Aníbal Bustillo,Aníbal Bustillo,Armando MaldonadoArmando Maldonado

Mobile Money for the Unbanked: New Business Model Adoption

Depto. Acad. de Sistemas Digitales - ITAM Depto. Acad. de Sistemas Digitales - ITAM armando@itam.mxarmando@itam.mx

December 9December 9thth 2010 2010

Cartes 2010Cartes 2010

Payment in Payment in

Emerging Emerging

Countries C12Countries C12

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1

2

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Technomadic Interactive SCTechnomadic Interactive SCanibalbustillo@tecnomada.netanibalbustillo@tecnomada.net

1. Introduction

2. Financial Inclusion in Mexico

3. New Business Model for Mobile Money and Unbanked People

4.Conclusions

Agenda

Financial services Mexico reaches less than 25% of total population and have presense in less than 38% of municipalities.

Despite of the crisis, banks in Mexico had profits US $4.9 B in 2009. 11% increase over 2008.

Traditional methods that focus on expanding banking infrastructure have proven to be insufficient.

The payment of US $20 B in international remittances and US $10.6 B in G2P, have significant costs that can be reduced through the introduction of new business models.

Introduction

Total Population– Saving accounts – 25%– Debit accounts – 36%– Credit card – 17%– Personal credit – 11%

Economically Active Population– Government Financial programs – 15%– Development banks – 13%– Lack any type of financial service – 35%

The informal sector employs 30% of the available work force

Financial Inclusion in Mexico

Source: CNBV, Reporte de Inclusión Financiera de diciembre 2009

• 36% of total population is located in rural zones

Rural: <= 5,000 inhabitantsTransition: > 5,000 <= 15,000 inhabitantsSemi-urban: >15,000 <= 50,000 inhabitantsUrban: >50,000 <= 300,000Semi-metropoli: >300,000 < 1 million inhabitantsMetropoli: >1 million inhabitants

Rural 732 705 96% 694 95%

Transistion 678 537 79% 520 77%

Semi-urban 662 317 48% 297 45%

Urban 312 24 8% 35 11%

Semi-metropoli 61 1 2% 1 2%

Metropoli 11 0 0% 0 0%

TOTAL 2,456 1,584 64% 1547 63%

%Municipality type # of municipalitiesMunicipalitiesw/o branches

%Municipalities w/o ATMs

Financial Services Coverage

Until 1993, banks could use agents to deliver a variety of services. The outsourcing was subject to CNBV’s supervision and the bank was held responsible for the agent’s acts.

From 1993 until early 2008 banks were prohibited from using agents. In December 2008, the CNBV amended the Basic Banking Circular to allow

Credit Institutions (banks and other fully licensed institutions) to hire legal entities and individuals to deliver an array of services (including remittances).

Despite of the new regulation, financial Inclusion penetration rate has not been significantly increased since then.

A new business model is needed for the unbanked and inhabitants of municipalities without financial services coverage.

Non-bank branchless model, can play a key role in reducing the financial inclusion gap.

Government leaded strategy is needed to increase financial inclusion

Use of Agents by Licensed Financial Institutions -- Outcomes

Second Bank Privatization Period

Western Union

Branch

Travel (t,$)

Buy goods

Return(t,$)

Final destination

•Very low economical activity•Emigration to US•Family desintegration•Ghost towns

Investment in financially viable enterprises that maximize social returns

Government leaded strategy to increase financial inclusion

•Incrementing Financial inclusion rate, will directly benefit municipalities with less than 50,000 inhabitants. •They no longer need to pay for transport costs to urban centers, where most of the money transfer services are located.

A business model describes the rationale of how an organization creates, delivers, and captures value.

Business Model – Definition

Value Propositions

(2)

Customerrelationships

(4)

Customer Segments

(1)

Key activities(7)

Key Partnership

(8)

Key Resources(6)

Channels(3)

Revenue Streams(5)Cost Structure(9)

An organization serves one or

several Customer Segments

. Customer Relationships are established and maintained with each Customer

Segment

. Value propositions are delivered to

customers through communication, distribution, and sales Channels

. Result from value propositions successfully offered to customers

. It seeks to solve customer problems

and satisfy customer needs

with value ´propositions

. ..by performing a number of Key

Activities

. Are the assets required to offer and

deliver the previously described

elements…

. Some activities are outsourced and

some resources are acquired outside the enterprise

The business model elements result in the cost structure

The Business Model Canvas (1)

(1) Business Model Generation. Alexander Osterwalder & Yves Pigneur. 2009

Social BenefitsSocial Costs

RegulationRural Communities

Mobile Telephony Technology

Mar

ket

Tre

nd

s

Financial Inclusionof Unbanked People

Business Model: Purpose and Restrictions

Non-Bank Government Owned Business Model(Example Mexican Telegraph Company)

Value Proposition

Channels

Customer Relationship

Customer Segments

Revenue

Stream

Cost

Structure

KeyPartnership

Key Resources

Key Activities

•Government to People (G2P)

Programs• Low Income inhabitants of

urban and rural communities•Immigrants

relatives living in Mexico

• Deliver financial Services at Low Cost to Low Income inhabitants of urban and rural communities

• Money Transfer•International Remittances•G2P•Bill Payment•Stored value Accounts (SVAs)

• Promotion

• Service Provisioning

• Core Platform Management

Social BenefitsSocial Costs

• Skilled Personnel

• Brand Telecomm

Commissions for :• Money Transfer Services• BPP Services• G2P

• Regulatory Entities (CNBV & Bank of Mexico)

• Treasury Minister (SHCP)

• MNOs• Agents

Network• Government

Bank (Bansefi)• Fully Licensed

Banks• Other Financial

Institutions

• Existing Networks of Agents (Branchless)

• Telecomm Branches (1,570)

• G2P temporary Branches (4,200)

• Personalization of Services

• Income Increase• Local Economy reactivation

• Reduction in cost and time to collect money

• Loyalty Program

• IT &C Core Platform

• Salaries• Physical and ITC

Infrastructure• Commission to Agents

• Ghost Towns• Immigration to US

• Family disintegration

Fuente: CNBV.

Potential Coverage of Banking Agents

Financial Inclusion Penetration Using Agents

Notes:Large Retail Stores :: Wal-Mart, Soriana, Chedrahui, Comercial Mexicana, Sears, Samborns, Coppel.

Small retail Stores Oxxo, 7 eleven, Farmacias Benavides, Farmacias del Ahorro, Farmacias Guadalajara, Waldos, Office Max, Mix Up, Muebles América, Pitico, Promujer.

Diconsa: Only 25% of the stores have IT &Ccapabilities . Gas Stations (*) Not authorized as Banking Agent

11,066

2,775

9,324

5681,570 1,692

5,801

8,578

32.9% 33.7%37.5%

42.3% 44.4% 46.2%

74.9%

80.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

-

2,000

4,000

6,000

8,000

10,000

12,000

CommercialBanks

LargeRetail

Stores

Small RetailStores

Devel.Banks

Telecomm S&LThrifts

Diconsa Gas Stations (*)

# of Branches % Attended Municipalities

Nu

mb

er

of

Mu

nic

ipaliti

es

Fin

an

cia

l Serv

ices P

en

etra

tion

Target Customer Segment

Fuente: Telecomm y CNBV, Reporte de Inclusión Financiera de diciembre 2009

• 58% of Telecomm branches are located in small cities with less than 20,000 inhabitants

• Customer Segment Type 4 is the target market to increase financial inclusion using mobile technology

Coverage

CustomerSegments Municipalities Telecomm Bank Branches

Mobile Coverage

Type 1 535 - - - Type 2 705 705 705 705 Type 3 281 281 - 281 Type 4 676 - - 676 Type 5 92 92 - - Type 6 142 - 142 142 Type 7 25 14 25 - TOTAL 2,456 1,092 872 1,802

Source: Telecomm & CNBV, Reporte de Inclusión Financiera de december 2009

• The new business model for the non-bank branchless government agency, will cover a total of 1,921 municipalities out of 2,456 (78.2%).

• The financial inclusion could be increased from 35.5% (banks branches only) to 78.2% using networks of agents in municipalities of category type 4.

Financial Inclusion Increment

Mobile Money Services & Financial Inclusion

872

373

676

35.5%

50.7%

78.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

-

500

1,000

1,500

2,000

2,500

(Types: 2,6,7) (Types: 3,5) (Type: 4)

Potential number of

beneficiaries 6.2

millions

Nu

mb

er

of

Mu

nic

ipaliti

es

Fin

an

cia

l Serv

ices P

en

etra

tion

Availability of Networks of Agents willing to have presence in the target municipalities (676).

Alliance between non-banks agent network and banks would allow new entrants to provide SVAs to target customers. Non-banks are

excluded from the deposit-taking business .(1)

The Pure Payment is the only option available, and it represents an obstacle for the development of non-bank branchless agent networks.

Current regulation, allows mobile network operators to set up agent networks and manage mobile accounts on behalf of banks, based on outsourcing agreements.– Largest MNO (Telcel-America Movil) and the bank which belongs to the same

group (Inbursa), could become the dominant players in the mobile money services.

Challenges

(1) The CNBV recently issued regulations establishing limited scope banks (subject to lighter prudential requirements and supervision) that will be permitted to issue e-money and offer a limited range of services

Technology could support financial inclusion intiatives, but it is not the solution.The Business Model concept integrates all the elements involved in the creation, delivery, and capture of value.Regulation could be an accelerator to increase financial inclusion rates….Regulatory actions should be informed by financial inclusion goals.Key Performance Indicators (KPIs) are needed to measure both the profit made by new entrants (non-banks) in the financial services market and the social returns of such initiatives…social entrepreneurship

Conclusions

ThanksThanks

Q&AQ&A