-money distinct to credit or other payment cards?

• Phone is owned by more people• Is an interactive device• Allows remote, non-face-to-face

payment without an additional device (whereas a card requires the Internet or a phone for remote payment)

• Has other functions as well (e.g., communication) compared to a card’s key purpose as a money payment instrument

Understanding of m-money

Parameter analysis• Based on extensive literature

research, a total of 50 parameters were identified

• The parameters with the greatest impact on mobile money are: Regulation – assessed based on

Porteous’ regulatory environment model

Existing financial access – assessed based on ATMs, POS, debit and credit cards, and the size of the unbanked market

Existing mobile market situation – assessed on dominance of an operator and investment capacity

User perceptions – is there a need to use mobile money?

Socio-economic country context

Regulation

Existing financial access

Existing mobile market

Nature of retail sector

Quality, quantity & nature of payment systems

Pricing

User perceptions

8 key categories of parameters

Details of parameter analysisSocio-economic country context

Population/ Poverty Urbanization; Rural population;

GDP/capita; GDP by region Gini coefficient;

Geographic area Remittance flow

Regulation Clear & risk based regulatory framework

KYC Agent regulation ID system

MM license requirements Bank outsourcing Interoperability requirements Pricing restrictions on accounts

Obstacles to international remittances

Mandatory services banks must offer

Regulations on new branches Level of expensive requirements

Existing financial access

Reach of networks/agents Penetration/use of cards Penetration/use of prepaid cards Internet banking usage

Informal financial access Non-bank provision of financial services

Cash-electronic transaction ratio(use of cash)

Unbanked population

Competitiveness of banking industry

Existing mobile market situation

Population penetration/ coverage

Geographical coverage Level of competition 3G penetration/ usage

Churn Level of fragmentation of industry

Potential demand Bill payments Public transport Person-to-person Government-to-person

Business-to-business Credit and micro-credit International remittances Savings rateRetail sector Retailers with national coverage Level of fragmentation Postal network Other distribution

networks

Payment system POS terminal penetration

Mass payment acceptance

Dominant payment methods in the economy

Card Penetration

National switch/ Third party payment processors

Pricing Distortion through intervention/ regulation

Banking services pricing

User Perceptions Trust in mobile operators Willingness to pay Cultural factors

Enabling regulation

Op

enn

ess

high

low

highlow

Certainty

Enabling regulatory environment

2. Low certainty; High openness

4. Low certainty; Low openness

1. High certainty; High openness

3. High certainty; Low openness

Sri Lanka

Nigeria

Thailand

Brazil

Financial access indicatorsFinancial sector development indicators

Financial data Nigeria Sri Lanka Thailand Brazil

Banking penetration 21% 59% 80% 43%

POS per 1 mil. inhabitants 80 1,173 3,933 16,606

ATM per 1 mil. inhabitants 55 88 526 889

Payment cards per 1 mil. inhabitants 166,774 279,343 934,848 2,711,227

Existing mobile market situation

The mobile market parameter influences the mobile money sector mainly in two ways:

• The competitiveness and health of the sector basically determines the appetite and capacity of MNOs to invest in a m-money business

• The dominance of a single operator can be conducive to a m-money business, whereas a more competitive market needs to address the thorny issue of interoperability early on to create economies of scale

• However, uncompetitive mobile markets with strongly dominant operators are the exception rather than the rule

Mobile sector parameters

Country HHI Mobile coverage

Mobile penetration

Nigeria 3424 60% 51%

Sri Lanka 2851 90% 69%

Thailand 3411 97% 99%

Brazil 2527 91% 96%

Claro 26%

Oi 21%TIM

24%

Vivo 30%

BRAZIL: Market share of major mobile operators

46.4%

26.2%

24.1%

0.4% 3.0%

NIGERIA: Mobile Market Share

MTN

Globacom

Celtel

M-Tel

EMTS

Differentiation of m-money market opportunities

Potential m-money markets1. P2P transfers

2. Government-to-person (G2P) payments

3. Public transport payments

4. Bill payments to major utilities (e.g., electricity and water), postpaid mobile accounts, fixed phone subscribers, pay TV (cable and/or satellite)

5. Payroll payments from small companies in the informal sector

6. Retail payments

7. Business-to-business (B2B) payments

8. Credit and microfinance

9. International remittances

10. Savings

Illustrative example: Brazil

• P2P: 84% of pop. is urban

• G2P: 150 million payments a year, but MSD no incentive to switch

• Public transport: 16.8 billion trips in 2008, but depends on NFC-enabled phones

• Bill payment: efficient and cheap existing channels; 88% usage of correspondent banks is for bills

• Huge demand for retail credit, micro-finance from unbanked

Major money flows estimates (per month)

Public transport P2P Payroll (informal sector)

Utility payments G2P

Potential demand 264000000 0 4708418 6440168 1600000

25,000,000

75,000,000

125,000,000

175,000,000

225,000,000

275,000,000

Potential monthly transactions in key sectors - Sri Lanka

Public trans-port

P2P Payroll (infor-mal sector)

Utility pay-ments

G2P

Potential demand 58873333.3333333

0 20988000 13404916 646800

5,000,000

15,000,000

25,000,000

35,000,000

45,000,000

55,000,000

65,000,000

Potential monthly transactions in key sectors - Thailand

Public transport P2P Payroll/Informal Utility payments G2P

Potential demand 10000000 46252000 37821000 21650000 40000

2,500,000

7,500,000

12,500,000

17,500,000

22,500,000

27,500,000

32,500,000

37,500,000

42,500,000

47,500,000

Potential monthly transactions in key sectors - Nigeria

Publictransport P2P

Payroll(informalsector)

Utilitypayments G2P

Potential demand 1,421,900,00 48,081,050 164,311,579 16,666,667

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

1,400,000,000

1,600,000,000

Potential monthly transactions in key sectors - Brazil

Major money flows (Demand perspective)Summary of five quantified markets

Nigeria Sri Lanka Thailand Brazil USA Japan Kenya

G2P 40,000 1.52 mil 646,800 16.6 mil 4,5 mil 3,8 mil 60,000

P2P 46 mil Unknown Unknown Unknown 38 mil Unknown 14 mil

Payroll (informal sector)

37 mil 4,7 mil 21 mil 48 mil 11,3 mil 594,000 11,6 mil

Public transport 10 mil 264 mil 58 mil 1.4 bil 858 mil 2.3 bil 2,4 mil

Utilities 21,6 mil 6,4 mil 13 mil 164 mil 111 mil 80 mil 1,07 mil

Unbanked 46 mil 4,89 mil 5,87 mil Unknown 20,5 mil Very small 6,1 mil

E- payments Unknown 18,2 mil 35 mil Unknown 5.2 bil 472 mil Unknown

Survey findings – Diversity of use

Airtime r

echarg

e

Store

purchase

Airtime t

ransfe

r

Internet

purchase

Delive

ry purch

ase

Balance

Inquiry0%

10%

20%

30%

40%

50%

60%

70%

80%72% 70%

50%

5% 2% 1%

Brazil: M-money services used (Oi Paggo)

Fund transfer Airtime recharge Bill payment Purchasing Others0%

5%

10%

15%

20%

25%

30%

35%

40%36%

33%

16%

12%

3%

Thailand: M-money services used

e-Channeling

Bill paym

ent

Balance in

quiry

Airtime re

-load

Other

Purchasin

g

Fund transfe

r0%

5%

10%

15%

20%

25%

30% 27%

21%

16%14%

8% 7% 6%

Sri Lanka: M-money services used

Fund tr

ansfe

r

Balance

inquiry

Airtime r

echarg

e

Bill pay

ment

Internati

on. remitt

ance

Purchasi

ng

Cash w

ithdraw

alOth

er0%

10%

20%

30%

40%

50%

60%

70%

80% 76% 76% 74%

24% 21%14% 13%

19%

Nigeria: M-money services used

Survey findings – country comparisons

Nigeria Thailand Brazil

64%

65%

66%

67%

68%

69%

70%

71%

68%

70%

66%

Have you heard about mobile money? Yes

Nigeria Sri Lanka Thailand Brazil

0%

20%

40%

60%

80%

100%

120%

75%

90%

97%

57%

24%

9%

2%

13%

Where do you go to withdraw money? Users

ATM Bank teller

Nigeria Sri Lanka Thailand Brazil

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% 94%

70%

61%

27%

6%

29%

39%

27%

0% 1% 0%

Is mobile money cheaper than normal banking services? Users

Yes No Don't know

Nigeria Sri Lanka Thailand Brazil

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

65%

55%

90%

68%

35%

45%

6%

20%

Where to you go to withdraw money? Non-Users

ATM Bank teller

Survey findings – country comparisons

Cost saving Time saving 24 hour access Physical security Immediacy of fund transfer

0%

20%

40%

60%

80%

100%

120%

72%

96%92% 94%

90%

53%

96%90%

85%79%

54%

92%

79%73%

83%

Benefits of mobile money - Users

Nigeria Sri Lanka Thailand

M-money Bank teller ATM Internet

0%

10%

20%

30%

40%

50%

60%

70%

17%

53%

2%

19%

7%

63%

14% 13%

18%

12%

54%

16%

29%

24%

2%

44%

How do you transfer money? Users

Nigeria Sri Lanka Thailand Brazil

Security from fraud Safe transactions with feedbank on transfer

Wide acceptance of mobile money

More locations to cash-out money

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

85% 85% 82% 85%82%89% 91%

84%

64% 66%

54%58%

27%

37%

27%

47%

What factors would encourage you to use mobile money? Non Users

Nigeria Sri Lanka Thailand Brazil

Bank teller ATM Internet Other

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

79%

8%3%

9%

51%47%

1% 0%

18%

68%

10%

1%

26%23%

0%

25%

How do you transfer money? Non-Users

Nigeria Sri Lanka Thailand Brazil

Business models – key questions• Which players have the clearest and strongest incentive to develop

m-money services?

• What is the main value proposition for potential clients: lower-cost services; better, more convenient, and different services; or targeting services to a specific group, for example the unbanked or rural population?

• What is possible in each country, in terms of the following: Regulation. Is the most incentivized player also allowed to provide m-

money services? Demand. Is the market large enough to warrant the cost and investment

of establishing an m-money service? Partnership requirements. Can the incentivized player establish an m-

money service by itself or does it need major partnerships?

Business modelsOverview of business model elements among the four main m-money providers

Business Model Elements eTranzact, Nigeria Dialog, Sri Lanka TrueMoney, Thailand Oi Paggo, Brazil

Business Objective Private payment switch that provides back office processing for electronic transfers through a variety of channels

Dialog – reduce distribution costs and bring new revenue streams

Ensure profitability and pass off fixed costs to merchants

Achieve profitability Secondary objective:

increase telecom business – e.g., top-up increased by 30% among Oi Paggo users

Strategy Focus on increasing mobile payments transactions through using more agents.

Focus on maintaining variable costs and variable revenues (other than marketing costs) though there are high acquisition costs because of SIM swap.

Focus on increasing efficiency within the True Corporation group of companies

Create a partnership with major bank/ player

Once partnered with a bank, offer additional services, such as P2P and prepaid e-wallets

Target market All mobile phone users. Ultimately all Dialog and NDB customers. Ideally need 100,000 customers to break even.

Target market is anyone that pays a bill.

Up to 35 years, both male and females,

Demand is the same as the credit card market

Model / partners Model: Collaboration model

Recommended partners: MNOs and Banks

Model: Bank-centric Recommended

partners: Banks (other than only NDB Bank)

Model: MNO-centric Recommended

partners: Banks

Model: MNO-centric (current model)

Recommended partners: Banks, payment providers

Opportunity analysisOpportunity analysis summary

Potential markets Nigeria Sri Lanka Thailand Brazil

Bill payments

Public transport

P2P transfers

G2P

Payroll (informal market)

B2B, B2C or B2Employees

Credit & micro-finance

Remittances (international)

Significant & unrealised opportunity Unlikely to be any m-money opportunity

Potential opportunity, but challenging

Summary of methodology• Parameter analysis: • Regulation, existing financial access & user needs, mobile

market, m-money acceptance network

• Major money flows, economies of scale (quantitative)• Which m-money sub-market? Value proposition, existing

alternatives and competition (qualitative)

• Are the main players incentivized & interested? • Can they recruit the partners they need? • Can they create a joint business case/ revenue share?

Opportunity? Yes/ No/ Maybe

Insights from other countries• Why Kenya, Japan and the USA?

• Kenya is the most successful m-money developing country • Japan is the most successful m-money developed country• The USA has been added as a known reference point

• Will developments in these countries become trends in the four developing and emerging market countries that we studied?

• This also helps to orient the four countries into the wider context of developments in the m-money space.

Key metrics for m-money in Kenya and Japan

GDP per capita (USD)

Value of m-money

transactions (billions,

USD)

m-money as % of GDP

m-money customers

Number of transactions

Ave. value of transaction

(USD)

Japan 38,271 2.90 0.05% 18,500,000 267,840,000 9

Kenya 859 4.26 13.33% 9,483,408 177,688,005 24

Kenya – Key drivers• Overview

Over 9.4 million customers, over 18,000 agents, USD 5.27 billion in P2P transfers since launch in 2007, over 13% of the Kenyan GDP was transferred by M-PESA.

• Dominant mobile operator When M-PESA was launched in 2007, Safaricom had

over 70% of the mobile market in Kenya. This allowed it to launch the service quickly to a large

subscriber base. This had enormous benefits in terms of marketing and economies of scale.

The impact of M-PESA on Safaricom has been to consolidate its position as the dominant operator in Kenya.

• Regulatory environment While banks are tightly regulated, non-banks have been

allowed to enter the m-money space relatively freely, with little regulatory oversight. Non banks are permitted to perform various payment functions virtually unregulated

• Changing demand M-PESA is increasingly being used as the platform for a

whole range of services that would, in a developed country, be provided by banks.

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000MPESA subscribers

Public trans-port

P2P Payroll (in-formal sec-

tor)

Utility pay-ments

G2P

Potential demand 2450000 9483408 11610000 1075038 60000

1,000,000

3,000,000

5,000,000

7,000,000

9,000,000

11,000,000

13,000,000

Potential monthly transactions in key sectors - Kenya

Japan – Key drivers• Overview

Electronic money is highly advanced. Japan has the most widespread use of e-money, with the largest number of subscribers.

• Dominant service providers Like Kenya, the Japanese mobile sector

has been dominated by a single operator, NTT DoCoMo. Its market share has been 50% or greater for a number of years.

The development of e-money and specifically the FeliCa NFC standard (a proprietary standard owned by Sony) was driven by dominant players in each segment of the value chain.

• Population density High population density meant that

many workers take public transport in order to get to work.

Public transport

P2P Payroll (In-formal sec-

tor)

Utility payments

G2P

Potential de-mand

2273326416.66667

0 594000 80365315 3840000

250,000,000

750,000,000

1,250,000,000

1,750,000,000

2,250,000,000

Potential monthly transactions in key sectors - Japan

Unknown

• Role of government Japanese government played a significant role

in bringing the private sector players together. The Japanese Government, via its shareholding in NTT, owns 63.12% of NTT DoCoMo and only sold its shares in Japan Railways East in 2006.

Common drivers in Kenya & Japan Dominant players: Both countries have dominant players that were able to capture a large market

share; in the case of Japan, the dominance includes not only the mobile operator, but also the dominance throughout the value chain: exclusivity of proprietary NFC technology, and dominance through the leading credit-card company in Asia, JCB, and the East Japan Railways, which is the dominant player for public transport in and around Tokyo.

Massive addressable markets: 2.3 billion monthly transactions for public transport in Japan (compared to 858 million in the USA and very fragmented); while the numbers for Kenya are much smaller – 14.4 million unbanked adults – they are massive compared to the overall country: 14.4 million unbanked adults represent 77.4% of all adults in the country.

Helpful regulatory situation: in both countries regulation does not hinder m-money developments; in Japan there were some government support: the Japanese Government, via its shareholding in NTT, owns 63.12% of NTT DoCoMo and only sold its shares in Japan Railways East in 2006. It was supportive of the move towards NFC as a standard technology for payments.

Single killer application: Initially P2P in Kenya and public transport in Japan, which then allowed the addition of other services.

Large acceptance network for m-money: M-PESA in Kenya has more than 18,000 agents, which it was able to establish fairly quickly; and with East Japan Railways a sizeable acceptance network used by a large proportion of inhabitants of Tokyo and surrounds. Tokyo is the largest city in the world with over 35 million inhabitants.

USA – M-money vs e-payment• In comparison to both Japan

and Kenya, the penetration of m-money is insignificant.

• However, in terms of electronic payment instruments and including debit and credit cards, the USA is one of the most advanced economies in the world.

• The mobile market in the USA was historically a fragmented and diverse market, spread across a large geographic area

Public trans-port

P2P Payroll (In-formal sec-

tor)

Utility pay-ments

G2P

Potential de-mand

858000000 38000000 11338400 111000000 4530451

50,000,000

150,000,000

250,000,000

350,000,000

450,000,000

550,000,000

650,000,000

750,000,000

850,000,000

950,000,000

Potential monthly transactions in key sec-tors - USA

• Replicability"The current U.S. model cobbles together the existing infrastructures of mobile operators, the bank network, and payment service providers. The challenge is that there are many alternative payment methods and no differentiating factors or obvious substantial benefits that consumers can see yet from mobile payments" .

Best partnerships & strategies

CSingle platform (collaboration

between multiple players – seamless

interoperability

AMNO-centric

BCollaboration

between MNO & Bank

Innovation & differentiation

Cost leadership Segmentation

Increasing financial sector development

Hypothesis of progressive development of the MNO-centric model: • Business models evolve – an

analysis of the competitive environment must be dynamic, not static;

• M-money ventures are linked to certain stages of financial development:

• MNO-centric: Kenya & Nigeria;

• Collaboration between MNO & Bank: Sri Lanka & Thailand;

• Single Platform: Brazil, USA and Japan

M-money demand curves

Rel

ativ

e d

eman

d f

or

low

co

st, l

ow

sp

eed

, in

freq

uen

t tr

ansa

ctio

ns

high

low

highlowLevel of Infrastructure Development

Mobile Money Demand Curves

MNOs Banks Multiple partnersPLAYERS

Thailand

Nigeria

Developed economies

Brazil

Sri Lanka

ALTERNATIVE INFRASTRUCTURE TRANSITION PHASE COLLABORATION

Relative d

eman

d h

igh

speed

, hig

h

volu

me tran

saction

s

Developing economies

USA

Japan

Kenya

• Orange curve is m-money demand in developing economies - for low-cost, low-speed, infrequent transactions, such as P2P transfers.

• The orange curve becomes dotted because demand changes from low-cost, low-speed, and infrequent to high-speed and high-volume as represented by the blue curve.

• The Blue curve starts off dotted because developed countries already have substantial financial infrastructure, thus demand for low- cost, low-speed, infrequent transactions is low.

Thank youQ&A

Sonja Oestmannsoestmann@inteleconresearch.com

http://tinyurl.com/87zdeyv