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White Paper

Author – Richard Morecroft

Ooredoo Mobile Money Project

Date: 1st September 2013

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EXECUTIVE SUMMARY

WHY MOBILE MONEY? - RESEARCH AND BENCHMARKS

THE PROJECT – FROM GREEN LIGHT TO LAUNCH

PRODUCT

TECHNOLOGY

SUMMARY OF PROJECT

ADDENDUM: PERFORMANCE POST LAUNCH CHANGES

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4

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11

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TABLE OF CONTENTS

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Mobile Money is a term used to describe many different businesses. For the purposes of this document, Mobile Money is defined as a service, which allows one customer, to transfer money to others including banks, cash desks and other Mobile Money accounts. This scope can also expand to services for purchasing top-ups, paying bills and buying goods.

The benefits of Mobile Money, in particular Mobile Money Transfer (MMT), are clear when deployed into markets and economies with a heavy reliance on cash. Across Africa the Mobile Money industry has grown rapidly due to a number of factors including limited banking penetration, large geography, emerging regulation and the domination of cash in economics.

Qatar has a forward thinking Central Bank (QCB) who are actively supporting “e” and “m” banking initiatives and the country has a well-established banking infrastructure for the mid to high income residents and workers. The population is very diverse with about half comprising of SE Asian immigrant blue-collar workforce who do not have access to financial services. These “unbanked” workers cannot be effectively served by the existing bank infrastructure so cash is still dominant. Earning around $300 a month, workers send most of their money back to their families through a well-established network of Cash Desks and Exchange Houses who offer remittance services including Western Union, Express Money and links direct to banks across Asia and the globe. These services are located across the country and the market is relatively competitive.

In 2010, Ooredoo Qatar (OQ) (at the time called Qtel), launched a project to deploy Mobile Money services in Qatar and across the Ooredoo Group. The initial focus was to provide simple and convenient remittance and top-up services to the low income workers. Through partnering with Qatar National Bank (QNB), combining the existing Telco network and a new group Mobile Money technology, services were developed to bring the convenience of electronic banking services to everyone through a simple ubiquitous interface like Unstructured Supplementary Service Data (USSD) and following the QCB regulation. In Nov 2011, the service was launched with two remittance corridors to Philippines and Pakistan. This document details the Why, What and How of the project end to end including its performance to date and developments and changes since going live.

EXECUTIVE SUMMARY

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Throughout the development of the Ooredoo Qatar (OQ) Mobile Money strategy, research and benchmarks were used to ensure the project was a success. A number of Mobile Money deployments across the globe were used; the most well-known was Safaricom M-Pesa in Kenya.

a. Proving the opportunity – Safaricom launches M-Pesa

The story of M-Pesa started in 2003 and continues today. The rationale for the project was rooted in necessity for the population to move money quickly, securely and across great distances (domestic) and directly to another person. Before M-Pesa was deployed this was not easy, cash was moved by people and was slow, not to mention very risky. The operating model Safaricom developed focused on moving cash instantly from one M-Pesa account to another with deposits and withdrawals handled by appointed agents (many of whom were already selling Safaricom services). Agents received a commission for this cash handling; the flow can be seen in Diagram 1. They chose a technical solution based on USSD that provides a session-based communication directly between the handset and the M-Pesa account.

Commissions in M-Pesa range from $0.3 to $3 depending on the amount sent. This commission was shared across the ecosystem and ensured a secure, fast and reliable service.

Cash (including commission)

e-Money e-Money

e-Moneye-Money

e-Money

Cash (aftercharging commission)

Cash (aftercharging commission)

Customer A

Customer B Agent 2

M-PESAAccount

Agent 1

1. WHY MOBILE MONEY? - RESEARCH AND BENCHMARKS

Diagram 1 – M-Pesa Operating Model

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b. Why is M-Pesa relevant to Ooredoo Qatar?

M-Pesa and Safaricom proved that the Telco network and ecosystem could be adapted to deploy a Mobile Money services. It proved a Telco’s agents and network are a huge asset that, with the correct economic structure, could extend the reach and convenience of a Mobile Money service.

Today, 10 years later, M-Pesa;

• has 15m customers (78% of the Safaricom base)• has reduced churn by over 10% • delivers over $200m in direct revenues (16% of total) • customers have 4% higher ARPU for voice services.

This combination of facts, whilst taking 10 years to achieve, is compelling and proves the need for OQ and its sister Opcos to focus on such services.

Ooredoo Group (OG) companies have varied demands for moving money domestically but the M-Pesa operating model is also very similar to that used in international remittance, which is widely used by customers in all geographies. This fact opens up the opportunity to all Opcos and was to be the core service that could be offered in OQ.

c. The Global Remittance Market

The remittance markets across OG has a wide variety of needs, some mainly domestic (Indonesia), others see a predominance of cash outflow (GCC) but all can benefit from Mobile Money.

During 2012E–15F, the World Bank states that formal global remittance flow is expected to increase at a CAGR of 8.7% and reach $685bn in 2015 (Diag 2). This growth is expected to be fuelled by the increase of Money Transfer Operators (MTO) like Ooredoo and the reducing use of informal channels.

Developed Countries

Developing Countries

2009 2010 2011 2012E 2013F 2014F 2015F

119

316

120133

128

342380 406 437 481 533

133142

152

Diagram 2- Global Remittance Flow ($ bn) (2009–15F)

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d. Informal Channels

Informal channels (e.g.Hawala), similar to those used in Kenya before M-Pesa, are the main opportunity for growth of MTOs globally. During a recent Goldman Sachs presentation, it was estimated that informal channels still hold nearly 40% of global remittance (Diagram 3).

Informal Channels

Western Union

Banks

MoneyGram

Sigue, Coinstar, Omnex, Intermex, LaNacional

DolEX

Veloz

Ria

Other Formal Channels

39.9%

16.1%

24.0%

9.0%4.1%

3.0%1.9%

1.0%1.0%

e. The Remittance Market in Qatar

For Qatar, in 2010 the World Bank stated that between 2005 and 2010 Qatar workers sent $30bn home and estimated it would reach $10.7bn in 2011 with most money going to Asia (Diagram 4) and MTOs handling 57%. More recently in April 2013, the Qatar Chamber reported that since 2006, foreign workers have remitted $60bn home with 54% to Asia and 28% to Arab nations. This jump to from $41bn to $60bn in just 2 years indicated a significant acceleration and is reflective of the rapid growth of the Qatar market.

OthersEuropeAmericaArab CountriesAsian Countries

Other Asian Countries

India Nepal PhilippinesBangladesh Sri Lanka IranPakistan Thailand South Korea

4.6%

46.8%

26.3%

14.3%

8.1%

47.8%

15.1%11.0%9.5%

4.7%4.7%

3.8% 2.5% 0.5%0.3%

Diagram 3 - Global Remittance Market Share by Revenue (2011) – Source Goldman Sachs

Diagram 4 – Main Destinations of Remittance Flows from Qatar1 (2009)

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f. Research and Benchmark – Summary

The facts and findings presented above illustrated that a remittance focused Mobile Money service in Qatar was a viable business. Even if the market share is small, the size of the market returns should provide increased profit and reduced costs of acquisition for OQ. Additionally, M-Pesa demonstrated the operating model and technology is robust and secure. In balance to this, M-Pesa and other deployments also highlighted that acquiring customers and educating them was a difficult and lengthy process. Most deployments in Africa took over 5 years to give large returns. The Ooredoo Mobile Money Business will therefore take time to grow but the research and benchmarks indicated it would be of significant value.

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The Chairman of OQ, Sheikh Abdullah Bin Mohammed Bin Saud Al-Thani was big supporter of launching a Mobile Money in OG. This “top down” support and focus was paramount to both the successful establishment of the OQ project team and the executive stakeholder engagement. A governance and responsibilities matrix involving all the senior executives was established. This included establishing a project budget and control. This cohesive and comprehensive project structure was the backbone of the project. It enabled the core delivery team to focus on the requirements, plan and action to launch. The use of contractors was very important in the early days of the project as most had worked in high-pressure environments.

From the onset, it was agreed OG was to be responsible for the selection and procurement of the group technology/service platform that would provide the Mobile Money services and products to Opcos across the group with the costs of purchase/operations then to be shared. All Opco specific development, customization and operations would then either be sourced directly by the Opco or the costs passed down directly from OG. This gave enough flexibility for each Opco to customize and develop the services relevant to their individual market, whether that be a customer or regulatory requirement. Once procured the group functioned in 3 main areas:

• mWallet platform – hosting and technical operations (support and maintenance)• Anti Money Laundering (AML)/Blacklisting – service for monitoring and profiling of customers/

transactions• Connection and integration to remittance partners – initially Belgacom International Carrier

Services (BICS)

All remaining technical and commercial development was to be the responsibility of the project team.

a. Business Model

The functional business model for Ooredoo Mobile Money (OMM) was based on three main principles (diagram 5):

• Make it free and easy for customers to put funds into the wallet• Generate revenue and cost saving from services within the wallet – e.g. top-up, merchant payments• Charge customers to withdraw or transfer funds

Mobile Payments

Top-up

Transfer

Payment Consumer

Merchant

Cash In

Cash Out

International Remittance

2. THE PROJECT – FROM GREEN LIGHT TO LAUNCH

Diagram 5 – Functional Flow

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b. Partnerships and Value Chain

The correct partner (and the right mix) is extremely important for a successful launch. The model had to be sustainable for our partners and suppliers and it was important to focus on the value and where it was in the entire chain. Involvement of senior and specialist management was very important as this area carried legal and financial risk to OG.

c. Banks

The regulatory environment in Qatar was such that we needed to partner with a bank to deliver a compliant service. QNB was approached and a collaboration was agreed to service this unbanked market. The partnership was mutually beneficial as our target market demographic did not overlap and QNB was interested to expand into new services. The partnership meant QNB would extend their banking license (issued by QCB) to Ooredoo under the following terms:

• Ooredoo was responsible to QNB for all regulatory controlled matters or policy including reporting, Know Your Customer (KYC), blacklisting, Anti Money Laundering (AML), international remittance settlement and providing an independent annual audit.

• The OMM customer is contracting with Ooredoo for the service and all operations to support this must be owned by OQ.

• QNB would receive fees or a share of revenue in return for the above.• OMM services would restrict customers’ balance and remittance transactions below $3000 per

day thereby limiting potential AML or fraud problems.

This split of roles and responsibilities was discussed with QCB and a clear approval process for regulatory issues was established. That said, for OMM to be successful, compliance would always be balanced with risk. The risk was low for any money laundering when low limits and extensive controls were designed into OMM service. With this in mind, all product specifications and limits were also to be agreed with QNB.

This bank/telco partnership structure was developed to ensure both parties remain engaged in the value chain and keep a vested interest in making the business compliant, efficient. Mostly importantly, it supports a joint approach to growth and development. Additionally, both OQ and QNB took a sensible and proactive approach to compliance (or specifically the risk of non-compliance). This collaborative approach proved to be significant after launch.

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These complex contractual and technical deployment situations further demonstrated the importance of selecting the right mix of partners to ensure value was shared and the business development and growth continued as planned.

e. Investment

Investing money, time and effort in the technology, contracts, partners and ecosystem was critical to ensure the business model was robust and supportive of all entities involved. In addition to this, investment in human capital and resources was needed to continually learn from customers. To this end, the business model assumed significant investment to perpetuate a continual exercise of focusing on delivering better customer experience, more value or increased efficiency. The business case therefore assumed a slower return that most Telco’s would normally expect.

d. Remittance Partners

The selection of remittance network partners was performed by OG and BICS was selected. eServeGlobal provided the technology for linking BICS to banks and Telco’s across the world. During the project only 2 country corridors were available for service, but a significant roadmap of new countries, banks and Telcos were on the roadmap. The integration of eServeGlobal was performed by OG directly to the mWallet platform so all Opcos could use the BICS corridors. Due to the tight regulatory requirements of the service, OQ was required to contract directly with BICS to utilize the remittance corridors and a tri-party agreement including QNB was necessary to facilitate risk free settlement of remitted funds.

The OG strategy for remittance corridors was to connect all Opcos directly to OG wallet through the group platform (intra group), build on group connected hub deployments like BICS (extra group) and expand into other channels to reach the rest of the world. This strategy was developed to maximise the reach and connectivity to other Mobile Wallet deployments globally (diagram 6).

Countries represent corridors. It is possible to have up to three routes to remit to a corridor. Each route has a different cost structure and within the route there may be multiple termination points each having it’s own cost structure…

Iraq

Kuwait

Indonesia

India

Pakistan

Philippines

etc

International Remittance

Intra Group Hub

Ooredoo

RoW

Agent

Bank

Mobile Wallet

Extra Group Hub

Ooredoo

Non Group Hub

Diagram 6 – OG group remittance partner strategy

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The project team philosophy and approach was to develop a roadmap of services starting with a simple core baseline set of products and services focused on remittance, top-up and local transfer. The deposit and withdrawal of money from the mWallet (account) was to be as easy as possible with the minimum of cost and use electronic mechanisms where possible including the OQ nationwide network of Self Service Machines (SSM). The removal of humans from processes was paramount to minimize mistakes and the opportunity for fraud. Since the deployment of M-Pesa had been so successful, USSD was chosen as the customer interface.

a. Setting a baseline

This baseline and the supporting processes and services were coined as our Minimum Launch Requirement (MLR). There were a number of non-essential features which we prioritized as a desired requirement, but which would not stop a launch if not delivered, this was known as Target Launch Requirements (TLR).

The MLR requirements covered all aspects of the business but the core mWallet functions were to be:

• Cash in – through SSM• Cash out - manual via Ooredoo Shops• Top-up - automated• Remittance – 2 countries Pakistan (Habib Bank) and Philippines (Globe)• Person to person transfer

b. Prioritiseandbeflexible

More features could have been prioritized, but it was important that we took a progressive and ordered approach to reduce development/test time and minimize customer confusion. Mobile Money services and non-traditional banking are new in many countries (especially in developing countries) and we intended to help customers learn about it and understand how they could benefit. We have since proven that service awareness and understanding are two basic enablers of mobile money adoption.

The deployment and launch readiness of the project was a multi stage process including internal testing, pilot, penetration testing and finally securing QCB approval to launch. This multi-step, multi-discipline process was to ensure the service was reliable and robust. Of course no new service goes live without bugs and issues, and this was also the case with OMM. As volumes increased so did the bugs, but the project and technology teams continued to focus on fine tuning settings or timers to ensure the customer had the best possible experience. To date, the platform has very few faults or problems, which again proves the operating model and technology to be suitable.

TLR features which have since launched mainly focused on improving accessibility or convenience and include card less cash out from QNB ATM’s and payment of OG phone bills. These features further illustrate the robust nature of the telco network when deploying this kind of service and both have proven very reliable.

3. PRODUCT

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c. Operations

The project team had initially focused on the partnerships, product and service which would define the customer offering. With this requirement set, attention could be given to the comprehensive operational, process and support functions, which needed to be built from scratch. This was probably the most significant and difficult work stream in the project.

d. Process

The team devised and documented over 50 brand new business processes including;• front office (account operations, KYC, retail and contact centre), • back office (cash management, settlement/reporting, accounting) • revenue assurance/fraud

This was a significant undertaking with little or no templates or benchmarking widely available. The team focused on building robust but flexible processes which have so far stood the test of time and required little change.

e. AML/Compliance

As part of OG platform, AML and Blacklisting monitoring/filtering was provided by Eastnets in Dubai. This service was provided through a software platform that was to be configured and operated by the OQ AML and compliance team which had to be recruited specifically for the task. Ongoing compliance requirements were also established including the appointment of a QNB approved Compliance Officer in OQ. As OQ didn’t have a compliance function like a bank, the AML and Compliance team required a hard reporting line to the OQ Compliance Officer and a dotted line to the Head of Mobile Money.

KYC and data protection processes needed to be robust to ensure regulatory compliance and consumer privacy. Establishing clear and documented processes with partners and QNB was paramount. Once the consumer was screened, it was equally important to keep all the information confidential as per Qatari laws. According to QCB policy, the OMM services may not be provided to non-residents of Qatar so KYC proof documentation was limited to the Qatar National ID card. This was used/copied in each mWallet registration and the details kept as per archive requirements.

f. Contact Centre and Retail

Due to the specialist nature of the OMM service, a separate contact centre team was established. This team was especially trained on AML, Fraud and Compliance including supporting customers through the use of the bespoke Customer Service Tool (CST). CST was also used for customer support and registration in retail. CST was part of the MLR requirements at launch with many hygiene and improvement features being part of TLR (since deployed).

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g. Summary

With the exception of the AML and Compliance team, Operations were established using existing skills sets from across OQ. There have been many developments since the launch and establishing and fine tuning processes more like those in a bank has been a huge learning curve for the project and business team. The operational processes and functions have potentially significant impact on the Ooredoo brand image, goodwill and could precipitant further legal and financial risk to the company. For this reason significant redundancy and authority rules have been designed into processes, functions and system to ensure no single person could significantly defraud or damage the company reputation.

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Similar to the Safaricom’s M-Pesa, the target market for OMM uses mainly low cost/tech handsets which provide them with simple voice and SMS services. The choice to use USSD was therefore relatively straightforward. Other options included SMS messaging and SIM Tool Kit (STK), but these were discounted due to the security concerns of SMS and a slow and costly SIM swap for STK.

The OG platform was hosted in Dubai with a disaster recovery site in Bahrain thereby ensuring 100% availability of the platform. The OG and OQ technology teams connected the mWallet platform to a central middleware in OQ called TIBCO. This single connection meant the mWallet could transact with all OQ systems including onward connectivity to QNB for QCB reporting and future services.

This technology architecture meant that one connection would provide for all future services including payments and onward connection to partners in Qatar (Diagram 7).

4. TECHNOLOGY

Sybase mWallet

BICS Intl Remittance Hub

AML CFT

Peering Partner Hubs

ING Bank (Settlement Account) Peering MNOs Intl Banking

Merchants

Distribution Partners

OpCo Banks (Trust Account)

Mobile Money Platform

IVR

OpCo

MNO

IN

SMS

USSD

WAP

IVR

Agents

Systems & Actors

Peering MNO Banks

Peering MNO Agents/DPs

Diagram 7 – Technology Architecture

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Mobile financial services can only prosper when all parties, banks, mobile operators, and third-party providers, work together in an open way that is flexible and puts everyone in the value chain that allows everyone to contribute their core competencies and build an inter-operable ecosystem. The project was supported by research and benchmarking, and established the correct type and mix of partnerships which ensured all parties had a vested interest in the outcome. The OMM Project delivered the partnership and ecosystem in a very short space of time due to the quality and nature of execution.

5. SUMMARY OF PROJECT

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80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Mini Wallet

0.4 0.5 1 1 2 36 7

15

26

42

70

a. Slow Registration

Ooredoo had been active (as Qtel) for many years and as such their marketing channels were very similar to other Telcos in GGC at the time of launch. Traditional channels of press, web and SMS were used to promote the OMM service to the customer base, but these proved ineffective to the multi-language target customer base. The process of registration - mandated to be in Ooredoo shops and performed by Ooredoo staff - also proved ineffective with less than 5,000 customers signing up in the first 6 months.

Because of this, a significant campaign of lobbying and negotiation was undertaken with QNB and QCB to develop an easier, faster way to register for OMM. The OMM team proposed a new type of mWallet where the limits for all transaction were significantly reduced in return for a reduction in KYC diligence. The OMM team proposed to use the customer information gathered when purchasing a Ooredoo SIM as the KYC and checking its validity through USSD with the customer.

This proposal was accepted by QCB and in Sept 2012 OMM launched “Mini Wallet”. Registrations grew rapidly from that point as seen in Diagram 8 below.

b. Market Appeal

As part of OG remittance strategy, BICS had showcased a roadmap that showed a significant number of new corridors to be connected to the platform during late 2011 and through 2012. This roadmap did not materialize. In order for OQ to expand and appeal to all nationalities, addressing this failing was paramount to success. A number of new partners were approached with the focus on those that had a recognizable brand and a large number of corridors and countries. After a lengthy analysis phase including the scoping of technical development required a new partner was selected by OQ and in July 2012 OQ signed a contract with MoneyGram.

The partnership with MoneyGram is complimentary to OQ in bringing remittance to the mobile. The business provides cash to cash services to 193 countries across the globe with over 300,000 agent locations. This partnership was the first of its kind and with MoneyGram leading the development of new mobile focused remittance.

ADDENDUM: PERFORMANCE POST LAUNCH CHANGES

Diagram 8 – OMM registrations in 2012 showing launch of Mini Wallet and MoneyGram (‘000)

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c. Marketing Activity – Face to Face

Since the launch of Mini Wallet and MG, the business has picked up. The OMM marketing strategy has now switched focus to events, field marketing and face-to-face engagement of the customers. This facilitates easy education of customers about the benefits of OMM, the communication can be done in their native language which helps significantly as a large proportion of the blue collar workers have difficulty reading. The marketing campaigns have been made a little more complicated and infrequent due to the rebranding of Qtel to Ooredoo but since this has been completed the marketing materials and events are now planned for the rest of 2013.

d. NFC – The Launch of NFC SIM’s

In January 2012 we formed a joint project with QNB, Mastercard and Oberthur to launch Near Field Communication (NFC) credit card and payment solution. This solution was launched in March 2012 and was the first of its kind in Qatar and offered a NFC SIM for customers with NFC enabled phones. This allowed QNB account holders to perform contactless and pinless transactions on Mastercard point of sale (POS) machines by simply touching their phone on the POS terminal. The technology and processes were deployed in record time. This solution further proved the value of joint development between a bank and the Telco industry. NFC/POS solutions will be deployed for OMM wallets in the future to facilitate payments, ticketing and access control.