DIGITAL ACCESS: THE FUTURE OF FINANCIAL INCLUSION IN AFRICA ACRONYMS ADC Alternative Delivery Channel ISO International Organization for Standardization AFSD African Financial Sector Database IT Information Technology ARPU Average Revenue Per User KES Kenyan Shilling API Application Programming Interface KPI Key Performance Indicator ATM Automated Teller Machine KYC Know Your Customer B2P Business to Person LAPO MfB Lift Above Poverty Organization BCEAO Central Bank of West Africa (Banque Centrale Microfinance Bank des Etats de l’Afrique de l’Ouest) M-banking Mobile Banking BOI Banking Operations Intermediary M-wallet Mobile Wallet BVN Bank Verification Number MFI Microfinance Institution CEO Chief Executive Officer MM Mobile Money CBA Commercial Bank of Africa MSME Micro, Small and Medium Enterprise CBN Central Bank of Nigeria MTN Mobile Telephone Network CFA West African Franc, or Central African Franc MNO Mobile Network Operator CGAP Consultative Group to Assist the Poor MVNO Mobile Virtual Network Operator CRM Customer Relationship Management NFC Near Field Communication DFS Digital Financial Services OTC Over the Counter DJ Disc Jockey P2B Person to Business DVD Digital Versatile Disc P2P Person to Person E-banking Electronic Banking PC Personal Computer EFT Electronic Funds Transfer PIN Personal Identification Number EMI e-Money Issuer POS Point of Sale E-money Electronic Money PSP Payment Service Provider E-wallet Electronic Wallet E-warehousing Electronic Warehousing QR Quick Response FCMB First City Monument Bank RCT Randomized Control Trial FSD Financial Sector Deepening RFP Request for Proposal FSP Financial Services Provider SACCO Savings and Credit Co-operative Organization G2P Government to Person SGBS Société Générale de Banques au Sénégal GDP Gross Domestic Product SIB La Société Ivoirienne de Banque GhIPSS Ghana Interbank Payments and SIM Subscriber Identification Module Settlement System SME Small and Medium Enterprise GSM Global System for Mobile Communications SMS Short Message Service GSMA GSM Association TZS Tanzanian Shilling HCD Human Centered Design UBA United Bank for Africa IBO Intermediary in Banking Operations UOB United Overseas Bank ICT Information and Communication Technology USD United States Dollar ID Identification Document USSD Unstructured Supplementary Service Data IFC International Finance Corporation WAEMU West Africa Economic and Monetary Union IMF FAS International Monetary Fund Financial Access Survey WAMZ West Africa Monetary Zone Front cover: Mwansa, a Zoona payments service user, in Lusaka, Zambia, on 10 January 2018. 3 DIGITAL ACCESS Mercy Trinidad Lutepu (left), a Zoona agent who owns three outlets, with a teller at one of her booths in Lusaka, Zambia, on 10 January 2018. 4 DIGITAL ACCESS 5 DIGITAL ACCESS FOREWORD access to mobile money services has increased daily per capita consumption levels of households, lifting them out of extreme poverty. Mobile money services have changed lives – for example, helping women to move Financial inclusion is one of from subsistence farming to business occupations and Africa’s great success stories sustainable livelihoods. In total, our partnership with 14 African financial services providers from 2012 to 2016 over the past decade. have resulted in 7.2 million new digital financial services users on the continent (a 250 percent increase from the baseline), 45,000 new banking agents, and $300 million in monthly transactions. The launch and growth of digital financial services has led to an unprecedented increase in the number More than ever, we know that financial inclusion is a of people enjoying access to formal financial services. means to an end. It is a catalyst for equitable development Today, Africa is home to more digital financial and inclusive economic growth. Our ambition with the services deployments than any other region in the Partnership for Financial Inclusion has always been to world, with almost half of the nearly 700 million improve the capacity of the financial sector to better serve individual users worldwide. Mobile money solutions all people in Africa, and to share the lessons learned from and agent banking now offer affordable, instant, those efforts with the global development community. and reliable transactions, savings, credit, and even By working with pioneers of low-cost financial services insurance opportunities in rural villages and urban across the continent to design, develop, and test new neighborhoods where no bank had ever established technological approaches and innovative business a branch. This is, quite literally, banking at your models, we have highlighted both the opportunities and fingertips – for everyone. It is revolutionary. the challenges in furthering financial inclusion. The impact, however, extends beyond the individual. This publication brings to the fore the voices of What makes a difference for a small-scale entrepreneur Africa’s consumers, as well as those of financial services or a smallholder farmer translates into broader gains industry leaders. We believe that they offer deep and for society. Ten years after the breakthrough of thoughtful analysis for everyone working in this area of digital financial services in Sub-Saharan Africa, we international development. We trust that you will find are seeing evidence of this. Field studies show that this a valuable read. Reeta Roy Philippe Le Houérou President and CEO CEO Mastercard Foundation International Finance Corporation (IFC) Rokiatou Doumbia, owner of Café Vert in Abidjan, Côte d’Ivoire, with Steve Bedan, MTN MoMo Pay sales team supervisor, as she learns to use a point-of-sale device. 6 DIGITAL ACCESS 7 DIGITAL ACCESS Acronyms 3 1 l STRATEGY 6 l PRODUCT DEVELOPMENT 9 l DATA ANALYTICS Foreword 7 Strategy is the first crucial step on a DFS journey 44 Customers take the lead on product development 106 Big Data can deliver big impact 148 A word from the Advisory Committee 10 How to date successfully in the DFS era 45 What is a fair price for DFS? 107 Beautiful data, big and small 149 Digital financial services are key to the future Market overview: Ghana 46 Market overview: Zambia 108 Market overview: Cameroon 150 of Africa’s banking sector 14 Industry opinion: Who will be the leading provider of Industry opinion: What product will lead DFS Industry opinion: What constitutes the most useful The business case for digital financial services 14 mass market financial services in Sub-Saharan Africa adoption in the near future? 109 data for DFS providers? 151 From revolution to evolution: digital finance in Africa 22 in 10 years’ time? 47 Research focus: Leveraging alternative data to develop Research focus: How to deliver data-driven solutions Research focus: Turning digital strategies into reality 48 Building a new market with knowledge 30 new credit products 110 Impact feature: Digital loans offer instant growth for financial inclusion 152 Financial inclusion in Africa: what the numbers tell us 33 Impact feature: Ugandan DFS users enjoy a diversity power to Madagascar’s entrepreneurs 52 Impact feature: Data-driven decisions help Zoona Industry opinion: What does the future of DFS in of products 114 agents thrive 156 Africa look like? 34 2 l TECHNOLOGY 7 l CUSTOMER ACQUISITION A tough choice: selecting the right technology 62 10 l AGRICULTURAL VALUE CHAINS Digital banking is not equal to technology 63 Agents are the key to active customers 122 DFS could be the key to banking small-scale farmers 166 Market overview: Kenya 64 We must protect the consumer 123 Finding the sweet spot in digitizing the cocoa Industry opinion: What is the most important Market overview: Uganda 124 value chain 167 application of blockchain technology? 65 Industry opinion: What is the most important factor Research focus: Twelve steps to leverage new Market overview: Madagascar 168 in attracting new DFS users? 125 technology for financial inclusion 66 Industry opinion: Where is the biggest challenge to Research focus: Historical, social and cultural factors banking smallholder farmers? 169 influence uptake of DFS 126 3 l AGENTS Research focus: Farmers who save fare better Impact feature: Saving for the future – one dollar at a time 130 than others 170 DFS providers rely on their agent networks 70 The three keys to a successful agent network 71 DFS = digital financial services 11 l INTEROPERABILITY Market overview: Democratic Republic of Congo 72 8 l RISK MANAGEMENT = financial services accessed Industry opinion: Do you believe that the importance and delivered through New opportunities bring new risks 140 More than a technological challenge 174 of agents will decline over time? 73 digital channels Striking a balance between growth and risk 141 Why the industry should take the lead 175 Research focus: Women make better DFS agents 74 Market overview: Nigeria 142 Market overview: Tanzania 176 4 l MERCHANTS Industry opinion: Which type of fraud do you Industry opinion: What is the most effective approach currently experience as the biggest risk to DFS? 143 for achieving interoperability? 177 Digital merchant payments is the next big step 78 Research focus: The need for a DFS risk Research focus: Achieving interoperability in digital Merchants are the key to a broader digital ecosystem 79 management framework 144 financial services 178 Market overview: Côte d’Ivoire 80 Industry opinion: Who should pay to incentivize adoption of merchant payments? 81 Research focus: Are interoperable DFS merchant payments the future? 82 Our team 184 Impact feature: Mobile money to replace pocket Acknowledgments 186 change in Abidjan’s shops 86 Our publications 187 References 188 5 l MARKET RESEARCH Focusing on the people you serve 98 No single dataset will tell you the market 99 Market overview: Senegal 100 Industry opinion: In what area have you employed market research to change the way you do business? 101 Research focus: The mobile money customer that isn’t 102 8 DIGITAL ACCESS 9 DIGITAL ACCESS A WORD FROM At the time, only about a quarter of adult Africans enjoyed the benefits of access to day pursuing the opportunities and benefits offered by digital financial services, putting the financial tools required to be able to the customer at the center of development. THE ADVISORY grow small-scale businesses, plan for future household expenses, make investments We have learned that it is important to embrace failure, and to operationalize the knowledge COMMITTEE in schooling and health, and cope with emergencies. As the program approaches its gained in the process. In the early stages of the development of a new market, what close in 2018, the situation has improved matters to one provider often matters to all. beyond expectations: 43 percent of the The Partnership for Financial population in Sub-Saharan Africa are now For the market as a whole to evolve, successful collaboration and communication Inclusion was born in 2012 from a financially included, and in countries such as Kenya, Tanzania and the Democratic between market actors and regulatory authorities can make a marked difference. common objective of IFC and the Republic of Congo, the financial inclusion The impact is equally impressive. To date, rate has more than doubled over the past six Mastercard Foundation to identify years. In hindsight, it is easy to see that the the Partnership for Financial Inclusion has reached over 7 million new financial program was launched at the right time, in and promote workable solutions the right place. Sub-Saharan Africa has led services users across Sub-Saharan Africa, the evolution of digital financial services in from Senegal to Tanzania, from Nigeria to to Sub-Saharan Africa’s need for emerging markets, and continues to do so. Zambia. That is the equivalent of the adult population of a small country. The number of cost-effective and commercially While the numbers are remarkable, the effort new users brought into the formal financial of the industry to reach previously unbanked system is expected to grow beyond the close sustainable financial services. people, such as low-income earners, small- of this specific initiative, aimed primarily scale entrepreneurs and the rural population, at catalyzing early market development for is even more so. Since 2012, we have had long-term impact. In addition to extending the privilege to work alongside fourteen access to financial services, the clients and market-led financial service providers, partners of the program have built expansive including microfinance institutions, banks, networks with small-scale entrepreneurs as mobile network operators and payments banking agents. Each new user represents service providers, to catalyze innovation and a new introduction to the formal financial shift the financial landscape in Sub-Saharan system. Trust, we have found, is the critical Africa. It has been tremendously exciting element that brings new users to adopt work; designing and building innovative mobile money solutions and agent banking. business models for financial inclusion As growth and innovation accelerate, it is alongside visionary local entrepreneurs, imperative that responsible finance and the bold industry practitioners, and tireless and rights of the consumer are guaranteed. dedicated field staff. Breaking new ground is not easy and there have been several The overarching objective of the Partnership challenges along the way. Many of the for Financial Inclusion has been to help providers we work with spend every working create a market for accessible, affordable A woman using one smartphone while charging a second one, at Espace Siablé, a popular restaurant in Abidjan, Côte d’Ivoire, on 5 December 2017. 10 DIGITAL ACCESS 11 DIGITAL ACCESS and sustainable financial services in Sub-Saharan Africa. Critical to this mission is knowledge sharing. Since the start of the program, the team has pursued a robust research and learning agenda, harnessing operational lessons learned and conducting original research to help build industry expertise for greater financial inclusion. The popular Digital Financial Services Handbooks series offering practical guidance to market actors are published in English, French and Spanish, in response to demand also beyond the continent’s borders. This publication, Digital Access: the Future of Financial Inclusion in Sub-Saharan Africa, collects much of the experience and insights earned by the Partnership program over the past six years. It offers readers the story behind the African digital financial revolution, as experienced by some of those who have made it happen. Most importantly, it brings together the knowledge gained throughout the implementation of the program for the common good and for the future. It is our hope that the case studies, market overviews, industry opinion, research focuses and impact features, will give readers a rich idea of the deeper fabric of the financial market in Sub-Saharan Africa. Great strides have been made in the drive towards broader financial inclusion, but there is still much to be done and many challenges ahead. Now is the time to build on what has been achieved so far. To expand financial services to the last mile will require investments in merchant and agent networks, innovation along agricultural value chains, and the development and launch of products that meet an increasingly nuanced demand from an even broader variety of users, such as entrepreneurs, merchants, smallholder farmers, youth and women. In closing, we would like to take this opportunity to recognize all those who have contributed to the success and achievements of the Partnership for Financial Inclusion. In particular, thank you to the Bill & Melinda Gates Foundation, the Development Bank of Austria, OeEB, the UK government through the Department for International Development, DFID, and Switzerland’s State Secretariat for Economic Affairs, SECO, for their contributions to some Partnership projects. Ann Miles Director, Thought Leadership and Innovation, Mastercard Foundation Lindsay Wallace Director, Strategy and Learning, Mastercard Foundation Ruth-Dueck Mbeba Senior Program Manager, Mastercard Foundation Sebastian Molineus Director, Finance, Competitiveness and Innovation Global Practice, World Bank Group Martin Holtmann Manager, Microfinance and Digital Financial Services, IFC Aliou Maiga Regional Industry Head, Financial Institutions Group, Soahanginirina Razafindrahanta, a teller at a Baobab Bank outlet in Antananarivo, Madagascar, on 16 February 2018. Sub-Saharan Africa, IFC Riadh Naouar Head, Financial Institutions Group Advisory Services, Sub-Saharan Africa, IFC 12 DIGITAL ACCESS 13 DIGITAL ACCESS Digital financial services are into place at once; technology, people, and purpose. In the past decade, the evolution of an to bring together technology and purpose for all involved; positively impacting on the lives key to the future of Africa’s entirely new market for accessible, affordable of millions of people on the continent, while and sustainable digital financial services has led banking sector to the inclusion of millions of people in Sub- transforming the financial sector into a broader- based, more efficient and sustainable industry. Saharan Africa into the formal financial sector, By Riadh Naouar and opened up entirely new opportunities for The Partnership for Financial Inclusion was IFC Head, Financial Institutions Group Advisory, the financial sector to expand and innovate launched in 2012, at a time when the market Sub-Saharan Africa to support broad-based inclusive economic was still very much in the making. As a joint The impressive growth in financial inclusion in Sub- Saharan Africa over the last few years has been driven The business case growth. Taking transactions out of the bank was the first step. The ability to directly sign initiative of IFC and the Mastercard Foundation to expand microfinance, advance digital for digital financial primarily by mobile money and agent banking. By and up new customers for banking services in financial services, and build industry knowledge large, the growth in traditional financial institution the field will allow for an even quicker and for the common good, the Partnership has had accounts lag behind. Where they do increase, it often services broader expansion of financial inclusion, the unique ability to draw on operational lessons appears to be on the back of the mobile money revolution. The message is clear: the future of the where new customers can also be onboarded learned from the full spectrum of industry clients financial sector on the continent is digital. and educated by agents for deeper and better across the continent: banks, MFIs, MNOs financial services. This is the future, and it is and payments service providers. To date, While East Africa has long been the star performer in By Lesley Denyes already here. the fourteen partners of the program have terms of the evolution of digital financial services, West Africa is the new growth market. Not only in terms of IFC Program Manager, Partnership for Financial Inclusion collectively achieved 7.2 million new registered In 2011, the New York Times published reach, but also for innovation. Banks in the sub-region DFS users, 44,600 agents, and $300 million in are increasingly forming partnerships with mobile an article on the budding digital financial money operators to offer accessible and affordable Digital Financial Services: a broad range of financial services services industry that has become a classic transactions at agents per month. While 90 services beyond the historical target market, and are accessed and delivered through a variety of digital channels, among industry practitioners and experts. percent of this achievement has been through investing in their own digital operations to build new including payments, credit, savings, remittances and insurance. It described the emerging DFS industry as ‘a banks and MNOs on an actual basis, it is ways of banking. Fintechs have sprung up from Dakar goat rodeo’; a chaotic space with a variety interesting to note that the rate of growth Agent Banking: a third-party business that is engaged to to Lagos, and the regulatory environment continues provide customers with a selection of financial services, of actors drawing in different directions. has been relatively much higher for MFIs. to improve. There is every reason to believe that the early success of East Africa will be replicated and even often including deposit and withdrawal, on behalf of a financial Many of us found it a hilarious description; MFIs have grown their DFS users almost surpassed in West Africa. service provider. only because it was absolutely true. Even 4,000 percent, compared to MNOs and banks, before Kenyan pioneer M-PESA gained which have only grown by 100 percent in the There is a need in the broader industry across the Mobile Money: a type of electronic money (E-Money) that is continent to shift to the next generation of digital transferred electronically using mobile networks and SIM-enabled traction and global recognition, there were same period. products. A broader, more multi-faceted market is devices, primarily mobile phones. The issuer of mobile money a multitude of early deployments across the asking for more sophisticated and relevant products In parallel to supporting on-the-ground DFS may, depending on local law and the business model, be an MNO, globe that attempted to marry technology beyond person-to-person payments. There are evident implementations, we have run an extensive a financial institution or another licensed third-party provider. with financial services to reach the unbanked. opportunities to develop digital banking, savings and research and development program to probe credit products, as well as the digitization of value Few were successful; some failed spectacularly. Mobile Wallets: an account that is primarily accessed using a and further research the business case for DFS chain financing and merchant payments. This can mobile phone, usually provided by a non-bank and linked to a A variety of actors were involved, from tech significantly improve customer benefits and usage, as and the impact of digital financial inclusion pooled bank account which holds the associated funds. companies to mobile network operators, to well as long-term sustainability for providers. on development. We have learned a lot. microfinance banks, to consulting services, Bank-to-Wallet: transactions between bank accounts and Our key lessons can be summarized as The customer is the new boss in town. As the lines non-governmental organizations, donors and mobile wallets. six headline insights for financial services between providers are becoming increasingly blurred, development institutions. The concept of fintech users don’t necessarily care about who or what kind providers wishing to launch digital channels, was just emerging, and while the term Big Data of entity the provider is, as long as they can access the or for market actors already active in the field services they desire. Banks, microfinance institutions, was coming into peoples’ vocabulary, few On a recent trip to West Africa, I visited some agents of a but struggling to reach full potential. mobile network operators, payments service providers understood the subject or its potentially huge and fintechs are all exploring competing services across local tier-one bank with about one million customers and implications to drive the expansion of financial the region. Understanding mass market customer needs 1,000 proprietary banking agents. The agents showcased There is a business case for financial services. Many regulators were observing will be the key to success. a new customer registration app, allowing them to sign inclusion as entirely new actors entered the financial More than ever before, it is an open field. The true up new bank customers at agent locations: small-scale sector, unsure of how best to step in to protect The spectacular expansion of financial inclusion winner is the African consumer, who is no longer grocers, pharmacies, beauty parlors and the like. The user experience was seamless, allowing previously unbanked customers and funds, while still allowing for in Sub-Saharan Africa over the past ten years excluded from the benefits of financial services. people to become formally financially included in just a these new innovative forces to expand access would not have been possible if financial services matter of minutes. The app is secure and easy to use, and to financial services. The industry has come providers didn’t find a compelling opportunity doesn’t require the customer to remember anything, as it a long way since, and become a much more in broadening the reach of their services. uses one-time PINs for authentication. The interface has orderly space with rules to the game. Almost For the industry, the important question is an intuitive, well designed and graphic approach, and the all financial institutions and mobile network whether there is a business case for financial app also allows agents to monitor and manage some of operators on the continent are employing inclusion? The answer is yes. M-PESA now their key business metrics. It was one of those beautiful DFS in some way, shape or form today. represents 27 percent of total revenue for moments when you see all the pieces of the puzzle fall On the whole, the market is finally beginning Safaricom in Kenya. For other MNOs, the share 15 DIGITAL ACCESS of mobile money is somewhere between 5-15 percent of total represent large investments and costs, time and effort, Our projects gross revenue. While some mobile money services do not yet as well as key decisions made by management (many break even on their own, they indirectly contribute to overall of which may not have been very well thought through). revenue through reduced churn (customer turnover) and Once this is done, however, a bank can begin to build, not Morocco increased customer satisfaction. For banks, opportunities only for today but for the future. Tomorrow’s banks will for DFS revenue are far beyond that of fee revenue. require very sophisticated technology and data warehouses Algeria Libya Egypt The opportunity to source deposits from a broader market that will allow them and partners in the market to initiate, can have positive impact on cost of funds, and moving 5 authenticate, transact and settle in real-time to allow transactions through digital channels reduces cost to customers to, for example, borrow money to buy an asset 22 Mauritania Mali Niger income ratios; a key metric for defining the profitability directly through e-commerce, and providers to track and 6 15 2 20 Chad Sudan Senegal of a bank. For the Partnership program, we have followed 9 10 monitor the asset, and even remotely stop it from working if 24 18 nine commercial microfinance institutions in Sub-Saharan loans are not repaid. In terms of institutional culture, painful Guinea 1 Nigeria Ethiopia Africa offering agent banking over four years, and found 7 3 12 change is often also key to success when existing banks go Central African South Sudan 8 4 Republic that transactions through agent networks cost 25 percent 19 al ia digital. Innovation requires staff that trust that it is fine to 23 da So m less to provide than branch teller transactions. Regardless an Kenya test out new ideas and create new solutions without fear of Ug o of competitive pressure or customer demand, this alone 17 Cong Democratic failure. In the industry interviews in this publication, you will Republic of 25 translates into huge incentives for financial institutions to the Congo find several of our partners highlighting the need to acquire Tanzania move to digital. buy-in from the entire organization for DFS deployments, 14 and how critical internal communication is to achieve this. 21 Strategy is the foundation for success Angola They have lived this. It is especially the case with existing Zambia qu e 16 bi There are different routes to engage with the opportunities staff who may feel threatened by the change, often branch oz a m Zimbabwe M offered by digitization, depending on the needs of the staff fearing branch closures following the launch of an Namibia Madagascar Botswana 13 institution. A digital strategy is a critical component of agent network. It is helpful then to keep in mind that branch the overall organizational strategy and should be guided staff are often key to a successful agent network. 11 by the business’ vision, mission, and overall strategy, as well as market conditions. For banks, there are three basic The future needs products South Africa engagement models: become a digital bank, launch singular The initial use case for DFS in most markets have been digital channels or products, or launch subsidiaries to run person-to-person payments, a service which clearly and BANKS PSPs digital banking operations. Offering digital financial services rapidly has met with a huge demand. This should come does not have to be an all or nothing approach. All three 1. CalBank Ghana * 14. Zoona Zambia * as no surprise, as most economies on the continent are routes to digitization allow institutions to move forward migrant and network economies in which domestic 2. FCMB on a digital journey, with large or small investments, remittances have played a key part for a long time. MFIs taking large or smaller risks. There is growing interest in 3. Fidelity Bank * As markets mature, demand for other products and the banking industry to move towards an omni-channel 15. AB Microfinance Bank Nigeria services emerge. There’s been enthusiastic uptake of digital 4. Cooperative Bank approach, where digital is simply part of the general loans and savings in some markets, for example, and in 16. AccessBank Madagascar * business and covers everything from back-end customer 5. Banque Atlantique Mali all markets there is a certain amount of ‘informal’ digital relationship management to front-end mobile applications 17. AccessBank Tanzania * merchant payments taking place, as users pay for goods and 6. Banque Atlantique Burkina Faso for customers, open access to fintech partners and a seamless services by making direct deposits to small-scale retailers. 18. Advans Cameroon * user experience for clients through all digital channels. To get 7. Banque Atlantique Côte d’Ivoire Rapid iteration of products and services require an there, it is necessary to make key investments in technology 19. FINCA DRC * environment in which an institution can listen to and and culture, and both have proved difficult to change. respond to customer needs, understanding what the new MNOs 20. Lapo Microfinance Bank mass market users find useful. This requires clear leadership Successful DFS is about technology and requires 8. Airtel Uganda 21. Baobab Madagascar (formerly Microcred) * from management, and for new cultural practices to be strong change management embodied at every level of the institution in terms of physical 9. MTN Côte d’Ivoire * 22. Baobab Senegal (formerly Microcred) * In terms of technology, legacy systems often hinder growth presence of work space, performance metrics used, and in and innovation. Existing IT systems are often patchworks 10. Tiga Cash Ghana * 23. UOB Rwanda all communications. Over the past six years, we have also built over time, and it can be a very painful exercise to learned from our Partnership projects that those providers 11. Vodacom Lesotho * dismantle and replace them with the necessary technology that have been most financially successful are those that 12. MTN Cameroon * MARKET LEVEL PROGRAMS for a comprehensive digital approach; previous solutions diversify their products. In the times of the ‘goat rodeo’, 13. Vodacom Mozambique 24. Côte d’Ivoire Market Program * 25. Tanzania Interoperability Project * Partnership for Financial Inclusion, funded by the Mastercard Foundation 16 DIGITAL ACCESS 17 DIGITAL ACCESS it was widely believed that DFS was about scale: build it, Data is a key tool for innovation and growth get the scale, and you will succeed. However, the experience DFS providers are particularly well-positioned to take has been different: the more customers you have, the more advantage of data and analytics to expand customer base it is going to cost you. We have watched the full variety and provide a higher-quality service. Digital customer of providers grow their user bases substantially over the acquisition and transaction management has built a wealth last few years, and we now know that scale does not equal of data on customer behaviour that can now be used for success. Within the current IFC portfolio of DFS advisory a specific purpose, such as credit scoring, but can also be projects in Africa, marginal expenses of transactions employed more generally to increase operational efficiency represent on average 70 percent of total transaction costs; and drive greater value for customers. Whatever the goal, meaning there is actually very little diminishing costs. a data-driven DFS provider has the ability to act based on If a provider is not able to reduce expenses by scaling to evidence, rather than anecdotal observation or in reaction to break even, then DFS providers need to earn more per what competitors are doing in the market. Data analytics, customer, often referred to as ARPU (Average Revenue including techniques such as predictive modeling, can Per User) in the MNO world. This is done by cross-selling, be used to better understand the profile of customers to and to do that the industry is going to need more products provide better customer service and innovate new products. and more partnerships to offer these products. First- For example, we find existing customers that have a high generation products included P2P transfers, basic savings, probability of being small business owners but are using loans and bill payments. Second-generation products retail products. We can use the information to build better include payments through platforms, such as merchant payments, e-commerce, and supply chain management, products and communicate to them about products that as well as data-driven lending backed by these platforms. better fit their needs, or even develop new products based on Many providers are partnering with emerging fintechs to a market demand. Behavioral patterns can also be monitored offer these services, as they generally fall outside of the core to predict changes in repayment behavior or SIM churn, business. APIs, sandboxes, and interoperability will further so that providers can reach out to customers to incentivize enable the development of these second-generation models. retention. All of this is leading to more efficiency for the provider and better service for the customers. As markets To manage growth you have to manage risk in Sub-Saharan Africa mature, this will be increasingly important, not just to gain competitive edge, but also to When we wrote the Digital Financial Services and Risk ensure that the services and products developed for this Management Handbook (see page 144), we were surprised region meet the needs of users here. to find how few institutions in the industry had proper risk management frameworks in place to handle DFS risk. Following the initial chaotic stage, the DFS industry in the Most providers had limited their risk approach to fraud region has gone from strength to strength. These days we are management, and one provider even stated that DFS had certainly seeing a convergence of purpose and benefits for reduced their risk because they outsourced it to agents. users and providers alike, built on ever more sophisticated DFS risk is far more complicated than that and extends technology and business models. The customer registration far beyond operational and technical risks. In order for the application of the agents in West Africa that I mentioned financial inclusion industry to be able to capitalize fully on earlier is an impressive step forward. There are many the benefits of digital financial services, it is important that other similar developments around the continent, among the accompanying risks are understood and adequately our Partnership partners and in the broader industry. addressed. In this fast-evolving field, it has become apparent The convergence of DFS providers is increasingly blurring that what matters to one provider matters to all, as large the lines between banks, MNOs and fintechs. As banks cases of fraud, for example, affect not just consumer trust move to omni-channel approaches, where customers have in one provider, but in the market and promise of digital a seamless experience in accessing their accounts through financial inclusion as a whole. multiple channels, and MNOs launch their own savings Edmei Rajaonary, a customer of Envie de Manger, a restaurant belonging to Voahirana Mamy Ravelonoro, a longtime customer of Baobab Bank 18 DIGITAL ACCESS in Antananarivo, Madagascar. 19 DIGITAL ACCESS and loan products or even acquire banking licenses, there a broad but granular view of the state of DFS in Sub- is a convergence of the customer experience, and users will Saharan Africa. There are case studies on DFS deployments soon no longer be able to distinguish between banking with by banks, microfinance institutions, MNOs and payments a bank or a non-bank. From the user’s perspective, it is all service providers, focusing on what we see as the most about accessibility and trust. While older generations on the prominent aspects of the emerging market for affordable, continent may view DFS with some skepticism (something accessible and sustainable financial services on the continent we have certainly found evidence of in our four-country today: strategy, technology, agents, merchants, market ethnographic study into the social, cultural and historical research, product development, marketing and customer attitudes to DFS adoption), 77 percent of the population in acquisition, risk management, data analytics, value chains Sub-Saharan Africa is younger than 35 years old and they and interoperability. We also offer eleven research focuses, are likely to welcome the ability to access financial services exploring in some depth some of our key research studies outside of traditional bank branches. and learnings from the Partnership for Financial Inclusion, answering questions such as what makes an optimal agent, What does this mean for the future? Will it be possible, what characterizes DFS users in Africa, and what difference one day, for a smallholder farmer in rural Tanzania to stand access to financial services make in peoples’ lives. We have with his phone in his field and borrow the money to pay also asked some our clients and partners to share their for a plough, without even requiring an actual bank service? outlook of the future of DFS in the region, and surveyed Yes, and not only that, but mobile apps can deliver the the industry to find answers to some of the most pertinent plough using sharing economy apps, such as mLorry in questions in the market today. Kenya, that sells excess shipping capacity in trucks through an Uber-like app. Fintechs would be able to improve their All in all, this publication gives readers not just a summary of collateral management and reduce credit risk by using the achievements of the Partnership for Financial Inclusion, Internet-enabled sensors that can remotely disable the but a good sense of the deeper fabric of the DFS market in plough if there is non-payment of the loan. Sub-Saharan Africa today. One thing is sure, the future of the financial sector in the region is digital. Financial inclusion is not an end in itself, it is a means to an end. Greater access to formal financial services for people in emerging markets – access to savings, loans, insurance and payments – will serve as a catalyst for real sector development. A study that we conducted in Uganda shows that 63 percent of the most active mobile money users in Uganda are small- scale entrepreneurs, and that 42 percent of them use DFS for business transactions. DFS is a game changer for the financial sector and for its new customers in emerging markets alike, and it will also impact the broader economy. This publication gathers a large part of our operational and research learnings from a variety of providers and a number of markets across the continent, offering readers Lewis Sikanyika, a Zoona customer, in Lusaka, Zambia, on 9 January 2018. He was withdrawing money from his Sunga e-wallet to pay for a vehicle 20 DIGITAL ACCESS license registration. 21 DIGITAL ACCESS From revolution to network of agents. The major innovation that it brought was to decouple the financial service from the accepted evolution: digital financial infrastructure. The business model was based on transaction fees and supporting the core MNO business, finance in Africa with low transaction charges (and revenue) per user. This model has been adopted by many new DFS providers from all sectors since then. The Kenyan banking sector was also innovating around this By Susie Lonie time. Capitalization allowed Equity Bank to develop DFS Specialist and IFC Consultant innovative lower-cost products for consumers, MSMEs A decade after the launch of M-PESA, the use of DFS is and the agriculture sector, and by 2011 it provided an established part of the daily routines of millions of over a million loans worth US$ 1.45 billion to them. Africans, providing employment to hundreds of thousands By 2017 the Kenyan mobile money market had grown to of agents, an important contribution to the business of 37 million registered accounts and KES 3.6 trillion banks, MNOs and MFIs, as well as national economies. (US$ 36 billion) in transactions.2 Regionally there were The remarkable growth of DFS in Sub-Saharan Africa has 276 services across 90 markets, with over 690 million created an entirely new market for affordable, accessible registered customers making US$ one million worth of and sustainable financial services. This has led to huge transactions every day.3 Sub-Saharan Africa continues to expansion in financial inclusion, helping to improve the lead the world, with nearly half of all registrations and livelihoods and lives of millions. DFS has also catalyzed the more DFS accounts than bank accounts.4 growth of completely new services that previously lacked a charging mechanism, not least for micro-entrepreneurs. Progressive banks and MFIs soon began to understand Some trail-blazing organisations with cultures open to the potential of DFS to improve their businesses, usually innovation have been fast to benefit from the opportunities focusing on agent services to extend reach and mobile DFS brings. Many others are only now beginning to access to improve customer convenience. As competition explore its potential to provide services and products increased for traditional high value customers, many began tailored specifically to low-income people. Across Africa, to consider reaching down the pyramid to higher value people live in a mainly cash economy, and the potential unbanked individuals and SMEs that might individually be benefits that DFS can bring to people, business and less attractive, but cumulatively presented a sizable source government is prodigious. It is estimated that widespread of new deposits. use of digital finance has the potential to boost the annual GDP of emerging economies by US$ 3.7 trillion by 2025, However, key to DFS evolution is partnership. Whilst many with a third coming from additional investment in the services started as closed-loop systems, even those provided MSMEi sector, and two-thirds from increased productivity by banks and MFIs soon needed to interconnect with of larger businesses and government.1 The question is, how other accounts in their own organisations and with other do we get there? To get an idea of where the future may financial institutions to widen the offering. Interoperability take us, it is helpful to first look backwards at what has is a precursor to most sophisticated services, and this is been achieved to date, and how it all happened. becoming increasingly common in all markets. It underpins the development of digital payments across value chains, The rise of DFS in Sub-Saharan Africa and enables salaries and social payments to be paid digitally Despite earlier attempts by several providers, the DFS to recipients using a range of DFS. Increasingly, partnerships revolution really started to gain traction with the between banks and MNOs are arising, and interconnected launch of the M-PESA mobile money service in Kenya services are needed to support the resulting services. Banks by Safaricom in 2007. At launch, M-PESA was a very have financial expertise that can be coupled with the simple service, offering person-to-person transfers, enormous data sets of MNOs to map customer behavior to airtime top-up and cash-in and cash-out services via a create new types of financial services. 22 DIGITAL ACCESS 23 DIGITAL ACCESS DFS service evolution as markets mature5 Industry sectors generally follow different functional routes to digitization DFS SERVICE EVOLUTION Start with mobile & • Full client digital Create accounts tailored to Third-party Customized products on sale – insurance loyalty; hire-purchase; credit rating; etc. Internet access to view banking service the needs of the unbanked BANK developments existing accounts • Agent banking Linked POS card Start with simple agent ‘Over-the-counter’ Mobile access to Merchant payments MFI banking services transactions by agents client accounts Loans Agent network and closed Transactions with other Partner with Fls to offer Integrated MNO Savings loop transactions financial institutions tailored banking services services Salary / B2P / G2P Bill payment Safe storage How customers use DFS The P2P wallet transfer is such a Airtime purchase Similar DFS usage patterns can be seen across many markets, useful general purpose transaction Basic depending on maturity. The key competitor remains cash. services P2P transfers For most MNO wallets ‘cash-in’ is the most common pre- that it is used for a huge variety of cursor to other transactions, and ‘cash-out’ the most likely reasons; if a specific transaction is Cash-in / Cash-out New / Developing Established Mature result of receiving a remittance. The digital service most not available, customers simply use commonly provided by MFIs is savings accounts designed Increasing service sophistication to increase deposits by encouraging clients to deposit their P2P instead. spare cash. Advanced service portfolios may be growing in As new, relevant use cases and transaction types become the leading DFS markets, but for many the range of services available, customers embrace them. DFS enabled savings An excellent example of such a partnership is M-Shwari, domestic P2P transactions. Fierce competition between on offer is still limited. Airtime top-up, where offered, is and loans demonstrate this point well, and it can also be the first DFS enabled micro-savings and loan service DFS providers presented challenges in engendering usually the highest volume transaction, but low in value seen in the evolution of MFI digital offerings. In an IFC developed specifically for the unbanked, using telecoms the level of trust needed for such a partnership, and (and revenue), because most purchases are sub-US$ 1. four-year study of nine African MFIs deploying DFS and and DFS data, from the Commercial Bank of Africa each was concerned that interoperability would reduce For example, in 2016, aside from cash-in and cash-out, agent networks, most saw a large proportion of their (CBA) and Safaricom. This complex service is fronted by revenue. Establishing ‘scheme rules’ and revenue sharing airtime purchases constituted over 60 percent of transaction business become digital, with high adoption by both a simple, easily understood customer proposition that has models required careful negotiation. Far from reducing volume worldwide, but less than 6 percent of value. new and existing clients. As their services matured, many proved enormously successful: within four years M-Shwari revenue, interoperability has increased the number of P2P By contrast, domestic P2P transfers accounted for one-fifth successfully extended these digital offerings to include had 14 million customers, was holding US$ 81 million in transactions for all providers.9 This can be seen as a proof of transaction volume but over two-thirds of value.11 services such as bill payments and P2P transfers. Some of deposits, and had disbursed nearly a billion US dollars in of concept, demonstrating that competing commercial these MFIs are now planning to go completely digital.12 loans.6 This initiative has transformed CBA, which was Whilst the commonly publicized P2P remittance use cases principally a commercial bank, into the largest retail bank organisations can work together to develop the market Consumers consistently express the benefits of DFS as a involve supporting family members, in practice the P2P in the country in terms of registered customer numbers. without the need for a mandate from the central bank. combination of fast, safe, easy-to-use, affordable and service has a wide range of uses, including significant In 2014, CBA went on to partner with Vodacom in Tanzania convenient. But despite these benefits, DFS remains a Many providers are taking partnership a stage further, numbers of informal business transactions (B2B and P2B). secondary option compared to cash. Across the world, to create a similar service, named M-Pawa, that by 2017 was issuing over 350,000 loans per month valued at over TZS 5 adopting an ICT approach and opening APIs to the fintech Whilst ‘urban to rural’ certainly is an important corridor, only about one-third of mobile wallet accounts are billion (US$ 2.5 million).7 Similar partnerships with MTN community. An Application Programming Interface is a set there is little evidence that this is the key driver of P2P activeii at any given time.13 Activity levels vary by market. in Uganda and Rwanda, branded MoKash, have resulted of rules that define how two systems are allowed to talk to volume, and much anecdotal evidence of high transfer For example, in Tanzania, one of the most successful DFS in over 2.5 million registered customers in the first year.8 each other in a rigorously controlled manner, which enables volumes between and within cities, as well as some activity markets, 87 percent of DFS registered users were active It is reasonable to speculate that across Africa many similar third-party innovators to build new systems and products from rural to urban areas. in 2015 (the same study showed just 65 percent of bank partnerships between MNOs and financial institutions that integrate the provider’s proprietary information accounts were active).14 Côte d’Ivoire has a thriving, are being formed to roll out this obviously popular and securely into their own services and applications. As well although smaller DFS market, where half of the registered potentially attractive new type of service. DFS accounts were inactive in 2014. Research revealed as allowing businesses direct access to digital payments, that the most commonly cited reasons for inactivity in Côte Tanzania was the first market to offer market-led mobile the M-PESA API enables startups to experiment with new d’Ivoire were irregular income, and a lack of perceived need money interoperability between DFS providers for business ideas that have inbuilt payment capability.10 for the service. Respondents were also concerned about the cost of transactions (DFS is markedly more expensive in West Africa than East) and insufficient agent outlets.15 World Bank estimates suggest that, on average, 25 percent of bank accounts in East Africa were dormant in 2014, with that number rising to 37 percent in some markets.16 24 DIGITAL ACCESS 25 DIGITAL ACCESS DFS registered but inactive customers’ main reasons given for inactivity in Côte d’Ivoire Potential mapping of financial account types to customer segments MAIN REASONS FOR INACTIVITY AMONG RESPONDENTS FINANCIAL ACCOUNT TYPE CUSTOMER SEGMENT Irregular income 43.6% Mobile money account Students No need to use it 27.0% Current account Smallholder / micro-enterprises Service is too expensive 15.5% Savings account SMEs No agents close to where I am 10.2% Loan account Salaried employees Mortgage account Managers and directors Challenges to successful services implications, keeping a close watch on the market, then regulating when it decided that it had sufficient information merchants and agents. The largest number of transactions The enormous amount of data produced by DFS has Operating a successful DFS is neither cheap nor easy, and and cause to act. This is one reason why Kenya has been in any market happen at retail outlets, but in Africa, few started to be harnessed by micro-loan providers, but certainly not a ‘quick win’. Unfortunately, the mercurial Africa’s leading DFS market, both in terms of size and retailers have a POS device. Conventional POS are good at this is just the tip of the iceberg that is the opportunity growth in Kenya led many organisations to believe the innovation, for many years. By contrast, in those markets performing a very narrow range of tasks, require manual presented by Big Data, both in new customer services and opposite and enter the market without sufficient preparation where the central banks decided to regulate first, typically upgrades, and are expensive to buy and to maintain. improving operational efficiency. As many DFS providers and with unrealistic expectations about resources required imposing restrictive conditions, the result has often been As data networks are now widely available and smart are under pressure to provide greater returns from their and the likely returns. One of the biggest risks to any new limited services and low consumer uptake. devices are falling in price, it is possible that these old- services, probably the most immediate need that Big Data service is the disillusionment of the senior management fashioned POS devices will be replaced by smartphones and team if it fails to deliver as expected, and the performance can address is to identify efficiency improvements and What is next for DFS in Africa? tablets that can accommodate apps to process transactions gap can be very wide in the face of unreasonable KPIs. cost savings. Smart use of this data can show detailed from multiple account providers. Inexpensive printers and This results in pressure to reduce support for DFS and The launch phase of this new industry can be considered financial behaviour patterns, providing an unprecedented card readers can be connected as required, and many come return to focusing on the core business. As the DFS market complete with hundreds of established services, many of opportunity to better understand customers, to provide with the capability for contactless transactions as standard, matures, the need to invest has become much better which are profitable. We are now moving into a new phase robust segmentation, and tailor marketing and product and software can be upgraded automatically ‘over the air’. understood, but there are still many live services that suffer of development, with emerging technologies and wide- These are also ideal for customer registration, with the development. Big Data can also serve the SME community from under-resourcing and inappropriate technology as scale integration between DFS and other financial services inbuilt capability to photograph people and identity with improved DFS and related services. For example, DFS a direct result of early strategic mistakes. It is estimated providing a wealth of new opportunities. Increasingly, documents and to create electronic forms. Such unified agents and merchants can be incentivized by business loans that in the early years of DFS, of more than 200 services banks are reviewing how they can transform to become smart devices are desperately needed across Africa to based on their DFS activity. As the DFS provider holds launched, only ten achieved anything close to success in more agile and compete, actively targeting the unbanked. bring down costs for all financial service providers, and their accounts, the risk is low, and the perceived negatives the first five years, usually due to inadequate planning and to encourage the move from cash to digital transactions. such as tax liability and transaction fees can be overcome DFS is often considered in some way ‘separate’ from resource.17 Not all potential DFS providers are ready to go The technology is available, but thus far there has not been by access to loans. Another potential use is to provide conventional financial services, particularly given their digital, but many feel pressured to do so by investors or a drive to make this change, which will be complex and inventory information and predictions, both for agent float unconventional origins and focus on the unbanked. Of late competitor activity. There are also different levels of entry involve cooperation between multiple parties. and merchants’ stock-holding. there has been increasing support for the idea that they will into DFS, and good advice for new entrants is to take time evolve to become part of the mainstream financial service For customers, too, the role of smartphones is going Government can and should play a greater role in promoting to get the strategy and plan right; start small with a limited portfolio. Effectively, DFS will become another tool in the to grow and it is just a matter of time until a few ‘killer DFS. In many Latin American markets, DFS has been led service and/or geographical reach, and grow the DFS as box, to be used when it is the most appropriate means of applications’ emerge from amongst the mass of enthusiastic by banks with agent networks, and government payments the business gains the experience to cope with the new fintech developments currently underway. The figures for performing a specific transaction. Making the choice to have proven an effective way to generate mass adoption challenges and opportunities it brings. smartphone penetration and anticipated growth in Africa use DFS versus another type of account will depend on the of services. In Mexico, Bansefi Development Bank makes circumstances of the customer, their whereabouts and what are impressive, with the 226 million smartphones present in regular digital social payments to 6.5 million people on There is a largely untapped they want to do. DFS will remain the more likely solution 2015 expected to rise to 720 million by 2020.18 However, the government’s Prospera program, using retailers as part for low paid, rural customers to receive salaries and pay developers should be aware that this does not mean that opportunity for organisations to treat bills than for the urban rich. But affluent city dwellers may over half the population of Africa will have a smartphone. of the distribution network. The Brazilian Bolsa Familia program provides payments digitally to prepayment cards Even the cheap devices are relatively expensive for many, so high quality agents as a marketing still find mobile banking or a wallet the most convenient as well as bank accounts.19 Few African governments smartphone users tend to be more affluent. They upgrade way to pay in the local market. asset as well as a sales channel. regularly, and many smartphone users have more than one have yet given practical support to DFS in the form of The figure on the following page shows a simplified example device. Because of this, smartphone penetration amongst social payment distribution, despite their stated support In the face of relentless change, regulators have an of how accounts may be matched to consumer segments. the target unbanked DFS users is likely to be more limited. for financial inclusion. Providing guaranteed regular increasingly tough job. In Kenya, the regulator decided Taking this model as an ideal future of financial services, Nevertheless, penetration is growing and opportunities transactions to millions of recipients would provide an to take a ‘wait and see’ approach commensurate with a number of developments can be suggested to support it. exist to improve the DFS interfaces and provide associated enormous boost to the performance of both DFS providers the perceived risk, learning abut the technology and its The first is convergence of point-of-sale devices for both financial services by mobile Internet and user-friendly apps. and their agents. 26 DIGITAL ACCESS 27 DIGITAL ACCESS Not ‘if’ but ‘when’ account holders, even though they issue these accounts and benefit from the deposits. Similarly, they see DFS as There is growing worldwide consumer demand for DFS, not being ‘real’ financial services; indeed, some actually from on-line access to conventional banking services to call funds transfer from their accounts to mobile wallets prepaid cards and mobile wallets, and African consumers ‘bank to cash’, even when they know that the money is are no exception. Increasingly, they appreciate the benefits being used to perform transactions that could have been of convenience, speed, security and affordable pricing that processed by the bank. As they come to accept that DFS can bring. Some are skeptical due to perceptions of products designed for the mass-market are as legitimate risk, lack of consumer protection or technological failure, as conventional products, and can provide the bank with but the stellar growth of DFS to date indicates that it is significant incremental revenue, DFS will enter a new phase only a matter of time until they are also onboard. of development. Where MNOs kick-started the revolution, It is estimated that the financial opportunity from it is now up to financial institutions, supported by forward- unbanked and under-banked customers across the globe is thinking regulators, to take up the challenge of developing US$ 380 billion in annual revenues.20 Growing incomes at new products, partnerships and business models that can the base of the pyramid represents a spending market of take DFS and financial inclusion to the next level. US$ 3 trillion across the bottom 40 percent of the Susie Lonie is a DFS Specialist working with IFC in population in low- and middle-income economies.21 Sub-Saharan Africa and a member of the founding Many financial institutions are still struggling to accept team at M-PESA. In 2010 Susie was the co-winner of DFS as part of their core businesses. For example, banks ‘The Economist Innovation Award for Social and Economic often consider clients with prepaid cards as not being ‘real’ Innovation’ for her work on M-PESA. Diana, a MTN MoMo Pay activator, in Abidjan, Côte d’Ivoire, 28 DIGITAL ACCESS on 5 December 2017. 29 DIGITAL ACCESS Understanding the social and cultural context of DFS uptake This graphic describes an ethnographic framework for how key socio-cultural factors may drive or inhibit use and trust towards digital financial services. Building a new propositions, and (3) Depth of topical understanding by triangulating across a range of research methodologies and Economic market with integrating with other DFS research partners in industry, hierarchies academia and the World Bank Group. Networks of knowledge belonging Our headline research finding is this: digital financial services improve peoples’ lives. The general hypothesis behind the drive to expand global financial inclusion is that By Soren Heitmann access to formal and sustainable financial services will be IFC Operations Officer, Applied Research and of great assistance to people who were previously deemed Learning Lead, Partnership for Financial Inclusion too high-risk and expensive for the traditional financial Technological appropriation The ambition of the Partnership for Financial Inclusion sector to serve. Is this true? A large portion of the world’s Risk has always been bigger than our direct client engagements. adults have no account with a formal institution, and live perceptions Since the start of the initiative in 2012, the program team in the informal (cash) economy. People with little money has launched over thirty original research studies seeking still need to make payments and perform other financial transactions, and they do so with cash. This excludes them to better understand the emerging market for affordable, from the many benefits that a formal account can offer, Mobility of accessible and sustainable financial services for low-income such as safeguarding their savings, establishing a credit people and people, small-scale entrepreneurs and rural populations. money rating, making payments without needing to physically Our research efforts have focused on three core questions, transport cash, and access to funds for emergencies. each critical to supporting the emerging industry in its The barriers to owning conventional bank accounts are efforts to reach the previously unbanked. well documented, including limited physical infrastructure, • What are the drivers for scale and uptake of digital high charges, lack of KYC documentation and insufficient Historical financial services? or irregular earnings. Therefore, many people have to rely roots of • What value do digital financial services provide to monetary on informal means of managing money that can be high transactions financial services providers in terms of opportunities risk and expensive. Further, the cash is held outside the to grow operations, manage risks and deliver services? financial system and cannot be used for investment. • What is the impact on DFS users? We conducted a randomized control trial study in Senegal Our dedicated team for applied research and learning with a partner MFI, and discovered that customers has leveraged a multitude of methods to explore these who signed up for an account through agents became questions in a number of markets across Sub-Saharan better customers and were more financially included Africa, stretching from Big Data analytics to ethnographic than customers who used traditional bank branches. “I will never forget the disasters that hit the banking service in the past. So I don’t have much trust in it and I use observations. While some of our research findings have They made more transactions (withdrawals and deposits), my account carefully.”– Diam, Lubumbashi, DRC been tailored to directly benefit our partners and aid their saved up to 34 percent more, and had higher trust in the “Faced with very hard living conditions, people are united with the people they work with and no matter how little DFS deployments, we have made as much as possible public bank. Their personal attachment to the provider thus they earn, they can always find a way of sending money to their family, even a little.” – Focus Group participant, for the benefit of the industry as a whole and the expansion increased, even though customer interaction had been Dakar, Senegal of financial inclusion. The research program seeks to close outsourced to agents. When users transact through an “These are like banks right in the street, at the bus station where sometimes we witness theft and all forms of pick- knowledge capacity gaps in the market. These gaps are agent, it is personal, it is local, it is easy, and it is accessible. pocketing.” – Bus driver, Kitwe, Zambia targeted by the following research strategies: (1) Cross- An Ethnographic study that the Partnership commissioned in “With the development of money transfers, whenever a family member asks for money, you need to make it clear cutting themes that are pertinent across all DFS markets four African markets – Cameroon, Democratic Republic of - either you have money or you don’t. You can no longer claim you can’t get it to them.” – Policeman, Louga, Senegal and user segments, such as age or gender (2) Innovation Congo, Senegal and Zambia – showed that the overarching “I belong to a savings group. This encourages me to interact, socialize, save money and maintain connection and and technology, working with clients to test new ideas factor that drives uptake of digital financial services on the ties with friends.” – English Teacher, Bamenda, Cameroon and concepts and rigorously test DFS products and value continent is trust, which in itself is a factor of how well the “Bank accounts are prestigious and it would be nice to have one. But we are just not the right class.” – Mr Liseli, Kitwe, Zambia 30 DIGITAL ACCESS 31 DIGITAL ACCESS technology works and how supportive policies of customer protection are perceived to be, as well as social and cultural Our studies show how impact and operational value go hand in hand. The research program has helped us Financial inclusion in Africa: what the notion, and the historical experiences of the financial sector. better understand DFS customers, who they are and What are the benefits to new users? There is emerging why they transact (or don’t). Interestingly, our four- evidence that DFS can reduce poverty and food insecurity. In 2016, the Partnership conducted research with country ethnographic study looking at social, cultural and historical determinants of DFS adoption found that most numbers tell us smallholder cocoa farmers in Côte d’Ivoire that were such factors can work both as drivers and as barriers to being paid for their produce using bank accounts linked the digital expansion of financial inclusion, depending on Sub-Saharan Africa exemplifies mobile money’s be helping reduce gender and income gaps in to mobile wallets. The study shows that the habit of saving the specific country context. This is critical knowledge for potential to drive financial inclusion. Regionally, account ownership. The use of a mobile phone can help people smooth consumption and cope better the successful delivery of DFS that also helps advance and 43 percent of adults have an account, an increase to make a direct transaction from an account with financial shocks. Farmers who saved regularly were improve the quality of financial inclusion. Our innovative from 34 percent in 2014. While the share of tends to be high in these economies as well. better able to feed their families than those who did not research methodologies, such as Big Data analytics and adults in Sub-Saharan Africa with a financial In Kenya, 88 percent of account owners (or 72 save. This was the case irrespective of the farmers’ annual machine learning modeling, have helped us predict market institution account barely budged, the share percent of adults) use a mobile phone or the income, demonstrating that those who gained a level of growth opportunities for our partners. And our work with a mobile money account almost doubled Internet for a transaction from their account. financial literacy and the habit of saving were better able on digital channel ecosystems have helped to fine-tune – to 21 percent. In every other region, mobile to manage their money and improve living conditions, our understanding of business models and strategies to money penetration is lower than 10 percent. Opportunities abound to increase account specifically during the so-called ‘hunger months’ just before implement and grow digital channels efficiently. Many core ownership. Up to 95 million unbanked adults the new harvest. The same study also revealed that, while The last three years saw the spread of mobile in the region receive cash payments for the sale lessons are presented in the chapters of this publication, many smallholder cocoa farmers felt ‘socially excluded’ money accounts from East Africa to West of agricultural goods, while up to 65 million with research focuses featuring a range of studies from or intimidated by traditional banks, they were generally Africa and elsewhere. Sub-Saharan Africa is use semiformal savings. our popular handbooks on technology, risk management accepting of agent banking and digital services. Similarly, home to all eight economies where 20 percent and data analytics to more specific studies such as an By Asli Demirguc-Kunt, Leora Klapper, in a seminal study in Kenya, researchers (Suri & Jack, or more of adults have a mobile money examination of the case of customer inactivity in Côte account only: Burkina Faso, Côte d’Ivoire, Dorothe Singer, Saniya Ansar, and Jake Hess. 2016) found that M-PESA has reduced the poverty rate in d’Ivoire. Many studies substantiate business value for Gabon, Kenya, Senegal, Tanzania, Uganda, and The Global Findex Database 2017: Measuring the country by 2 percent since launch. It may not sound providers, quantified as numbers in active users or network Zimbabwe. Global Findex data suggests that in Financial Inclusion and the Fintech Revolution. like a lot, but that equates to 194,000 households that have growth; or show how innovative products and data these economies, mobile money accounts might World Bank: Washington, DC, 2018. been brought above the poverty line by access to financial analytics can proactively identify fraud, system gaming or services, and the effect was particularly pronounced on operational inefficiencies with solutions that demonstrate women-headed households. tangible cost savings. Mobile money accounts, percentage of adults, in Sub−Saharan Africa 2017 In Uganda, an ongoing Partnership research study is using The DFS market in emerging markets is still nascent and 0-9 30-39 a randomized control trial approach to attribute access to digital financial services to quantified improvement in fast evolving. Knowledge is critical to its advance and the concurrent expansion of financial inclusion. In Sub-Saharan 10-19 40-100 peoples’ livelihoods. Partial findings show that 70 percent of users are small-scale entrepreneurs, and that 40 percent Africa, we are witnessing an extraordinary shift towards 22-29 No data of transactions they make are for their businesses. In the more inclusive economic development, bringing millions of Democratic Republic of Congo, our agent performance study people into the formal and regulated financial sector and identified that women, on average, make better agents. This equipping them with tools to more easily manage their is particularly encouraging since the expansion of financial financial lives for their families, their businesses and the inclusion overall appears to be benefiting men to a greater future. Knowledge, and knowledge sharing, is part of what extent than women. makes this possible. 32 DIGITAL ACCESS 33 DIGITAL ACCESS Mikhail Velichko Julien Mahe Chief Executive Officer, AccessBanque Madagascar, Chief Executive Officer, Advans Cameroun, Cameroon Madagascar “Clients move fast to get the best “It is not enough to have a service that fits their expectations.” technical solution.” How would you describe the typical customer of What is the key to success in rolling out a DFS service, your services? INDUSTRY OPINION Francis Matseketsa Country Manager, Airtel Money, Uganda in your opinion? Communication with clients. When you are operating on Advans serve micro entrepreneurs, small enterprises and farmers. Progressively, more and more of our clients are the ground, you have to speak to your clients. You have to adopting DFS, and the development of an agent network has “I see a huge impact on explain to them the benefits of financial services, and help extended our outreach. We now also want to target salaried What does the future financial inclusion.” create a habit of using them. This takes time and effort, and workers in rural areas working for agricultural companies or on plantations. They face a big problem accessing finance. of DFS in Africa requires persistence. look like? How would you describe the typical customer of your DFS service? As a DFS provider, what has been the most important What is the key to success in rolling out a DFS service, in your opinion? learning in your company’s journey so far? We asked the industry. In the interviews on the next It is an excited customer who is yearning to learn more The biggest learning is that it is not enough to have a technical The two main success factors are client satisfaction and about DFS, as they are currently picking learnings mostly solution. The level of financial literacy is low in Sub-Saharan staff buy-in. Clients must trust third-party agents and feel few pages you will find nuggets of wisdom from from word of mouth. They want more awareness, more Africa, and in Madagascar financial education hardly existed comfortable to use the service. Strong internal and external a range of our partners, representing a variety of communications are necessary in the Cameroonian context, education, and more programs that teach them DFS and previously. We are launching a series of YouTube videos to financial services providers active in 11 African markets explain in simple and entertaining ways how a person can to build awareness and confidence in digital services. the benefits associated with it. today. We also conducted a broader email survey benefit from having a relationship with a bank. Pricing is important too, especially when you are among with market actors and industry experts in January What impact do you see from DFS on financial the first movers on a new service. this year, on eleven key questions for the future. inclusion and economic activity in your market? What are the biggest obstacles to expanding DFS in your market? What are the biggest obstacles preventing DFS from Over a hundred respondents from DFS providers, I see a huge impact on financial inclusion, especially with Infrastructure development is a big challenge, even roads. developing to full potential in your market? industry experts, investors, industry organizations, more products that will uplift the poor and bottom of the With digital financial services you still end up with cash, Current regulation on alternative channels is not very development finance institutions and academia, pyramid customers – products like micro-loans and micro- precise, which means that every innovative channel that is and delivering cash to an agent to help them balance their on the continent and beyond, provided their thoughts. savings and inward international remittances that will floats can be difficult. proposed for the first time can be interpreted differently They think, for example, that the provision of financial reach rural people from abroad. by regulatory authorities, which impacts the authorization services in the future is more or less an even race Where do you think the DFS industry will be in your process. The quality of infrastructure is also an obstacle. As a DFS provider, what has been the most important market in five years’ time? We are still facing issues related to the quality of mobile between banks, MNOs and fintechs, and they think learning in your company’s journey so far? Madagascar has one of the lowest levels of financial connections and telecom infrastructure. that blockchain technology will be primarily applied The most important learning in our DFS journey so far, is inclusion in the world. The traditions of people living here for value chain payments. In each of the following the need to have total support from top management in are important, and they are used to doing things a certain Where do you think the DFS industry in your market chapters, you will find a question and the answers, putting in place a dedicated team to drive the DFS agenda, way. In the future there will be a move to Internet channels will be in five years’ time? exploring industry opinion on the future of the DFS as opposed to using existing GSM resources to run the though. Madagascar has a high usage of Facebook, and Most people who lack access to financial services are in industry in the region. DFS business. we are doing promotions and communicating with clients rural areas, and as infrastructure and connections get better, through Facebook. We have about 150 messages come in more and more institutions will progressively offer DFS. What is the key to success in rolling out a DFS service, through Facebook every day, compared to 15-20 calls to The development of DFS through mobile money, e-banking our call center. and other digital solutions will provide greater access to in your opinion? clients and lower the cost of operations for both banks and Key to success is to have a clear DFS strategy supported by What impact do you see from DFS on financial microfinance institutions. Financial institutions are not the requisite skills to implement the strategy. inclusion and economic activity in your market? just competing with each other, but also with MNOs and The potential is huge, but so far activity and impact has fintech companies. Clients move fast to get the best service What are the biggest obstacles to DFS industry been limited. There are many banks and microfinance that fits their expectations. growth in your market? institutions in Madagascar, all going after the same clients. The biggest hurdle is lack of clarity in regulations governing To reach wider, for example all the street traders who have What impact do you see from DFS on financial DFS, which cause continuous or sudden changes in policy traditionally been excluded from banking, you have to first inclusion and economic activity in your market? and thus inhibit growth in DFS. invest in delivering knowledge to them. DFS can increase prosperity and make people more able to have bank accounts to secure their savings. DFS also makes Where do you think the DFS industry will be in your it easier to access loans, as it is possible to rely on Big market in five years’ time? Data for loan appraisals and disbursements, which really An almost complete ecosystem will be in place, touching most impacts the financial sector and forces financial institutions sectors of the economy, to the remotest part of the country. to review their business models. 34 DIGITAL ACCESS 35 DIGITAL ACCESS Mamadou Cissé Frank B. Adu Jr Chief Executive Officer, Baobab Chief Executive Officer, CalBank, Ghana (formerly Microcred), Senegal “DFS will serve as an avenue to “Salaried customers are new for us.” improve financial literacy.” What is the key to successfully rolling out a DFS service, in your opinion? What is the key to success in rolling out a DFS service, You need good knowledge of regulation. In markets in your opinion? where DFS is new, you may need to take the initial steps Selecting the right technology platform is a key success in regulatory evolution. We have worked closely with factor for DFS, because it is the foundation of the entire the regulator to understand the lack of regulation and service and will assist in providing the right product to to improve regulation. As a microfinance institution, customers. A reliable platform will ensure effective and it has been particularly important to show how we would timely transaction processing to boost customer confidence mitigate risk, so that the regulator could allow us to move and enhance customer experience. ahead with agent banking. How would you describe the typical customer of your What are the biggest obstacles to deploying DFS in DFS service? your market? A typical DFS customer cuts across the different customer You need good IT infrastructure, and this can be complicated segments, i.e. individual, SME and corporates. There are for a microfinance institution. Especially when the business the ones who are more technologically savvy and the ones case has not been proven yet, and you’re operating your who are not, however their expectation is to have access to traditional business concurrently. You need to invest a lot. financial services as and when they require without fail or As a DFS provider, what has been the most important service interruptions and to pay no or low commissions for learning in your company’s journey so far? transactions performed. Change management is critical. Your management needs to provide thought leadership for the business to adopt What impact do you see from DFS on financial change, and everyone should have a good understanding inclusion and economic activity in your market? of the project and how to present it to customers. It is a The emergence of mobile-based savings and credit products bit challenging to get everyone in an organization onboard for the unbanked and the underbanked is going to strengthen and to switch to a mass market model when the traditional the financial inclusiveness of the target market, and create credit business is doing well. Staff will have natural more convenience to the customer who is already enjoying concerns about objectives, productivity, bonuses, career banking services, in the sense that digital transactions, such as development and similar. You need to involve them to person-to-person transfers and bill payments, save customers support the change. time and resources. DFS is going to impact positively on the economic growth and stability of the Ghanaian market, and How would you describe the typical customer of your also serve as an avenue to improve financial literacy, exposing services? customers to options available in the financial services space More than 90 percent of our clients are entrepreneurs who and their rights as consumers of DFS. have their own businesses, and the others are salaried workers and some farmers. We started reaching out to farmers about Where do you think the DFS industry will be in your a year and a half ago, and salaried customers are new for us. market in five years’ time? Where do you think the DFS industry will be in your DFS will become an acceptable route to grow the financial market in five years’ time? sector, and will bring players in the insurance, investment There will be more financially included people, and lots of and other sectors of the economy into the space to offer DFS actors trying to be aggregators. There will be more one-stop financial and non-financial services to customers. development of second-generation products, credit based The preferred channel for offering DFS will be mobile on data-driven credit scoring in particular. We are afraid devices due to the high and continuous adoption of mobile the MNOs will take a lead on providing nano-credit, but phones, and the fact that it is a reliable and great way to the advantage is for the mass market as a whole. reach different geographic sectors of the market. Daniel, a MoMo Pay activator, in Abidjan, Côte d’Ivoire, on 36 DIGITAL ACCESS 7 December 2017. 37 DIGITAL ACCESS Mamie Kalonda Juan Seco Godwin Ehigiamusoe Brett Magrath Chief Executive Officer, FINCA DRC, Chief Operating Officer, JumiaPay, Kenya Chief Executive Officer, LAPO Microfinance Bank, Co-founder and Chief Customer Officer, Zoona, Democratic Republic of Congo Nigeria Zambia, Malawi and Mozambique “There are huge opportunities out “It’s important to reach the rural “The prospects for DFS in Nigeria “For providers, it may seem like a there, but they require departing areas, because that’s where people are very bright.” small thing to get a person to trust from traditional ways.” are poor.” What impact do you see from DFS on financial you with ten dollars.” As a DFS provider, what has been the most important inclusion and economic activity in your market? What impact do you see from DFS on financial learning in your company’s journey so far? DFS will certainly extend the frontiers of finance in Nigeria. As a DFS provider, what has been the most important inclusion in your market? There is a massive gap in services for SMEs and micro- Currently, there is a huge gap between the concentration of learning in your company’s journey so far? Financial inclusion was below 5 percent in the DRC, entrepreneurs who have shown the necessary commitment financial institutions and services in urban centers and the To listen to customers, understand their needs and design but has increased to over 10 percent because of the growth to grow their own business and the discipline to do so acute deprivation of financial services in the rural economy. around their needs, rather than pushing a technology in mobile money. Our typical customers are low-income healthily. Many of them have no financing options to This gap is expected to be significantly bridged by DFS. or solution. We’ve utilized a Human Centered Design micro-entrepreneurs who serve the poor. They don’t have go to – either because the process is too long and full of Enhanced financial intermediation, propelled by DFS, will process, and spent a lot of time in the prototyping phase a large revenue, and the aim for us is to help improve their requirements, or too expensive, or their business is seen as make a significant impact on agriculture and the many before development. The prototyping requires a back-and- standard of living. Our clients can open an account even too small, even if the risk is low. Nigerians that are engaged in agriculture. forth engagement with customers, and it is a process that if they don’t have Congolese francs or dollars in cash, and involves constant iteration to understand high-level needs, they can deposit as little as 500 franc per day (less than 50 What is the key to success in rolling out a DFS service, How would you describe the typical customer of user experience, and what’s most intuitive to customers. US cents) to build funds. There are no charges on deposits, very affordable maintenance fees on the accounts, and one in your opinion? your services? For most smaller entrepreneurs, time spent on a loan About 90 percent of our clients are women. It is widely How would you describe the typical user of free withdrawal per month. FINCA loans can be as small known that women are generally excluded from a range your services? as $50, and we are thinking about introducing digital loans application is a massive opportunity cost. It is time of financial services. Our customers generally have a low In Zambia, we are driven by six different consumers: higher of $5-10 because there is demand. Unemployment is 95 away from running their business and earning income. end, tech savvy students, business owners and achievers percent in the DRC, and even for salaried workers wages The process and approval timelines therefore need to be level of education, and are mainly owners of small-scale (employed individuals), who use more smartphones and are very low and payment often delayed. Everyone is trying reduced to have a product that really meets the need of and micro businesses. They are aged between 18 and 55, have higher tech savviness. Then traders and seasonal labor, to do their own business to get by. potential borrowers. and most have about 4-5 children per family. who prefer to transact with an agent rather than on their phone device. You find that the higher income individuals What are the biggest obstacles to the growth of DFS What are the biggest obstacles to DFS industry Where do you think the DFS industry will be in your are supporting the lower income levels. For example, you in your market? market in five years’ time? growth in your market? have students who are dependent on people supporting The poor infrastructure, especially in rural areas. The prospects for DFS in Nigeria are very bright. The agility and ability of traditional lenders to adapt to them, then they become achievers and support dependents. It’s important to reach beyond the urban centers to the rural The initial apathy will be overcome with greater awareness new paradigms and ways of putting their capital to good areas too, because that’s where poor people live. But it is and demonstrated value for stakeholders, especially for use. There are huge opportunities out there, but they What impact do you see from DFS on financial really difficult because of issues with network, connectivity service providers. There is growing commitment among and inaccessible roads. We have clients who have to climb require departing from traditional ways of looking at inclusion and economic activity in your markets? financial institutions, particularly microfinance institutions, on top of chairs or up a hill to get a connection to be able credit scoring and loan risk profiles. Cash is expensive, it is limiting, and difficult to transact. to the digitization of products and offerings. In addition, DFS is more effective and efficient, and it gives you the to use our services, so it is really challenging. there are a growing number of fintechs operating locally. Where do you think the DFS industry will be in your ability to build transaction histories and a credit score to There are a number of widespread financial practices access credit and savings that you don’t have in a cash As a DFS provider, what has been the most important market in five years’ time? among people that can be digitized. These factors, in the economy. What creates challenges in the industry is a lack learning in your company’s journey so far? I think we will see more and more lenders jumping into the near future, will combine to give DFS a quantum leap in of understanding of users and lack of financial education, Our agent network has grown very fast, to 1,300 agents. opportunity that digital platforms offer to generate new the Nigerian financial sector. Very soon, conventional client but when the industry takes it upon itself to make sure Instead of just looking for agents anywhere, it pays to get a loan portfolios that could have been perceived as extremely recruitment, loans origination, disbursement, collection, as people are educated about the services we will see more good understanding of who makes a good agent. Being able risky in the past, but for which they now have ways of to target agents with good potential saves cost, allows you to well as deposit mobilization channels and processes will DFS services and economic growth. getting the needed data to make a decision. move forward at faster speed, and leads to sustainable growth. be replaced. Any financial institution that desires to reach a large number of clients in an efficient manner cannot What is the key to success in rolling out a DFS service, What impact do you see from DFS on financial Where do you think the DFS industry will be in your afford to ignore the emerging DFS revolution. in your opinion? inclusion and economic activity in your market? market in five years’ time? The challenge is not digital, but one of trust and quality I think it will be huge and will create opportunities to What are the biggest obstacles to DFS developing in of experience. People get very excited and hyped by the In the DRC it will grow faster than before. Almost all banks successfully onboard a full segment of the economy into your market? promise of scale, and lose touch with the reality of the users are going mobile. When FINCA DRC rolled out its agent the financial services sphere. Financial inclusion is not A major obstacle to DFS in our environment is attitude. on the ground. For providers, it may seem like a small thing model there were no regulations in place, but the central bank has now used the FINCA experience to draft laws on only about access and financial literacy, it’s also offering a People still associate financial transactions with to get a person to trust you with ten dollars, but for that agent banking. An agent can work with any provider, and product that caters to the day-to-day needs of the users and conventional banking premises. It takes time and effort to individual it’s a huge amount of money. The key to success other market actors are contacting FINCA agents to work I believe DFS have the ability to do just that for a large part convince people to see a next-door convenience shop as a is to offer DFS in an empathetic way and to understand the with them. of the economy that remains untapped. place for credible financial transactions. development needs of the community to drive adoption. 38 DIGITAL ACCESS 39 DIGITAL ACCESS Alain Claude Nono General Manager Mobile Financial Services, MTN Cameroun, Cameroon “We need to invest for growth.” Where do you think the DFS industry will be in your market in five years’ time? If we compare today versus three years back, there’s already a significant shift in the usage of some services as more and more subscribers send money or recharge airtime using their mobile wallet. In the future, this trend will grow with a more diverse set of payments done using mobile money wallets. How would you describe the typical customer of your DFS service? An average income subscriber without a bank account, using his wallet to recharge airtime, send money, pay his electricity bill or a subscription to a TV program. What is the key to success in rolling out a DFS service, in your opinion? Subscriber education during the onboarding process is very important. Starting with basic services and gradually introducing more advanced services. This will ensure that a good proportion of registered customers remain active. What are the biggest obstacles to DFS industry growth in your market? In a few instances, the services proposed are ahead of the provisions of the regulation. It is therefore important to have a framework where regulatory authorities, partner banks and technical partners work hand in hand to address concerns around themes like anti-money laundering, while promoting financial inclusion. Also, traditional banks sometimes have seen more threats with mobile money than opportunities. The positive outcome of the learning curve over the recent years is that most banks are now engaging in digital banking initiatives in partnership with mobile operators, and we can see a positive momentum for a complementary approach between banks and mobile operators. What impact do you see from DFS on financial inclusion and economic activity in your market? There’s definitively a positive impact on financial inclusion as a significant amount of money is now injected in the formal banking universe through mobile wallets. Furthermore, all these subscribers who were not eligible for a banking account can now be scored against their financial behavior and have access to more services. As a DFS provider, what has been the most important learning in your company’s journey so far? Susan Mwango, a Zoona teller, in the booth she We need to invest for growth. Digital financial services are a operates in Lusaka, Zambia, on 9 January 2018. strong tool for subscriber retention and an alternative revenue stream to compensate a declining trend on telco core services. 40 DIGITAL ACCESS 41 DIGITAL ACCESS A money transfer user interface on a smartphone in the hand of Susan Mwango, a Zoona teller, in the booth she operates in Lusaka, Zambia, on 9 January 2018. 42 DIGITAL ACCESS 43 DIGITAL ACCESS 1 STRATEGY GSM customers. Also, the level of effort to set up an agent network, as opposed to MVNO, was significantly lower in terms of cost, regulatory approvals, and infrastructure How to date successfully in development time, and wouldn’t require negotiating hard- to-reach service agreements with an MNO. The agent the DFS era banking network will create the foundation on which By Joseck Luminzu Mudiri the MVNO objective will be achieved in the medium to IFC Senior Operations Officer, Johannesburg, South Africa long term. A key strategic consideration to successfully design The cost of investment for the agent banking channel was and deploy digital financial services is to identify the approximately 10 percent of the MVNO, and the time right partner or partners. DFS implementations are to market was less than half. The proposal immediately structurally complex, typically requiring expertise in resonated with the CalBank team, and the bank is now banking, telecommunications, technology, marketing currently preparing to launch its agent network solution and distribution. Rarely will one company have the core in 2018. It’s expected to reach approximately one million competence to perform all of these functions efficiently. customers in five years, including 500,000 new users that Banks and MNOs commonly partner to create digital previously had no access to banking services. channels leveraging the bank’s regulatory status as a financial services provider and the MNO’s customer Strategy is the first crucial step IFC’s partnership with CalBank offers holistic support base and distribution network. There are product- throughout the implementation of the DFS strategy, from on a DFS journey primary market research and the design of the agent model specific partnerships, such as the successful digital micro-loan service, M-Shwari, pioneered by Safaricom to customer acquisition activities and risk management. and Commercial Bank of Africa in Kenya. Many DFS For established banks that want to expand into the mass providers outsource their network management to an The project exemplifies the comprehensive approach market, digital financial services are an obvious choice. required to launch a DFS implementation from zero. aggregator in distribution partnerships. Increasingly, Formulating the strategy is the first and crucial step that there’s opportunity for collaborations between DFS What the DFS strategy and implementation should look providers and fintechs to pursue innovative solutions like is less given. There are many options in terms of includes developing the business case based on the long-term catering to an ever-more sophisticated customer goals of the institution, present capabilities and capacity, business models, technology and approaches, and it is demand. Regardless of whether partnerships are driven current market position, and financial assumptions. by economic or regulatory necessity, they have become easy to get lost in a rapidly evolving market environment. introduced an app through which customers are able to Implementation requires a comprehensive effort. Market an important feature of DFS delivery in many markets. access account information and make payments. CalBank aspires to be a financial services institution of preference research helps establish the opportunities in the market How does a provider identify its dream partner, through delivery of quality service, using innovative to acquire new customers and where to locate agents. and how do partners make their relationships last? Digital financial services have fundamentally changed the Partnerships should be designed by aligning the technology and skilled personnel to achieve sustainable An analysis of existing customers can be useful to discern financial sector in Sub-Saharan Africa. The number and strategic goals of the partners, and by leveraging the growth and enhanced stakeholder value. trends that can be leveraged to enhance the delivery of variety of financial service providers have increased as key competencies of each partner. Partnerships are the new channel and products over the channel. An agent a new market for affordable and accessible services and In 2016, it entered into partnership with IFC to launch a delicate, and strategic buy-in is critical to success. delivery model needs to be designed that benefits all parties products has emerged. Long gone are the days when banks digital financial services strategy to expand its retail services They should also be iterative in nature, allowing for in the value chain, plus the necessary support structures learning as they mature. Partnerships will surely fail were exclusive buildings on the main streets of larger cities and rapidly increase its retail base. The bank already had within the bank to manage the network. This often requires when there’s strategic misalignment, however strong only, catering mainly to corporate and wealthy clients. quite advanced ideas of how to reach out to the mass substantial staff training. In terms of IT infrastructure, the partners are in themselves. Customer ownership is a Low-income people, small-scale entrepreneurs and rural market by deploying a Mobile Virtual Network Operator, an approach that is relatively untested and fairly expensive. the agent model will need to be supported by a contact particular bone of contention. Control, skills, structure, populations that were previously considered too risky and center, an agent management system and CRM. The launch organizational culture and technological compatibility too expensive to bank, are now the growth market. During an introductory workshop held by IFC’s DFS team of the agent banking channel also introduces new risks and are all important factors. in Sub-Saharan Africa to share knowledge and experience, CalBank is an indigenous financial services provider in amplifies other existing risks, often making it necessary to discussions focused on the goal of mobilizing sustainable Agile and competitive DFS providers offer better Ghana, providing a broad range of banking and financial review and strengthen risk management practices. Once solutions to users, more efficiently. Forward-looking retail deposits and how to deliver a mass market proposition solutions to large corporations, small and medium-sized the channel is ready to launch, customer acquisition will service providers realize that they are part of a wider to the market. Several ways were explored, including the enterprises, public sector institutions and retail customers, require education and registration campaigns via above- and rapidly evolving ecosystem, and use their strengths MVNO approach. While the MVNO strategy would be through a network of 28 branches, over one hundred ATMs and below-the-line channels to bring new customers on to unlock the benefits of the entire system or risk being pursued for the longer term, the IFC team proposed that across the country, and more than 130 POS terminals that left behind. the bank opt for a tried and tested agent banking approach board and encourage existing bank clients to adopt DFS. facilitate card payments at merchant locations. As part as a first step to going mass market. DFS is relatively new in most markets in Sub-Saharan of the bank’s strategy to promote financial inclusion, the bank has introduced a mobile banking (USSD) service CalBank’s primary goal to employ DFS was to attract new Africa, and for a lot of institutions a DFS implementation that allows customers to link a mobile money wallet to an customers and new depositors. After reviewing the MVNO requires new knowledge. It is important to fully examine account, thereby bringing mobile money wallet holders into vs agent network approach, it was proposed that the agent the available options upfront, and devise a strategy that the banking system. Mobile banking also offers customers banking approach would be more strategic, as it allows resonates best with the institution and the goals it has for the convenience of accessing their account information CalBank to target new customers directly with financial launching DFS. Unless this is fully established upfront, it is and transacting on mobile devices. The bank has further service products, without having to first acquire them as highly likely that something will go wrong along the way. 44 DIGITAL ACCESS STRATEGY STRATEGY Overall financial inclusion rate vs mobile money account rate 100 80 40.5% 58.0% 60 29.4% 40 13.0% 39.0% 20 n/a 0 2011 2014 2017 % Account rate, adult population % Mobile account, all adults MARKET OVERVIEW Industry opinion: communications and also providing the four mobile wallets World Bank, Findex on offer. MTN dominates mobile wallet usage with over Any account ownership, adult 58% 90 percent market share.3 In early 2018, Tigo and Airtel population, 2017 Who will be the leading provider of merged, and the impact this will have upon the companies’ mass market financial services in Ghana: respective DFS offerings is yet to be seen. Any account ownership, women, 2017 54% Sub-Saharan Africa in 10 years’ time? a West African DFS support a wide range of transactions including domestic and international remittances, utility payments, Any account ownership, young adults (15-24 years), 2017 48% Strategy is key to the success of digital financial services. rising star bulk payments (such as salary payroll and social payments) Financial institutions account, 42% The growth of the DFS industry in Sub-Saharan Africa over the past ten years has come to challenge the traditional and transfers between wallets and conventional bank adults, 2017 dominance of banks in the sector. Today there are a multitude accounts. In 2016, Ecobank launched the TBILL4ALL of both competing and cooperating financial services service, the first service of its kind allowing the purchase of Mobile money account, adults, 2017 39% providers on the continent. Ghana has a fast-growing economy that has experienced treasury bills using mobile money. More recently, interest- Saved at a financial institution, 16% sustained GDP growth in recent years. Over half the bearing savings have been made available, such as the ‘MTN adults, 2017 population of 27.5 million now lives in urban areas, and the Y’ello Save’ service launched in 2017 in partnership with Fidelity Bank. In 2016 the central bank approved interest Saved semi-formally, in a savings 19% service sector provides over 40 percent of all jobs. However, payments on funds held in mobile wallets, and in 2017 the club or with person outside the the largest employer is still agricultural (45 percent), mainly MNOs paid their customers approximately US$ 16 million family, adults, 2017 in the form of smallholder farming. With economic growth, there has been significant progress in poverty reduction and in interest.4 Micro-lending and micro-insurance services Borrowed formally, from an 12% just 13.6 percent of the population now lives below the are also available, although they have yet to achieve scale. institution or credit card, adults, 2017 poverty line, although this figure is higher in rural areas. The Bank of Ghana first issued DFS guidelines in 2008, Borrowed from friends and family, 23% The Ghanaian economy has suffered from falling commodity intended to promote interoperability and open access, and adults, 2017 prices, soaring inflation and the currency losing value over included the requirement for multiple banks to hold the MNO e-money float. However, this is now considered Poverty rate, 2012 13.6% the last few years. As a result, the central bank increased its minimum capital requirements for banks. The consumer to have slowed early DFS growth, due to the unintended GSMA credit market in Ghana is tight and expensive, with most consequences of dilution of the potential benefit to banks banks preferring to keep deposits in treasury bills that are at a creating a reluctance to invest, plus the difficulty in getting Unique mobile network 18.9 m current one-year interest rate of 15 percent. agreement between multiple partners.5 New e-Money subscribers, 2017 Issuer (EMI) Guidelines were issued in 2015 requiring Ghana’s financial inclusion rate is relatively high, with Mobile penetration rate, 2017 67% each MNO to set up a separate business for its DFS, and Banks (35%) 58 percent of adults having an account of some kind in to obtain an EMI license, bringing mobile money directly Central Bank of Ghana 2017.1 By December 2017 there were 11.4 million accounts under the supervision of the Central Bank.6 A new switch MNOs (32%) with licensed financial institutions, and 24 million mobile is being developed by the Ghana Interbank Payments and Volume of MM transactions, 2016 550,218,427 money accounts.2 Some banks have started to engage actively Fintechs (30%) Settlement System (GhIPSS) to provide interoperability Value of MM transactions, 2016 17,600.1 m US$8 in providing DFS, such as Fidelity Bank’s Smart account; between mobile wallets. Expected to be ready in early 2018, MFIs (3%) a card-based account with abridged KYC requirements it will also be able to route transactions between wallets Registered mobile money users 19,735,098 that can be used with digital POS devices for a range of and bank accounts. The scheme rules and pricing structure (wallets), 2016 transactions. However, most DFS activity is via MNO are not yet known. A second phase of interoperability is Number of agents, 2016 136,769 wallets. Over 2016 the amount held in mobile money planned, linking this platform and the existing e-zwitch accounts rose by 85 percent, and active users grew by biometric card and POS system.7 Licensed banks, 2017 35 71 percent to 8.3 million. The opportunity that DFS offers to increase efficiency, Bank branches, 2016 1,341 About two-thirds of the population are mobile phone transparency and security of these transactions is subscribers, meaning Ghana substantially outperforms significant. A study of DFS economic indicators for the Total assets,9 2016 21,639.9 m US$10 most of Sub-Saharan Africa. Internet usage via smartphones central bank payment systems department concluded:3 and feature phones is also high at 45 percent, supported “Development of the mobile money sub-sector encourages Mix Market by widespread 3G coverage. There are nine registered financial inclusion and deepens the payment systems. Licensed MFIs 81 MNOs with the top four (MTN, Vodafone, Tigo and Mobile money sub-sector is therefore one of the key drivers Airtel) being responsible for over 97 percent of all mobile of the payment systems in Ghana.” 46 DIGITAL ACCESS 47 DIGITAL ACCESS STRATEGY STRATEGY Microfinance institutions have adopted a variety of strategies to deploy DFS SENEGAL Agents & kiosks M-banking NIGERIA 3rd Party agents Debit cards M-banking RESEARCH FOCUS According to the study data, transacting at agents represent around 25 percent less in operational cost than conducting a branch transaction. Those with mature agent networks NIGERIA Agents Debit cards M-banking (greater than three years) significantly increased their Turning outreach, both in terms of clients and locations. Results CAMEROON for deposit mobilization, however, thus far indicate that it Agents & cashiers branches Roving staff M-banking digital strategies has taken quite some time for any of the MFIs to see a significant increase in the size of deposit portfolios. DRC into reality The study has identified several recommendations for the successful set-up, roll-out and management of a network of Agents Prepaid cards Roving agents M-banking digital financial services agents: DFS hold much promise for financial inclusion. Agent location: The most successful agent networks were However, making the most of the opportunities offered usually established near MFI branches. The main reason for this was to facilitate agent liquidity management. The Research question: by new technology and innovative business models is not easy. IFC and the Mastercard Foundation ran most difficult aspect of managing agents is ensuring that Is DFS a viable strategy for a unique, four-year longitudinal study to chart the they have sufficient funds in their accounts to service cash-in microfinance institutions to extend transactions, typically loan repayments; and have sufficient journey of nine African microfinance institutions reach to financially excluded cash to service withdrawals. Launching agents near branches that are implementing digital channels, and their also means that any early issues can be fixed quickly, before populations? experiences have resulted in important insights for tackling the difficulties of managing agents at a distance. Data collected: A range of indicators from nine MFIs the industry. The synergy between agents and branches demonstrates that in Sub-Saharan Africa over four years. Indicators even where there is a successful agent network, branches included number of agents, activity rates, number and For most microfinance institutions, DFS is a completely remain relevant. activity rates of users, standard financial indicators of new type of business. While potentially offering benefits and opportunities to provider and users alike, DFS are far Quality of agent network: Many of the MFIs fell into costs and profitability. Collection methods were both from the MFIs core areas of expertise and comfort zone. the trap of wanting a large agent network as quickly as quantitative and qualitative, including site visits by the Well-run digital services can extend geographical outreach possible. Inactive agents are a cost rather than a source of research team to each MFI once a year 2014-2018. and allow MFIs to scale up operations cost-effectively; they revenue though, so focus needs to be on establishing and Methodology: Qualitative and quantitative. can facilitate a wider range of services and products; and maintaining active agents. The median agent activity in this Primary conclusion: All MFIs have increased agent they usually bring efficiency improvements and cost savings study was just 60 percent, but still higher than the global network size considerably and enlarged their customer for the institution. As champions of financial inclusion, average at 51.4 percent. Over the three years of the study to base and channel user base. On average, transactions MFIs have the advantage of already knowing target users date, the median agent activity rate has grown, suggesting at agents cost $0.31 less than at branches. relatively well, compared to MNOs or fintechs. the MFIs are getting better at recruiting and incentivizing The encouraging news is that early results from the quality agents. A critical mass of agents is necessary to longitudinal research indicate that a number of MFIs are launch, but this can be quite small. A structured agent starting to manage the challenges of deploying DFS, and recruitment plan is necessary, growing the number of RWANDA are on the path to success. agents with consumer demand. Two of the MFIs in the study started with fewer than 50 agents and are showing Agents Mobile savings Fundamentally, most DFS strategies adopted by the MFIs signs of success. in the study were motivated by the two goals of extending TANZANIA reach to new clients, particularly in rural areas, while Agent recruitment options: The types of outlets suitable keeping the cost of this expansion low. Most of them for consideration as agents may be specified by regulation Agents M-banking also considered growing their deposit portfolio as a key to meet certain minimum standards. An MFI agent network objective for the new channel. Based on these objectives, study in the Democratic Republic of Congo showed that MADAGASCAR the most common choice for the MFIs was to use DFS agents are generally most successful in densely populated Agents to deliver an agent strategy. Overall, this appears to have areas that have a lot of commercial activity. Older been a successful choice: the MFIs with the longest running agents were busier than younger agents, service-oriented MADAGASCAR agent banking channel have been successful in attaining businesses such as hairdressers and tailors outperformed the original strategic goal of expanding with lower cost. retailers, and women agents proved to be significantly more Agents 48 DIGITAL ACCESS 49 DIGITAL ACCESS STRATEGY STRATEGY Median number of active agents (as % of total agents) over the duration of the study 100 90 80 70 Percentage 60 50 40 30 20 10 0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Median quarterly agent commission over the study period 46.49 33.97 32.60 32.09 46.20 51.93 50.73 44.92 50.18 53.25 60 Percentage 40 20 0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Growth trend Median of study MFIs successful than male agents, with both higher volume and preferential rates. Agents tend to expect the MFI to pay, value of transactions. Agent recruitment and management given the unproven business case and the relatively low is time-consuming and often falls outside of providers margins they can earn. core competence. The study shows that outsourcing After gaining experience in the implementation of a digital such functions to aggregators can be beneficial, but also expensive. channel, the MFIs in the study started considering the notion of providing better customer service and better Agent business case: Over the four years of this study, products through this channel as strategic goals, and some the median quarterly commission per active agent grew have started working on ways to enhance the customer from US$ 46.49 to US$ 53.25, growing at 3 percent per experience. For example, two MFIs have developed quarter. Even though the number of agents grew at a specific nano-loan products for delivery only via agents. faster rate than active customers, there were still sufficient Others have increased their agent service to include bill additional transactions taking place to provide each agent payments, transfers and mobile top-ups. Some MFIs are with more revenue. This result is particularly encouraging currently developing their own internal capacity to better because one of the MFIs reduced its agent commission per analyze transactional data to improve agent performance transaction part way through the study. Combined with and liquidity, and in this way, indirectly improve customer the quarterly net 3 percent growth in active agents, this experience. result shows that there was an increased client demand for agent services that overtook the growth of the active agent In Sub-Saharan Africa MNOs have taken a lead in providing network. The question remains as to whether a quarterly accessible, affordable and sustainable financial services to income of US$ 53 is sufficient to provide a cost-effective previously excluded populations, but the study shows that return to agents. there is also a role to play for MFIs. This is especially true Agent technology: A common strategic consideration is for the provision of loans to small-scale entrepreneurs and which POS device the agent should use and who pays for rural communities. The regional microfinance sector has it. POS selection can determine the success or otherwise moved decisively to follow the digitization trend of the of the digital strategy. Conventional dedicated POS devices financial sector, with encouraging early results. can be disproportionately expensive compared with the Further reading: Partnership Field Note #7 Turning Digital revenue and commission that they will generate, and they MFI Strategies Into Reality by Susie Lonie, with Gisela also have technical limitations. Smartphones and tablets Davico and Julia Conrad. are better suited to the fast-changing digital environment and are easier to update as technology changes. Most of Benchmarking the Financial Performance, Growth, and Interns tasked with conducting phone surveys with Zoona customers the MFIs in the study provided POS devices to agents for Outreach of Greenfield Microfinance Institutions in Sub- during a team meeting at the company’s office in Lusaka, Zambia, free, but as dedicated devices are expensive, the MFIs are Saharan Africa, Policy Research Working Paper No. 7029. on 9 January 2018. considering making the agent pay a contribution towards World Bank Group, by Robert Cull, Sven Harten and the cost. Some already offer loans for POS devices at Greta Bull. 50 DIGITAL ACCESS 51 DIGITAL ACCESS STRATEGY STRATEGY Digital loans offer instant growth power to Madagascar’s entrepreneurs Biometric fingerprint scanners enable Baobab customers to transact simply and securely, at an agent’s premises in Antananarivo, Madagascar, on 16 February 2018. 52 DIGITAL ACCESS 53 DIGITAL ACCESS STRATEGY STRATEGY In Madagascar, political instability and an economic slump has created a tough business climate for small- scale entrepreneurs. An instant digital nano-credit from microfinance institution Baobab provides innovative and welcome support for business growth. Antananarivo, Madagascar. In December last year, a buzz called Voahirana Mamy Ravelonoro’s attention from the salads and muffins on display in her restaurant to a text message on her phone. It was an SMS from her microfinance bank, Baobab Madagascar, telling her that she had qualified for a Taka loan. “There was no paperwork,” recounts Voahirana, or Vo as she is known to her friends. “I just showed up at the Baobab agent, showed them the text message I had received and my national identification card, put my finger on the biometric machine and withdrew the money.” The extra few hundred dollars came in handy for the Christmas season. Vo used it to buy flour, sugar and eggs for the small restaurant that she had recently opened. “In December, the price of eggs is very high because everyone is baking,” she explains. With more stock, she was able to meet the increased demand over the busy period, when residents in her suburb of Madagascar’s capital Antananarivo treat themselves to a snack as they peruse the market stalls lining the street. With an annual GDP per capita of only $401, people in Madagascar are among the poorest in the world. In the past few decades, the country has experienced several disputed elections and wrestles for political power. Following a rebellion in 2009, Madagascar went into a political stalemate, leading to international trading sanctions and a slump in the economy. In 2013, democratic elections resumed, but the situation is still considered fragile. At 18 percent, the financial inclusion rate is very low, and access to formal finance for small-scale entrepreneurs such as Vo very limited. Voahirana Mamy Ravelonoro, a client of Baobab Bank and a user of their Taka Loan product, at her restaurant Envie de Manger in Antananarivo, Madagascar, on 14 February 2018. 54 DIGITAL ACCESS 55 DIGITAL ACCESS STRATEGY STRATEGY “There is a lack of formal financial support for the people aspect of the Taka loan is its incentive for quick repayment: to meet their needs, and no well-defined social policy for if clients pay back the loan within 15 days, they become helping the population,” says Jean Arnaldo Armand, the eligible for an increased loan amount the next time they CEO of Baobab Madagascar (formerly Microcred Bank borrow. If the client repays the loan within 30 days, they Madagascar). will be eligible for the same amount the next time. On the other hand, if the client repays the loan after 30 days, they As in many African markets, digital financial services are helping to push broader access to formal financial will not qualify for another Taka loan in the near future. services in Madagascar, albeit still at a relatively slow pace. Leveraging biometric technology for identification, 2 In 2016, Orange Money estimated that there were about 4 Baobab’s agents are able to offer a fast, reliable and million registered mobile money accounts in the country’s accessible service to its clients. When the technology was population of 25 million, but only one out of eight of those first introduced, the idea of digital financial services was accounts were considered active, meaning about 2 percent still something novel in Madagascar. It has taken Baobab of the Malagasy actively use mobile money accounts. some time to get customers as well as the regulatory For small-scale entrepreneurs such as Vo, time away from authorities on board. the business often means revenue lost, “and that can cause “Now, after two years of convincing the clients, convincing frustration,” says Armand. Speed has thus become a central the regulators, and training the staff, it is well on its way,” priority for Baobab, a microfinance institution established says Armand. Baobab’s goal is to be “completely digital” in in Madagascar in 2010 that aims to serve low-income the near future. people, small-scale entrepreneurs and rural populations. It launched an agent network in 2015 to provide some of Vo, who is a long-term client of Baobab, says she goes to its basic services with greater reach. There are now 304 an agent when the bank queues are too long. But according agents in the country, almost ten times as many as the to Tsiaronirina Rabenasandrata, a Baobab area agent 37 bank branches. The agent network is the sole channel manager in Antananarivo, the agents also reach people that 1 3 for certain services, such as the Taka loan, for example, the bank branches do not. which is redeemable at an agent rather than a branch, “When people come here, they are more anonymous “to facilitate quick access to the money,” says Armand. and less intimidated than walking into a bank,” she says. The instant nano-credit offered is available only to existing She believes that the biometric technology also makes clients of the microfinance institution and based on a credit Baobab’s services accessible to those who are illiterate. “It’s scoring model drawing on clients’ loan repayment and really helpful for people who can’t read or write,” she says, savings history. Eligible clients receive an SMS message “With other systems, people might need to remember a letting them know how much cash they qualify for, and that code or a password, but here they just need to put their they can obtain the loan through a Baobab agent. A key fingerprint, and that’s it.” 1. A view of the street where Voahirana Mamy Ravelonoro’s restaurant 3. Voahirana Mamy Ravelonoro (right), a client of Baobab Bank and a is located in Antananarivo. user of their Taka Loan product, with customers at her restaurant. 2. An agent for Baobab and various mobile money services. 4. Voahirana Mamy Ravelonoro loading call credit onto one of her phones. 4 56 DIGITAL ACCESS 57 DIGITAL ACCESS STRATEGY STRATEGY Fifteen years ago, when Vo opened her first business, a Baobab is making efforts to increase financial literacy and beauty salon called Aux Envies de Beauté, the space was good borrowing behavior in Madagascar. The company little more than a garage. She used her first Baobab loan provides ‘money management’ training workshops to of about $250 to replace the stained wooden roof with a MSMEs, and extensive financial advisory support to clients new ceiling, tile the floor and paint the concrete walls a through field-based portfolio managers. Vo’s portfolio fresh white. With subsequent loans, Vo was able to further manager, Sandrata Andrianatoandro, has been working with expand and upgrade the business. Red leather chairs and her for several years. She ensures that Vo is using her borrowed framed mirrors now surround the walls. In one corner is a money productively, and advises Vo how best to repay her professional wash basin and a massage bed, decorated with loans. After assessing her financial position, Andrianatoandro fabric flowers. Most recently, Vo was able to set up her encouraged Vo pay back her most recent loan over a shorter small restaurant. Business at the eatery has swiftly taken period of time than normal. “If Vo pays the loan back quicker, off, and she now has four full-time employees. Among she will pay less interest,” she points out. them are chef Andry Ranaivojaonarilala.“With this job, I Baobab receives much of its business by word of mouth. have a comfortable life. I am able to provide for my wife Marie Hortense Raharimalala, for example, heard about and children,” he says. the Taka loan from a friend. “I decided to pop in to see if Every week Vo earmarks a portion of her earnings for I qualify,” she says, sitting on a bench at a Baobab agent. loan reimbursements, a savings mentality that has helped As an existing Baobab client, the teller looks her up on her take out and pay back five Baobab loans. If necessary, the Baobab system, confirms that she qualifies for a Taka the family makes lifestyle sacrifices in order to meet their credit for a specific amount, and immediately gives her commitments. the cash. Raharimalala will use it to buy woven baskets “We eat green leaves and oil,” says Vo, quoting a Malagasy from Ambatondrazaka, north of the capital. She then adds idiom. “People tell stories about the bank, how it will come finishing touches, such as leather handles and embroidered to your house and take your things,” says Vo’s husband designs, and sells them at a nearby market for more than Irmin. “But when the bank seizes people’s possessions, it four times the amount she buys them for. “The Taka loan is is because they didn’t use the money for the reason they Baobab’s most helpful service,” she says. requested it. Instead, they buy delicious food or a new Vo and her husband Irmin are enthusiastic about the mattress,” he says. possibilities that access to credit has offered them. “Using The overall financial discipline of the Malagasy people Baobab has significantly improved my life,” says Vo, and Baobab’s own rigorous vetting process means the looking out over the busy street outside her restaurant. default rate on its loans is very low, despite the challenging “We have more clients at the salon, we’ve been able to economic climate. “Every month, 97 percent of our open the restaurant, and now we even have a car.” customers pay back their loans,’ says Armand. Longer-term Irmin says the success is based on a “trusting relationship Baobab loans are generally used by small entrepreneurs with Baobab.” The pair prioritize their loan repayments, to grow their businesses, while the short-term Taka loans qualify for more loans, and are thus able to grow their fulfill a variety of needs, from providing cashflow injections businesses. “We keep in mind the scripture in Job 8:7, for businesses such as Vo’s restaurant, to helping parents ‘And though thy beginning was small, yet thy end should pay school fees or bills at the end of the month. greatly increase’.” Voahirana Mamy Ravelonoro during a quiet moment at Envie de Beauté, her salon in Antananarivo. 58 DIGITAL ACCESS 59 DIGITAL ACCESS STRATEGY STRATEGY Marie Hortense Raharimalala, Baobab Taka loan customer: “ The Taka loan is Baobab’s most ” helpful service. Tsiaronirina Soahanginirina Sandrata Edmei Rajaonary, Rabenasandratra, Razafindrahanta, Andrianatoandro, business owner Baobab area outlet teller at a Baobab portfolio manager for of Asterale manager: agent: Baobab: Essential Oils: “It really helps to have “When I have connectivity “Most of our clients are “I think the reason digital-based financial problems with one service entrepreneurs who have that many people in services, but it shouldn’t provider, I switch to little chance of getting loans Madagascar don’t use be too high tech.” another, using a tablet.” from traditional banks.” banks is really a matter of distrust. People don’t really trust banks, especially the fees they have to pay.”  Marie Hortense Raharimalala visiting a Baobab Bank agent to take out a Taka instant loan. 60 DIGITAL ACCESS 61 DIGITAL ACCESS meet its business objectives. Determining the technology platform, which requires decisions at both the application Digital banking and device layer, needs to happen before a FSP can is not equal proceed to vendor selection and implementation activities. Once done, work to identify the best vendor can start. to technology Some FSPs have found that an in-depth gap analysis 2 and requirements workshop with a small number of By Fahima Said Bille prequalified vendors can yield a successful selection. IFC Associate Operations Officer, Nairobi, Kenya This approach typically requires some consulting fees It is becoming increasingly evident to traditional upfront, but can contribute to considerable cost savings TECHNOLOGY financial services providers in Sub-Saharan Africa that in the long term, because the FSP will be equipped with digitization is not an optional extra or a sub-business, a deeper understanding of the vendor’s solution and skills but a tool to modernize and adapt an existing business before commencing the full implementation. to a new market reality. Some banks decide to set up For Fidelity, the IFC project team introduced a formalized wholly owned online or mobile banking subsidiaries; and comprehensive requirements gathering, evaluation and others opt to partner with fintechs and MNOs; scoring methodology to streamline the vendor selection a few undergo a complete digital transformation, process, and then worked with the Fidelity team to including partnerships. A tough choice: selecting the clarify solution design and requirements. A requirements For any bank considering digitization, it is important to document was developed that was translated into a Request right technology for Proposals and scoring sheet, used to short-list vendors understand that digital transformation is not primarily for presentations. Introducing a scoring mechanism about new technology, fancy apps and millennials. The world of DFS technology, with the wide range brought awareness and clarity to the selection process, It is a new way of working that enables the institution to of delivery channels, technology platforms, and and allowed reviewers to present their perspectives in a take advantage of innovation to quickly and seamlessly way that could be consolidated into an optimal solution. react to a more diverse and rapidly growing market communications and device options, can be daunting. Once the optimal software solution had been identified, demand. For established banks in some African markets, A limited understanding of the technology options available a more fully detailed set of requirements was developed this may be crucial for long-term survival. Traditionally, and the role technology plays in the development of a to assess the timeframe required to install and configure banks rely on siloed teams and a sequential approach digital channel can lead to significant costs, delays and Its flagship product is the Smart Account, an entry-level the necessary technology. Finally, a consolidated work plan to product development. In a digital bank, the culture is card-based product using agents for basic services normally was developed that combined technology, organizational, even failure to implement. one of multi-functional teams that can quickly adapt to provided at bank branches. It was initially launched in training and marketing work streams to expedite a smooth change. Such teams release products within weeks, not July 2013, with a rapid deployment of agents, customer and efficient implementation process. months, and are continually upgrading these products. uptake and volume of transactions. However, the service In addition, the IFC team advised the bank on overall It’s about creating and introducing client-centric Technology is central to the deployment of digital financial quickly experienced growing pains. This was partly due technical architecture in support of a new initiative to set solutions, agile methodologies and lean decision- services and their ability to provide affordable, accessible to the novelty of agent banking in the market, and partly up an innovation unit and in preparation for anticipated making processes. and sustainable financial services to people who were due to an inflexible technical system that was unable to expansion, including partnerships with third party fintech. previously often excluded from traditional bank services. cope with the increased demands on it from a fast-evolving This can be a challenging process for institutions. This included the design of a range of capabilities, such Mobile and agent banking solutions rely on technology to service. There were significant issues with unplanned In addition to acquiring the right technology to enable as foundational database and interface criteria, program enable instant transmission of financial and non-financial downtime and high transaction failure rates that forced interfacing for third party collaboration (APIs), standardized digital channels, ‘going digital’ may require changes in information between the financial services provider and the team to focus on constant fire-fighting instead of contracting for vendors, operating procedures, and service management structure and decision-making hierarchies, customers to be able to cost-efficiently provide access to business development. level commitments for partnering firms. With this in place, re-organization, and recruitment of new staff or up-skilling financial services ‘anywhere, anytime, anyhow’. Agent banking was in its infancy at the time and few the bank is able to design its infrastructure with a long- of existing staff. Market leaders show that a clear strategy New technologies also increase efficiency through technologies had a proven track record. In 2016, Fidelity term view of its future requirements. and roadmap that is understood by all stakeholders automation, reduce operational cost, and improve service engaged IFC in advancing its agent banking services, and help, as well as a decentralized leadership approach. Based on the established selection process, Fidelity acquired quality by cutting down on waiting times and offering more one of the first tasks for the project team was to help While technology enables innovation and change, you and deployed a new agent management system that convenient access and reduced cost to the end-consumer. address the technology challenges. A fundamental decision also need to change to leverage the technology. brought greater stability to the technology used by agents But as a financial services provider, how do you know had to be made whether to maintain and extend legacy to onboard and serve customers. Users have also seen an which technology to buy? There are many examples of software using the incumbent software development firm, improvement in the service, with greater system stability, market actors that have invested sizeable funds in acquiring or whether to opt for a new solution. speed and efficiency. The intermittent outages experienced DFS technology that has not delivered the desired solution In other markets, FSPs are frequently tempted to select a previously have drastically reduced, and Fidelity is set on the ground. vendor in a rush or to commence in-house development to launch a marketing drive in 2018 leveraging the new Fidelity Bank is a tier one bank in Ghana with close to with little or no consideration for which enabling platform to provide a customer experience that will instill one million customers, 80 branches, 110 ATMs, and 1,000 technology best suits its strategy. It is important to carefully trust in the service and improve agent confidence in the banking agents. In 2013, it set up a Financial Inclusion Unit consider the implications of using one technology over service. Still the only commercial bank in Ghana to offer to pioneer agent banking to extend its reach to the seventy another, to ensure that the technology platform selected agent banking, Fidelity is optimistic that its new technology percent of Ghanaians who remain financially excluded. is aligned with and therefore enables the organization to platform will help achieve its channel goals. 62 DIGITAL ACCESS TECHNOLOGY TECHNOLOGY Overall financial inclusion rate vs mobile money account rate 100 82.0% 74.7% 80 42.3% 60 73.0% 40 58.4% 20 n/a 0 2011 2014 2017 % Account rate, adult population % Mobile account, all adults MARKET OVERVIEW Industry opinion: Kenya has the largest and most successful mobile money World Bank, Findex sector in Africa and has consistently led the continent 82% Any account ownership, adult both in scale and innovation since the launch of M-PESA population, 2017 What is the most important application in 2007. By 2017 there were 37.4 million mobile wallets, of blockchain technology? Kenya: giving 133 percent penetration of the adult population. Any account ownership, women, 2017 78% DFS technology is progressing quickly and it encompasses There are 6 services available, with 81 percent of wallets Pioneer showing benefits of held by Safaricom (M-PESA), and a further 6 percent each Any account ownership, young adults (15-24 years), 2017 76% everything from hardware, including near-field-communication and biometric applications, to software such as Application financial inclusion by Airtel Money and Equitel. The market is dominated by just two services: of the US$ 16.6 billion transacted Financial institutions account, 56% Programming Interface (API). New blockchain and distributed between July and September 2017, 80 percent was by adults, 2017 ledger technologies are being tested with diverse types of applications. It is generally accepted that blockchain will M-PESA and 19 percent by Equitel.3 Mobile money account, adults, 2017 73% address many challenges of transparency and efficiency, and With a population of 47 million, Kenya is the economic, A wide range of services are available via mobile wallets. Saved at a financial institution, 27% it has been used to develop e-currencies such as BitCoin. financial and transport hub of East Africa. Despite this, its M-Shwari micro-savings and loans based on usage of both adults, 2017 However, with experimentation taking place across a the mobile wallet and mobile network have been available multitude of products, its primary use case is yet to be defined. population is largely agrarian with three-quarters living in since 2012, and have proven to be extremely popular both Saved semi-formally, in a savings 35% rural areas and 61 percent being employed at least part time club or with person outside the in Kenya and other markets where the model has been in agriculture, mainly as smallholder farmers. Agriculture family, adults, 2017 copied. However, the biggest breakthrough that the Kenyan remains the backbone of the economy, providing one third market has achieved since the launch of DFS is probably Borrowed formally, from an 19% of the GDP. Recently, Nairobi has emerged as a fintech hub, the wide-scale acceptance of M-PESA for retail (merchant) institution or credit card, adults, 2017 with its ‘silicon savannah’ status based on opportunities payments. In most markets, including Kenya, the majority Borrowed from friends and family, 45% arising from the success of its DFS sector, shortcomings of financial transactions occur in shops, but shopkeepers adults, 2017 in local financial institutions, and a favorable regulatory are generally hesitant to accept digital payments due to environment.1 However, even with GDP growth of more merchant fees, tax, and administration considerations. Poverty rate, 2005 33.6% than 5 percent for the last eight years, unemployment is high Still, by 2015 there were 49,000 merchants in Kenya accepting payments and nearly a million customers using GSMA and 34 percent of its people still live in poverty. the service every day; acceptance of ‘Lipa na M-PESA’ is Unique mobile network 28.3 m Financial inclusion is high, with 82 percent of adults now near-ubiquitous.4 Merchant acceptance has largely subscribers, 2017 having an account of some form in 2017, largely driven been driven by consumer demand, but many shop owners by the impact of mobile wallets. The number of Kenyans were also wooed to the service by the offer of low cost loans Mobile penetration rate, 2017 59% with a formal bank account has also grown significantly based on their customers’ usage of M-PESA. Payment by Central Bank of Kenya, AFSD over this period. Excluding bank/MNO savings and loan bank card has been in steady decline in recent years, and this may be related to the success of mobile wallets in retail. Volume of MM transactions, 2016 104,193,459 Value Chain Payments (35%) partnerships, the number of banked customers has grown In 2017, Kenya became the first country to launch a mobile- steadily in the last ten years, suggesting that the introduction Value of MM transactions, 2016 7,100 m US$ Currency (28%) only retail bond, M-Akiba, allowing micro-investments in of mobile wallets has had a synergistic effect. A number government securities with investments as low as $30. This Registered mobile money users 37.39 m7 Remittances (22%) of Kenyan banks now offer mobile banking services. proved to be so popular that the bonds sold out in 13 days.5 (wallets), Dec 2017 The Cooperative Bank has created a wallet, M-Coop- Other (14%) Cash, targeting the unbanked. Equity Bank, with its large The Kenyan regulator has long taken a ‘wait and see’ Number of agents, 2016 53,833 approach to DFS, allowing MNOs to issue e-money Insurance (1%) customer base and a strong focus on financial inclusion, and operate partnerships to deliver financial services. Licensed banks, 2016 42 decided to compete directly with M-PESA by becoming a Intervention has recently happened in the context of mobile virtual network operator or MVNO and launching Bank branches, 2015 1,523 interoperability between mobile wallets. Concerned by the its own mobile wallet. The Equitel service has proven near-monopoly of Safaricom, the M-PESA provider, CBK, Total assets, 2015 34,164.6 m US$ popular and grown the bank’s customer base, but growth has ruled that interoperability for domestic remittances has been less than its historical averages. Analysis suggests must be made available by early 2018. It is hoped that this Mix Market that, whilst it is still early days for Equitel, a substantial part move will improve efficiency, increase competition and Licensed MFIs 55 of its uptake has been by existing Equity Bank customers.2 bring down the cost of transactions.6 64 DIGITAL ACCESS 65 DIGITAL ACCESS TECHNOLOGY TECHNOLOGY Channel is the customer’s access point to a financial service provider; who or what the customer interacts with to access the financial service or bank account. Device is the physical object with which a user interacts, such as a point-of-sale device or a mobile phone. Mobile phones can be classified as being either basic, feature or smart. The application layer of DFS solutions consists of front- RESEARCH FOCUS The handbook presents a 12-step framework for the end applications, back office administration modules, and the successful implementation of a DFS technology project. integrations between these systems and the Core Banking System. This framework is based on the understanding that all DFS projects must be based on a well-researched channel Twelve steps to leverage strategy that guides all future steps in the implementation process. Equipped with a strategy, the next step for the DFS solution architecture: front office, back office and integration DFS FRONT OFFICE new technology for FSP is to consider and select the technology platform(s) best suited to the strategy. This step is a prerequisite to POS application financial inclusion vendor selection, as it forms an important input to the requirements or specifications used to select the vendor(s). Internet banking interface Once this information is available, and a vendor or partner USSD menus, mobile app interface New technology and innovative business models have selected, the FSP can finally implement the preferred Web portal interface brought about a revolution in financial inclusion in channel solution. ATM screen recent years, bringing formal financial services to The handbook shares a number of lessons learned, harnessed millions of people who were previously excluded. from project implementation and market observation: But how does a financial service provider decide Use existing platforms to test out new channels. which technology to choose to go digital? It is a DFS BACK OFFICE Where possible, build on existing networks rather than critical choice that depends on much more than just launching your own, especially if this is the first foray into User administration technical specifications. DFS. Integrations to existing networks are not only cheaper Customer registration in terms of technology, but also allow you to observe Ten years after digital financial services took off in Sub- Saharan Africa, the technology options available to responses from the market to see if the uptake warrants Customer authentication financial services providers are many and increasing. the larger investments required for proprietary solutions. This same lesson could easily be applied to the decision of Security settings Choosing the right technology for a DFS deployment is not easy. It’s a process that requires technical knowledge, whether to rent, buy, or build. Establishing a proprietary Reporting specialized skills and the ability to be forward-looking. network may be justified when customer experience with A history of failed IT implementations, limited budgets, existing networks is poor, for instance due to poorly trained and regulatory constraints can result in poorly planned agents, high prices, or frequent network downtime. and implemented DFS services. There are today as many INTEGRATION Challenge your current processes to maximize impact. disappointing experiences in the market, with poor uptake To get maximum benefit from DFS, a FSP must be ready on channel platforms that are clunky, inflexible or costly, API EFT ISO as there are successes. to really challenge existing processes or ways of doing business and to include business process reengineering as SWITCH In 2015, IFC and the Mastercard Foundation launched the part of the implementation process. FSPs need the courage Alternative Delivery Channels and Technology Handbook, to leave old processes behind in order to enhance the the first in a series of handbooks aimed at helping to build customer experience and take full advantage of potential critical industry knowledge to support the advance of DFS CORE BANKING SYSTEM cost and time savings, as well as to optimize operations. and expansion of financial inclusion in Sub-Saharan Africa. This is especially necessary for extension service channels Flexibility It is a tool for financial service providers to increase the whereby third parties or remote users are now embedded technical understanding of DFS platforms and to provide Scalability practical guidance on how to approach a DFS technology in processes that were either branch- or paper-based project. While the focus of the handbook is on the technical before, and now have the potential to be fully digitized. Security aspects of DFS implementation, it also covers a host of other Change management is critical for such projects. Despite the tendency to blame failed DFS projects on technology, Accessibility market and business factors to consider. It was written together with technology consultancy Software Group, deeper investigation often reveals the root cause as poor based on the operational learnings of the Partnership for change management, with internal factors preventing the Financial Inclusion and the market as a whole. overall success of the project. 66 DIGITAL ACCESS 67 DIGITAL ACCESS TECHNOLOGY TECHNOLOGY ADC technology implementation process Strategy 01 Define 02 Assess 03 Develop business objectives external milieu and internal capacity channel strategy and business case Technology 06 Select 05 Gather 04 Identify the right technology influencing criteria available options Selection 07 Collect 08 Issue 09 Contract requirements RFP and evaluate proposals the vendor Implementation 12 Pilot 11 Configure 10 Prepare and go live and confirm the system kick-off and analysis Pick partners carefully. Most DFS projects require some demands of the customers and ensuring a stable and type of partnership between the FSP and other parties, such reliable transactional platform on which to extend services. as m-wallet providers, USSD aggregators, MNOs, or a Consider the context carefully. FSPs should remember technology vendor. The success of the DFS may ultimately that there is no ‘one size fits all’ in terms of channels. depend on the strength of these partnerships, making it a FSPs need to consider both the external and internal worthwhile investment to spend time in the initial selection environments, and care must be taken not to presume process and to continually review these arrangements over that what was successful in one place will necessarily be time. It’s important to ensure that the business model for the successful in another place. channel sustains all parties involved and that competitive forces are aligned for the greater good of the partnership. Adopt an ever-evolving strategy. As with all strategies, Partnerships must be both patient enough to cope with periodic reviews are recommended to assess how the slow growth initially, and yet flexible enough to adapt and institution has performed against its goals and whether scale in response to the market over time. Additionally, the strategy needs to be adjusted based on technology partners need to consider both direct and indirect value trends, changes in customer expectations, and other that may arise from the DFS, and assess the impact of relevant feedback from the market and operational results. regulation on partnerships. FSPs need to invest time and This does not mean reinventing the channel strategy resources to critically assess compatibility, strategic focus, on an annual basis, but rather making adjustments and and commercial alignment to create a win-win partnership. enhancements to align with new conditions. These reviews should be supported by pre-defined performance metrics or Prioritize flexibility and scalability. Although flexibility KPIs, which measure use, user satisfaction, volumes, down- is important in all IT systems for FSPs, it is perhaps even time, and other relevant statistics which can be extracted more critical with respect to DFS, as in many cases the FSP via tools and reports that monitor channel operations does not yet know how the market will respond or what over a period of time to compare trends and benchmark will be needed in future. A foundation infrastructure built with other market data. Depending on the results of these around a centralized integration platform or switch can ease reviews, FSPs may need to go back to the drawing board the burden of adding new channels or integration partners periodically to adapt to changes in technology, demand, over time, and give the FSP assurance that integrations are and competition. The technology that makes up the DFS done against a common standard. Having catered for this should be dynamic and flexible enough to support this level of flexibility, it is important for the FSP not to adopt evolving channel strategy. new technology too quickly, but rather take the time to see which technologies are proving themselves in the market Further reading: Alternative Delivery Channels and Technology before incorporating these in its solution. A balance needs Handbook, by Geraldine O’Keeffe, Charlene Bachman, and to be struck between staying in touch with the market Omoneka Musa. 68 DIGITAL ACCESS A merchant payments solution based on near-field communication. 69 DIGITAL ACCESS 3 AGENTS To assist Vodacom Lesotho in improving its agent network, IFC provided benchmarks for what levels of activity would be required by its agents to make the service commercially viable and sustainable along the value chain. The three keys to a successful It recommended that the agent management structure be agent network reduced from 20 to only four aggregators, each having a clear sub-structure of agents to service and an investment By John Ngahu to match this responsibility. It was proposed that Vodacom IFC Operations Officer, Johannesburg, South Africa shops only act as a back-up to the new aggregator system to Working on a variety of DFS projects in Sub-Saharan avoid encroaching on the revenue base of the aggregators. Africa, I have observed with striking consistency how IFC also helped design and implement a foundational the health of an agent network determines the viability training program for Vodacom’s entire agent base to ensure of a DFS service. A well-functioning agent network, agents understand the value proposition of the service. guided by clearly defined processes and standards, Most agents in DFS implementations on the continent are can be the difference between success or failure. small-scale informal businesses with little or no financial An efficient network is the best way to address some of training. While often astute entrepreneurs, many seem to the common challenges of struggling DFS services, such accept the offer to serve as a DFS agent on an opportunistic as low activity levels or liquidity constraints. rather than informed basis – with the risk that they will DFS providers rely on their quickly underperform and lose interest in the partnership. Building a good agent network is hard work. It takes time and it doesn’t come cheap. It is a long-term agent networks This can have a long-term damaging effect on the growth of the digital financial services ecosystem. investment, and I find there are three keys to getting it right: Agents are a crucial component of digital financial A common mistake made by providers is to attempt • Sourcing quality agents: Good agents are hard to to enlist as many agents as possible to swiftly roll out a services implementations. Without agent networks find. If you find them, they are not yours to keep. service, often in response to management pressure or to perform cash-in and cash-out, the DFS of today Most markets have legislated against proprietary competition. However, the quality of agents matter as agents so any investment you make in them makes would not function. By default, agents are also the much as quantity. To Vodacom Lesotho, IFC recommended them more attractive to the competition. All the that it recruited only those agents that meet the minimum face of the providers to the users, and all aspects same, you need top quality agents and should never liquidity requirements determined by the business case. of DFS that relate to customers, products and user necessary changes. IFC’s review focused primarily on agent use sub-standard hiring criteria or bend your criteria. Following the initial basic training of the agents, IFC also management, customer acquisition, business planning and experience involve agents. If the agent network is helped put in place a system of regular agent forums for • Good network management: Agents need constant financial modeling. agents to share experiences with each other and Vodacom, guidance and supervision. If you make it a box-ticking weak, the entire business could be at risk. To understand the challenge at hand, the IFC team started as well as a reward scheme to motivate performance and exercise or outsource or abandon management by analyzing agent transaction data, and found that only strengthen morale. altogether, agents will reciprocate by divesting their about one-third of the existing agents that were active on funds, providing poor customer services or even On the face of it, Lesotho has a surprisingly high level of Vodacom’s agents now have a better appreciation of their role a 30-day basis (performing at least one transaction per committing fraud. financial inclusion for a small nation in Sub-Saharan Africa. and business case, reflected in their evaluation after the training. month) were breaking even or were profitable. The float In 2014, 59 percent of adults had some form of account IFC and Vodacom are confident that the understanding • Incentivize your agents: Any agent will tell you support offered by about 20 super agents and Vodacom shops was insufficient, leaving some agents underserved. of the service, motivation from agents, implementation of that higher commissions will get them working with a financial institution – almost double the regional It was also clear that the distribution of agents could be recommended float supply system, growth in customers, and harder. When price competitiveness will not allow average of 28.9 percent. This numerical achievement is, strategically improved, with a better match between agent agent transactions will improve significantly. higher commissions, there are many other ways to however, mainly due to the fact that a sizeable proportion of the population holds some form of funeral policy, with locations and customer coverage. make agents happy: training and certification, awards Ensuring that the agent network operates optimally is the population left largely unbanked in terms of access to and recognition, branding, etc. The choice is yours. With agent networks, DFS providers can choose to set crucial to DFS implementation, and it helps to get things in other financial services. up a proprietary network, partner with another or other place the right way from the start. Restructuring processes Agents are an invaluable part of the DFS ecosystem. providers, or outsource the network altogether. Similarly, often include having to cut staff or re-negotiate with A good agent will educate and onboard users, deliver a Vodacom Lesotho launched M-PESA in June 2013, aiming agent network management can be provided in-house, by a partners, in this case aggregators, and such processes can good customer experience, ensure there are no liquidity to provide a suite of affordable and accessible digital partner, or outsourced. The optimal design will depend on be challenging. The case of Vodacom also illustrates how issues, act as brand ambassador and engage the market, financial services to the unbanked, especially for storing the specifics of the market, regulations, and the needs and important it can be for a provider to maintain at least a and harness market intelligence and insights. You can’t value and for remittances. Today the service allows for capacity of the provider. Key considerations include the certain level of control over agent management, even when afford not to have good agents. users to send money, redeem cash tokens (over-the-counter ratio of agents to customers in any given location (driven most such functions are outsourced. While outsourcing remittances from a non-registered user to a registered by number of transactions per customer), the ability for agent management may appear to be an obvious solution or non-registered user), and perform cash withdrawals, agents to manage liquidity, branding and visibility, and for institutions that lack initial experience of similar as well as pay for electricity, water and TV services (DStv). the capacity of agents to provide customer education operations, in the long run it may be costly in terms of Adoption of the service picked up quickly following the and support. Regulation may only allow for a certain an underperforming network and sluggish service growth. initial launch, then stalled. type of agent networks, or place specific requirements on One solution can be to outsource agent network build-up IFC partnered with Vodacom Lesotho to get growth back agent selection and accreditation. Vodacom Lesotho has and management until the necessary internal knowledge on track, with the task to review the M-PESA operations, outsourced agent management as they see this as the most and expertise has been built, and then bring the service propose solutions to problem areas, and help implement the optimal model for their market/operations. back in-house. 70 DIGITAL ACCESS AGENTS AGENTS Overall financial inclusion rate vs mobile money account rate 100 80 60 40 17.5% 26.0% 20 3.7% 0 16.0% n/a 9.2% 2011 2014 2017 % Account rate, adult population % Mobile account, all adults MARKET OVERVIEW Industry opinion: currencies: the national currency is the Congolese franc, but World Bank, Findex US dollars are also accepted as cash for most transactions, Any account ownership, adult 26% and some organizations only operate in dollars. All MNO population, 2017 Do you believe that the importance of call services are conducted in US dollars with top-ups paid agents will decline over time? Democratic Republic of Congo: for in francs, resulting in US dollar credits to the phone Any account ownership, women, 2017 24% DFS agents are the face of the provider to the customers Promising – but challenged at an agreed exchange rate. Mobile money services use a similar model. Any account ownership, young adults (15-24 years), 2017 24% and an essential part of DFS. Without expansive agent networks providing cash-in and cash-out services, today’s DFS by instability In 2011, the central bank granted a waiver to FINCA, Financial institutions account, 15% operations would not be possible. However, as the industry adults, 2017 moves towards a more cash-lite economy, the need for points the largest MFI in the DRC, allowing the creation of an of cash-in and cash-out should, theoretically, be in decline. agent network. Today, FINCA has 1,300 agents handling Mobile money account, adults, 2017 16% 85 percent of the MFI’s transactions. These agents provide a The Democratic Republic of Congo is the largest country Saved at a financial institution, 5% range of services to FINCA clients, such as cash in/out, loan in Sub-Saharan Africa and is endowed with vast natural adults, 2017 repayment, and transfers between accounts. Within three resources, including mineral wealth and fertile soil. It has years, results at agent outlets were four times FINCA’s initial Saved semi-formally, in a savings 11% one of Africa’s largest populations at 83 million, of which club or with person outside the targets.2 It plans to extend its services beyond Kinshasa to 57 percent live in urban clusters spread throughout the family, adults, 2017 a further 200,000 new customers by 2019.3 Procredit Bank country. Only 11 percent of the land is used for agriculture, offers a mobile banking service named the L’Ar-phone Borrowed formally, from an 4% and two-thirds is covered by forests. Following years of institution or credit card, adults, 2017 service. Kenya’s Equity Bank took over Procredit in 2015, conflict, economic recovery was driven by resurgence in the demonstrating the financial community’s optimism about Borrowed from friends and family, 23% mining sector until 2015 when the price of copper, the DRC’s the longer-term prospects for the DRC. Though starting adults, 2017 primary export, plummeted. This led to reduced reserves from a structurally underdeveloped base, the DRC has and currency depreciation.1 Political instability also remains Poverty rate, 2012 77.1% had some success in leveraging mobile money and agent an issue. These factors led to inflation reaching nearly 50 banking for the expansion of financial inclusion. GSMA percent in 2017. Poverty remains widespread, affecting 77 percent of the population, and the DRC failed to meet any Regulation requires financial institutions and entities called Unique mobile network 21.0 m of its Millennium Development Goals by 2015. Despite these ‘electronic money institutions’ to apply for licenses to issue subscribers, 2017 issues, the opportunities offered by this resource-rich nation e-money, and thus engage in agent and mobile banking. Agents will still be needed for cash, but less often (59%) Mobile penetration rate, 2017 26% make it attractive to potential investors, including many MNOs need to establish a subsidiary, incorporated as No, agents will always be fundamental to DFS (29%) African banks and fintechs, in the longer term. an electronic money institution with a minimum capital Banque Centrale Congo, AFSD requirement of US$ 2.5 million to be eligible for a license. Using agents will be a rare event (6%) Consumer confidence in the banking sector remains low Volume of MM transactions, 2016 11.5 m The value of e-money issued by license-holders must be following the collapse of several banks during the national Agents will not be necessary in the future (6%) matched by an equivalent amount of ring-fenced funds in a Value of MM transactions, 2016 148.1 m US$ crises of the 1980s and 1990s when many people lost their bank account that cannot be intermediated.4 deposited savings. Access to banks is also constrained by Registered mobile money users 14,170,631 the limited branch network. The cost of ‘brick-and-mortar’ The MNOs are well-represented in the DRC, with seven (wallets), Dec 2017 branches is prohibitively high and, as a result, there are networks available, and a quarter of the population Number of agents, 2017 71,383 just 10 bank branches for every million adults. In 2011 the have a mobile phone. GSM coverage only reaches a little government established a ‘national microfinance fund’ to more than half of the population, and there are reported Licensed commercial banks, 2015 18 facilitate growth of the microfinance sector and improve challenges around network reliability.5 Whilst 3G data Bank branches, 2015 403 the regulatory framework. Since then, a number of financial coverage is expanding, it still reaches a minority of the institutions have created agent networks to increase their population. In 2012, Airtel, Tigo and Vodacom acquired Total assets, 2014 16,208.37 m US$ reach. However, an ongoing challenge to financial account e-money licenses and launched mobile money services. Two Mix Market ownership is a widespread lack of KYC documentation. years later, in 2014 there was no clear leader, and usage A further complication is that the DRC operates multiple was still very small, with only 380,000 active users in total. Licensed MFIs 30 72 DIGITAL ACCESS 73 DIGITAL ACCESS AGENTS AGENTS Research question: What characterizes a successful DFS agent? Data collected: Agent application forms, agent monthly monitoring forms, and monthly POS transaction data from one microfinance institution. RESEARCH FOCUS To find out what characterizes successful agents, IFC and the Mastercard Foundation ran a research study Methodology: Regression analysis. Primary conclusion: Women are better agents than with microfinance institution FINCA in the Democratic men; location is fundamentally important; effective Republic of Congo. At the time of the study, FINCA had liquidity management is important. Women make about 550 agents deployed primarily in urban and peri- urban areas in the capital Kinshasa and the economically better important city of Lubumbashi. The study tested for the importance of business activity, location, branding, FINCA monthly monitoring scores DFS agents effective liquidity management and a range of personal characteristics, including gender and age. The hypothesis at the outset was that older, established merchants, located Liquidity total in high traffic areas, with business that had high turnover New business opportunities are being created for and good cash flow management, would turn out to be the micro-entrepreneurs as DFS agents in Sub-Saharan Client service total most efficient agents. Africa. Agents are mostly small-scale retailers or The analysis was based on datasets that FINCA already service providers, such as convenience stores, tailors had collected from agent application forms, agent monthly Performance total or beauty parlors. Although African women often find monitoring forms, and POS transaction data. The datasets it difficult to run and grow businesses due to gender were compiled, cleaned and linked to develop a predictive model of successful agents defined in terms of high number Branding total bias, our research shows that being a woman is one of the key characteristics of a successful DFS agent. of transactions and volumes transacted. One of the key findings of the analysis was that location is fundamentally lower score higher score In 2016, there were about 1.5 million DFS agents in important. Transactions were higher in low-income, Sub-Saharan Africa, working for 140 deployments in Male densely populated areas with high levels of commercial 39 countries and sharing over $400 million in total Female activity, suggesting that the agent network can be best commission income.6 In the past ten years, the growing used to support financial inclusion among the urban DFS industry has offered a new career path for many poor. In addition, visible branding and effective liquidity micro-entrepreneurs on the continent. Some small-scale management were strongly linked to agent activity. Average volume (CDF) per transaction traders are able to augment their original business revenue by offering additional banking services, while others have Another key finding of the study was that women are, on Cash-out become specialized aggregate banking super-agents with average, more successful DFS agents than men. FINCA their own agents and employees. The agent business is has been relatively successful in attracting female business testament to how the emerging DFS market is not only owners as agents. At the time of the study, approximately Cash-in extending financial inclusion, but also contributes to one-third of FINCA agents in Kinshasa were female, employment and inclusive economic development. whereas only 8 percent of firms in the country generally have female ownership. While women represent over 50 Transfers For any DFS provider looking to deploy a digital banking percent of the 67 million population of the DRC, they channel dependent on an agent network, it is crucial to struggle to achieve parity with the male population in the understand how the management of digital channels differ 0 50 100 150 200 250 bid to develop the country. Married women require spousal from traditional ones. A fundamental part of any agent permission to take up employment, sign a contract, initiate Male network management strategy is the agent selection criteria. Female any type of legal proceedings, or to open a bank account. In many cases, such criteria are based on untested and uncertain assumptions of what characterizes a successful The study showed that women agents, on average, agent. At inception stage, agent selection is often done in an registered 12 percent more FINCA transactions (cash opportunistic way to quickly build a critical mass of agents deposited, withdrawn and transferred) per month than in selected geographical areas. With the expansion of a male agents, and generally reported higher values per network, however, the question of what makes a successful FINCA transaction. They also had a 16 percent higher agent invariably comes up as inactive or underperforming net profit on their overall business. However, the activity agents are a cost to the provider. for women agents was more volatile, whereas men had 74 DIGITAL ACCESS 75 DIGITAL ACCESS AGENTS AGENTS Value (CDF) of monthly transactions (ln) over time 11 10 9 8 7 6 Male Female on average more consistent volumes of transactions. Financial data on daily, non-agent business activity indicated While more consistent, male agents reached their maximum that male agents had, on average, 47 percent higher value trading volume quite early after becoming an agent and sales than female agents, suggesting that men were selling after that did not seem to increase their FINCA trade more expensive goods. Account balances of men were much. Women tended to see big drops and increases in the almost 20 percent higher, meaning that men saved more early months as agents, but once they became established money with official financial institutions. However, the they recorded consistently higher volumes. net weekly profit of female core businesses was 16 percent Looking at the core businesses, 35 percent of female agents higher than that of their male counterparts, and the value of operated in the service sector, compared to just 19 percent their business inventory was 42 percent higher. of male agents. This is important because the study analysis This research is the first published research looking at the also indicates that agents whose main business falls under differences between men and women as DFS agents, and services rather than commerce tend to generate, on average, provides some important insights for financial institutions more revenue for FINCA. More data is needed to help that need to design or refine their agent selection criteria. understand why service businesses are more successful, but one hypothesis is that service providers are accustomed In a field where there is still much uncertainty, it takes to being paid for doing something, whether it is hairdressing, away some of the biased assumptions underpinning agent mending, or providing agent services; whereas retailers selection and provides data-based guidance for agent simply accept money in exchange for goods. Thus, the network deployments. It also is an example of how valuable service provider business structure is better aligned to the data analytics can be to the DFS industry, and how it is needs of DFS providers as their original business model is possible to leverage readily accessible data to make better closer to what is required as an agent. informed business decisions that can lead to broader and better financial inclusion. Considering that rolling out an FINCA’s female agents were located predominately in agent network is a costly endeavor for any institution, disadvantaged areas – less urbanized, lower income, less commercially and financially developed areas. The study being able to identify who the best potential agents are is found that female agents were 12 percent more likely an investment worth making. to be present in low income areas and that 46 percent Further reading: Women Make the Best DFS Agents: How of female agents, compared to just 30 percent of male Financial Sector Alternative Delivery Channels Create agents, were located in municipalities described as being Business Opportunities for Women in Emerging Markets commercially underdeveloped. Male agents were clustered by Sven Harten and Anca Bogdana Rusu. in municipalities with many financial access points and where the main financial alternative was traditional banks. Agent Banking in a Highly Under-Developed Financial By contrast, 45 percent of female agents were located in Sector: Evidence from the Democratic Republic of Congo. municipalities where there were few banks and where at Policy Research Working Paper No. 7984. World Bank least half of the financial access points were represented by Group, by Robert Cull, Xavier Giné, Sven Harten, and microfinance institutions and mobile money services. Anca Bogdana Rusu. A FINCA agent in Kinshasa, the Democratic Republic of Congo. 76 DIGITAL ACCESS FINCA has 1,300 agents today, handling 85 percent of its transactions. 77 DIGITAL ACCESS The one-year pilot project was organized around three key areas: market research, merchant acquisition and Merchants are the activation, and user engagement. The market research key to a broader mapped the payment flows of street restaurants, called maquis, pharmacies and small-scale grocers to better digital ecosystem 4 understand the ecosystems of small-scale businesses and the payment bottlenecks they and their clients may face. It By Lesley Denyes revealed how significant a problem the lack of small change IFC Program Manager, Johannesburg, South Africa is, and identified the ‘change back’ service of MoMo Pay Unlocking the digital ecosystem for the future of MERCHANTS as possibly the strongest value proposition to retailers and financial inclusion will require heavy investments in customers alike. The phenomenon forces retailers to source merchant networks, as they hold the key to keeping small change from friends and family or even churches, and money digital. This takes away the need for cash-in and customers are often forced to accept candy or other small cash-out, thus reducing fees and agent commissions items instead of change. and creating a better customer experience. The market research also identified numerous opportunities Merchant payments in Africa have largely been to digitize payments along value chains, beyond the unexplored, but several providers are now testing immediate merchant-client relationship. It should be new ways to leverage merchants for the broader Digital merchant payments is possible to digitize not just the payment for a beer in a DFS offering. To incentivize merchant payments, a good value proposition for the merchant needs to the next big step maquis, but payments from the maquis owner to the beer wholesaler, and from the wholesaler to the brewery. be established. Many merchants are also agents that are paid to cash-in and cash-out people’s wallets, so Cash usage at wholesale level was identified as one of the Small-scale retailers in Sub-Saharan Africa accept almost merchant payment activities directly compete with strongest opportunities for MoMo Pay. Digitization of $1 trillion in payments from customers per year, the one of their revenue streams. Typically, deployments merchant payments and related value chains could allow thus build on offering additional value for merchants. large majority in cash. Digital merchant payments could DFS providers much deeper engagements with clients, and In Egypt, Fawry, a payment service provider, allows revolutionize the way even street trade is done, and further increase financial sector support for the small-scale merchants to pay distributors and suppliers with the business sector by allowing providers to draw on DFS payment facility, providing ease of cash management substantially expand financial sector support for smaller data to develop and provide, for example, savings, credit, by using customer purchase accounts to fund supplier entrepreneurs. So why has adoption of digital merchant MTN in Côte d’Ivoire to run a pilot. Côte d’Ivoire is a business intelligence, market analytics, marketing and payments. Fawry then uses the data to credit score and leading DFS market in francophone West Africa, with payments proved challenging so far? accounting products to users. to provide overdraft facilities to the merchant. Similarly, 12.8 million registered DFS customers and an activity rate For merchant acquisition, the project engaged an agency Kopo Kopo in Kenya offers loans to its merchants based of 38 percent (2016). Financial inclusion has expanded to launch a pilot to help sensitize small-scale merchants on payment activity, as well as a business management dramatically in latter years, to 41 percent, with the It is often said that digitizing merchant payments is app that allows Kopo Kopo to monitor merchants’ introduction of DFS. While 34 percent of adults have in the Youpougon district of Abidjan. For activation, difficult because cash is quite convenient for paying the payments, float, and revenue performance. It found a mobile account, only 15 percent have an account at a the team conducted targeted below-the-line activities corner grocer or the shoe repair shop down the street. that 22 percent of merchants transacted more when financial institution. MTN launched its mobile money around those merchants, also supported by two-way SMS For the many small-scale retailers along the lively urban using the business management tool, and 42 percent offering in October 2009, and is now a licensed Electronic communication to increase engagement with tailored transacted more when availing their loan facility. streets and in the bustling village markets of Sub-Saharan Money Issuer. It offers transfers and bill payments, and is messages to individual usage patterns. Africa, cash is certainly king. A 2015 study by the World known to have one of the most active and well managed It’s easy to think of merchant payments as retail West Africa is the new growth market for digital financial Bank Group for the World Economic Forum showed that agent networks in the WAEMU region. payments, but the merchant ecosystem is much broader. micro, small and medium-sized businesses on the continent services in Sub-Saharan Africa, fast catching up with Digitizing retail payments opens up the possibility to received $913 billion in payments from customers in that The ‘MoMo Pay’ service was the first contactless solution pioneering economies in East Africa. Côte d’Ivoire is taking digitize value chains payments of aggregators, suppliers, year, 84 percent of which were in cash. The same businesses in Côte d’Ivoire and uses both Near-Field-Communication a lead in testing innovative solutions in merchant payments, distributors and producers. The impact is potentially made $610 billion in payments to immediate suppliers, 69 and USSD technology to allow users to pay digitally for value chain finance, and public sector payments. Whether so transformational that regulators are rightfully percent in cash. goods and services at linked retailer outlets. It was initially merchant payments will become digitized on a large scale beginning to pay attention. In the coming years, expect launched at larger outlets such as supermarkets, but is will ultimately be determined by customers, based on to see traditional banks competing with mobile money Digitizing merchant payments could greatly increase the being increasingly expanded to include so-called tier 2 and whether DFS offer enough value to them compared to cash. offerings, as well as new fintechs that are seeking to use of digital financial services and help expand financial There are the safety and convenience aspects, and there gain market share in this area. tier 3 establishments: street restaurants, fruit and vegetable inclusion further. The fact that there’s an informal use of could be reward schemes and tailored marketing benefits stalls, pharmacies, barbers, and similar. The fact that there’s mobile money for merchant payments in many markets, to the consumer. For MTN Côte d’Ivoire, the service is a widespread shortage of currency in small denominations with retail customers making direct transfers to business expected to build a solid value proposition for keeping makes Côte d’Ivoire a particularly interesting market for owners as payments for goods and services, indicate that cash digital in order to leverage a fully digital ecosystem digital merchant payments. MoMo Pay allows users to there is a demand. Our studies also show that there is a receive electronic small change also for cash purchases, within its mobile money wallet. high cost of cash management for the merchants, of up to providing a solution to a persistent problem for both 3 percent. shoppers and retailers, while offering an easy entry- To explore the viability of merchant payments, IFC point for the service that does not necessarily exist in partnered with mobile network operator and DFS provider other markets. 78 DIGITAL ACCESS MERCHANTS MERCHANTS Overall financial inclusion rate vs mobile money account rate 100 80 60 34.3% 41.0% 40 20 n/a 24.3% 34.0% 0 n/a 2011 2014 2017 % Account rate, adult population % Mobile account, all adults MARKET OVERVIEW Industry opinion: The WAEMU region, with a single currency and regulator, World Bank, Findex has become a leader in international remittances powered Any account ownership, adult 41% by DFS, with MNOs operating wallets across several population, 2017 Who should pay to incentivize adoption markets. This includes interoperability between wallets of merchant payments? Côte d’Ivoire: in different countries, which was the first example of this Any account ownership, women, 2017 36% Retail payments are almost entirely cash-based in most happening between DFS providers from different parent The leading DFS market companies. Côte d’Ivoire, with a high migrant workforce Any account ownership, young adults (15-24 years), 2017 34% emerging markets. The adoption of DFS by merchants can have significant impact on the economy and financial in West Africa from neighboring countries, is the main source of these Financial institutions account, 15% inclusion, but bears adoption costs and risks for merchants remittances, and the corridor to Mali is one of the largest adults, 2017 who want to provide digital retail payments. flows in Sub-Saharan Africa. Mobile money account, adults, 2017 34% A number of DFS-enabled value-added financial services have With a population of 23 million, Côte d’Ivoire has the been piloted, such as providing digital merchant payments Saved at a financial institution, 6% largest economy in the West Africa Economic and Monetary for goods in-store; micro-savings and loans; and digitizing adults, 2017 Union, and is the most advanced DFS market in the region. agricultural value chains. However, few have yet reached Saved semi-formally, in a savings 21% It has a relatively high GDP per capita (US$ 3,600) and is scale. One exception is Advans, an MFI that has made club or with person outside the the fourth largest exporter in Sub-Saharan Africa. The large significant progress in offering digital payments, savings and family, adults, 2017 agricultural sector employs two-thirds of the work force, loans to cocoa farmers, in partnership with MTN. Borrowed formally, from an 3% and exports include a third of the world’s cocoa production DFS are expensive in Côte d’Ivoire. A comparison of pricing institution or credit card, adults, 2017 as well as crude oil and petroleum products. Despite this, of 15 services worldwide found that the two main Ivorian Borrowed from friends and family, 25% 28 percent of the population lives below the poverty line. providers tied in the position of fourth most expensive at adults, 2017 Only 15 percent of the adult population has an account with nearly double the price in Kenya.4 In research amongst inactive DFS subscribers, 15 percent cited high prices as Poverty rate, 2015 27.9% a licensed financial institution. Few Ivorians choose to save the reason for reverting to cash.5 The government recently at a bank, due to the cost and inconvenience of traveling GSMA decided to introduce a new 0.5 percent tax on money to a bank, as well as high transaction fees. A further transactions made through MNOs and their intermediaries, Unique mobile network 12.5 m disincentive is the historic failure of several public banks.1 in addition to the VAT already levied. Additional charges of subscribers, 2017 Providers (62%) As a result, most people tend to save at home, although there almost US$ 18 million are anticipated and these fees may be is increasing evidence of savings in mobile wallets. Lending Mobile penetration rate, 2017 53% Merchants (25%) passed on to consumers. is mainly informal, from friends and family, and some BCEAO, AFSD The BCEAO6 is the single financial regulator in the WAEMU Customers (13%) farmers’ cooperatives extend credit for agricultural inputs or school fees.2, 3 region. Originally, unlicensed DFS providers had to operate Volume of MM transactions, 2016 278,545,141 in partnership with a bank. A 2015 BCEAO instruction In this environment, DFS has flourished and continues to Value of MM transactions, 2016 8,996 m US$ updated these rules, allowing non-financial companies to grow. The market is dominated by MNO wallets, with apply for e-money licenses7 and the main DFS providers Registered mobile money users 12,845,970 Orange Money the market leader, followed by MTN have done so. (wallets), 2016 mobile money, and Flooz by Moov (Etisalat) in third Whilst Côte d’Ivoire has a thriving DFS market, there Number of agents, 2016 40,149 place. The main transactions are domestic remittances and is plenty of room for growth. Studies have reinforced the bill payments. In addition, there are two OTC (over-the- need to provide a wider ecosystem of transactions to keep Licensed banks, 2015 26 counter) services offering remittances and bill payments. All funds in the system and reduce cash withdrawals. It still lags Bank branches, 2015 605 secondary school fees and the majority of utility payments behind the more mature markets in East Africa, but this gap are made by DFS. Whilst cash still dominates, DFS are used could be closed by an industry focus on value-added services Total assets, 2015 8,824.13 m US$ for around half of domestic remittances. DFS providers relevant to potential users, such as micro-savings and loans Mix Market are not yet interoperable, but transfers between banks and for individuals and MSMEs. However, high transaction fees mobile wallets are increasingly available. and taxes may prove challenging to innovation and growth. Licensed MFIs 32 80 DIGITAL ACCESS 81 DIGITAL ACCESS MERCHANTS MERCHANTS Research question: Are retail outlets in Tanzania ready to adopt digital merchant payments? Would an interoperable model work? Data collected: A survey with 700 businesses in six RESEARCH FOCUS To begin with, the research sought to size the potential mobile money merchant market and determine the cities in Tanzania; 18 focus group discussions; eight product design sprints; interviews with all mobile motivation for becoming a mobile money merchant. money operators. There are no official statistics on the number of small Methodology: Quantitative, qualitative and Human Are interoperable business retailers in Tanzania. However, secondary research data pulled from various sources and supported by study Centered Design (HCD). DFS merchant Primary conclusion: There is a compelling user need interviews indicate an estimate of between 350,000 and for merchant payments, and interoperability among 500,000 in the country. According to interviews with operators would be beneficial. payments the future? mobile operators, as of November 2015 there were roughly 60,000 mobile money merchants, of which 25,000 were considered active. There were also about 87,000 mobile The ability for customers to pay electronically for money agents, roughly half mobile agents only, and Expectation of how accepting merchant payments would help business goods and services at retail outlets is a cornerstone the other half selling other goods and services as well. There appeared to be little overlap between mobile money of the modern economy. With widespread usage of agents and mobile money merchants. Of the sample Don’t miss sales DFS accounts in Sub-Saharan Africa, market actors surveyed for the study, businesses mainly sold goods are increasingly exploring how to enable merchant Offer payment option (45 percent) rather than services (21 percent), although payments through mobile money. An IFC study 33 percent said they sold both. More customers in-store looked at how ready Tanzania is for interoperable A large majority of respondents of the study survey (625 of Customers spend more in-store digital merchant payments. total) were currently not offering merchant payments and As DFS markets in Sub-Saharan Africa mature, two issues were thus considered prospective mobile money merchants. Help me with coin shortage are garnering increasing interest from the industry and other Of this number, 262 initially indicated they would be Help business track sales stakeholders: merchant payments and interoperability. interested in providing mobile merchant payments services. Neither one has so far reached wide adoption on the When asked why, two-thirds indicated that not losing sales Reduce theft (from outsiders) continent. A variety of providers have pioneered merchant would be the primary motivation. Similarly, small business payment models in several markets, but all have yet to Reduce time/costs to handle cash participants in the focus groups were generally positive reach scale. In 2014, Tanzania became one of the first DFS about the merchant proposition – especially once they Reduce employee fraud/theft markets globally to establish an industry-led scheme for had the opportunity to evaluate and interact with simple DFS interoperability (read more on page 174), so that 0 10 20 30 40 50 60 70 80 prototypes of smartphone terminals that also offered basic today Tanzanian mobile money users can transact with Percentage business features such as inventory management. Among each other across providers for person-to-person payments. existing mobile money merchants, the main reason cited for Could interoperable DFS merchant payments be the next initial adoption of merchant payments was to ensure they step for Tanzania? didn’t miss out on sales from customers without adequate To find out, IFC and the Bill and Melinda Gates cash (70%). The second cited reason was the promise that Foundation commissioned a research study in 2016 to customers spend more on average in their store (26%). look at three key areas: 1. The potential market size in According to this data, as well as data from prospective Tanzania for DFS merchant payments, 2. Possible models merchants, retaining and growing customer sales are the for merchant payments and pricing considerations, and most important considerations for accepting mobile money 3. Technology considerations from a user perspective. merchant payments. The study involved interviews with 700 small businesses in six cities in Tanzania, covering urban and peri-urban areas, Secondly, the study looked at pricing dynamics. Pricing as well as 18 focus group discussions with customers and is arguably one of the most complex topics for any new small businesses, and eight product design ‘sprints’ using product or service. This is especially so when the service human-centered design methodology. Interviews were also platform effectively creates a two-sided market, i.e. both conducted with each mobile operator at the beginning and sides depend on each other for the service to be successful. towards the end of the research project. With merchant payments, the question is always who 82 DIGITAL ACCESS 83 DIGITAL ACCESS MERCHANTS MERCHANTS Business-related transactions via mobile money (MM) account (Percentage of active MM account holders who use accounts to make payments) Receive payments from customers 47% Pay suppliers 38% 13% of active MM Pay employees 34% account holders use their accounts for Reinvest in business (equipment, expansion) 17% business-related transactions Receive payments from distributors 16% Pay for agricultural inputs 15% Pay bills (rent, taxes, utilities) 11% Intermedia Tanzania FII 0 10 20 30 40 50 tracker (Aug-Oct 2014) Percentage should fund the service – merchants or customers? not only the sending fee, but also the withdrawal fee to The study found that small businesses were indeed willing compensate the recipient. to pay a fee to accept such payments. In focus groups, Finally, the study looked at technology from a customer by far the largest cited benefit of accepting mobile merchant experience perspective. In the current customer experience payments was to reduce cash-handling, mainly due to the with mobile money in Tanzania, it is the customer, not the risk of robbery, employee theft and fraud. Some thought customers should also pay a fee, as customers too benefit merchant, who initiates the transaction; both parties receive from the service. In the survey, almost 90 percent of small a confirmation message via SMS. This flow should be businesses that were not yet accepting mobile money retained, as well as the user interface for virtual payments merchant payments indicated that they would be willing to (e.g. bill payments), based on customer feedback. Customers pay some amount to accept such payments. complained about the number of steps required to complete a USSD transaction and the reliability of the network. However, for customers, it became clear their current While other solutions such as Near Field Communication experience of paying in cash is not all that ‘painful’. technology are being explored, the customer experience Broadly speaking, customers did not report their is still a bit unsatisfactory and adoption has been low. It current method of paying small businesses in cash as an might be worth looking at ways to simplify and improve the inconvenient process. In some instances, it was seen as a customer experience on the USSD channel, which customers hassle (when change was an issue) or undesirable (for fear are already used to. of theft of large amounts of cash), but generally not viewed as a major pain point. In practice, mobile money users are Overall, the study indicates that there is a compelling user already paying for goods and services with mobile money need for merchant payments and that its interoperability by making direct P2P payments to merchants. According among mobile operators should, and will, eventually occur. to a survey by Intermedia in 2014, 13 percent of all active The mobile financial services industry in Tanzania should mobile money account holders in Tanzania were being used consider an interoperable mobile money merchant network, for business-related transactions. If merchant payments are that provides a seamless customer and merchant experience, to achieve scale, there would ideally be a distinction between builds on existing technology, and takes into consideration P2P transfers and P2B payments for goods and services, market forces and individual provider preferences. as they are fundamentally different value propositions and should be priced accordingly. Currently, a major problem Further reading: User Insights In Enabling Interoperable for customers making payments via P2P transfer is that Mobile Money Merchant Payments in Tanzania, by the recipient/merchant insists that the customer/buyer pays Amitabh Saxena. Lovassa Razanarinaivo, a mobile money customer at Envie de Beauté 84 DIGITAL ACCESS salon in Antananarivo, Madagascar, on 15 February 2018. 85 DIGITAL ACCESS MERCHANTS MERCHANTS Mobile money to replace pocket change in Abidjan’s Daniel, a MTN MoMo Pay activator, prospecting for clients in Abidjan, Côte d’Ivoire, on 7 December 2017. shops 86 DIGITAL ACCESS 87 DIGITAL ACCESS MERCHANTS MERCHANTS Despite the recent revolution in mobile money in Sub-Saharan Africa, trade is still mostly done in cash. In Côte d’Ivoire, MTN is trying out a digital merchant payments service that could potentially help solve a cumbersome day-to-day problem for many Ivorians: a lack of small change. Abidjan, Côte d’Ivoire. Daniel squares his shoulders and walks up a flight of stairs into a glass-fronted office. Looking down onto the busy car wash and mechanic shop floor below, he spells out visions of the future of mobile money to the car wash manager. Uniformed in a yellow t-shirt and an easy smile, Daniel is known as a ‘promoteur MoMo’ by MTN, his employer and the second largest mobile network operator in Côte d’Ivoire. He is part of a small group of representatives piloting a product aimed at revolutionizing retail business transactions. It is called MoMo Pay; a cashless merchant payment solution that allows MTN customers to pay for goods and services using both near-field communication and USSD technology. But in a nation where 62 percent of adults remain unbanked and there is a strong cultural bias for cash, Daniel faces a lot of pushback. In a typical morning’s work, he gets told: “Sir, I disagree with your project.” “Well, this service is too complicated.” “Alright, this is fine, but I’m not ready yet. Not quite ready.” MTN’s aim is to start building a digital merchant payment system among retail outlets across the country, including small and informal merchants. It is the second step in a process begun near the end of 2016, when MoMo Pay was first piloted with large and mid-size supermarkets such as Carrefour and Hayat. Now, Daniel and his colleagues are canvassing restaurants, outdoor bistros known as maquis, hardware stores, hair salons, car washes, gas stations and beauty parlors, to adopt a simple point-of-sale device, an extra MTN SIM card, and an MTN-branded MoMo Pay poster in their front windows. A staff member inserting a new MTN SIM card into a mobile phone at Pharmacie Koute in Abidjan, Côte d’Ivoire, on 5 December 2017. The pharmacy had recently signed up to use MoMo Pay. 88 DIGITAL ACCESS 89 DIGITAL ACCESS MERCHANTS MERCHANTS Merchant networks are the mark of a mature mobile payment market. From that perspective, Côte d’Ivoire is probably the best-placed country in West Africa to attempt this. There are more than 27 million mobile subscribers in Côte d’Ivoire, representing a mobile penetration rate of 105 percent. It is also the largest mobile money market in West Africa, with over 12 million registered clients, according to December 2016 data of the regional regulator. About 30 percent of MTN’s active voice customers (on a 90-day basis) use mobile money, or ‘MoMo’ as people call it here. An unquantified amount of ‘merchant payments’ are already taking place, with customers paying small store owners directly, using P2P transfers into their personal mobile wallets. 2 In addition, MoMo Pay is strongly placed to address a very poignant need in the country: there is not enough currency in small denominations to meet the demand for small change. Next to almost every cashier in Abidjan stands a jar of candy. This is not due to a nationwide predilection for sweet things, but because coin-strapped stores offer customers bonbons in lieu of change. A secondary market has sprung up in the wake of the shortage. Gas stations, churches with donation plates, and “people with well- connected friends”, said the people interviewed, have begun to sell change to stores that need it. They sell it at a premium of anywhere between 3 percent and 8 percent. At a busy pharmacy in the bustling neighbourhood Yopougon, deputy manager Yao says: “Some people come themselves here to sell change. I don’t ask where it comes from, I just buy it.” He estimates that the store spends about $200 a month buying coins. During a busy period, he remembers purchasing $1,300 worth of change in one day. Prices in the pharmacy often require awkward 3 amounts of change: a box of painkillers, for example, costs 2,570 francs. Prices are set by the wholesalers and can’t by law be altered by the store. “Some people come and realize that we don’t have change, and leave. This is a wasted opportunity,” says Yao. He is excited at having a cashless channel to refund clients. “It will avoid many arguments.” In addition, he anticipates that it will save the cost of buying coins. 1. An MTN mobile money subscriber providing an electronic signature while having her identity verified through a mobile device. 2. Diane, a MoMo Pay activator, explaining how the service works to Keletchan Coulibaly as he has his lunch at a maquis in Abidjan. 3. Pharmacy staff with their new point-of-sale device at Pharmacie Wakouboué. 4. A car wash and tune-up garage in Abidjan that has signed up to use MoMo Pay. 4 90 DIGITAL ACCESS 1 91 DIGITAL ACCESS MERCHANTS MERCHANTS Despite this strong value proposition, MTN is treading into uncertain territory with this pilot. Although there have been attempts to launch merchant payments solutions in several African markets to date, most have not yet reached ubiquitous acceptance and usage of merchant payment products. Most merchants in Côte d’Ivoire operate in an ecosystem that is ruled by cash: they receive mostly cash, pay their suppliers in cash and their staff’s salaries in cash. “It is not easy,” says the manager of the pilot at MTN Côte d’Ivoire. “For this woman selling tomatoes in the market, if you tell her that instead of getting your cash now, you can accept mobile money in payment, she will say that you are a fool.” Against this backdrop, the ‘MoMo promoteur’ Daniel is working hard to reach his recruitment targets. For now, MTN is providing the point of sale device, training and set up for free. The merchant’s only ‘investment’ required is to provide a cell phone with which to use the MoMo Pay SIM card. In Yopougon, Daniel has found a keen client. Leaning against some plumbing tubes at the door of his hardware store, owner Gervais tells how he has already done $500 worth of business using MoMo Pay in just three days. Previously, “people would ask if they can pay with mobile money, and I said I didn’t have,” Gervais explains. Financial literacy is a challenge, especially when aiming to include street traders and small-scale merchants. “The most important thing is not to recruit thousands of merchants, but to have a few that remain active. For that, I need to ensure that my promoteurs are educating. Seventy-five percent of their time is spent getting the merchants to use the system,” says the MTN manager. It appears the training investment is paying off. Cashier Assata was coached at the Saguidiba supermarket in Yopougon three months ago. The store manager estimates that they now make about 20 mobile money transactions per day, roughly half of which are MoMo Pay customers. Diane (left), a MoMo Pay activator, teaching Eugenie Brou Kouadio to use her new point-of-sale device at her maquis. 92 DIGITAL ACCESS 93 DIGITAL ACCESS MERCHANTS MERCHANTS Police officer Kakou walks past the rows of chewing gum lined up next to Doumbia’s till and makes a small purchase that requires about 2 US cents change. Instead of offering him a sweet, Doumbia deposits his change into his MTN mobile money wallet. “I was pleasantly surprised,” says Kakou afterwards. “I just opened this account and I already received money on it.” This is the kind of event that MTN wants more of. “We need merchants to perform transactions, and we need customers to have a good experience,” says the MTN manager. A few minutes later, burly air force personnel Alain hurries to the till with five litres of water and a packet of chocolates. Near the MoMo Pay POS device, Alain waves his phone, which houses a yellow NFC sticker. Using NFC offers the customer a contactless experience and almost no phone manipulation, but requires quite an investment for MTN. Koffi discovered MoMo Pay a year ago, “indeed, in this supermarket,” he says. He uses it frequently because “it’s an easy payment method,” and because he gets his money for change instead of candy. “They give you sweets and it’s not what you wanted,” he says. In addition to merchant payment facilities, MTN has recently launched MoMo Kash, a digital loans and savings product that will further support the journey towards full financial inclusion. MoMo Kash is available to all MTN mobile money users. It allows them to save easily, earn daily interest on even the smallest deposits, and qualify for small loans based on credit scores drawn from their mobile money and airtime usage. The combination of MoMo Kash and MoMo Pay give a feel for the direction in which DFS services in West Africa could move. At the end of the day, Daniel is exhausted but happy. “Most of what we do in Côte d’Ivoire and in Africa is oriented towards technology,” he says. “I like doing this job because it fits into my views of the future.” Edwige posing for photos with MTN staff after she won a call credit voucher for CFA 5000 ($9.00) at a MoMo Pay promotional event at O’Baoulé, a popular nightspot in Abidjan. 94 DIGITAL ACCESS 95 DIGITAL ACCESS MERCHANTS MERCHANTS Gervais , hardware store owner: “ Back in the day, no-one was using mobile money. But now, I think about 60 percent of the population is using it. ” So a cashless society will come one day. Yao, Eugenie, Ali, Assata, pharmacist: maquis owner: car wash owner: supermarket cashier: “I would be willing to “For me, it’s a bit “There are lots of “The client knows it’s a pay a fee for MoMo Pay. complicated, but I expect advantages to mobile real advantage.” It is more secure and that with time, with more money. I will use it to more convenient for us.” transactions, I will know pay the washers [my how to use it.” employees]. I already use it to pay for my electricity and water bills.” Gervais, owner of Quincaillerie Chez Gueu, a hardware store in Abidjan, says the MoMo Pay service increases business. 96 DIGITAL ACCESS 97 DIGITAL ACCESS 5 MARKET effect. An RCT allows one to identify causal effects as well as to draw statistically significant conclusions. No single dataset will tell you RESEARCH In the context of promoting financial inclusion, especially for new customers and the unbanked, the experience of the market first contact with the formal financial system is important. If potential new customers have a negative experience or By Sinja Buri don’t see the need or value of a new product or delivery IFC Operations Analyst, Dakar, Senegal channel, they may never try it again. It is therefore important to rigorously test the value proposition of new financial Market research is an essential tool to any business. services and among new customers to identify any need for It can be any organized effort to collect and analyze operational adjustments right from the outset. Since agent data to better understand your customer and your banking is new in Senegal and West Africa, Baobab Senegal market. It is particularly important to DFS providers and IFC sought to rigorously test the value proposition of in emerging markets, as there’s very little established agent banking to its new customers with the help of an RCT. data on the new set of target users – people previously excluded from formal financial services. Low income In a setting where existing and potential microfinance people, micro-entrepreneurs and rural populations are clients lived at equal distance from agents and branches, predominantly active in the informal economy. a random group of individuals was given information about Focusing on the a savings account. Distance could therefore be ruled out as There is no one best method or approach to market people you serve a driving factor for potential customers to prefer agents over branches. Half of the individuals were encouraged to research, as there are advantages and disadvantages to any. Rigorous research methods such as randomized Agent networks make it possible for financial services apply to open an account at the nearest agent, while the control trials may measure the quantifiable size of a other half were directed to the nearest branch. The research phenomenon, but not much understanding as to why it providers to offer their services with much greater team then tracked the respondent’s financial behavior exists. Focus group discussions often provide plenty of geographical and socio-economic reach than before, over time, relying on transaction data and supplementary anecdotal evidence to better understand the motivations having a ground-breaking impact on financial inclusion. market surveys to analyze the response. of DFS users, but will rarely help to quantify a trend. Results show that individuals initially encouraged to bank We’ve found that combining different research methods Many new users have gained access to formal financial with an agent had higher rates of account opening and allows you to come to more comprehensive conclusions services for the first time, and understanding how the In 2015, Baobab launched DFS and created an agent made more transactions overall, as well as saved more and answer questions in a way one method alone could network to expand its business beyond its urban, branch- new services meet their needs is key to successful DFS centric core to reach a larger, more varied customer base compared to those encouraged to bank with branches. not have done. implementations. than before. It was assumed that the agent network They became more financially included and better clients In the Democratic Republic of Congo, for example, would allow the MFI to increase and deepen outreach to for the institution. The customers that used agents did we developed a model identifying factors determining both existing clients and new clients further away from not only use agents, but took advantage of the branch what makes a successful DFS agent. The empirical DFS agents are becoming an established feature of urban branches. Agents are local retailers who double as lower- teller services as well, particularly for larger transactions. model shows that trust in an agent is positively and village life in Sub-Saharan Africa. Across the continent, cost alternatives to bank branches and enable customers to They also reported having more trust in the institution and associated with higher transaction numbers and there are hundreds of thousands of banking agent kiosks – more conveniently make deposits, withdrawals, transfers to being overall happier with the service. volume. Our Ethnographic Study, implemented in DRC often clearly marketing their services in the bright colors of other Baobab clients, and loan repayments. From the start, The RCT research with Baobab Senegal was complemented and three other African countries, also revealed the key the service providers. Agents are the face of the providers Baobab based its DFS strategy and products on a human- centered design methodology, relying on clients’ feedback by additional analysis of transaction data from existing importance of trust. Interviews with Congolese DFS to a new set of customers, many of whom have never put a through focus groups to test ideas in an iterative process. microfinance clients, comparing their transaction behavior users showed that DFS is generally appreciated because foot inside a bank branch before. Whether providers choose before and after their first use of agent services. Results it is perceived to be different from the traditional to establish a proprietary agent network or outsource it to As part of its effort to deepen its understanding of the are very encouraging. After using an agent for the first banking sector, which has collapsed several times. a partner, the relationship between agents and customers is market, Baobab wanted to learn about the experience its crucial to realize the promise of DFS for financial inclusion. time, customers significantly increased both the average clients had using the agents vis-à-vis transacting at a branch. By its very nature, DFS also generates large sets of data frequency and volume of transactions per month. Established in 2007 as one of the first limited liability Accessing the service can vary from the two different types on consumer behavior that did not previously exist. microfinance institutions in Senegal, Baobab Senegal of outlets in terms of transaction costs, restrictions on use The study showed that agent banking provides extra value Big Data analytics, in combination with traditional (formerly Microcred) offers financial services to over of the account, as well as social interaction. How do these to new as well as existing microfinance customers, reflected research approaches, introduces exciting new ways to 300,000 clients, many of whom were historically excluded factors affect the attractiveness of agent banking to clients? in more active usage of financial services. As this also makes get to know the African DFS user. from the formal financial sector. By offering innovative Are customers as happy visiting an agent as they are visiting them better customers for the institutions they bank with, savings products and cash-flow-based loans to small-scale a branch? If living within equal distance from an agent and agent banking appears to offer a win-win solution for DFS entrepreneurs, Baobab Senegal has a two-fold mission: a branch, would clients prefer one over the other? providers and customers alike. The study also demonstrates to improve the standard of living of its clients and their To find out, Baobab and IFC’s Partnership team launched a that a combination of a rigorous RCT, a detailed analysis of households, and to be a catalyst for economic development randomized control study in collaboration with a research transaction records, and more qualitative interviews about in the country. In ten years, Baobab has become the second team at the World Bank. Randomized control trials (RCTs) the perception and trust of using financial services, can largest MFI in Senegal in terms of gross loan portfolio and are the gold standard of evaluation methods, used to together build a full picture of customer behavior and offer it is a pioneer of DFS and partnerships to distribute pay-as- rigorously test the effect of an intervention by ensuring that insights into what drives greater activity rates, improved you-go solar power solutions. no variables other than the intervention may count for an customer satisfaction and deeper financial inclusion. 98 DIGITAL ACCESS MARKET RESEARCH MARKET RESEARCH Overall financial inclusion rate vs mobile money account rate 100 80 60 42.0% 40 15.4% 20 5.8% 32.0% 0 n/a 6.2% 2011 2014 2017 % Account rate, adult population % Mobile account, all adults MARKET OVERVIEW Industry opinion: For several years Senegal has had successful local over- World Bank, Findex the-counter [OTC] services that are widely used to send Any account ownership, adult 42% money and to pay bills. The two main services are both population, 2017 In what area have you employed market locally owned and operated. The largest is Wari, offered research to change the way you do Senegal: by Cellular System International, and was the first to be Any account ownership, women, 2017 38% business? launched in 2008 as a low cost alternative to Western Remittances take Union for domestic remittances. By mid-2016 Wari was Any account ownership, young adults (15-24 years), 2017 34% DFS market research can provide the answer to essential center stage processing 65,000 transactions per day in Senegal, and Financial institutions account, 20% questions on market shares, competitor landscape, available products and services, best practice, opportunities and had launched similar services in several other African adults, 2017 challenges, and key insights on (potential) consumers. markets. Joni Joni, from Bouyges Solutions Systems, was With continuously advancing methodologies and access to launched in 2013 as a direct competitor, followed by Nafa Mobile money account, adults, 2017 32% data, providers rely on market intelligence to improve and from Money Express. Transaction data is not available for Senegal has a population of 15.1 million, and more than Saved at a financial institution, 7% adapt the way they do business. these services, but as most DFS agents are non-exclusive, half (56 percent) live in urban areas. Unemployment is high adults, 2017 agent uptake gives a guide to service popularity. Wari is and the majority of jobs are in the agricultural sector, which offered in 82 percent of agents and Joni Joni in 54 percent.4 Saved semi-formally, in a savings 24% employs over three-quarters of adults and contributes 17 By comparison, the MNO Orange Money service is offered club or with person outside the percent of GDP. The youth population is large and growing, family, adults, 2017 in 40 percent of agents. A constraint for OTC services is with more than 60 percent under 25 years old. Over a third that the customers do not have an account where money Borrowed formally, from an 8% of the population lives below the poverty line. can be held and self-service transactions performed. institution or credit card, adults, 2017 Formal financial inclusion is very low at 15 percent, and For these reasons, despite the service they offer to the unbanked, OTC services are generally not included in Borrowed from friends and family, 30% most banks are cautious about extending their reach via adults, 2017 DFS. Société Générale de Banques au Sénégal is one of the financial inclusion statistics. Wari now offers a wallet few commercial banks to enter this market via its subsidiary, in partnership with UBA bank, which is based upon Poverty rate, 2011 38% Manko, which has the legal status of ‘intermediary in a prepaid card and can be accessed via a mobile phone banking operations’. Being an IBO, Manko can compete app. International remittances are also processed through GSMA directly with microfinance institutions, offering loans with the Wari system, in partnership with MasterCard and a Unique mobile network 8.4 m lower interest rates. The SGBS mobile wallet, Yoban’tel, number of money transfer organizations. subscribers, 2017 can be used for Manko banking services such as savings There are 3 MNOs in Senegal: Orange, Tigo and Expresso, and loans, as well as typical wallet transactions such as P2P Mobile penetration rate, 2017 53% (plus Kirene MVNO using the Orange network). Orange transfers and bill payments. There is a network of SGBS and Tigo both offer DFS and both have EMI licenses to BCEAO, AFSD Product development (42%) agents and bank branches for cash in/out.1 By the end of operate directly. These services offer basic wallet services 2015 Manko had 4,300 clients, mainly small business users. Volume of MM transactions, 2016 72,673,296 Technology adaptations (13%) such as P2P transfers and bill payments, but they have Ecobank has also been active, launching a mobile banking not yet reached the scale of the local OTC services. Value of MM transactions, 2016 1,044 m US$ Channel design (12%) app that uses Masterpass QR codes for merchant payments, An interesting development is that Millicom, the Tigo though no results are yet available for this initiative.2 Registered mobile money users 4,408,487 Customer segmentation (10%) parent company, has decided to sell its Senegalese operation. (wallets), 2016 The MFI Baobab (formerly Microcred) offers a DFS Millicom originally accepted an offer from Wari, but later Pricing (9%) service called Baobab in Senegal and elsewhere, which is withdrew from the arrangement and has made a deal with Number of agents, 2016 39,172 so successful that the company has recently rebranded a financial consortium. It is reported that Wari is suing Marketing messages (8%) Millicom as a result.5 Licensed commercial banks, 2015 25 as Baobab. An agent network was used to extend the Targeting (6%) MFI’s reach, and agents were equipped with user-friendly The regulatory environment in Senegal is generally Bank branches, 2015 368 technology including biometric identity verification. supportive of the development of DFS. BCEAO, the Assets 9,113.26 m US$ New services have been added to meet the needs of their regional regulator for the WAEMU region, allows licensed target unbanked clients. By mid-2016 17,500 clients were organisations to operate as e-money issuers, but they must Mix Market performing 2.4 transactions every month through 33 partner with financial institutions to offer savings and Baobab agents.3 loans. Banks do not need an EMI license. Licensed MFIs 82 100 DIGITAL ACCESS 101 DIGITAL ACCESS MARKET RESEARCH MARKET RESEARCH Activity levels of mobile money accounts in other markets. (Active mobile money users/adult population) Research question: Nigeria 0.20% Why are registered mobile money Benin 0.20% customers not using the service? Zambia 2% Data collected: Data on 700,000 randomly selected DFS customer accounts in Côte d’Ivoire; Mozambique 2% face-to-face interviews with 50 inactive DFS RESEARCH FOCUS The activity level in Côte d’Ivoire measured as a percentage Cameroon 6% users; phone-based interviews with a random of the adult population was in fact above the average on sample of 1,000 DFS users; mystery shopping the continent, but still left much room for improvement. Senegal 6% trips to 40 DFS agent outlets; eight focus groups with inactive DFS customers. Fieldwork split The study asked a sample of one thousand mobile money Uganda 26% The mobile customers from two leading service providers in Côte d’Ivoire why they did not regularly use their registered mobile Côte d’lvoire 29% between Abidjan, San Pedro and Bouake regions. Methodology: Binary logic regression using four money customer money accounts. The three main reasons for inactivity cited by respondents were: irregular income, no need for a mobile Tanzania 32% different dependent variables, plus qualitative information from interviews and focus groups. that isn’t money account, and the service being too expensive. Some secondary reasons were also raised by up to 10 percent of the research respondents, such as a lack of conveniently located Kenya 62% 0 20 40 60 80 Primary conclusion: The three main reasons for inactivity cited were: irregular income, no need for a mobile money account, and the service agents, difficulty using the services, and lost PIN codes. Percentage being too expensive. Registered digital financial services customers In order to better understand the three main reasons for far outnumber active users in all DFS markets in inactivity, the research team constructed a model to profile Sub-Saharan Africa, even with the most generous the respondents citing these reasons for not regularly using Main reasons for inactivity among respondents definitions of activity. This means the services on the service, controlling for socio-demographic variables such offer aren’t being that widely used. Why is this the as age, gender, and household income. Irregular income 43.6% case? Is it a matter of pricing? Could it be product Irregular income was the main reason given for inactivity, No need to use it 27.0% design? Does it have to do with concerns around cited by 43.6 percent of respondents. Customers on security? Or is it an issue of customer care? irregular incomes do not consider themselves to have spare Service is too expensive 15.5% money to keep in their mobile money accounts, suggesting To investigate the causes of inactivity and learn how they No agents close to where I am 10.2% that they do not see mobile accounts as a convenient can be addressed, The Partnership for Financial Inclusion means of serving their everyday payment needs. It is Service is too complicated 8.2% carried out market research in Côte d’Ivoire in 2014, in unclear whether this implies that mobile money accounts cooperation with two of the largest DFS providers in the are indeed unnecessary for this customer group, or if it is PIN lost 8.1% market. The study found three main barriers to usage: rather due to a lack of understanding of the benefits of services lacked relevance, potential customers did not see Service does not work well (technical issues) 7.2% digital financial services. The research survey made a the benefits of using DFS over cash and traditional financial distinction between unused mobile money accounts that services, or services on offer were too expensive. No interoperability among wallets 4.3% have been registered but never used, and dormant accounts By the end of 2014, the five digital financial services that have previously been used but are currently inactive. Security not guaranteed 3.7% providers in Côte d’Ivoire had together registered over 9 There appeared to be a number of irregular users who only million mobile money accounts. In the same year, Ivorians used their accounts occasionally, when they had been sent Liquidity issues 3.3% deposited over FCFA 1.15 trillion, equivalent to $2.4 billion, money or had earned money and thus had funds. People into mobile money accounts, which was over 70 percent of Does not know 3.2% who only use their mobile money accounts to receive funds, the value deposited in the West Africa region. Despite these students, and people from poor households, are more likely Not offering the services I am interested in 3.2% promising developments, almost 50 percent of all mobile to be among this customer group, while people who have money accounts in Côte d’Ivoire were inactive, meaning at least some secondary education are 40 percent less likely I prefer another channel to transfer money 2.7% customers had not performed a financial transaction in the to report lack of funds as a reason for inactivity. past 90 days. This was not unique to the Ivorian market. I do not trust the service 1.7% According to the GSMA, only 34 percent of the 299 million The second reason respondents gave for inactivity was that they had no need for a mobile money account. This suggests Customer service is bad 1.7% registered mobile money accounts worldwide in 2014 were 90-day active, although activity levels had increased from that DFS does not appear as a compelling alternative to cash Other 13.8% the previous year. The GSMA also estimated that, across or other forms of financial services. This could partly be due Sub-Saharan Africa, activity levels were higher than in other to relatively low awareness of the benefits of DFS among 0 10 20 30 40 50 regions, with 61.9 million of the 146 million registered customers, and partly because mobile money accounts at Percentage DFS customers being active, or 42 percent. Various sources the time could only be used for a limited range of payments of activity data as a percentage of the adult population, in Côte d’Ivoire. Another reason may be the use of multiple rather than as a percentage of registered customers, show mobile money accounts. A common phenomenon in Sub- big variations across Sub-Saharan Africa (see infographic). Saharan Africa is that customers hold multiple cellphones 102 DIGITAL ACCESS 103 DIGITAL ACCESS MARKET RESEARCH MARKET RESEARCH How was the mobile money account used in the past Solutions suggested by respondents to increase activity rates Receive money 63% Decrease prices 20.9% Save 47% Extend number of services 20.6% Deposit to 3rd party via agent 31% Improve the distribution network 15.2% None 20% Simplify registration 13.5% Buy airtime 15% Improve communication 10.5% Deposit to 3rd party via transfer 11% Increase e-commerce via 8.3% mobile money Pay school fees 6% Reassurance of the security of service 7.0% Pay bills 5% Other 3.9% Other 4% 0 10 20 30 Pay merchants 1% Percentage Does not know 0% 0 20 40 60 80 Percentage and mobile connections to minimize cost by avoiding 70 percent more likely to report price as a reason for ‘off-network’ calls. This phenomenon has been inflating inactivity. The opposite trend was true for those who used mobile money penetration figures for many years, a problem the digital accounts to buy airtime. Such customers were 50 which is exacerbated by the fact that many MNOs are now percent less likely to report high fees as a reason for being automatically registering customers for their DFS when inactive. Respondents for whom price was a key reason a new SIM card is sold. Device sharing is also commonly for inactivity tended to be senders rather than recipients of observed, having a similarly distorting effect but leading mobile money, which makes sense, given that storing and to an undercount of mobile phone usage instead. Close receiving money in a mobile money account is free, while to 95 percent of respondents in the Côte d’Ivoire survey there is a fee for making a transfer. reported two or more cellphones per household, and most respondents had at least two SIM cards. It seems likely A number of recommendations can be drawn from the that customers register for several mobile money accounts, research in order to improve activity levels in Côte d’Ivoire, but only end up using the preferred service. The profile of that may also be applicable for providers elsewhere. Firstly, those indicating that they were inactive because they did the cost of DFS transactions should be reviewed and not have a need for a digital account, was similar to that reduced. This had strong support from inactive customers. of customers who stated irregular income as a reason for Secondly, the services and products of DFS providers inactivity; people who were employed were half as likely to should be made more relevant for customers, for example report a lack of need as a reason for inactivity. by offering access to savings and loans. The study also High cost was a key constraint to usage for 15.5 percent revealed a strong demand for better distribution of agents of respondents. In the case of Côte d’Ivoire specifically, across the country to service more locations, particularly the respondents may have had a point. In a comparison in rural areas. Finally, there is a need to help customers made by CGAP on the cost for a customer to use a bundle understand the benefits of the services and how to use them of digital financial services from 15 providers in selected with confidence. African and Asian markets, two Ivorian DFS providers tied in the position of fourth for most expensive of that Further reading: The Mobile Banking Customer That Isn’t: sample. High prices also drive the undesired ‘direct deposit’ Drivers of Digital Financial Services Inactivity in Côte behavior, in which a user deposits money directly into d’Ivoire by Susie Lonie, Meritxell Martinez, Rita Oulai and the recipient’s account, instead of transferring between Christopher Tullis. accounts, and thus circumventing fees. Users who reported price as a reason for inactivity in the sample included Banking with Agents: Experimental Evidence from poorer households as well as people with some secondary Senegal. Forthcoming, 2018. World Bank Policy education, suggesting both categories are especially price Research Working Paper series. World Bank Group, by sensitive. People who used their mobile money account to Sinja Buri, Robert Cull, Xavier Giné, Sven Harten and transfer money to individuals or to pay school fees were Soren Heitmann. Members of the MTN Mobile Financial Services sales team in 104 DIGITAL ACCESS discussion at the MTN office in Abidjan, Côte d’Ivoire. 105 DIGITAL ACCESS 6 PRODUCT In response to this finding, Zoona has made the transactional features of the Sunga Pocket optional. What is a fair price for DFS? DEVELOPMENT Those clients who want them can have these features activated, while those who prefer to use the wallet/pocket as a place to save only, can choose to do so. Notably, the Sunga account may only be accessed at the agent location By Minakshi Ramji and not through mobile apps. IFC Associate Operations Officer, Johannesburg, The marketing of the Sunga Pocket was similarly designed South Africa based on rigorous experimentation. Before the nationwide The price of DFS products and services differ launch of the product, Zoona tested out three different significantly across the African continent, reflecting marketing methodologies to zero in on the one that a variety of business strategies adopted by providers. would work best for the market. The first was based on Some microfinance operators initially offered basic instant gratification, offering all new Sunga clients a person-to-person payments services for free, based bracelet and a high chance of winning a small amount of on the assumption that agent banking would expand cash. The second was a lottery offering a smaller chance reach and attract sufficient deposits to be sustainable. of winning a larger amount, and the third was to hire Other operators are possibly overcharging the market. Services in Côte d’Ivoire, for example, are among the Customers take the lead on roving brand ambassadors who marketed the account in high-density areas. Zoona found that the latter was the most expensive DFS services in emerging markets. product development best way to get people to open accounts, while the instant While price is a significant variable, the value gratification succeeded in unlocking customer activity and proposition of a DFS product does not lie wholly in How do you ensure DFS customers are happy and active? also dramatically improved word-of-mouth marketing of its pricing. Even at a fair price, DFS tend to be cheaper You offer them the products and services that they want. the product. This information then informed the marketing than the informal alternative. Not only cheaper, strategy for the nationwide launch. but also more accessible, safer, faster and more reliable. It may sound simple, but most practitioners in the industry Research with users across Africa through qualitative would agree that getting the products right can be a Today, the Sunga Pocket is offered as an affordable and approaches, such as financial diaries and quantitative accessible electronic account to ‘save for school fees, a new surveys, show that DFS users are ready to pay for a challenging journey. When developing and launching its mobile phone, or to launch a business venture’. The account service they value, with less regard to the price than one new Sunga wallet, Zoona surprisingly found that customers discover solutions that truly meet their needs’. This means can be accessed at any Zoona agent at low transaction fees might assume. An MFI that substantially hiked its price there’s very little guesswork involved when it conceives wanted less functionality than it was prepared to offer. and no monthly charges, and it also remains open when not to ensure the sustainability of its agent network first new products, as the Partnership project that launched the in use. As at December 2017, there were 72,000 registered experienced a dramatic drop in usage, but found that ‘Sunga Pocket’ in Zambia shows. business picked up again once the market had absorbed Sunga Pocket users in Zambia, with 48 percent of them At the outset, Zoona was looking to leverage the trust active on a 30-day basis and holding a deposit higher than the news. Along with simple person-to-person payments, a safe place to save is often seen as the first step on the journey towards it had established in the Zambian market as the leading ten kwacha ($1) and a total of $800,000 in Sunga accounts. Charging a fair price for DFS services ensures financial inclusion and more comprehensive financial payments service provider to offer a basic wallet that would Some Sunga customers have opened multiple accounts to expansion, innovation and sustainability. IFC data services. A financial account not only allows users to store allow customers to store as well as send and receive money. save for different purposes. Based on these insights and across nine MFIs show that the average cost of any money securely, but also enables them to better plan and The aim was to register 300,000 new users on the Sunga new use cases, Zoona is conducting additional product transaction at the agent is $0.95, while the customer is platform within two years, with at least 50 percent having development to enhance user experience. charged about $0.35. While the transaction fee doesn’t manage their finances over time. Zoona, an independent a positive balance on their wallets. It was piloted in March cover the cost, agent banking is less costly than for the payments service provider launched in 2007 and present in Approximately a fifth of Sunga customers are Zoona MFI to pay a teller to do a transaction, which is about Malawi, Mozambique and Zambia, decided to develop and 2017 as a deposit/withdrawal facility only, and research payments customers – evidence that Zoona’s strategy to $1.33. More and more, institutions are moving towards offer a savings product in 2016 in response to an apparent during the pilot produced some surprising consumer build on its payments business to offer more advanced indirect attribution of revenue to DFS in order to fully demand in the market. Anecdotal research showed that insights that had implications for the final product design. financial products has paid off in terms of expanding understand the potential impact on the institution. customers were already sending money to themselves that During the pilot phase, Zoona looked closely at transactions reach as well as financial inclusion. Understanding your So, what is a fair price? One that’s not usurious and they were only cashing in months later, in effect using basic and surveyed customers by phone to better understand customers is key to providing products that make sense one that attempts to cover direct expenses, while transaction accounts to save for another day. transaction behavior and the needs of the market. for them, and even though market research for product promoting activity and full benefit of the products for development may seem arduous and expensive, it can be financial inclusion. Zoona has three ‘wildly important’ business goals: to Customers reported that they found other competitive develop products and services that improve the financial mobile wallets less attractive than the limited pilot-phase time and effort well invested. health and well-being of one billion people, to empower Sunga Pocket because of the ease with which they could emerging entrepreneurs to build profitable businesses that move money in and out of these wallets, for example for create one million jobs, and to prove that a purpose-driven airtime purchases. The Zoona team had assumed that such business can be a global model for growth and impact. additional functionality was viewed as desirable, but it To achieve this ambitious vision, its team ‘engage turned out to be the opposite. At least some clients found customers with a huge amount of empathy to understand that a storage wallet coupled with transaction features the world through their eyes, and innovate with them to left the funds open to the temptations of easy spending. 106 DIGITAL ACCESS PRODUCT DEVELOPMENT PRODUCT DEVELOPMENT Overall financial inclusion rate vs mobile money account rate 100 80 60 46.0% 35.6% 40 21.4% 20 28.0% 0 n/a 12.1% 2011 2014 2017 % Account rate, adult population % Mobile account, all adults MARKET OVERVIEW Industry opinion: million customers, Zanaco positions itself as ‘the bank for World Bank, Findex the unbankable’ in Zambia, and has a network of Zanaco Any account ownership, adult 46% Xpress Agents, targeting SMEs including agricultural population, 2017 What product will lead DFS adoption smallholders, and women. Zanaco launched Zambia’s first in the near future? Zambia: mobile banking service in 2008, including an entry-level Any account ownership, women, 2017 40% DFS providers are challenged to develop market-responsive mobile account called Xapit, with low fees and the option A growing market of a companion Visa debit card. Some local banks are Any account ownership, young adults (15-24 years), 2017 42% products. To ensure continued uptake and use of DFS, products require a customer-centric approach to meet with strong agent networks starting to offer digital mobile and agent banking services. Financial institutions account, 36% the needs of the costumer. Payments are often the launch Investrust Bank is a public company that has a focus on adults, 2017 product for new DFS implementations, but the number and niche markets such as students, SMEs and farmers, with variety of product offerings grow as markets mature. products like the ‘Investrust Farmer’ low-cost current Mobile money account, adults, 2017 28% Zambia is one of the less populous African countries account. Investrust also operates an agent network that can Saved at a financial institution, 14% with just 16 million inhabitants, but it also has one of the provide a range of the services available at branches, and adults, 2017 highest fertility rates in the world, and nearly half of the provides mobile and Internet banking. The microfinance institution FINCA also provides an agent network, FINCA Saved semi-formally, in a savings 23% population is below 15 years old. The Zambian economy club or with person outside the is very dependent on copper exports. It was one of the Express, which uses biometric authentication POS devices. family, adults, 2017 fastest growing economies in the world for ten years up to More than two-thirds of FINCA transactions are via the 2014, when copper prices fell. Consequently, in 2016 the agent network. Borrowed formally, from an 10% institution or credit card, adults, 2017 local currency, the Kwacha, suffered depreciation and the Over half of Zambians own a mobile phone, and the central bank restricted lending. Urbanization is currently market is dominated by MTN and Airtel. The MNO- Borrowed from friends and family, 31% at 42 percent and growing. Even though 85 percent of provided DFS have been relatively slow to gain traction adults, 2017 employment is agriculture-related, agriculture contributes in Zambia. Both Airtel and MTN have offered mobile Poverty rate, 2015 57.5% less than 6 percent to GDP and poverty is high at 61 percent, wallets for more than five years, providing a basic range concentrated in rural areas. of mobile money transaction types. Usage has been limited GSMA The Zambian banking sector faces a number of challenges, until recently, with just five percent of customer wallets Unique mobile network 9.0 m with relatively few branches, concentrated mainly in the being active. A number of initiatives by the MNOs are subscribers, 2017 provinces of the capital Lusaka and the industrialized said to be increasing wallet usage (although data is not yet Credit (30%) Copperbelt. Low branch penetration is mainly due to available), such as the MTN partnership with fintech Jumo Mobile penetration rate, 2017 53% the high cost of opening branches, estimated at US$ 0.35 to provide micro-loans based on customers’ mobile money Merchant payments (25%) Bank of Zambia, IMF FAS, AFSD million per branch.1 Distribution is further limited by the and mobile network usage. MTN has also launched mobile P2P (23%) fact that nearly two-thirds of POS devices are located in international remittances, allowing transfers between its Volume of MM transactions, Jan-Sep 2017 116,240,904 the Lusaka area, as well as 43 percent of the country’s wallet and several East African DFS providers. Value of MM transactions, Jan-Sep 2017 474.35 m US$6 Savings (15%) ATMs.2 For these reasons, some banks have provided Currently the most successful DFS operating in Zambia Bulk payments (7%) agent banking networks for several years. A considerable Registered mobile money users 4,917,204 is the OTC service named Zoona, which has the largest (wallets), 2015 constraint to efficient banking operations is the lack of a agent network in the country.4 It is principally a domestic national payment switch. The Bank of Zambia has been Number of agents, 2015 19,249 remittance service, with agents operating from Zoona developing a national payments switch that was originally kiosks placed in strategic locations. The management due to go live in 2014.3 Licensed commercial banks, 2015 19 of an efficient agent network is Zoona’s main expertise, Financial inclusion has improved significantly in recent with its focus on high quality agents – typically young, Bank branches, 2015 391 years, rising from 37 percent in 2009 to 59 percent in 2016, self-employed entrepreneurs. Zoona uses data science Total assets, 2015 7,776.49 m US$ and two-thirds of people have an account with a financial to ensure that kiosks are in the best locations and that institution. The banking sector is dominated by foreign, agents have sufficient traffic and liquidity to ensure a good Mix Market mainly South African, banks. The largest commercial return. More recently, Zoona has offered an account-based bank is Zanaco, part owned by Rabobank. With nearly a unremunerated savings product called Sunga Pockets.5 Licensed MFIs 18 108 DIGITAL ACCESS 109 DIGITAL ACCESS PRODUCT DEVELOPMENT PRODUCT DEVELOPMENT Timeline definition of credit scoring PAST PRESENT FUTURE RESEARCH FOCUS of the world’s existing data were created in the last two years. The recent digital data revolution extends as much Borrower characteristics Borrower characteristics Loan repayment behavior to the developing world as to the developed world. In 2016, there were 7.8 billion mobile phone subscriptions in Loan repayment behavior Leveraging alternative the world, of which 74 percent were in developing nations. The future is expected to be even richer in data. As the data to develop new costs of smartphones fall, mobile Internet access is set to rise from 44 percent in 2015 to 60 percent in 2020. In credit products Sub-Saharan Africa, smartphone usage is predicted to rise from 25 percent in 2015 to 50 percent of all connections Okao Jahzi and M-Shwari Product Comparison OKAO JAHZI AMOUNT M-SHWARI AMOUNT by 2020. There’s been a large increase in digital credit providers The lower of airtime spends over the last 100 to 10,000 Kenyan shillings Commercial Bank of Africa (CBA) and mobile operator 7 days or 100 Kenyan shillings in Sub-Saharan Africa following the breakthrough Safaricom were early to recognize the power of mobile launch of M-Shwari in Kenya in 2012 by Safaricom phone and mobile money data. M-Shwari, the first highly and Commercial Bank of Africa. M-Shwari’s story PURPOSE PURPOSE successful digital savings and loan product, is well known is an excellent study in how to use data creatively to followers of fintech and financial inclusion. It has given Used for airtime only Used for any purpose to bring a new product to market, providing nano- small credit limits over mobile phones, called nano-loans, loans to millions of previously excluded small-scale to millions of borrowers, bringing them into the formal REPAYMENT TERM REPAYMENT TERM borrowers based on data-driven credit-scoring. financial sector. Similar products have since been launched 72 hours 30 days Credit scoring technology looks at past borrower in other parts of Africa, and new competition has crowded characteristics and repayment behavior to predict future the market in Kenya. loan repayment behavior. But what about the case where MNOs have extensive data on their clients’ mobile phone there is no past repayment behavior – the case of the and, in many cases, mobile money usage, but it is less millions of people who have been excluded from the clear how that data can be used to predict the ability and formal financial system until the launch of affordable and willingness to repay a loan without data on the payment accessible financial services such as mobile money and agent banking? of past obligations. By definition, there is no product- specific past data for a new product. One way to still use The emergence of Big Data and the sources and formats credit scoring with a new product is to use expert judgment of these data have presented additional approaches to the and domain knowledge to build an ‘expert scorecard’, credit scoring process. Incorporating these alternative data a tool that guides lending decisions based on borrower sources drives alternative credit scoring models. In East risk-rankings. Africa, for example, there are solar devices that produce information about the unit’s usage and DFS repayments Another way to use credit scoring with a new product is to made by the owner. Data are then used to perform instant study a set of relevant client data, such as MNO data, in credit assessments that can ultimately drive new business. relation to loan repayment information, such as: For DFS providers, data can be drawn from an ever- expanding array of sources: transactional data, mobile • General credit history or a bureau report: This only call records, call center recordings, customer and agent works for clients with a file in the bureau. registrations, airtime purchase patterns, credit bureau • Similar credit products: Another credit product, information, social media posts, geospatial data, and more. similar enough to be relevant to the new product, can be It is estimated that approximately 2.5 quintillion bytes of used as a gauge. While past repayment of that product data are produced in the world every day. To get a sense of may or may not be representative of future repayment of the quantity, this amount of data exceeds 10 billion high- the new product, it may be an acceptable approximation, definition DVDs. Most of these data are young – 90 percent or ‘proxy’, for initial modeling purposes. 110 DIGITAL ACCESS 111 DIGITAL ACCESS PRODUCT DEVELOPMENT PRODUCT DEVELOPMENT The first M-Shwari scorecard was developed using • A well-designed product: Small, short-term products are Safaricom data and the repayment history of clients that better fits for credit scoring, particularly for new products. had used its Okoa Jahazi airtime credit product. The two Rapid feedback on the target population’s repayment products were clearly different, as shown in the table on performance enables timely model redevelopment and controls risk. page 111. The M-Shwari product offered borrowers more money, flexibility of use and time to repay. The assumption • Good systems and people: The M-Shwari management was that those who had successfully used the very small team is lean and flexible, bringing together a unique Okao Jahzi loans would be better risks for the larger combination of management and technical skills, as well loan product. as the systems to ensure smooth implementation. • Leveraging outside resources: Financial Sector The first M-Shwari credit scoring model developed with Deepening (FSD) Kenya supported CBA with risk the Okoa Jahazi data, together with conservative limit modeling expertise crucial to developing the first scoring policies and well-designed business processes, enabled the model and transferring skills to M-Shwari’s team. launch of the product, which quickly became massively successful. CBA expected the scorecard based on Okoa Since banks must report nano-loan repayments to bureaus and central banks, nano-lending has brought millions of Jahazi data to be redeveloped as soon as possible, using people who previously lacked access to banks into the the repayment behavior of the M-Shwari product itself. formal financial sector across the world, establishing credit Some behaviors predictive of airtime credit usage did not history that is a stepping stone to unlocking access to other translate directly to M-Shwari usage, and appropriate types of loan products. However, there is concern that nano- changes to the model based on the actual M-Shwari loans create a cycle of debt for low-income individuals. product usage data reduced non-performing loans by Several million people with bad nano-lending experiences 2 percent. M-Shwari continues to update its scorecard could become blacklisted at local credit bureaus, which periodically, based on new information. greater endorses the need for consumer protection and financial literacy campaigns coupled with the new mass The M-Shwari nano-loan product succeeded, thanks to the market product launches. timely confluence of: Further reading: Data Analytics and Digital Financial • Access to MNO data: CBA had a first mover advantage Services Handbook, by Dean Caire, Leonardo Camiciotti, due to its strong partnership with Safaricom. Today, Soren Heitmann, Susie Lonie, Christian Racca, Minakshi Safaricom sells its MNO data to all banks in Kenya. Ramji, and Qiuyan Xu. Basic mobile phones still dominate usage in Sub-Saharan Africa, 112 DIGITAL ACCESS as seen here at an agent for Airtel Money in rural Uganda. 113 DIGITAL ACCESS PRODUCT DEVELOPMENT PRODUCT DEVELOPMENT Ugandan DFS users enjoy a diversity of products An Airtel Money sales team has pitched their maquis at a busy street in downtown Kampala, Uganda. 114 DIGITAL ACCESS 115 DIGITAL ACCESS PRODUCT DEVELOPMENT PRODUCT DEVELOPMENT Mobile money in Sub-Saharan Africa initially took off with person-to-person transfers, a perfect fit for economies often characterized by labor migration and dependency on social and family networks. As markets mature, providers have found demand for a variety of financial services. Among first generation products you often find airtime top-ups, safe storage, bill payments and some simpler government- to-person transfers and business-to-person payments. The next stage tends to include savings products, credit, and merchant payments. In the most advanced markets, providers may offer insurance or products-on-demand, such as solar power or electricity. It is clear that customers have different motivations for using services such as Airtel Money, stemming from a variety of financial realities that require various solutions. “It is more secure. Actually, it is very dangerous to have money in my pockets,” says motorcycle taxi driver, Philly. Vegetable seller Sarah Asiimwe uses Airtel Money to source produce from farmers in the countryside. “Because I don’t have money for transport to go there, I can just send to them and they bring me bananas, oranges and mangos,” she says. 1 While the DFS industry breakthrough came with 1. Explaining the services and products to new customers is critical to uptake. person-to-person payments, users across the continent are increasingly asking for a full suite of 2. An Airtel Money sales agent in Kampala, Uganda, getting ready to demonstrate the service on her phone for new customers. banking products. In Uganda, Airtel Money offers payments, cash withdrawals, bank-to-wallet transfers and bill payments. Kampala, Uganda. Under a red, branded tent on a busy street in downtown Kampala, the capital city of Uganda, Airtel Money promoter Jimmy Musana flips through the product catalogue to show potential new customers what the service has to offer. “You can pay a water bill using Airtel Money, you can pay an electricity bill. You can deposit money into your bank account. You can also withdraw your money from your bank to your Airtel Money account using this service,” he says. “You know, in Uganda, it is a digital world now.” Airtel Money launched in Uganda in 2012. Customers include small-scale shopkeepers, restaurant owners, market traders, the characteristic Ugandan boda-boda drivers (motorcycle taxis), and ordinary people. Many find the service beneficial to their business operations, signaling a growing demand also for digital merchant payments. “I have customers who pay me through Airtel Money. They come and they don’t have money, so they pay through Airtel Money, so that the business goes on,” says Leonard Kalule, a street-stall grocer in Kampala. 116 DIGITAL ACCESS 2 117 DIGITAL ACCESS PRODUCT DEVELOPMENT PRODUCT DEVELOPMENT Airtel Money Uganda CEO Frances Matseketsa describes the service’s typical customer as “an excited customer yearning to learn more about DFS.” “I see a huge impact on financial inclusion, especially with more products that will uplift the poor and bottom of the pyramid customers; products like micro-loans and micro-savings and inward international remittances that will reach rural people from abroad,” he says, adding that customers “want more awareness, more education and more programs that teach them DFS and the benefits associated with it.” The long list of bill payments you can make through Airtel Money shows just how transformative mobile money can be, and the range of payments it may apply to: in addition to water and electricity bills, as mentioned by Airtel promoter Musana, users can pay for various television services, street parking, fuel, school fees, and even play the national lotto. “I’m saving money on my Airtel Money line because I hope to be an agent of Airtel Money. I want to save to get at least some capital to start my business,” says Eunice, a small- scale grocer whose shop is right next to an existing Airtel Money agent. Airtel Money does not yet offer users savings accounts or loans, but may do so in the future. When you have a product that is used by hundreds of thousands of people each day, you only need to watch how they use the product as a guide to product development. “I see a huge impact on financial inclusion, especially with more products that will uplift the poor and bottom of the pyramid customers – products like micro-loans and microsavings and inward international remittances that will reach rural people from abroad,” says Matseketsa. Financial inclusion in Uganda has jumped from 20.5% percent in 2011 to 59.0% percent in 2017. 118 DIGITAL ACCESS 119 DIGITAL ACCESS PRODUCT DEVELOPMENT PRODUCT DEVELOPMENT Sarah Asiimwe, market trader: “ I can just send money to the farmers in the villages, and they send ” me bananas, oranges and mangos. Eunice, shopkeeper: David Musinguzi, John Kizza, Airtel Leonard Kalule, Airtel Money agent: Money field manager: street-stall grocer: “Since it is next to my place, the money that “Every day, I have fifteen “The agents are our face “If I would get the chance I operate in my shop, to twenty mobile money to the customers, of getting an Airtel loan, I bank it so fast.” customers, and I have so we have to train them I think I will be benefiting earned from mobile continuously, so that to expand my business.” money.” they offer good quality service.” 120 DIGITAL ACCESS 121 DIGITAL ACCESS The IFC team also provided customer analysis, to establish the number and distribution of inactive customers per We must protect 7 region. This was then mapped against agent distribution and the consumer investment to establish which agents had the capabilities to complete activations, deposits and withdrawals. The outcome of this was a list of target areas and route CUSTOMER plan for the activation activities. To have an effective By Tiphaine Crenn activation campaign, agents were prepared with the right IFC Operations Officer, Dakar, Senegal information and investment to handle a rapid increase in There is no doubt that digital financial services hold ACQUISITION new customers. huge promise for the expansion of financial inclusion. Nowhere is that more evident than in Sub-Saharan Two firms were hired and 4,200 activation events were Africa, home to 277 million registered users with held nationwide, supporting over 5,000 agents. A typical about 100 million active accounts. But as millions of activation campaign had 10-15 promoters/educators new clients get access to formal financial services, there working in a radius around an agent speaking to the needs to be practical guidelines for the industry to market about Airtel Money and its benefits. A successful ensure proper customer protection. pitch would conclude with registration if the user was new to the service, or an activation if the customer had been The biggest concerns are around digital credit. Nano- Agents are the key dormant, and at least one account transaction completed to loans are often based on automated credit-scoring and a to active customers demonstrate use. The campaign focused primarily on P2P, and most demonstrations performed a payments service contactless methodology, and present new risks to both consumers and providers. Borrowers risk becoming transaction or an airtime purchase. The drive was executed over-indebted, not understanding the pricing properly, The value proposition of digital financial services to methodically to areas that had high levels of registrations or accepting a loan that they later realize that they users and potential users is often based on promises but low activity. Most of these areas were urban, and a don’t need. Providers that deliver a poorly conceived of accessibility, affordability, speed and convenience. conscious effort was made to also reach rural areas. nano-loan product risk non-repayment, fraud, data Of the approximately one million people touched by the security breaches and reputational damage. It shouldn’t be a hard sell, especially not to those who were activation campaigns, 50 percent reactivated their accounts Data from Kenya, the most advanced DFS market on previously not offered any formal financial services at all. through registration, a deposit or password reset. the continent, show that 50 percent of the 600,000 Bringing new users on board and making sure existing resources (e-value and cash) on them for security reasons, thus not able to demonstrate the full capacity of the service An additional benefit of the customer activation drive was Kenyans who have been blacklisted by credit bureaus users are active on the channel can still be challenging. that it allowed Airtel Money to tackle a prevalent problem have outstanding balances of less than 100 Kenyan to users. in the DFS industry: that of fraudulent direct deposits. shilling, i.e. not even one US dollar. Some are not even IFC carried out an analysis to compare the lifecycle aware that they owe the digital credit provider. The cost This is when customers deposit money directly into a and health of a wallet opened by a promoter compared and effort to wipe off their bad credit history is not Airtel Money was launched in Uganda in 2012, and recipient’s account, instead of transferring money from his to a wallet opened by an agent, and the former ran into balanced with the amount owed. within two years it had 10 million registered users. This is or her own account to the recipient, usually to avoid paying dormancy at a comparatively high rate. Account holders impressive for a country with just over 40 million people. transfer charges. Some agents also encouraged this behavior How do we prevent similar situations in the future? introduced to the service by agents were more active and As is the case with most deployments, activity rates were to be able to directly charge users a little extra for ‘service It can be as simple as making sure that Terms & loyal to the service. The project thus designed a strategy low. Only about 10 percent of those users, 1.1 million, were and savings’. If widespread, direct deposits can have a very Conditions are presented in local languages on the to better leverage agents for customer acquisition, an actively using the service on a 30-day basis (performing at damaging effect on the profitability of the channel for the phone menu, or that all fees, commissions and interest approach that has proved successful in other markets. least one financial transaction on the service per 30 days). provider. Airtel Money’s customer education campaign rates are clearly shown on the screen before a customer To work out how best to address the huge gap between Agents are often effective at encouraging new clients to join helped users understand the importance of managing their clicks to apply for a loan. Or that agents and call centers registered and active users, Airtel Money reached out to a service because they are part of the target community. own transactions to avoid being complicit in fraud and to are well equipped to answer client questions and that IFC in 2014 and a project was initiated with the target of Trust is the basis of every economic transaction. People avoid fraud on their own accounts. Following the customer feedback loops are an integral part of product design. increasing the active user base to 2.5 million by 2018. don’t use a financial service they don’t trust. It is likely acquisition campaign, P2P transactions increased by over The focus should be on pragmatic approaches that do that people trust service providers living next door better 200 percent in volume and over 300 percent in value. Airtel Money was using its own promoters to acquire not unduly burden providers, but make sure to protect than promoters from far afield. To leverage agents for customers. They worked independently of Airtel Money As at November 2017, Airtel Money’s active user base DFS consumers. Then we can speak of a true promise customer acquisition is to leverage not only the proximity agents, signing up customers and collecting deposits from had grown by 318 percent, by far surpassing the initial for financial inclusion. they hold to potential customers, but also the trust and users at their location. Although this had been an effective target set for the close of the project. This was achieved social relationships they have already built in the market approach to signing up large numbers of registered users, by focusing on agents to drive customer acquisition, and as small-scale entrepreneurs and community members. by ensuring good consumer education as part of the it created a number of challenges. Promoters failed to Financial services and products also often require an acquisition campaign. demonstrate the role of agents to users since they were acting elaborate process of consumer education, sometimes in parallel to agents and not necessarily geographically provided on an ongoing basis. When well-managed, agents linked to agents, which meant many customers soon can be exemplary teachers able to break down the customer became dormant. The promoters could themselves only value proposition into simple messages that resonate with complete small value transactions, since they had limited their market. 122 DIGITAL ACCESS CUSTOMER ACQUISITION CUSTOMER ACQUISITION Overall financial inclusion rate vs mobile money account rate 100 80 59.0% 60 44.4% 40 20.5% 51.0% 20 35.1% 0 n/a 2011 2014 2017 % Account rate, adult population % Mobile account, all adults MARKET OVERVIEW Industry opinion: and so far only a few banks have launched their own World Bank, Findex agent networks, including Centenary Bank and Equity Any account ownership, adult 59% Bank. However, most banks have started to put in place population, 2017 What is the most important factor in the structures and processes to support agents. The Uganda attracting new DFS users? Uganda: Banking Association is planning to launch a joint venture Any account ownership, women, 2017 53% The number of registered and active users of DFS is steadily business with Eclectics International, called ‘Agent Banking A mature market Company’. This is an interoperable platform that will start Any account ownership, young adults (15-24 years), 2017 57% rising across the African continent. There are now over 277 million registered users on the continent, with about 100 targeted by fraudsters by connecting Barclays, Diamond Trust Bank Uganda, Stanbic, and Bank of Africa. The first transactions to be Financial institutions account, 33% million active accounts, almost 60 percent of the global adults, 2017 total. More than 40 percent of the adult population in Kenya, supported will be cash in/out, and bill payments. More Tanzania, Zimbabwe, Ghana, Uganda, Gabon and Namibia complex transactions will follow thereafter. Mobile money account, adults, 2017 51% are using mobile money services on an active 90-day basis Uganda has a population of 39 million, mainly located in The combination of a strong DFS infrastructure and Saved at a financial institution, 13% (GSMA, 2016). What brings new customers to DFS? rural areas (76 percent). Consequently, agriculture is the agricultural production makes Uganda ripe for digitizing adults, 2017 major source of employment, engaging nearly three-quarters agricultural value chains, and a number of initiatives have Saved semi-formally, in a savings 37% of the labor force. Coffee is the main agricultural export, been piloted in recent years. For example, Kyagalanyi Coffee club or with person outside the followed by tea, cotton and tobacco. The country has one Limited is the largest single coffee exporter in Uganda, and family, adults, 2017 of the fastest growing populations in the world with nearly deals with farmers located in remote mountainous areas. half under 15 years old. One-third of Ugandans live below By partnering with MTN and Fenix International to create Borrowed formally, from an 15% the poverty line. suitable infrastructure, it can pay farmers for their harvest institution or credit card, adults, 2017 in whole or in part by DFS. Similar initiatives have been Borrowed from friends and family, 46% DFS in Uganda is dominated by mobile money operators. undertaken in other sectors, including sugar and palm oil, adults, 2017 Uganda was one of the first countries in Africa to adopt DFS although they have yet to reach scale. at scale, and there are now seven non-bank DFS providers Poverty rate, 2012 34.6% serving 7.6 million registered users. In 2016, mobile money There have been several well publicized fraud cases in the transactions were US$ 9 billion, an impressive rise of 34 Ugandan DFS sector. In 2015 the Anti-Corruption Court GSMA percent on the previous year. Transaction numbers grew heard a large-scale mobile money fraud case resulting in Unique mobile network 17 m by 40 percent to nearly one billion in the same period.1 the loss of US$ 3.4 million, which undermined consumer subscribers, 2017 Uganda has a relatively mature DFS market offering confidence and slowed the development of the market for consumers a range of complex services including interest- some time. In DFS agent research, Ugandan agents reported Mobile penetration rate, 2017 41% bearing savings, and micro-loans with credit ratings based the highest incidents of crime and fraud of eleven countries Bank of Uganda, AFSD Peer endorsement (35%) on DFS account history and usage of the mobile network. studied. Over half of the agents interviewed reported Together, the two MNOs are responsible for more than 90 experiencing fraud, and one-third had been the victims Volume of MM transactions, 2016 974,746,000 Highly visible agent network (32%) percent of all DFS transactions. MTN, in partnership with of theft in the previous year. High performing agents are the Commercial Bank of Africa, launched the MoKash more often targeted by criminals and this has caused some Value of MM transactions, 2016 12,030.9 m US$6 Strong brand (17%) savings and loan service in 2016 and one year later agents to put a daily limit on their transactions, limiting Registered mobile money users 21,585,484 Customer education (13%) reported that 1.2 million people – over a quarter of their their ability to serve customers.4 (wallets), 2016 active DFS users – were actively using the MoKash service. Supportive staff network (3%) There are eight MNOs in Uganda, although some only offer A total of US$ 8 million was borrowed in the first year.2 Number of agents, 2015 54,000,0007 data (Internet) services. Mobile coverage is good and the In early 2017, Airtel launched Wewole, a micro-credit market leaders are MTN and Airtel. Data coverage (3G) Licensed commercial banks, 2016 25 service, in partnership with JUMO, for which results have is available in approximately half of the country, and the not yet been made available.3 Bank branches, 2016 552 government is developing a National Broadband Strategy Banks are adopting mobile banking, using mobile money that will promote open access and infrastructure-sharing to Total assets, 2015 6,703.08 m US$ as the key value proposition and enabling transactions reduce infrastructure duplication and the cost of network between bank accounts and wallets. However, uptake deployment.5 In 2017, over 40 percent of Ugandans were Mix Market is so far lower than in neighboring Kenya and Tanzania. classified as Internet users, and one-third used a mobile Licensed MFIs 58 Agent banking regulations are relatively new in Uganda, device to go online. 124 DIGITAL ACCESS 125 DIGITAL ACCESS CUSTOMER ACQUISITION CUSTOMER ACQUISITION Research question: How do historical, cultural and social factors influence the adoption of DFS? Data collected: Field observations, interviews, focus group discussions and archive research carried out RESEARCH FOCUS One of the main findings of the study is the crucial and overarching importance of trust, and how this notion is by the research teams in Cameroon, DRC, Senegal and Zambia. culturally specific and historically embedded in each society. Methodology: Ethnographic. All of the economies in which the case studies took place Historical, social Primary conclusion: Trust is of overarching importance have experienced large swings of economic progression and in determining whether new users will adopt DFS or not. deterioration over time, sometimes reflected in a collapse and cultural factors of the financial sector. Consequently, some potential DFS users have learned to primarily rely on informal financial influence uptake of DFS services and may be reluctant to adopt services perceived to be linked to a volatile banking sector. In such markets, Digital Financial Services – A framework for understanding people’s perceptions and relationships it may be especially important for DFS providers to As DFS have rapidly expanded across Sub-Saharan distinguish themselves from traditional financial services TRUST Africa, millions of people can now make payments, providers to attract users, and it also becomes crucial to swiftly overcome any issues of balancing floats, network Historical roots of monetary transactions save, and borrow, with a few clicks on a mobile phone or a finger’s swipe at an agent’s point-of-sale outages or similar bugs in the DFS system. Mobility of people and money device. To better understand the African DFS user, Another key finding of the study is the high degree of Risk perceptions IFC and the Mastercard Foundation commissioned mobility in the studied economies, both with regard to a rare ethnographic study into the usage, perceptions money and people. Many African economies are indeed Technological appropriation and attitudes to DFS on the continent. mobile and network economies, and should thus be ideal for Networks of belonging the introduction of DFS. Zambia, for example, is a mining The study aimed to understand what digital financial economy with considerable internal migration. Typical for Economic hierarchies inclusion means in different African contexts in relation to the mining economies of southern Africa is the long-term historical, cultural and social factors. It is a comparative separation of families, with the male breadwinner working ethnographic exploration of the reception of digital in the mining centers while the families remain behind in financial services in Cameroon, the Democratic Republic rural areas. Domestic remittances have thus long played a of Congo, Senegal and Zambia. It focused primarily great part in the Zambian economy. To some extent, the on four key research questions: What is the contextual plantation economy of northern Cameroon provides a infrastructure of digital financial services in Sub-Saharan similar context. In some other African countries, such as Africa? How is the meaning of money changing due to Senegal, international remittances are commonplace due to digitization? What are the factors informing people’s perceptions and attitudes towards DFS? What is the impact migration to Europe and other parts of the world. In all of DFS on financial inclusion, beyond the numbers that these types of economies money has been ‘mobile’ for a measure access to formal financial accounts? long time, and family structures and other networks are crucial for such mobility to take place. The researchers interviewed both users and non-users of DFS, in urban as well as rural areas, in all four research Some of the findings of the study relate to the cultural countries. In Zambia, the researchers used bus stations and social appropriation of new technology, showing, as sites for finding informants. In Cameroon, the team for example, how the marketing of DFS sometimes misses focused on the informal sector, interviewing buyam-sellams the mark when not tailored to local identities. Regardless (street traders), motor taxi drivers, and other small-scale of actual legislation in a market, the study also revealed business proprietors. They also spoke to students, teachers, that people’s perceptions of consumer protection policies journalists, accountants and farmers. The Senegalese play an important part in the decision to adopt DFS or not. team interviewed merchants, traders, and international Fears of new technology also emerged as a powerful barrier migrants and their families. In the DRC, the researchers to DFS adoption, not just in terms of technological literacy, also primarily focused on the informal sector, speaking to but also due to the anticipated effect of new technology on merchants, traders, and farmers, plus students. social and cultural norms. 126 DIGITAL ACCESS 127 DIGITAL ACCESS CUSTOMER ACQUISITION CUSTOMER ACQUISITION The choice to take up a financial service is also influenced well established practices of transfers within social networks, by people’s economic status and networks of belonging. and an appreciation for how DFS may be a stepping stone Interestingly, the study shows that in some instances a sense to access more traditional forms of banking services, are of social or economic exclusion increases the likelihood of factors that may work in favor of DFS in Senegal on the the adoption of DFS, while in other instances it can be a other hand, and can be leveraged by providers. barrier. A majority of informants across the four countries In Anglophone Cameroon, the plantation economy has had a preference for cash. This is believed to be partly due established historical patterns of mobility of people and to unfamiliarity with the general concept of mobile money money that creates a conducive market environment or e-money, a lack of financial literacy, a preference for for DFS. Still, the continued trust in, and popularity personal contact when dealing with money, and even the of, established socio-financial structures is a barrier to simple fact that cash remains dominant in many day-to-day DFS market development. Low levels of technological circumstances. For those who have chosen to appropriate appropriation and DFS reach in rural areas, a perception DFS, the study shows that this can be a first step towards of poor consumer protection, existing socio-economic adopting a range of formal financial services, and that inequalities, and strong feelings of social exclusion in the DFS, as such, can serve to help formalize the large informal informal sector, may also make this a challenging market sector in many African countries. for DFS providers. Six themes emerged from the ethnographic findings that may In the DRC, a historical mistrust of the banking sector serve as a framework for deepening our understanding of seems to work against the adoption of formal financial the emerging DFS customer and market: the historical roots services in general, but favor the adoption of DFS over of monetary transactions; mobility of people and money; other financial services. An underdeveloped technological technological appropriation; risk perceptions; networks infrastructure and unclear policies with regard to consumer of belonging; and economic hierarchies. Each individual protection also work against DFS adoption, while the need category can act as a driver or a barrier for adopting and to transfer money across the vast country, the perceived using digital financial services. The way the user feels about anonymity of DFS transfers, and the convenience DFS DFS often depends on the degree of trust he or she ultimately offers to the informal sector, are factors that work in favor feels for the service on offer, often an outcome of all the of DFS expansion. In Zambia, the mining economy has themes above. Examined together, the themes thus provide a created domestic labor migration coupled with remittances high-level risk assessment for a given market. As such, it may that lay a natural foundation for DFS, while ineffective help providers identify areas of specific concern to increase marketing appears to discourage potential DFS users and DFS uptake or activity. at least certain segments of the market seem to consider For example, the assessment produced four socio-cultural formal financial services out of reach. It is notable that drivers and two barriers to DFS uptake in Senegal; technological appropriation is a challenging issue across demonstrating how the persistent use of traditional ways of all markets. sending and saving money, as well as low levels of financial Further reading: A Sense of Inclusion: An Ethnographic and technological literacy, may pose challenges to DFS Study of the Perceptions and Attitudes to Digital Financial providers in the market. The long-established prevalence Services in Sub-Saharan Africa, by Anna Koblanck, Soren of migration and remittances in the Senegalese market, Heitmann, Gisela Davico and the African Studies Center a relatively high level of trust in consumer protection, Leiden, University of Leiden. Soahanginirina Razafindrahanta, a teller at a Baobab agent, counting out money for a customer in Antananarivo, Madagascar, 128 DIGITAL ACCESS on 16 February 2018. 129 DIGITAL ACCESS CUSTOMER ACQUISITION CUSTOMER ACQUISITION Saving for the future - one dollar at a time Microfinance institution FINCA was first to launch biometric point-of-sale devices for agent banking in the Democratic Republic of Congo. 130 DIGITAL ACCESS 131 DIGITAL ACCESS CUSTOMER ACQUISITION CUSTOMER ACQUISITION Many Congolese have long held a mistrust for two elderly women sell freshly baked bread from plastic the formal banking system, based on decades of buckets on the pavement. On the main road, commuter mismanagement and many defaults. Mobile money is taxis travel back and forth, the conductors standing in seen as a reliable and accessible alternative, attracting the open doors to spot potential travelers. This is not an students, traders and small-scale entrepreneurs. area where traditional banks would spend their marketing money. The prospective customers in Sakombi are among Kinshasa, Democratic Republic of Congo. the world’s poorest people, considered expensive and high- risk clients by most financial institutions. At about 9 o’clock in the morning, Bertho Kongolo and his colleagues at microfinance institution FINCA assemble a Some might even think that money is so scarce in this area marquee under a tree along the road that divides Quartier that there is no need for banking services, but as the sound Jamaique and Quartier Congo in an area of the Congolese of popular Congolese musician Koffi Olomide blare out capital Kinshasa called Sakombi. As the FINCA team arrange from the speakers, the chairs under the FINCA marquee their red marketing banners on the sandy ground, and connect quickly fill up. the DJ’s equipment to an extension cord from the shop of a “I’m responsible for a large family and my money is not nearby FINCA Express agent, the people of Sakombi begin a safe at home,” explains Patrice Ginakubundi, father to six new day. children and one of the first new FINCA customers of the Across the street, a group of young women arrange trays day, signing up for a savings account with an initial deposit of fresh vegetables on offer to passers-by. Next to them, of two dollars. 132 DIGITAL ACCESS Diego Talani has found success as a FINCA agent. 133 DIGITAL ACCESS CUSTOMER ACQUISITION CUSTOMER ACQUISITION He sells bread and sausages from a plastic bag hanging on his arm, and earns an income of 100 dollars in a good month. Like many Congolese, he has found that the traditional informal savings groups, known as bwakisa carte, are not always reliable. Keeping his money at home is not a good alternative; once he found his hard-earned dollar bills had been eaten by insects. “I am saving for my children to study, and one day I might buy a piece of land,” he says. When FINCA DRC launched its digital channel and agent network in 2011, there were few other places in the world where access to financial services was as poor as in the Democratic Republic of Congo. Following decades of conflict and fragile development, many Congolese have lost faith in the financial, legal and regulatory systems. Infrastructural challenges, including the lack of national identity documents and legal procedures to endorse traditional collateral, have restrained the development of the financial sector and the provision of access to finance. “Financial inclusion was below 5 percent in the DRC, but has increased to over 10 percent because of the growth in mobile money. Our typical customers are low-income micro- entrepreneurs who serve the poor. They don’t have a large revenue, and the aim for us is to help improve their standard of living,” says Mamie Kalonda, CEO of FINCA DRC. FINCA opened its doors in the DRC in 2003 as a non- governmental organization, and became a fully licensed microfinance institution in 2008. Equipped with biometric point-of-sale devices, FINCA’s 1,400 FINCA Express agents today handle 85 percent of its total transactions. At an agent, customers can perform all transactions that are possible at a branch. Agents are selected on proximity to potential customers and on their business record. Often, banking services are only a complementary line to the individual’s original business, but some agents have found the FINCA Express outlet profitable enough to make it their prime focus. Diego Talani has turned his brother’s currency exchange on the corner of a busy street in a part of Kinshasa called Kitambo into a popular FINCA Express. “Since it has been going well with FINCA, I ended all other contracts I had before,” he says. “In the beginning, I was making A roving FINCA sales team has set up its activities in the neighborhood of Quartier Jamaique in Kinshasa, capital of the Democratic Republic of Congo. 134 DIGITAL ACCESS 135 DIGITAL ACCESS CUSTOMER ACQUISITION CUSTOMER ACQUISITION 200 dollars, then 300 dollars, and then 500 dollars. I stayed there for a bit, at 500 dollars. Today, it is 700 dollars. Tomorrow it could go up to 1,000 dollars.” As Diego talks of his ambition to open a second FINCA Express outlet, a steady stream of customers file in behind him to deposit or withdraw money over the wooden counter. One of them is 21-year old architectural student Justin Ngola, who has been a FINCA savings account customer for three months. He decided to save his money with the bank because he was robbed on the street of nearly 50 dollars. He does not share the old generation’s skepticism towards the banking system. “The country is modernizing. The old ways aren’t here,” he says. “I just withdrew some money. It is so fast. I provide my account number, I press my finger, and immediately I get my money and I can go.” By 3:30 pm, Bertho Kongolo and his FINCA marketing team have signed up 55 new customers under the marquee in Sakombi, and the chairs in front of them keep filling up with more new clients. “Every time we do a sales drive, more and more people come. They are very interested in financial services, both in loans and savings,” Kongolo says. “In general, people start accounts with just one dollar.” Among those signing up for an account is 21-year old Grace Kalambayi.“I need to save about $2,500, because I want to buy a car. That’s my plan,” she says. An ethnographic study published by the Partnership in 2017 found that the principal users of DFS in the DRC are the youth. The researchers found that the youth are attracted to the services due to the use of mobile phone grammar, its practicality and accessibility. The informal sector has also been quick to adopt DFS in the DRC, often citing the relative informality of agent banking a plus. FINCA’s Kalonda believe that the DRC has only seen the beginning of the mobile money revolution yet. Following in FINCA’s footsteps, other financial institutions in the country are also going digital. She sees continued growth in demand for affordable, accessible and sustainable financial services. “FINCA loans can be as small as $50, and we are thinking about introducing digital loans of $5-10 because there is demand,” she says. A version of this story was first published in 2014. This pharmacy is a FINCA agent next to a large outdoor market in Kinshasa, with some market traders coming in to bank as little as one dollar a day for safe-keeping. 136 DIGITAL ACCESS 137 DIGITAL ACCESS CUSTOMER ACQUISITION CUSTOMER ACQUISITION Grace Kalambayi: “ I need to save about $2,500 because I want to buy a car. ” That’s my plan. Justin Ngola, student: Seraphine Mwemena Patrice Ginakubundi, Diego Talani, Mule, street trader: street trader: FINCA agent: “It is so fast. I provide my account number, “Since I didn’t have a “I am saving for my “Since it has been going I press my finger, and place to save my money, children to study, and one well with FINCA, immediately I get my I decided to join FINCA, day I might buy a piece I ended all other money and I can go.” saving my money little of land.” contracts I had before.” by little, as my business progressed.” Grace Kalambayi smiles as she talks of her hopes for the future, having just signed up for a FINCA account. 138 DIGITAL ACCESS 139 DIGITAL ACCESS 8 As a first step, over the course of two weeks, the IFC team ran a series of workshops and individual interviews Striking a balance to identify the major risks facing LAPO MfB in its DFS between growth strategy and implementation. The interactive exercise took and risk RISK advantage of senior management’s and staff’s institutional knowledge and day-to-day experience of the business, while leveraging the experience of IFC working with other By Patricia Mwangi institutions in the region and beyond. The LAPO MfB IFC Senior Operations Officer, Nairobi, Kenya MANAGEMENT risk manager was heavily involved in all meetings and workshops to build capacity in meeting all different types Rally cars run three times faster than street cars, of DFS risks, including strategic, technology, operational, but have relatively fewer fatal accidents. The speed financial and fraud risks, to work with senior management is not the issue, but how prepared the drivers are and the teams to design mitigation strategies, and to follow behind the steering wheel. Rally cars have much more up to ensure these were put in place. comprehensive safety features, plus communication and Project outputs included a detailed risk assessment and a navigation tools for faster decision-making. Similarly, risk register that the teams compiled together, to be used as financial services providers accelerate growth and as a basis for a risk management action plan. IFC returned outreach with DFS, how smoothly they navigate this to LAPO MfB six months later to provide implementation journey depends largely on how well they monitor and New opportunities bring support, including coaching of the risk manager and team. The workshops engaged the entire management manage the new risks. new risks team in often lively discussions, generating solid buy- Digital channels introduce new risks, and may amplify in and collective ownership of the risk management existing risks. Until recently, banks connected directly Many DFS providers break novel ground when introducing implementation process, going forward. with customers over-the-counter in a carefully managed Although a number of risks were identified, the key risk relationship. With DFS, an outsourced agent network mobile money and agent banking solutions to extend was related to IT, and it was deemed so significant that or a mobile app may be the bank’s new face to the the reach of services and products to new user groups. customer, and transmission of funds relies on digital it could put a halt to all plans to launch agent banking This also brings new risks. Successful implementation and associated products in new markets. At the time of network technology managed by a mobile network of digital channels requires a refreshed look at existing the risk assessment, challenges relating to the technology partner or Internet service provider. Key aspects of As credit-driven organizations, microfinance institutions platform had already caused a delay in the launch of products and services are no longer solely controlled and new risks, and a comprehensive risk management LAPO MfB’s agent banking pilot. The risk exercise helped such as LAPO are generally well prepared to deal with credit by the traditional provider, and partnerships bring a framework to guide operations. risk. Many MFIs have worked for tens of years with the the LAPO team realize just how much an agent banking multitude of risks. project depends on IT. Following the risk assessment, type of low-income, self-employed and rural populations LAPO hired an independent firm to carry out an IT audit When the IFC team developed the DFS Risk that are now gaining broader access to financial services and gap analysis. The problem was not just the platform or Management Handbook, it was surprising how low While all financial services providers will have existing through DFS. As such, these institutions often have a the communication devices, but the organization of the IT DFS risk awareness was in the industry in general, and risk management practices to safeguard their business, nuanced understanding of the potential DFS user and the department itself. LAPO resolved the issue by appointing the introduction of digital financial services may require how poorly equipped many providers were in terms risk profile. Launching agent banking introduces a whole dedicated staff within the IT department to work with its a reassessment of these policies and the introduction of risk mitigation strategies and tools. One provider set of new risks, however, as the provider outsources client agent management team to address the technical challenges of new controls and risk monitoring systems. Certain openly stated that, by using agents, it had outsourced interactions and service provision to a network of agents the agent banking implementation faced. characteristics of DFS, such as a dependence on rapidly instead of loan officers and branch staff. risk, not added new risk. A shift to DFS requires changing technology and their ubiquitous nature, mean LAPO MfB’s experience with IT risk is not unique. One a parallel mindshift in risk management. DFS risk that new risks may be introduced, for example agent-level While fraud is the most notorious and best understood risk of the key observations that the IFC DFS team has made, management teams are most effective when made up of associated with DFS, there are many others that providers working with a broad set of clients in Sub-Saharan Africa fraud. There is also a likelihood of an increase in existing people who are directly involved in managing the DFS are not always aware can be as damaging. These include and elsewhere over the past few years, is just how big an issue risks or their severity, for example, in terms of dependency operations, such as technology staff, channel managers, strategic, regulatory, operational, technology, financial, technology risk is in most DFS projects. The team has seen on the security of IT systems. and sales teams. They have the greatest awareness of political, agent management, reputational and partnership project implementation stall for 6-8 months for providers LAPO Microfinance Bank (LAPO MfB) is a leading that have bought the technology before having completed what is required and what should be included in the risks. Most importantly, all of these are often strongly national microfinance bank in Nigeria, and one of the first the business plan, or that have bought inferior technology to risk framework. related. Technology, strategic, and agent management risk in the country to launch agent banking to significantly keep down costs. It is often cumbersome and expensive to can all lead to reputational risk, and fraud can incur even The biggest risk of all, however, is to not go digital. increase its reach beyond the current 3.2 million customers. retrofit technology, and sometimes not even possible. bigger financial losses from reputational damage than from It is a pro-poor financial institution committed to the social The IFC team has also found that, although most providers the fraud itself. and economic empowerment of low-income households have extended their existing risk frameworks to include through provision of responsive financial services on a As part of a two-year project to assist LAPO MfB in setting digital channels, there is only a nascent understanding sustainable basis. The institution was established in the late up its agent network, IFC provided risk management of the additional risk that DFS bring. This is particularly 1980s as a non-governmental organization by managing expertise that included the drafting of a risk assessment, the case for DFS deployments that bring organizations to director Godwin Ehigiamusoe, and in 2012 it obtained creation of a risk register, developing a risk framework engage in business activities outside of their core business, approval from the Central Bank of Nigeria to operate as a including mitigation strategies, and capacity building on such as MNOs offering financial services through mobile national microfinance bank. using the register as an ongoing risk management tool. wallets, or banks and MFIs partnering with MNOs to offer traditional banking products through new channels. 140 DIGITAL ACCESS RISK MANAGEMENT RISK MANAGEMENT Overall financial inclusion rate vs mobile money account rate 100 80 44.4% 60 29.7% 40.0% 40 20 6.0% 0 n/a 2.3% 2011 2014 2017 % Account rate, adult population % Mobile account, all adults MARKET OVERVIEW Industry opinion: The slow uptake of DFS is principally due to the unforeseen World Bank, Findex consequences of the Central Bank of Nigeria’s ‘Guidelines Any account ownership, adult 40% on Mobile Money Services in Nigeria’ published in 2009, population, 2017 Which type of fraud do you currently which specifically excluded MNOs from providing mobile experience as the biggest risk to DFS? Nigeria: money.2 Following an extended qualification process, Any account ownership, women, 2017 27% While there have been a couple of well-publicized incidents licenses were issued to 24 companies ranging from small A huge opportunity fintech start-ups to large retail banks. Any account ownership, young adults (15-24 years), 2017 33% of DFS fraud on the continent, most fraud experiences are not talked about publicly. While greater transparency in the and many challenges Banks in Nigeria have begun to take advantage of agent Financial institutions account, 39% industry may be helpful in mitigating incidences of fraud, an banking regulations to launch low-cost bank accounts adults, 2017 open discussion could also backfire. The impact of a known using agent networks, such as the Diamond Bank launch fraud against one provider can have consequences for the Mobile money account, adults, 2017 6% of Diamond Y’ello,3 a low-cost bank account targeting industry as a whole, discouraging customer trust in DFS. Nigeria is the seventh most populous country in the world the bottom of the pyramid, offered over the MTN Saved at a financial institution, 21% and has the largest population in Africa. It is home to 190 mobile network. Third-party players are also rolling out adults, 2017 million people, expected to double by 2050. The population new services, such as Interswitch, a large banking switch Saved semi-formally, in a savings 25% is youthful, with half of all Nigerian adults under 35 years provider. It recently launched a financial inclusion division, club or with person outside the old. Although half of the population lives in urban areas, which is rolling out an agent network and partnering with family, adults, 2017 70 percent of employment is in the agricultural sector. third parties/banks to provide loans by leveraging the data The primary source of income for nearly a fifth of all it collects. A number of fintechs have launched financial Borrowed formally, from an 5% services, mainly as remittance service providers or lenders, institution or credit card, adults, 2017 adults is from subsistence or commercial farming; and a further fifth from their own non-farming businesses. such as the growing PAGA OTC bill payment business. It is Borrowed from friends and family, 28% Only 4.2 percent of adults make most of their earnings projected that this market will continue to evolve. adults, 2017 in the formal sector. In 2016 Nigeria entered a recession, A further regulatory development has been the Poverty rate, 2009 53.5% but the economy has since stabilized and growth has implementation of biometric bank verification numbers, resumed. Due to falling commodity prices, oil revenues or BVN, to provide customers with enhanced security. GSMA have not created the expected economic prosperity, and It was introduced by CBN, but implementation was the over half of all Nigerians are living below the poverty line. Unique mobile network 86.0 m responsibility of the banks. BVN registration is expensive subscribers, 2017 The currency, which is pegged to the US dollar, has and requires significant effort by banks, which have the depreciated substantially, and created a large black market dilemma of potentially making significant investment in Mobile penetration rate, 2017 45% Internal fraud (41%) for foreign exchange. In 2016, the Nigerian government clients that may move to their competitors. There are now Central Bank of Nigeria, AFSD, WAMZ re-pegged the Naira, relieving the pressure somewhat, about 32 million registered BVN users in Nigeria, although Agent fraud (30%) but local businesses continue to struggle to buy dollars for it is expected that financial institutions will struggle to Volume of MM transactions, 2016 47,053,252 foreign trade. Customer fraud (22%) register each of their customers and may be forced to close Value of MM transactions, 2016 2.10 b US$5 Access to finance is relatively high in urban areas, with accounts. Other (6%) two-thirds of city dwellers having access to some kind of The need for greater access to finance is clear. Of the 66 Registered mobile money users 20.5 m (wallets), 2016 Partner fraud (1%) formal service. Between 2014 and 2016, overall ownership million Nigerian adults who save, less than half do so of formal financial accounts grew by 1.5 million. However, with a financial institution; one-third of Nigerians borrow Number of agents, 2016 18,228 access to finance did not keep pace with population growth. money, but this is nearly all done informally. Supporting The number of financially excluded adults grew by 2.1 widespread availability of mobile wallets is specifically Licensed banks, 2015 20 percent to 40.1 million in this period, while the number of mentioned as a decisive factor in achieving Nigeria’s 2030 Bank branches, 2016 5,446 microfinance bank clients declined by a third.1 In addition, sustainable development goals.4 CBN is working on revised both non-bank financial institutions and informal sectors mobile money guidelines to improve uptake. The IMF Total assets, 2016 99,412.41 m US$ have shrunk in the last two years. Those most affected by estimates that a move to digital payments, and specifically mobile wallets, could save the Nigerian government Mix Market financial exclusion tend to live predominantly in rural areas, particularly in the north of the country, and tend to be female, between US$ 5 to 9 billion, or about 1.7 percent of GDP Licensed MFIs – and younger. whilst helping its citizens, and reducing corruption. 142 DIGITAL ACCESS 143 DIGITAL ACCESS RISK MANAGEMENT RISK MANAGEMENT Research question: How do DFS providers best deal with risk? Data collected: Interviews with over 30 practitioners, plus four in-depth risk assessments. Methodology: Interviews and in the field observation. RESEARCH FOCUS and the technology selection can lead to technology risk, which in turn leads to many other kinds of risk – such Primary conclusion: DFS brings a multitude of new risks to a financial services provider, and may amplify as operational and agent management risk if there are existing risks. These are best addressed through an not appropriate back office systems, or fraud risk if the adequate risk management framework. The need for a expected fraud prevention features are not delivered, or reputational risk if the customer experience is poor. DFS risk management Therefore, a strategic need to reduce fraud risk may also lead to a need for risk prevention measures in operations, Framework for managing risk (based on ISO 31000) framework technology, agent management, and so forth. In order to successfully implement a DFS strategy, a mandate and commitment standardized structure for building a risk management The many opportunities provided by ground- framework is required to support and sustain the breaking technology and innovative business models operations. The process begins with establishing the context, including building the team and getting full buy-in design of framework Implement risk management also bring new risks. The risks with DFS deployments extend far beyond operational and technical risks. from management and the board. The most important part Organization and its context Implement framework of the framework development is the risk identification, In order for the financial inclusion industry to evaluation, and treatment strategy development. A broad Risk management policy Implement risk management process be able to build fully on the benefits of DFS, it is group of individuals with diverse backgrounds should important that accompanying risks are understood Embedding risk management participate in the risk identification process. Desk reviews, and adequately addressed. historical reviews, and reviews of current project aspects, Many financial services providers launch DFS deployments can be used to tease out all the possible risks associated with without a proper risk framework for DFS. Although most the DFS implementation. Once identified, appropriate and IMPROVE framework monitor and review providers have extended their existing risk frameworks consistent assessment methodologies can be used to assess framework to include alternative channels, there is only a nascent and rank the priority of the risk identified. Development of understanding of the additional risk that DFS bring. treatment strategies includes deciding whether to tolerate, This is particularly pertinent, as DFS deployments often treat, transfer or terminate the risk, and to develop the appropriate strategy to do so. Once completed, the risk Risk Categories and Interactions mean that organizations engage in business activities management framework can be monitored and reviewed. outside of their core business, such as mobile network It is very important that the risk framework is a living political risk operators offering financial services through mobile document, and used to actively report on risk occurrence, wallets, or banks and MFIs partnering with MNOs to as well as to be reviewed and updated periodically or upon offer traditional banking products through new channels. occurrence of a major event. Strategic risk In recent history, a few notable fraud cases have affected the reputation and financial viability of some operations. There are some common lessons learned in the industry While fraud risk is the most notorious and best understood that all can learn from: Financial risk Regulatory risk risk associated with DFS, there are many others that are 1. Technology, strategic and agent management risks not always incorporated in a provider’s risk management can all lead to reputational risk. If customers cannot framework, although they can be as damaging. These access their money when they need it, there is a potential include: strategic, regulatory, operational, technology, Fraud risk Operational risk reputational risk that can lead to reduced customer uptake, financial, political, agent management, reputational, and decreased activity rates, and dormant accounts: all of partnership risks. which will inflict potentially large losses on a provider as Risks do not fall strictly in one category. If a risk situation it cannot meet targets set out in its business plan. Thus, it Reputational risk Agent management risk arises in one area, it can often create a risk situation in is of utmost importance that the customer experience is another area, and all risks must be considered together. seamless, with superior customer service and competitive For example, poor strategic decisions regarding the service pricing. Technology, strategic, and agent management risk Partnership risk Technology risk 144 DIGITAL ACCESS 145 DIGITAL ACCESS RISK MANAGEMENT RISK MANAGEMENT Risk assessment process START AGAIN SET CONTEXT IDENTIFY EVALUATE STRATEGIZE REVIEW Define team Research Assign probability & impact Terminate Reassess Roles & responsibilities Review history Analyze Transfer Track Timeline & budget Assess today Prioritize Treat Create a plan Brainstorm Respond Tactical response Define tolerance Register risks Develop indicators Record risks all play a role in providing a superior customer service, and for significant periods of time. For example, refunds of include: products that meet the needs of the customers; debit without disbursement transactions can take up to pricing is competitive; well-staffed and well-trained call one week, leaving customers frustrated and cash-strapped. centers; accurate and timely SMS receipts; fees are easy Automatic, daily reconciliation is recommended, not only to understand; agents are always available and liquid, to to reduce the numbers of suspense transactions, but also as mention but a few. a useful tool in early fraud detection. 2. Fraud can have a huge impact on reputation. Fraud 5. Choose partners carefully, and then hold them can cause direct financial losses as a result of unauthorized accountable. Partners can refer to other providers that withdrawal of funds or unauthorized creation of e-money. collaborate on joint products or services, or vendors that Moreover, the full impact of fraud can extend further. provide technology or agent management services, for When made public, fraudulent activity is known to reduce example. All partnerships should be entered only after consumer confidence in DFS, as well as core services of the thorough due diligence and comprehensive discussions provider, such as MNO voice or retail banking businesses. on roles and responsibilities. Partnership agreements can Consumer confidence issues can also spill over to other be in the form of contracts, memoranda of understanding providers, and affect the market as a whole. between providers, or service level agreements with 3. Call centers are important. The utility of the call vendors. Well thought out agreements can go a long way center is wide-reaching, well beyond the primary goal of in protecting an institution from unanticipated failure to resolving the needs of customers. Call centers can be used deliver, or lack of compliance from partners. However, it for customer education, customer feedback, and improving is worth noting that agreements cannot always guarantee the brand value of the institution. Call centers can also be accountability. If the partner is very big and more powerful, used for risk management purposes by utilizing call center you may not be able to hold it accountable, or if the partner logs to identify potential risks to the DFS, as well as to is very small, it may simply not have the capacity to meet monitor key risk indicators. Once issues are raised to a call the requirements set out in the agreements. center, institutions should aim to resolve the majority of them within the first call. Anything longer, or requirements Risk management is key to the overall success of DFS for follow-up calls, will reduce trust in the service and have for financial inclusion. It has become apparent that what reputational risks and potential financial losses. matters to one provider matters to all, as large cases of fraud, for example, affect not just consumer trust in one 4. Poor reconciliation and settlement processes leave provider, but in the market and promise of digital financial institutions open to potential losses. Settlement and inclusion as a whole. reconciliation is a laborious process that can have significant impacts on operational costs, as well as reduce customer Further reading: Digital Financial Services and Risk confidence, if transactions end up in suspense accounts Management Handbook, by Lesley Denyes and Susie Lonie. Nicholas Simkala, a businessman who owns six bakeries across Zambia and uses Zoona several times a week, at an outlet in Lusaka, Zambia, 146 DIGITAL ACCESS on 9 January 2018. 147 DIGITAL ACCESS 9 DATA Active DFS users moved around ten times more than voice- only users. Factors such as lifestyle and mobility between Beautiful data, big and small ANALYTICS rural and urban areas, may account for this. While more research is needed to better understand these customers and determine whether regular usage of mobile money increases usage of other services, it is clear that By Soren Heitmann they constitute a specific and valuable customer segment IFC Operations Officer, Dakar, Senegal that is geographically mobile and socially well connected. For example, it is possible that some customers have How much data has been created recently, compared to small businesses for which they use their DFS accounts, all recorded history before? Some form of this question which could explain both a large network of contacts and arises frequently these days, often answered with a high mobility. jaw-dropping statistic about the rapid growth of data and the new technologies that generate and store it. The data analysis revealed a strong correlation between This trend gave rise to the term ‘Big Data’, which high usage of telecoms services and the potential to be an became a trend of its own. But the real question here active, regular DFS user. The Big Data did not contain any isn’t how much data exists or how fast it’s growing. socio-economic or demographic information, however, What’s important to ask is: what do we do with the data? Big Data can deliver and to overcome this limitation, the project combined the Big Data analysis with classic market surveys. Approaching data analytics from the perspective big impact The surveys included age, gender, and education analysis, of a value-driven goal will help to focus the data as well as income and key poverty index metrics. Tigo users conversation where it belongs: generating results that For the rapidly evolving digital financial services industry, represented all demographics, but tended to be more male; help organizations become more efficient, better engage data analytics holds a lot of promise. It can produce married; in their early 30s; high-school educated; and users, and grow into new markets. It doesn’t matter if living in lower-middle tier housing. it’s big or small; fast or slow; alternative or traditional. necessary business intelligence for service providers to Managers need not be concerned about whether their fine-tune product development, sharpen marketing efforts, The overall research showed that many telecoms-only data is ‘big’ enough, or whatever tomorrow’s trendy customers had a demographic profile similar to highly and improve strategy to better reach the unbanked. active DFS users. The team therefore scored all telecoms adjective may be. Organizations that want to become Big Data analysis may be particularly useful to better and to use that information to stimulate better uptake of more data-driven must first understand and leverage subscribers according to the extent to which users are the service? Is it possible to better target potential new the data that is already being generated. target potential new users. similar to the profile of highly active DFS users, using a customers that are more likely to be active DFS users? The model that captures some dominant usage variables to Consider, for example, a dataset of customer addresses. overall objective of the project was to improve uptake and predict whether a subscriber is likely to become users of This is small data; even a million customers fit into an active usage of the service. mobile money. Based on this predictive model, Tigo Cash Excel spreadsheet. And it is slow data, as subscriptions Big Data is a big topic. Rarely a day passes without news of The study was based on six months of call detail records was able to produce maps that identified areas of Ghana might only meaningfully grow on a monthly or quarterly innovative applications of the data we all produce through and mobile money transactions data, together nearly one with the highest concentration of likely adopters and to basis. Yet, new data analytics methods and services can our frequent use of technology. It is also increasingly terabyte in size. Users were segmented into three categories: concentrate marketing efforts there. The research identified translate street addresses to precise coordinates that recognized that effective analysis of large amounts of ‘voice only’, ‘registered but inactive mobile money’, and 240,000 new users with a high propensity to become active reveal density patterns – or permit visual segmentation technology-generated data can support efforts promoting ‘active mobile money’. The results showed that these DFS users, and 70,000 of them were converted to active by activity rates. Predictive analytics might even find development. By the very nature of the business, the DFS users through the targeted marketing campaigns. segments had very distinctive patterns of usage in terms patterns in sign-ups, helping to identify neighborhoods industry produces a multitude of data that can be helpful in of voice calls, social network structures and geographical or regions that could be proactively engaged to help advancing its business goals and financial inclusion. Most A couple of interesting general insights were also gained mobility. Active DFS users, defined as customers who use push financial inclusion. DFS providers in Sub-Saharan Africa specifically target the from the research. Whilst younger people are the most digital financial services consistently at least once per previously unbanked – consumers the financial industry active users of voice services, for example, they also have month, made on average almost twice as many phone calls Small, simple data that is already collected during has previously known little about. MNOs are particularly the largest share of registered yet inactive DFS accounts. than customers not using mobile money, and these calls regular operations offer numerous opportunities for This suggests there is room for improvement of the well placed to leverage their data, producing large volumes lasted significantly longer. better insights and operational value. The first step to services offered by DFS, since these mobile savvy younger of both call and transaction records that so far have been becoming a more data-driven organization is simply The same pattern was true for text messages: active mobile customers are not being engaged by the current offering surprisingly underused. deciding to get started. money users sent and received the most SMSes, followed by despite using their phones regularly for other reasons. The To improve the understanding of existing and potential inactive mobile money users and then by non-users of DFS. study also confirmed that DFS usage leads to loyalty and DFS users in Ghana, IFC and Tigo Cash collaborated on a Whilst active DFS users call and text their friends, families increased usage of same-brand services. Big Data project in 2014. Leveraging Tigo’s mobile money and business partners more often, they also have a much transaction database and call-detail records, the project larger social network than other users, and these contacts sought to answer questions such as: What characterizes are geographically more spread. Non-users of DFS seem to active mobile money users? What drives inactivity? Is it move around much less than active users, as evidenced by a possible to identify behavior patterns among customers lower number of cell towers picking up their phone signal. 148 DIGITAL ACCESS DATA ANALYTICS DATA ANALYTICS Overall financial inclusion rate vs mobile money account rate 100 80 60 35.0% 40 20 12.2% 14.8% 15.0% 0 n/a 1.8% 2011 2014 2017 % Account rate, adult population % Mobile account, all adults MARKET OVERVIEW Industry opinion: the introduction of a mobile banking service called YUP in World Bank, Findex Q1 2018. This service is currently available in several West Any account ownership, adult 35% African countries.4 population, 2017 What constitutes the most useful data There are four MNOs present in the country and an for DFS providers? Cameroon: estimated 40 percent of the population has a mobile Any account ownership, women, 2017 30% Technology-enabled channels, products and processes generate Traditional informal financial phone. The two main MNOs, Orange and MTN, provide Any account ownership, young adults (15-24 years), 2017 25% hugely valuable data on user interaction that can also be linked mobile wallets targeting the unbanked, with Orange to increasingly available pools of external data. The question for services still strong Money currently being the market leader. Both are Financial institutions account, 27% DFS providers is: how and what data can be leveraged for data offered in partnership with banks, which are required by adults, 2017 insights to better meet user needs and to improve operations, law to provide e-money issuance and ensure regulatory services and products. Mobile money account, adults, 2017 15% compliance. Basic domestic remittance and bill payment Owing to good agricultural conditions and modest oil services are offered. Following a slow start, these services Saved at a financial institution, 11% reserves, Cameroon has one of the best-resourced primary are starting to gain traction and active customer numbers adults, 2017 economies in Sub-Saharan Africa. However, the population and services available are growing. Orange now provides Saved semi-formally, in a savings 32% of 25 million face a number of challenges, including social an Orange Money app for smartphones. World Remit club or with person outside the unrest and rising unemployment, which is driving economic offers inbound international remittances that can be family, adults, 2017 migration.1 Urbanization is relatively high, with over half delivered to a bank account, mobile wallet, or received of the population living in cities. Agriculture is still the Borrowed formally, from an 8% as an airtime top-up on MTN or Orange.5 There are also institution or credit card, adults, 2017 largest source of employment, occupying 70 percent of several OTC money transfer services on offer, principally the labor force and contributing one-quarter of the GDP. Borrowed from friends and family, 33% used for ‘sending money home’ from both domestic and The poverty rate is 24 percent, with the northern region adults, 2017 international migrants, including a local and prolific particularly vulnerable to food insecurity. service called Express Union. Some also offer bill payments. Poverty rate, 2014 24% Financial inclusion is very low, with just one in eight adults Technical limitations of the availability of MNO services having an account with a formal financial institution. in rural areas have been reported, leading to continued GSMA For historical reasons, trust in the formal financial sector is preference for OTC providers and credit unions. Unique mobile network 9.7 m low, and between 2011 and 2014 financial inclusion fell by Advans Cameroun is an MFI that has taken a new and subscribers, 2017 nearly a quarter to its current 11.4 percent. Despite various innovative approach to DFS. To encourage savings, mobile All of the above (55%) DFS initiatives, Cameroon is principally a cash economy, Mobile penetration rate, 2017 40% and the use of semi-formal credit unions and savings cash collectors visit clients every day to collect deposits and Transaction data (29%) use mobile phones to log transactions. In addition, there is BEAC, AFSD clubs is high. The most common form of saving and loans is provided by community groups known as njangis in a network of agent outlets offering cash in/out and account Volume of MM transactions, Jan-Sep 2017 135,694,110 KYC data (7%) anglophone Cameroon, or tontines in the francophone parts transfers used by both clients and cash collectors. Advans Value of MM transactions, Jan-Sep 2017 4,210.1 m US$8 Credit history data (6%) of the country, which are part of the informal sector. These has also created a network of non-transacting agents rotating savings and credit associations (ROSCA) groups responsible for administration such as client registration Call Detail Records (CDRs) (3%) Registered mobile money users 7,201,690 are very popular and generally formed based on common and loan request processing.6 (wallets), Sep 2017 lifestyle factors such as business activities, ethnicity or Financial regulation in Cameroon is provided by the gender. While mobile phones do play an important role in Number of agents, 2017 6,082 Banque des États de l’Afrique Central (BEAC), a regional coordinating financial transactions within these groupings, regulator that has oversight of the six member states Licensed commercial banks, 2015 14 they have historically been cash-based.2 of CEMAC (Central African Economic and Monetary Bank branches, 2014 241 Bank activity in DFS is currently somewhat limited, but is Community) that use a single currency. BEAC requires set to grow. Ecobank announced in 2017 that it would focus that only banks can issue e-money, and this limitation Total assets, 2015 7,779.19 m US$ on digital channels to boost financial inclusion in Cameroon is thought to have restricted the growth of DFS in these and elsewhere, by introducing an Internet banking service markets. In 2017, BEAC issued a directive that prohibits Mix Market that uses a mobile app to facilitate in-store payments.3 mobile wallets operated by MNOs from participating in Licensed MFIs 32 Later the same year, Société Générale Cameroun announced international remittances outside the CEMAC zone.7 150 DIGITAL ACCESS 151 DIGITAL ACCESS DATA ANALYTICS DATA ANALYTICS Current, Predicted and Top Districts of Mobile Money Usage District-Level Adoption Rate: Predicted Adoption Top Target Districts: Tigo Cash (based on CDR): Tigo Cash Tigo Cash RESEARCH FOCUS Models identify people who can benefit from mobile money services and are likely to become regular users. Such models enable smaller, less expensive marketing campaigns to yield better results. The Airtel model identified high-probability How to deliver data- customers and predicted an additional US$ 1.7 million annual revenue to the digital channel. And the Tigo model driven solutions for realized 70,000 additional active customers on the channel. Market and customer insights are another way in which financial inclusion data analytics help to improve operational strategies. The handbook discusses how Zoona and Juntos employ analytics to successfully engage customers, and how to The Data Ring, a visual planning tool for data projects Data analytics is a crucial tool to support the keep customers engaged to boost ongoing activity. Zoona evolving DFS market. It can help financial services analyzed three engagement strategies to ensure that a providers to better understand their new customers, nationwide product launch would generate the highest agents, partners, and their own businesses. The Data uptake. The results found statistically significant differences se across these pilots, which meant that Zoona was better able Fram erti Handbook, produced by IFC and the Mastercard al Exp eg to motivate subscribers to transact. Juntos uses a technique ewo dL Foundation, provides practical guidance and support tor an Sto known as randomized control trials, similar to analytic rks Da Sec cy e rag on how to apply data analytics to expand and ta nc iva methods used in medicine, to identify top-performing ie Pi ion e Sc Compu Pr pe ter S at improve the quality of financial inclusion. al liz lin customer engagement strategies. Here, customers are sent re c ien ci a ctu isu e So ce Ac tru FI T ta V Data analysis can be used across the customer life cycle various messages that encourage them to interact with the ces sib ra s Bu Da ati on ility nf si nic u service – and the reply rates are recorded and measured. SK I ne to gain a deeper understanding of users’ needs and mm Co LS ss Form I ta ats Understanding which messages resonate with customers Da preferences. There are three broad applications for data in LL Da O 2 TO S ta can help vendors to better interact with subscribers, 1 DFS: developing market insights, improving operational Scie management and credit scoring. From an operations thereby improving loyalty and reducing churn. ce n perspective, data help to automate processes and decision- Data analytics can also improve operational performance GOAL(S) OPS U SE making, allowing institutions to become scalable quickly and management. The handbook explores five cases, and efficiently. Data also play an important role in illustrating how data – both large and small data – can I m pl e monitoring performance and providing insights into deliver key insights. Not all data-driven solutions need Benchmar me how it can be improved. Finally, widespread Internet and next-generation data science algorithms. Plenty can be done 4 k nt 3 S VA ati mobile phone usage are sources of new data, which allow ES g Met with the data companies work with every day. M-PESA, for UE C nin rics on L O and PR an Defi DFS providers to make more accurate risk assessments example, used data from call centers to identify operational Bu nitio Pl ni Tu dg ns ut ng n et of previously excluded people who do not have formal bottlenecks and generate key performance indicators that Inp RESULTS u tio Pa an dT ta Int ec r Da erp Ex tn im financial histories to support loan applications. reduce customer wait times. Simple metrics can yield es s reta er sh ing oc t ion Da ip Pr sa ta ut Whatever the goal, a data-driven DFS provider has the large gains for improved customer experience. The case an d nd tp Go e So Ou r ve ur ability to act based on evidence, rather than anecdotal of M-Kopa exemplifies how adopting a corporate culture uc tu cin r ta na tr g Da nc that is open to being more data-driven helps to identify and S observation. The increasing complexity and variety of data e being produced has led to the development of new analytic engage opportunities. The M-Kopa experience shows that tools and methods to exploit these data for insights. data can be used to guide nearly all operational areas from sales to marketing to customer service. Three case studies in the handbook illustrate applications for market insights and business strategy. Mobile network Traditional data analytics methods continue to be very operators Tigo, Ghana and Airtel Uganda worked with valuable and easy to employ. IFC’s applied research team IFC’s Data Operations team to develop machine learning worked with FINCA DRC to understand the determinants models that identify high-probability active mobile money for successful agents using an econometric approach. customers from their telephone service subscriber base. The results helped to create scorecards used to onboard new 152 DIGITAL ACCESS 153 DIGITAL ACCESS DATA ANALYTICS DATA ANALYTICS agents that would realize better performance and reduce models; or in producing dashboards that help translate the drop-out rates. Zoona also uses traditional survey and data visually, succinctly, and successfully. door-to-door data collection to improve agent placement Global industry: The field of data science is less than and roll-out strategy. They maximize the value of this a decade old and is already pushing new products and survey data by visualizing agents’ locations on a map. services, creating new opportunities and uncertainties in Visualization such as this is a key element of using data established industries. The rate of change is still rapidly for decision-making, and today can be done using readily- moving ahead, likely to disrupt and transform many available tools, like Google Maps. Baobab (formerly markets and traditional services. MicroCred) developed interactive dashboards that can quickly visualize changes in transaction volumes, agent Data for financial inclusion: Focusing on digital financial activity, and various other key performance indicators. services, the Handbook looks at how data-driven solutions At-a-glance data visualization helps operations to send will specifically create opportunities to reach underserved alerts or engage customers or agents that are experiencing markets with new financial products and services. However, difficulties proactively, before bigger problems arise. consumer protection and data privacy are especially critical when targeting segments where financial literacy – and The Handbook takes a deep-dive look at data analytics data literacy – may be low or poorly understood. applications for credit scoring, with four cases from M-Shwari, Tiaxa, Lenddo and First Access. These cases The increased availability of data also presents challenges. focus on how to implement credit scoring models and The major challenge is how to leverage the utility of data practical considerations for data products (see page 110 while also ensuring people’s privacy. A large proportion of for more). It also provides a tool to help design and newly available data are passively produced as a result of manage a data project, called the ‘Data Ring’, and identifies our interactions with digital services such as mobile phones, key risk areas and challenges specific to data projects. Internet searches, online purchases, and electronically From the Handbook’s exploration of case studies stored transactions. Characteristics about individuals can and project management, there are six overarching be inferred from complex algorithms that make use of recommendations for successful data-driven deployments: these data, made possible due to advances in analytical Building a data-driven culture: Institutional culture and capability. Thus, privacy is further compromised by the support from senior management is critical. Management fact that primary generators of data are unaware of the must openly advocate for teams to test norms and invest data they are generating and the ways in which they can in developing skills. A Chief Data Officer or similar senior be used. As such, companies and public sector stakeholders role helps to build an internal data culture. must put in place the appropriate safeguards to protect privacy. There must be clear policies and legal frameworks, All data are good data: Existing data already being both at national and international levels, that protect the generated by operations is the best place to start developing producers of data from attacks by hackers and demands data-driven goals. Even ‘small’ data are useful, with from governments, while also stimulating innovation in powerful opportunities to create new key performance the use of data to improve products and services. At the indicators or insights, once explored in greater detail. institutional level as well, there should be clear policies Using data visualization: Visualization software and that govern customer opt in and opt out for data usage, dashboard tools provide advances in graphing data that data mining, re-use of data by third parties, transfer, and can show relationships and create at-a-glance 360-views of dissemination. operations and customers. Further reading: Data Analytics and Digital Financial Data science is data art: Creativity and artistic sensibility Services Handbook, by Dean Caire, Leonardo Camiciotti, are key skillsets for data projects, whether helping to Soren Heitmann, Susie Lonie, Christian Racca, Minakshi Phillip Chellah, a banker, sending money to a friend, at a Zoona outlet in explore trends and patterns when developing predictive Ramji, and Qiuyan Xu. Lusaka, Zambia, on 10 January 2018. 154 DIGITAL ACCESS 155 DIGITAL ACCESS DATA ANALYTICS DATA ANALYTICS Data- driven decisions help Zoona agents A smartphone in the hands of Susan Mwango, a Zoona teller, thrive in the booth she operates in Lusaka, Zambia, on 9 January 2018. 156 DIGITAL ACCESS 157 DIGITAL ACCESS DATA ANALYTICS DATA ANALYTICS Data analytics is integral to how digital payments service provider Zoona has built its market-leading business in Zambia. Customer surveys, artificial intelligence, predictive modeling and agent dashboard portals all play a part in how the company plans to keep its edge. Lusaka, Zambia. There is a problem in Ndola, a mining town in Eastern Zambia. With a cholera outbreak sweeping the country, local authorities are closing down street stalls and market vendors, churches and schools in an effort to control the spread of the disease. Several of Constance Sampa’s Zoona booths – agent banking outlets that enable customers to make cash transfers, bill payments and to deposit money – have already been shut. Constance is on her cell phone, instructing one of her agents what to do next. In her office, Constance logs onto the Zoona agent portal. The data gives her an easy overview of the effects of the cholera control program on her business. Several of her tellers in Ndola have not performed any transactions yet this day. Others are doing less business than usual. Income per outlet has tapered over the past week, forming an inverted J-curve on the headline revenue graph. Two years ago, Constance would have had to drive six hours from Lusaka to Ndola in order to discover this. Now, she can instantly track the situation and manage it with a few phone calls. Constance started her career at Zoona, an interoperable mobile payments service provider, in 2011 as a teller in Zambia’s Copperbelt region. The following year, after applying and going through a round of interviews, she took a position as a Zoona agent. “After that, I requested from Zoona if I could have my own business in my own name,” says the 27-year old. “They agreed. I paid them 22,000 kwacha (about $2,240) for the float and 11,000 kwacha (about $1,120) for the booth in Chingola. That became my first outlet.” Six years down the line, she owns 37 outlets and employs 47 people, almost all of them women. At Zoona’s head office in Cape Town, South Africa, lead product manager Samantha Berry explains the genesis behind the agent portal that Constance uses to monitor her business. “Initially, we just had a website for agents, where they could go to view their statements,” says Berry. “Through various focus groups and forums with agents, we realized that there is a huge need for them to have a self-service portal and access to more data.” Mercy Trinidad Lutepu, a Zoona agent who owns three outlets, in Lusaka, Zambia, on 10 January 2018. 158 DIGITAL ACCESS 159 DIGITAL ACCESS DATA ANALYTICS DATA ANALYTICS The new portal has brought an array of information. At any time, Constance, for example, can view the electronic balance of an outlet, the time of the first and last transactions, the number of transactions, the transaction value, and the revenue at any of her outlets. She can download the information in Excel format, and generate interactive graphics for some metrics. She can also view the ranking of each of her outlets vis-à-vis her other outlets. “This is also something we have found that the agents really like,” explains Berry. The agent portal has cut down Constance’s administrative work by hours each week, and increased her ability to manage her company. Caesar Bukali, a Zoona agent who owns 14 outlets, says he uses the portal to closely monitor the patterns of revenue within his outlets. One teller has 2 experienced a three-month slump, prompting Bukali to investigate further. There are two tellers working at the outlet, and the second teller has kept his revenue consistent over the same period of time. The data is suggesting a laggard employee. “Previously, I would have had to do spot checks, just physically show up, in order to find this out,” he says. The portal is part of a broader data-focused mindset that is integral to Zoona’s business approach, taking the company from just a wild idea between two brothers in 2007 to a DFS business in Zambia, Malawi and Mozambique that has processed over US$ 2 billion in transactions to date. “We grew by being agile and responsive to customer needs,” says Zoona co-founder and Chief Operations Officer, Brad Magrath, sitting in the trendy Cape Town boardroom looking out at the exposed brick walls of an in-house coffee bar. “For us to be truly effective, we need to take customer insights and deliver customer solutions ten times faster than anyone else, or we are irrelevant.” Competing against MNOs with large existing client bases and infrastructure, speed to market is a key way Zoona has entrenched its market share. “So, it then becomes, how do 3 you get the right customer insights, how do you turn those insights into action?” says Magrath. “And the easiest way to do that, is through good data-driven decisions.” The company uses behavioral data as one way to segment and target its market. “We look at things such as how recently someone transacted, how much they spent, and current balance in the wallet,” explains Head of Marketing & Communications, Karim Amande. “Then we look at things such as age distribution, the value of money going in an out, what is driving activity, whether it is the result of acquisition or efforts, or whether the customer is buying 1 1. Interns conducting phone surveys with Zoona customers at the company’s office in Lusaka, Zambia. 2. A training session for prospective tellers at the Zoona Centre of Learning in Lusaka. 3. Edna Kasanda of Zoona during a team meeting with interns tasked with conducting phone surveys with Zoona customers. 4 4. A Zoona agent counting cash. 160 DIGITAL ACCESS 161 DIGITAL ACCESS DATA ANALYTICS DATA ANALYTICS airtime, cashing in or out, receiving or sending money, or 1,500 outlets in the country, the survey collects feedback responding to a promotion.” Zoona uses this data to tailor from about 4,500 people. “We use structural equation its marketing efforts and refine its products. This has led to modelling – an advanced multivaried statistical approach a variety of helpful insights, ranging from where to place used to explore relationships between variables,” says a button on the Zoona app, to the fact that men respond Joseph Kuvor, Head of Customer Experience at Zoona. better to certain kinds of discounts than women. The information is used to score each outlet, with five stars It was the process of using data to ‘listen to customers’ that the top score. Near the end of 2017, the company had gave birth to the Sunga Pocket, an affordable and accessible identified 51 outlets that scored lower than four stars and electronic account that allows users to store money, and rolled out a six-week training program to help improve the deposit and withdraw it at Zoona agents. It was piloted customer experience. in the mining town of Kabwe. “The product that went to Kabwe and that went nationwide were very, very different. At the end of her working day, Constance Sampa tallies And that’s okay with us,” says Kirsten Waeber, Head of the outlet numbers, a task that has been considerably Design Innovation at Zoona. “We believe our strength is in shortened by the agent portal. In a few hours she is able to taking version one to market, learning a ton, and being able track her revenue, ensure that her staff is performing, and to get the best version of that out quicker than anyone else.” that no fraud is taking place. “I love being able to say I’m Observing the way initial customers used Sunga, led to the an entrepreneur,” says Constance. “Zoona has taken me to most recent development of the product into an e-wallet, nursing school, it has helped me build a house, and it has which is now available both as a smartphone app and helped me get a new car, which I am currently learning how an USSD-enabled product for basic and feature phones. to drive.“ She continues, “I’ve always had a heart of giving, “Essentially, we discovered that 35 percent of our Sunga and now I can employ others.” users that had done more than three transactions were putting money in, taking money out, putting money in, A new team at Zoona, headed by data scientist Alex taking money out. This lends itself more to a wallet than a Shabala, is using data in even more powerful ways. kind of savings product,” Waeber explains. The team has developed a sophisticated revenue forecast model for Zoona that predicts how sensitive the revenue In the afternoon sun, outside a Zoona outlet on Cairo is to changes in agent network composition, for example. Road in Zambia’s capital Lusaka, police officer Charity “We also look at saturation models. Given all the towns Mwangelwa underscores exactly this. “If maybe I’ve run out of fuel, I just take cash from Zoona and I pay,” she says. that we have outlets in, where should we be putting new ones to maximize growth and minimize the effect on the The business case for mobile money in Zambia is strong, other outlets?” underpinned by a history of migrant labor linked to the mining economy. There are more than five million registered They are using data to predict when is the most likely time mobile money accounts in an adult population of 7.5 that a customer might leave the service, so that Zoona can million people, and 106 million mobile money transactions intervene and incentivize continued use. The team is also took place in 2016. The agents are critical to this rapid leveraging artificial intelligence to build things such as chat expansion of financial inclusion, serving users with the bots for a 24-hour customer self-service hotline, applying necessary points of cash-in and cash-out that link the natural language processing. The interface will “interact mobile money system to the still dominant cash economy. with customers without them really knowing if there’s At Zoona, “the focus is on how we can take these someone on the other side or not,” says Shabala. entrepreneurs on a journey where we actively help them It’s a step closer in the direction that co-founder Magrath grow from one outlet to ten, or more than twenty,” says marketing executive Amande. hopes the business will move.“We’re starting to become a bit more predictive in our thinking,” he says. “But when To better understand the customer experience at agent level, we can be truly prescriptive, where we are almost leading Zoona runs a comprehensive quarterly survey that aims through data as opposed to making decisions on data, then to interview at least three customers per outlet. With over we can be truly effective.” Susan Mwango, a Zoona teller, in the booth she operates in Lusaka, Zambia, on 9 January 2018. 162 DIGITAL ACCESS 163 DIGITAL ACCESS DATA ANALYTICS DATA ANALYTICS Duncan Njovu, stationery reseller on Cairo Road in Lusaka: “ I have a Zoona Sunga account which I use to save money. When I want to pay my rental or bills, ” I just withdraw at a booth. Caesar Bukali, Nicholas Simkala, Charity Mwangelwa, Violet Makondu, Zoona agent who a businessman who police officer in a mother who has owns 14 outlets: owns six bakeries Lusaka: returned to university across Zambia and to study teaching: “Here on the agent portal “I can take cash from an uses Zoona several dashboard I can keep my ATM, but Zoona is faster. “They have closed the times a week: eye on my tellers. I see the It’s rare that I will find schools in St Luapula last transaction she did “I wish we could pay for a queue.” province because of this was three minutes ago, so everything using mobile cholera thing. My son is she must be at her booth.” money. It saves time. studying nursing there, and It saves queues. That’s the he needs transport money development we need.” to come home. That’s why I’m using Zoona.” Duncan Njovu, a street vendor of stationery who keeps an eye on a Zoona outlet in central Lusaka for the owners and helps keep the place tidy, on 10 January 2018. 164 DIGITAL ACCESS 165 DIGITAL ACCESS 10 AGRICULTURAL to use DFS for payments, the pilot identified a number of critical challenges in digitizing the cocoa value chain in Côte d’Ivoire. First, farmers often lack the valid Finding the sweet spot in digitizing the cocoa VALUE CHAINS identification documentation required for KYC processes. Only just over half of the Ivorian population has a birth value chain certificate or ID, and regulation does not allow for tiered KYC. This is a limiting factor for enrolling farmers to By Meritxell Martinez bank and mobile accounts, together with the difficulty IFC Operations Officer, Côte d’Ivoire of gathering farmers in one location for registration purposes. Second, poor digital infrastructure in rural areas There’s a clear case for digitizing harvest payments constitute a considerable obstacle to rolling out DFS to to smallholder farmers. Around the world, payments reach smallholder farmers. This is especially important at for the produce that is the basis of agricultural the account opening phase, where there’s a lack of digital production chains such as cocoa, coffee and cotton, are tools to support the KYC process. Third, the partnerships overwhelmingly in cash. Distributing large numbers of often required to provide digital payments to farmers and smaller amounts of cash to many recipients is difficult rural populations necessitate not only strategic alignment and expensive for commodity buyers, and receiving between the market actors involved, but also an integration cash payments is equally risky and sometimes time- of the various systems of the partners, as any manual consuming and costly for farmers too. intervention slows down the process and opens up for The five hundred million farming households that are DFS could be the key to human mistakes. Fourth, because of the seasonality of the foundation of agricultural value chains globally farming, it is challenging to design products that work banking small-scale farmers equally for farmers, banks, MNOs, and agri-exporters. are largely unbanked. This is partly because financial services providers have traditionally viewed small-scale Finally, pricing of existing bank and mobile money products farmers as risky clients, and partly because of a sense Small-scale farmers are often excluded from formal still often need to be adapted to farmers’ seasonal income. of social exclusion. Research we did in Côte d’Ivoire financial services because of the low and seasonal variation Despite these challenges, almost five hundred farmers opted showed that many cocoa farmers shied away from banks of income they have. In Côte d’Ivoire, many cocoa farmers to receive their cocoa payments through their bank to wallet because they felt “banks were not for them”. Two-thirds linked accounts (approximately $76,381 overall) during of respondents in our survey said they were “too poor” also feel intimidated by the formality of banks and that the pilot phase. It’s also had considerable demonstration to have a bank account, while only 17 percent perceived “banks are not for them”. They are, however, willing to effect for existing partners and the market as a whole. themselves as “too poor” for a mobile money account. and farmer communities through mobile, card-based, and In line with its ambition to have a fully transparent and adopt digital financial services, opening up possibilities Digital financial services could thus potentially serve other e-commerce products that can be accessed through credible supply chain, Cargill now aims to scale up and roll to digitize the cocoa value chain. as an entry point for broader financial inclusion of agent networks in rural areas. Traditionally, farmers in Côte out digital payments to all its 100,000 cocoa farmers by the farming community. The trick is how do we get d’Ivoire have had only limited access to formal financial the end of 2018. there? There’s no single formula, as yet. A survey IFC services. Only 10.3 percent of adults in rural areas have Extending the use of DFS for rural and agriculture purposes conducted recently, together with Strategic Impact Côte d’Ivoire has the world’s largest cocoa sector, a bank account, and only 4.7 percent have a loan from could bring many benefits to the entire value chain and Advisors, revealed over 60 such DFS implementations producing over 1.4 million metric tons of raw cocoa per a formal financial institution. Commodity traders such as to the daily lives of farmers. Once a DFS ecosystem in more than 25 countries around the world. Some are year, accounting for 32 percent of world production. Cargill and Olam are the main financiers of smallholder becomes well developed, DFS platforms could be used to mobile payments solutions, others are bank-to-wallet Most of this cocoa is grown and harvested by approximately farmers, through input loans. link farmers with input suppliers and agricultural buyers, designs. Some link up with microfinance institutions, one million smallholder farmers, receiving an estimated To explore the viability of using DFS to pay cocoa farmers, facilitating transactions between all three. Some of the others with commodity traders. $2.3 billion of harvest income in total each year. Despite IFC designed a pilot project in collaboration with a more basic services that DFS could provide to farmers DFS is a growing industry, and focus to date has been the large sums involved, nearly all of these payments are tripartite partnership between SIB Attijariwafa Bank, include faster payments for harvest and easier access primarily on urban markets. The only way to find the made in cash. to savings and lending products. Eventually, DFS could Cargill and Orange Money to digitize quarterly premium best solution for smallholder famers is by trial and error. be used to facilitate the provision of crop insurance to Cash payments pose a number of problems for farmers. cocoa payments to smallholder farmers through a bank- The pilot we ran in Côte d’Ivoire, together with Société farmers, helping them not only to manage risk and protect Harvest payments often arrive late – due to the complex to-wallet channel. The model allowed farmers to receive Ivoirienne de Banque, Cargill and Orange, allowed their investments, but also decreasing credit risk to lenders logistics of cash-based payments. Even if these middlemen payments for certified cocoa on their bank accounts, and us to better understand the operational challenges of and expanding access to credit. do not take an outsized cut of farmers’ payments, the cash then be able to transfer the money to their mobile wallets digitizing Ivorian cocoa farmers. Unless we keep trying, is still subject to significant risk of theft whilst in transport. for cash-out at local agents, or to use electronically for DFS has widespread potential applications for agriculture. we won’t be able to leverage DFS to extend financial These factors mean that the costs of transporting cash are mobile payments. The pilot also aimed at incentivizing DFS services can be linked through mobile technology to inclusion to rural areas and along agricultural value very high. In Uganda, where risks are similar, one analysis savings and facilitating farmers’ access to regulated credit provide agricultural-extension services, sending farmers chains where such solutions are much needed and will found that agricultural businesses were spending about providers. It aimed at enrolling 1,000 cocoa farmers on information and reminders on best practices, weather have the greatest impact. 10 percent of annual operating budget on covering losses the new digital channel. IFC provided market research forecasts, and harvest calendars, as well as putting them – from theft or fraud—and expenses related to insuring, to better understand the financial lives of cocoa farmers in contact with horticulturalists. Additionally, at the securing, and transporting cash. (see Research Focus, page 170), help build the required value-chain level, the entire distribution network could multi-stakeholder partnership, design the service and put be improved through e-warehousing, transportation Cognizant of these costs and inefficiencies, many actors management, and better traceability of produce or the process in place, and to provide technical assistance in the cocoa value chain are exploring alternatives. One payments. Some players are harnessing the data being throughout implementation. such alternative is paying farmers through DFS. Taking captured in these systems, and are using it to develop cash advantage of recent technological developments, DFS can While there’s a fairly wide usage of mobile phone services flow patterns and credit scoring for farmers in order to be used to enable a full suite of financial services to rural among cocoa farmers, as well as an evident willingness provide collateral-free lending. 166 DIGITAL ACCESS AGRICULTURAL VALUE CHAINS AGRICULTURAL VALUE CHAINS Overall financial inclusion rate vs mobile money account rate 100 80 60 40 5.5% 8.6% 18.0% 20 0 n/a 4.4% 12.0% 2011 2014 2017 % Account rate, adult population % Mobile account, all adults MARKET OVERVIEW Industry opinion: consumer channel.3 Microfinance institution AccessBank World Bank, Findex has also launched an agent banking pilot and plans that Any account ownership, adult 18% agent activity should, in time, become a significant part of population, 2017 Where is the biggest challenge to its business. banking smallholder farmers? Madagascar: Usage of mobile phones is below the regional average, with Any account ownership, women, 2017 16% Smallholder farmers have traditionally been excluded from One of the lowest financial fewer than six million unique subscribers, partly due to high Any account ownership, young adults (15-24 years), 2017 18% formal financial services. DFS could be an opening to bring prices. Prepaid minutes cost more than double the price such rural communities into formal financial services, inclusion rates in Africa in Kenya, for example. For those with phones, multi-SIM Financial institutions account, 10% and also offer significant benefits for the buyers that usage is common, with subscribers on average having 1.5 adults, 2017 smallholders are dependent on. It makes financial services SIM cards. There are three MNOs and network coverage more accessible for farmers, and helps to connect buyers and Mobile money account, adults, 2017 12% reaches about half of the population. Airtel is the largest sellers more efficiently. In recent years, Madagascar has experienced severe climatic with 42 percent market share (2014), followed by Telma Saved at a financial institution, 4% changes and two political crises. This has slowed economic at 33 percent, and Orange at 25 percent.4 All MNOs offer adults, 2017 growth and caused food prices to rise. As a result, the mobile wallets but have been slow to convert registrations Saved semi-formally, in a savings 4% population of 25 million lives in difficult conditions that into active wallet users, although there may be signs that club or with person outside the have led to nearly three-quarters of the people now living adoption is increasing. Most mobile wallet transactions are family, adults, 2017 below the poverty line.1 In response to these difficulties, basic P2P transfers, airtime purchases and bill payments. many people have shifted to a greater dependence on In 2016, Madagascar became the second market in Africa, Borrowed formally, from an 4% agriculture, with two-thirds of the population based in rural after Tanzania, to introduce interoperability between mobile institution or credit card, adults, 2017 areas. Farming, fishing and forestry are the backbone of the money accounts. This allows P2P (domestic remittance) Borrowed from friends and family, 37% economy, accounting for a quarter of the GDP. However, transactions to flow seamlessly between the customer wallets adults, 2017 as the profitability of farming has declined, many have of all three MNOs. However interoperability is expensive, Poverty rate, 2012 77.8% diversified to also engage in off-farm activities whenever with transactions between MNO wallets costing several they are available. times the price of transactions within a single provider GSMA system. Data is not yet available about the impact this has The financial sector is comprised of 11 banks, 7 other had on DFS activity. In late 2017, MVola, the payments Unique mobile network 5.9 m financial institutions and 29 MFIs. Only two banks have division of Telma, became the first mobile money service subscribers, 2017 a strong presence outside of the capital, Antananarivo. to launch a micro-savings and loan service, in partnership Because of the country’s instability, bad debt grew to 13.8 Mobile penetration rate, 2017 23% with BNI Madagascar Bank. Airtel established an alliance Rural agent networks (30%) percent of gross loans in 2011.2 However, the microfinance with Bank of Africa in 2013 for smallholder farmers to Banque Centrale Madagascar, IMF FAS, AFSD sector has seen good growth in recent years. The sector is Seasonality of agricultural income (28%) receive harvest payments into their wallets and open a BOA made up of both banks that supply microfinance products Volume of MM transactions, 2015 28,728,048 savings account linked to the wallet.5 In a market where Access to farmers (22%) and MFIs. Overall, the microfinance sector is healthy and only 12 percent of the population has access to sanitation Value of MM transactions, 2015 707.74 m US$6 growing steadily, although outreach in rural areas is more facilities or the associated plumbing, DFS is being used Data quality (19%) limited. Baobab (formerly MicroCred), a microfinance Registered mobile money users 2,498,600 to support a program to introduce waterless flush toilets. bank that focuses on the SME segment, introduced agent (wallets), 2015 Creditworthiness of farmers (1%) Customers use mobile wallets to pay for waste collection, banking in 2015 using POS devices that were enabled for and SMS to confirm collection times. Number of agents, 2015 10,826 biometric identity verification. Building upon the successful agent network, a tailored nano-loan product called ‘takka’ Following a period of regulatory uncertainty, the central Licensed commercial banks, 2016 11 has been developed, using automated credit-scoring, which bank now requires that financial institutions intending to can only be accessed at agent outlets. By partnering with operate an agent network must set up a Banking Operations Bank branches, 2015 281 Orange, Baobab can accept loan repayments and deposits Intermediary and apply for a license. Following this, each directly from an Orange Money wallet, and agents can agent must be vetted directly by the regulator, limiting Total assets, 2015 2,393.38 m US$ replenish their Baobab float using their Orange Money the providers’ ability to quickly reach scale. A number Mix Market accounts. Despite regulatory constraints, the agents of agents that were operating before the new regulations accounted for over half of Baobab’s business by 2017, and came into effect have been closed for non-compliance to Licensed MFIs 17 the company is restructuring to make agents its primary regulated standards. 168 DIGITAL ACCESS 169 DIGITAL ACCESS AGRICULTURAL VALUE CHAINS AGRICULTURAL VALUE CHAINS Research question: included 7 percent women, while overall women membership in cooperatives is only 3 percent. How may DFS be useful for Methodology: Farmers in the sample were smallholder cocoa farmers in interviewed with a detailed questionnaire that assessed their financial needs and behavior Côte d’Ivoire? Primary conclusion: The traditional offering of Data collected: The random sample included a financial products in Côte d’Ivoire is not well adapted total of 1,149 smallholder farmers from six cocoa to the needs of cocoa farmers, and DFS may be a key RESEARCH FOCUS percent of farmers in the sample reported having difficulty cooperatives in central Côte d’Ivoire. The sample tool for extending rural financial inclusion. at least one month out of the year. By far the most common months in which farmers had difficulties feeding their Cocoa farmers’ seasonal savings and times with insufficient income for food families were those immediately preceding the primary Farmers who save harvest season (from July to September), with farmers reporting difficulties increasing dramatically from less than 30 Main harvest begins Percentage of respondents fare better 1 percent at the height of the main cocoa harvest, to 27 25 percent during the two months directly preceding the main harvest. In fact, this is likely to be a conservative estimate 20 than others of the percentage of farmers struggling with the ‘hunger season’: according to data collected by IFC in 2014 on 15 another sample of Ivorian cocoa farmers, over 90 percent 10 Managing income can be particularly challenging reported difficulty feeding their families before the harvest. 5 This trend confirms that many cocoa farmers encounter for farmers, since they typically receive most of their significant difficulties budgeting incomes to stretch over an 0 income during one or two harvests per year, but entire year. 0 1 2 3 4 5 6 7 8 9 10 11 12 need to cover expenses throughout. Some farmers One recurrent expense that causes farmers particular Month are better than others at stretching their income. difficulty is paying for their children’s schooling expenses. Surprisingly, this financial acumen is not related to % Having difficulty feeding their families (by month) Of those farmers who reported borrowing money in % Saving significantly (by quarter) levels of income as much as the ability to save. the previous six months, 15 percent cited paying school expenses as the reason for needing this loan. Even though Cocoa farmers in Côte d’Ivoire receive the majority of their school fees are a perfectly predictable expense happening How frequently do cocoa farmers save? income during the main harvest, supplemented by a smaller at the beginning of the school year (early October), they amount in the secondary harvest. This money must cover During the harvest only 50% still cause farmers difficulty, because they require having a all expenses throughout the year, not only regular living significant amount of cash on hand all at once, on top of expenses, but also planned irregular expenses, as well as Has not added to savings in 12 months 40% regular household budgets, at the time of year when funds any unexpected financial shocks. The weeks just before the are running low. Costly seasonal agricultural inputs, such Every 6 months 2% main harvest are often referred to as the ‘hunger season’, as fertilizer, also showed low take-up rates in the sample, because by then many farming families find that their funds which may in part be attributable to farmers’ inability to Every 3 months 3% have run out. For financial services providers looking to make harvest income last through the planting season, reach rural communities and smallholder farmers, it’s when inputs are typically purchased. Farmers also have Every month 3% important to understand the particular seasonal patterns multiple lumpy medium-term expenses, such as weddings that govern incomes and livelihoods of target users. Other 2% and festivals, many of which are predictable and ideally To better understand the cash flow challenges of Ivorian should be budgeted for in advance. cocoa farmers and the ways that digital financial services The study showed that a substantial minority of farmers The places where cocoa farmers save their money could help alleviate some of the burden, the Partnership save (35 percent), but the most common ways to do so conducted research into the financial lives of cocoa farmers are informal storage of money at home (36 percent), or in At home 37% in 2015. It was based on a sample of 1,149 smallholder simple mobile money accounts operated by an MNO (20 cocoa farmers, who were members of six agricultural Mobile money 20% percent). Only 20 percent of farmers had a remunerated cooperatives in the central region of the country. Farmers in savings account at a bank or other financial institution. MR/Financial coop 17% the sample were interviewed with a detailed questionnaire Most farmers are only able to add to savings during a that assessed their financial needs and behavior. While not narrow window during the harvest. Of farmers who save, Bank 16% representative of all Ivorian cocoa farmers, the sample 90 percent only manage to put money aside once per year – provided a rich and detailed snapshot of farmers’ individual or, if they do manage to add to their savings, the additional Informal/traditional savings group 2% financial behavior and demand for financial services. time is nearly always during the harvest. Only eight percent Agricultural cooperative 2% of savers reported putting away money regularly outside of In order to assess the extent to which farmers were able to the harvest season. Other 7% make this income last throughout the year, the study asked them in what months of the year, if any, they typically have These savings seem to have a profound impact on farmers’ 0 5 10 15 20 25 30 35 40 difficulty providing food for their families. Thirty-seven ability to budget for the entire year. Farmers who save see Percentage of savers 170 DIGITAL ACCESS 171 DIGITAL ACCESS AGRICULTURAL VALUE CHAINS AGRICULTURAL VALUE CHAINS Reasons given by cocoa farmers for borrowing money Emergency 59% School fees 15% Regular household expenses 11% Pay farm tools or inputs 7% Other 8% The sources of loans for cocoa farmers Family & friends 54% Agricultural cooperative 30% MR 5% Financial coop 5% Bank 1% Other 11% 0 10 20 30 40 50 60 Percentage of Borrowers their odds of having difficulty feeding their families in the expenses is also concentrated in the time immediately two months preceding the main harvest decrease by 50 preceding the main harvest, when many of them experience percent, compared to those who do not save, even when financial difficulties. The more difficulties farmers face holding other factors constant, such as education and before the harvest, the more likelihood they will borrow. In household income. This means that even a poorer farmer summary, some farmers are using credit as a substitute for who saves a little, stands a greater chance of feeding the medium-term savings, financing regular household expenses family throughout the year, than a farmer who is better on credit to make up for their inability to set aside enough off but doesn’t save at all. A farmer who saved in the past of the harvest income to last the entire year. year had an 18 percent chance of experiencing difficulties, while this number increased to 31 percent for farmers who The study indicates that encouraging good financial do not save. In other words, irregular incomes mean that practices, by providing easily accessible remunerated it is essential for farmers to be able to set money aside savings, and enabling the associated credit scoring to securely to maintain basic consumption levels year-round. support formal lending, would be of great benefit to many Additionally, farmers in the habit of saving are better able cocoa farmers. These services are more likely to have high to budget for the entire year. adoption levels if they are delivered by DFS, because of convenience, acceptance, and the current widespread In addition to savings, some farmers also borrow as a means usage of DFS by farmers for more basic transactions. of managing medium-term budgets. Some farmers reported Farmers’ willingness to try new kinds of financial services borrowing money (15 percent) – but, as with savings, this is as alternatives to cash was well demonstrated, with an done mainly informally, from friends and family (54 percent overwhelming majority (73 percent) responding that of borrowers), with only 11 percent of borrowers using a they would like it if their cooperative paid them for the financial institution. These loans are more likely to be used harvest digitally. to help with emergencies and regular household expenses (70 percent) than for planned events, such as buying Further reading: Opportunities for Digital Financial Services agricultural inputs (7 percent) or school fees (15 percent). in the Cocoa Value Chain in Côte d’Ivoire, by Susie Lonie, This reliance on borrowing to fund regular household Meritxell Martinez, Rita Oulai and Christopher Tullis. Recently harvested cocoa beans, placed in the sun to dry 172 DIGITAL ACCESS before processing. Cote d’Ivoire. 173 DIGITAL ACCESS were sometimes challenging. The group consisted of two banks and four MNOs, who viewed payments very Why the industry differently. Disagreements were common and could have should take stalled the process indefinitely. To manage this, IFC focused on fostering cooperation the lead and mutual understanding by holding monthly meetings to discuss and agree on specific aspects of the rules. By Omoneka Musa 11 One step at a time. These were often lengthy and very IFC Operations Officer, Nairobi, Kenya detailed discussions that would typically end in a consensus vote based on the rule of one-person-one-vote, so that When the industry partners signed the first cooperation larger providers could not unfairly influence the outcome. agreement for DFS interoperability in Tanzania, it Once agreement was reached, the IFC team would draft INTEROPERABILITY was the result of almost two years’ hard work on the the document for the participants to review and sign off. part of everyone involved. The journey the industry The process ensured that everyone’s input was considered took was very similar to that of banks in the US in the and that an agreed course of action was established at the end of each meeting. 1950s, resulting in the creation of the international card schemes that are ubiquitous today. Both processes In addition to building consensus, it was a challenge to show us that, when a clear business case exists, industry determine which use cases to start with. Banks, for instance, were more interested in bank-to-wallet transfers, whereas players can organize themselves effectively to create More than a mobile network operators were interested in wallet-to- structures, standards and rules that benefit society as wallet transactions and other use cases. To help prioritize, a whole. technological challenge the IFC commissioned a market study in March 2014 to determine the demand amongst customers and agents and It is often the belief of regulators that, unless In mature economies, bank card interoperability is to identify the main pain points. Ninety percent of those interoperability is mandated, the industry will be slow a given. You can generally take your credit or debit surveyed said they would like to be able to send e-money to act or will not act in the public interest. Where to someone on another network, and 50 percent of these economic incentives are poorly understood, however, card and withdraw money at the ATM of any financial respondents said they would be willing to pay for such a regulatory mandates can be ineffective at best, and services provider. This interoperability is enabled by service. This helped make the case for a first set of standards harmful at worst. The well-known case of e-Zwich global payment schemes or standards and facilitated for person-to-person/wallet-to-wallet transactions. in Ghana is a cautionary tale about the distortionary by switching platforms or technology. When it comes The first use case that the industry reached agreement on effects mandated interoperability can have. Following Tanzania is one of the most advanced DFS markets in was for person-to-person/wallet-to-wallet transactions, to digital financial services, interoperability is still in its the launch of this interoperable, card-issuing interbank Sub-Saharan Africa. Already in 2012, there were over nine and was signed by Tigo and Airtel on inception, joined infancy. In Tanzania, IFC worked with major industry million mobile money subscribers – making Tanzania the payment platform, at the time wholly owned by the by Zantel shortly after, and joined by Vodacom in players to establish one of the first industry-led standards second country in Sub-Saharan Africa, after Kenya, with February 2015. Following the initial use case, the industry central bank, only 10 percent of cards were issued and for mobile money interoperability. such a high rate of mobile money adoption. Contrary negotiations continued, with the aim to reach agreement usage was extremely low. Where industry actors have to the Kenyan market, the Tanzanian DFS market is on cash-in and cash-out services, agent-to-agent or float been allowed to determine interoperability standards, characterized by competition between a handful of similar- rebalancing transactions, and bulk payments. There sized mobile money providers. At that time, the Bank of higher rates of adoption and usage are observed. has been clear impact on the market. As of September Mobile money interoperability allows users of different Tanzania was working on a new mobile payments law 2017, the Bank of Tanzania reported that the number of This doesn’t mean that there’s no place for regulation. mobile financial services providers to interact with each planned for early 2013 and was examining the potential interoperable transfers had grown exponentially, from In the case of Tanzania, the industry leaders sought and other, for example, by making direct payments from the for DFS interoperability and the various options for 174,000 transactions in October 2014 to over 6.9 million obtained the official backing of the Bank of Tanzania mobile money wallet of one provider to the mobile money bringing this about. It was becoming apparent that without transactions. In terms of value, these transfers have now interoperability, the emerging DFS market was likely to beforehand and continually consulted with the regulator wallet of another provider. It can benefit consumers and reached over $90 million per month. Interoperable P2P stagnate and the recent expansion in financial inclusion transactions now account for about 28 percent (almost a as rules were being formulated. There are other tools, businesses and contribute to increased financial inclusion. risked tapering off. third) of all P2P transactions. besides regulation and law, that can be employed to In recent years, various development organizations, industry bodies, regulators and markets have embarked on enabling In September 2013, IFC stepped in to facilitate an industry- successfully promote DFS interoperability: support Negotiating interoperability is a complex process and mobile money interoperability between digital financial led consultative process, with the aim to create a set other markets can learn from Tanzania. Allowing the industry associations, advise the industry, provide services providers in different markets across the globe. of interoperable standards and rules for a DFS scheme industry to lead the process, and to determine the pace guidelines, and foster dialogue and open exchange. covering at least four transaction sets. The project was and priorities of the process, ensures critical buy-in from The future may well offer more effective industry-led There are different routes to interoperability. On a technical subsequently extended for another year to include a the outset. Regulator-led interoperability processes run the attempts at interoperability that are aligned with the level, it can be enabled by a switch. However, simply setting nationwide marketing campaign targeting one million risk of meeting industry opposition, and technical solutions public interest. up a switch that connects the payments systems of different people, as well as the development of a generic set of do not by themselves necessarily lead to interoperable providers doesn’t necessarily lead to more transactions standards for DFS interoperability for application in any transactions. To help maintain momentum and interest it between the various services in the market. Generally, market. The project was supported by the Bill & Melinda helps to identify a strong industry champion, and a neutral a switch needs to be supplemented by a scheme between Gates Foundation, the Financial Sector Deepening Trust, broker is best placed to manage the process. It is important industry actors that governs the rules and processes of and Bank of Tanzania. to stake out a course for the negotiations from the start, interoperable transactions. Such schemes cover additional As a neutral broker, IFC’s role was to provide technical but also to be flexible and to proceed incrementally. business considerations, such as participation criteria, expertise for the discussions, maintain a spirit of Start where there is consensus. voting rules, settlement processes, flow of funds between cooperation between participating institutions, and sustain Example rules for all DFS use cases, drafted by the IFC parties, and dispute resolution. A scheme can be set by the momentum. Since the participants around the negotiating team to support regulators and the industry, are available regulator, or negotiated by the industry. table were competing market actors, the last two objectives online at www.ifc.org/financialinclusionafrica 174 DIGITAL ACCESS INTEROPERABILITY INTEROPERABILITY Overall financial inclusion rate vs mobile money account rate 100 80 47.0% 60 39.8% 40 17.3% 39.0% 20 32.4% 0 n/a 2011 2014 2017 % Account rate, adult population % Mobile account, all adults MARKET OVERVIEW Industry opinion: The services on offer are increasingly sophisticated and World Bank, Findex uptake is good. By 2015 almost half the users were engaged Any account ownership, adult 47% in P2P transfers for both personal and business transactions, population, 2017 What is the most effective approach for and 32 percent were undertaking advanced activities, such achieving interoperability? Tanzania: as remunerated savings and loans. For example, three Any account ownership, women, 2017 42% Interoperability allows DFS providers to interact for the benefit years after the launch of M-Pawa in 2014, by Vodacom in A market characterized by partnership with the Commercial Bank of Africa, the service Any account ownership, young adults (15-24 years), 2017 46% of users and operators. In recent years, various development organizations, industry bodies, regulators and markets have competition and collaboration had over 5 million customers and issued around 350,000 Financial institutions account, 21% embarked on projects to enable mobile money interoperability micro-loans per month. The same year, Tigo started paying adults, 2017 between DFS providers in different markets across the globe. quarterly bonuses to customers based on the balances held in their Tigo Pesa wallets. The central bank now requires all Mobile money account, adults, 2017 39% mobile money services to provide a profit share from the Tanzania is home to 55 million people, with a predominantly Saved at a financial institution, 6% trust account holdings. rural economy dependent on an agricultural sector that adults, 2017 employs over two-thirds of the workforce. Most farmers The number of mobile phone accounts fell in 2016, when the are self-employed, with around 80 percent of the cultivated Saved semi-formally, in a savings 18% communications regulator required the MNOs to deactivate club or with person outside the land worked by smallholders. Urbanization is low, at 33 all improperly registered SIM cards. This also resulted in a family, adults, 2017 percent, and the dispersed population provides a number drop of 8 percent in mobile money account penetration, to of challenges to financial services gaining critical mass. 53 percent. Borrowed formally, from an 5% The government has an ambitious development agenda, institution or credit card, adults, 2017 including access to finance, which it is hoped will reduce the The agent aggregator market is strong in Tanzania, with several large, aggressively expanding agent networks Borrowed from friends and family, 27% high poverty level. Nearly half of the population lived below adults, 2017 the poverty line in 2016. servicing both banks and MNOs.3 The aggregator model lowers the cost of opening agents, as multiple providers Poverty rate, 2011 49.1% The Tanzanian financial sector is fragmented, involving can be serviced at a single agent. Three major aggregators over 50 banking institutions of various types, as well as GSMA – Selcom, Maxcom, and Cellulant – also offer their own over 100 MFIs and 5,500 SACCOs. However, the top three value-added OTC services. Customers can pay bills and commercial banks account for nearly half the country’s Unique mobile network 23.7 m send remittances via the agents, without needing to use a subscribers, 2017 Joint effort by all of the above (54%) banking assets.1 The use of banks has declined in recent mobile phone. It may be that these services are growing with years, in terms of both individual account holders and customers whose SIM cards were deactivated. Mobile penetration rate, 2017 42% Regulator led (32%) active accounts.2 This appears to be coupled with a move toward mobile money usage. A number of banks seeking In 2014, Tanzania became the first country to introduce an Bank of Tanzania Led by independent scheme such to reverse this trend now offer mobile banking, and several industry-designed interoperability scheme between mobile as a national switch/Visa/MC (12%) Volume of MM transactions, 2016 1,676,997,520 have agent banking services. money wallets for P2P domestic remittances.4 Consumers Donor/Stakeholder led (1%) can now transfer money between the leading mobile wallets Value of MM transactions, 2016 26.4654 b US$6 By 2015, consumer awareness of mobile money was 95 percent and 63 percent of adults had used it. Mobile (P2P) at no extra charge. Tigo reported seeing an average Provider led (1%) Registered mobile money users 76.1 m phone ownership is relatively high, at 79 percent, and most monthly growth (by value) of 17 percent of P2P transfers (wallets), 2017 Tanzanians have access to a mobile phone. Smartphone following interoperability and the values tripled between penetration is growing, and even in 2015 there were nearly July 2015 and July 2016. Other providers have cited similar Number of agents, 2017 398,452 as many feature phones/smartphones (44 percent) as basic growth. Interoperability is currently based upon bilateral agreements between MNOs and financial institutions. Licensed commercial banks, 2016 38 phones. In March 2017, the top three MNOs – Vodacom, Tigo and Airtel – accounted for 86 percent of subscribers, The Central Bank has tended to favor an industry-led Bank branches, 2016 810 and most of the mobile money share with M-PESA approach to DFS interoperability, but new regulations (Vodacom) the market leader. Halotel was a new entrant in Total assets, 2016 12.4339 b US$7 state that DFS providers must change their technical and 2015, with a focus on rural areas, but after early success its commercial arrangements to interconnect services via a Mix Market impact has been small. national switch by early 2018.5 Charges, scheme rules and interoperability guidelines are still under discussion with Licensed MFIs 13 The DFS market in Tanzania, with its more competitive market structure, has grown to rival neighboring Kenya. stakeholders. 176 DIGITAL ACCESS 177 DIGITAL ACCESS INTEROPERABILITY INTEROPERABILITY Bank of Tanzania statistics on mobile payments MOBILE PAYMENT SYSTEMS (MOBILE FINANCIAL SERVICES) 2008 2009 2010 2011 2012 2013 Number of registered RESEARCH FOCUS that a 1 percent increase in card usage translated to an 112,000 4,192,683 10,663,623 21,184,808 26,871,176 31,830,289 accounts average GDP growth of 0.24 percent across a sample of 51 developed and emerging countries. Volume 408,216 3,272,422 18,430,256 134,922,457 546,732,134 1,005,113,287 However, interoperability is not without risks, as it creates Achieving Value (TZS millions) 25,208.00 158,538.00 1,006,430.00 5,563,281.00 17,407,725.74 28,852,294.02 complexities at the technical, commercial and operational levels that need to be managed jointly by the participants. Number of agents 2,757 14,469 29,095 83,795 97,613 153,369 interoperability in This is managed by ensuring that all participants adhere to the same standards to maintain the integrity of the system. Average number digital financial services of transactions per 3.64 0.78 1.73 6.37 20.35 31.58 Also, if imposed prematurely – in the early stages of business customer per year development or channel expansion – interoperability can dampen investment. It is more suitable for a market that Average transactions 61,751.62 48,446.69 54,607.49 41,233.17 31,839.59 28,706 In September 2014 the mobile financial services has already reached scale. Effective interoperability requires value (TZS) industry in Tanzania signed an agreement that allows industry to come together and agree to common technical Average value per and other relevant standards, or to incorporate international 225,071.43 37,813.02 94,379.74 262,607.10 647,821.51 906,441.47 customers belonging to one mobile money scheme customer (TZS) DFS interoperability technical standards and operating to transfer money to a customer with an account rules, so that the solution can be applied industry-wide, at a different mobile money scheme. Tanzania thus rather than through bilateral agreements between different Market demand for interoperable P2P transactions became one of the first countries in the world with operators. This implies a process of reaching agreement % said would use e-money to send money % willing to pay to send money to any network an industry-agreed interoperable market for digital among industry players who have competing interests. to any network financial services. IFC functioned as the neutral broker for the industry Interoperability can mean different things. At the most negotiations that established the first use case for DFS basic level, interoperability is defined as ‘the possibility interoperability in Tanzania in 2014. Few markets contain to transfer money between customer accounts at different the perfect conditions for pursuing DFS interoperability, mobile money schemes and between accounts at mobile but there was strong consensus among stakeholders in money schemes and accounts at banks’. Interoperability Tanzania that a number of contextual advantages favored should not be confused with interconnection, which is the the process: DFS users were already inventing their own 90% 50% ability to technically connect with another network. It is interoperable solutions such as managing multiple DFS considered important because of its potential effects on accounts and making cross-carrier payment via vouchers; consumers, businesses and the economy. there were clear indications that the DFS market was nearing saturation from a customer acquisition perspective, In mature DFS markets, and where scale has been achieved, although volumes and values remained high in absolute interoperability can help businesses to manage costs, terms; the Tanzanian mobile payments market is more increase efficiencies through shared infrastructure and to balanced in terms of market share between DFS providers % said would use e-money to receive money % willing to pay to receive money from any network increase transaction volumes. Users benefit from network than other East African markets, allowing for relative from any network effects and, ideally, from reduced transaction costs. parity between negotiating parties; the regulator authority Many governments believe that interoperability can help was supportive of DFS interoperability; and critically, advance financial inclusion due to reduced transaction the earliest demands for interoperability came from costs, and can also lower the cost of printing and managing the DFS industry itself. Tanzania’s story of introducing cash. A 2008 study of interoperability in Latin America by interoperability standards offers a variety of lessons for the World Bank Payments Systems Group suggests that a other markets: more efficient payments system, through interoperability, 90% 48% in Brazil could result in a saving of 0.7 percent of GDP per Allow industry to define the rules. Mandating year. Similarly, the practical experiences of interoperable interoperability through regulation may create market payments schemes, such as VISA and MasterCard, illustrate distortions that dampen investment and buy-in, especially that interoperability can contribute to an exponential when imposed at an early stage. Instead, interoperable business increase in transactions. A Moody’s study on the effects and technical standards, as well as commercial terms, should of increased card usage (transaction volumes) suggests be allowed to evolve naturally in a mature, competitive market 178 DIGITAL ACCESS 179 DIGITAL ACCESS INTEROPERABILITY INTEROPERABILITY where both providers and consumers can derive additional terminology and understands the models and motivations value. As each market is different, interoperability should be of others in the ecosystem will mitigate conflict and delays. resolved by the local industry participants who will ultimately Have a strong in-country manager. A persistent and profit and bear the weight of their decisions. Over the long diplomatic resource who can gain the confidence of all term, one may find that many of the domestic solutions are parties is critical. Deep knowledge of local conditions and very similar in nature and international interoperability could players is needed to organize what is inevitably a large become a practical reality, particularly as operators tend to group of disparate interests and personalities. cover multiple markets. Have a plan. Interoperability will vary from market to Success requires an industry champion. Tigo was a market, but the elements that need to be resolved, such as staunch supporter of interoperability from the beginning. who gets to participate or how disputes will be handled, While the IFC process created the conditions for a remain largely the same. Starting with a clear outline of the collaborative approach, Tigo’s vision and persistence issues to address and mapping an implementation plan to helped drive the overall agenda and ensured focus on the tackle these issues, will maintain the focus and overview end objectives. An active and influential industry voice needed to achieve the levels of detail necessary in an offsets possible claims that the agenda was not in the interparty payments agreement. interests of industry, and compelled competitors to at least monitor and engage in discussion. Don’t expect to accomplish all at once. Industry participants will all be at different stages of readiness for Identify an independent facilitator and/or neutral interoperability. Focusing first on the ground rules affords broker. Ideally, this role should be undertaken by a all an opportunity to contribute to the vision, leaving party that has expertise in the given area, but that has no the timing of adoption to each participant’s discretion. commercial, political or regulatory interests in the process. Start with achievable areas of common ground and prepare In this scenario, IFC played the role of facilitator by to compromise. History shows that interoperability providing expertise and as neutral broker in engaging with in other sectors, such as in the cards industry, was not various stakeholders at various levels. IFC’s engagement resolved overnight. Progress will be iterative as participants assured participants that the process would not be hijacked will be learning what works best for them along the way, as by a competitor’s commercial agenda or by a regulatory they make operational and system adjustments to manage mandate. Also, the independent expertise provided helped risks. A case in point is the Tanzania DFS industry’s initial on issues (related to interoperability) needing resolution, determination to pursue bilateral clearing and settlement by providing practical advice based on best practice or on procedures that could evolve into some form of multilateral other industries’ or countries’ experiences. clearinghouse model over time, as transaction volumes grow. A clear process and a common vision at the start can Ensure everyone is speaking the same language. establish a path to follow in achieving a more ambitious In most cases, DFS interoperability discussions will involve goal in the long run. actors who operate in similar environments, use similar words, but have different meanings and approaches. Further reading: Achieving Interoperability in Mobile Making sure from the outset that everyone is using the same Financial Services, by IFC. “Even if my friend had a bank account, I would still send money from Zoona. It’s simple, there are no queues here, and in 30 seconds you’ve done your transaction,” says Phillip Chellah, a banker and 180 DIGITAL ACCESS Zoona customer. 181 DIGITAL ACCESS This Internet café in Kinshasa, the Democratic Republic of Congo, doubles as a FINCA agent. 182 DIGITAL ACCESS 183 DIGITAL ACCESS Chabir Hassam Meritxell Martinez Patricia Mwangi Operations Officer Operations Officer Senior Operations Officer Johannesburg, South Africa Abidjan, Nairobi, Kenya Côte d’Ivoire OUR TEAM Fahima Said Bille Soren Heitmann Joseck Riadh Naouar Associate Operations Officer Operations Officer Luminzu Mudiri Head, Financial Institutions Nairobi, Kenya Dakar, Senegal Senior Operations Officer Group Advisory, Johannesburg, South Africa Sub-Saharan Africa Johannesburg, South Africa Sinja Buri Anna Koblanck Lovy Mukoma John Ngahu Operations Analyst Communications Officer Finance Analyst Operations Officer Dakar, Senegal Johannesburg, South Africa Johannesburg, South Africa Johannesburg, South Africa Tiphaine Crenn Matthew Leonard Omoneka Musa Everlyn Oroko Operations Officer Operations Officer Operations Officer Program Assistant Dakar, Senegal Johannesburg, South Africa Nairobi, Kenya Nairobi, Kenya Lesley Denyes Aliou Maiga Wellington Muzondo Minakshi Ramji Program Manager Regional Industry Head, Operations Officer Associate Operations Officer Johannesburg, South Africa Financial Institutions Group, Johannesburg, South Africa Johannesburg, South Africa Sub-Saharan Africa Dakar, Senegal 184 DIGITAL ACCESS 185 DIGITAL ACCESS Thank you By Anna Koblanck IFC Communications Officer, Johannesburg, South Africa This publication is the result of a broad team effort, and representative of the collaborative spirit and approach of the Partnership for Financial Inclusion team and ACKNOWLEDGMENTS OUR PUBLICATIONS IFC’s Financial Institutions Group Advisory in Sub- Saharan Africa. On behalf of the whole team, and as Photo credits Field Notes Field Note #1 Greenfield Microfinance in Sub-Sahara Africa: Julie Earne, Tor Jansson, editor of the report, I would like to thank everyone February 2014 A Business Model to Advance Financial Inclusion Antonique Konind and Mark Flaming who has kindly contributed to its making. Nyani Quarmyne Field Note #2 Greenfield Microfinance in Africa: Robert Cull, Sven Harten and Greta Bull December 2014 We would especially like to thank our clients and Benchmarking Quality, Growth and Outreach Photographer partners across the continent for taking time out of Field Note #3 Who are the Microfinance Clients? A Case Study Sven Harten and Sinja Buri October 2015 their busy schedules to help us put together the case Front cover; Pages 4, 6, 10, 12, 19, 20, 28, 37, 40, 42, on Customer Segmentation and Product Development studies and for generously sharing their experiences 44, 50, 52, 54, 56, 58, 60, 68, 70, 78, 84, 86, 88, 90, Field Note #4 Find the Gap: Can Big Data Help to Increase Sven Harten, Joshua Blumenstock, February 2016 with the broader industry. We would also like to take 91, 92, 94, 96, 104, 106, 128, 146, 148, 154, 156, 158, Digital Financial Services Adoption? Muhammad Raza Khan and this opportunity to acknowledge the contributions 160, 161, 162, 164, 180, 190 Johannes Kinzinger made by many of our clients to our research over the Field Note #5 Women make the Best DFS Agents: Sven Harten and Anca Bogdana Rusu May 2016 past few years. Thank you. Ric Francis How Financial Sectoral Alternative Delivery Channels Create Business Opportunities for Women in Emerging Markets Similarly, we would like to thank the consultants Photographer Field Note #6 Breaking Free of the Branch: Microfinance and Lesley Denyes, Marie-Sophie Tar and November 2016 and experts working with us across the continent to Pages 132, 136, 140 Alternative Delivery Channels in Sub-Saharan Africa Hannah Siedek advance digital financial services, expand financial Field Note #7 Turning MFI Digital Strategies into Reality Susie Lonie December 2017 inclusion, and build industry knowledge. We are also very grateful for the collaboration and support we Julia Conrad enjoy from our colleagues at the World Bank, especially Research Consultant Handbooks Robert Cull, Leora Klapper and the team behind the The Alternative Delivery and Technology Channels Handbook Geraldine O’Keeffe, Charlene Bachman 2015 Page 98 and Omoneka Musa Oyier Findex data report. Risk Management and Digital Financial Services Handbook Lesley Denyes and Susie Lonie 2016 We would also like to thank freelance journalist Thalia Anna Koblanck The Data Analytics and Digital Financial Services Handbook Dean Caire, Leonardo Camiciotti, Soren 2017 Holmes and photographer Nyani Quarmyne for Communications Officer Heitmann, Susie Leonie, Christian Racca, traveling to Côte d’Ivoire, Madagascar and Zambia Minakshi Ramji and Quiyan Xu to bring us such vivid stories and images of digital Pages 23, 62, 76, 112, 114, 116, 117, 118, 120, 122, financial services in practice. Also, many thanks to 130, 132, 133, 134, 138, 166, 172, 182 Research Reports graphic designer Pierre Jansen van Rensburg, as well as Overview of the Mobile Financial Services Market in Susie Lonie, Meritxell Martinez and 2013 Steven Palmer and the full team at Titanium Room for Côte d'Ivoire 2013 Rita Oulai the excellent production of the report. Partnerships in Mobile Financial Services: Factors for Success Mark Flaming, Aize Mitha, Michel Last, but not least, thank you to the Advisory Committee Text credits Hanouch, Peter Zetterli and Greta Bull August 2013 and our colleagues at the Mastercard Foundation, Greenfield MFIs in Sub-Saharan Africa: A Business Model for Julie Earne, Tor Jansson, February 2014 Thalia Holmes Advancing Access to Finance Antonique Koning and Mark Flaming in particular Roger Morier and Ruth Dueck-Mbeba, for assisting in the making of the report. I would Freelance Journalist In the Fast Lane: Innovations in Digital Finance Marcia Parada and Greta Bull May 2014 personally also like to thank Hugo Kaminski, who Achieving Interoperability in Mobile Financial Services: IFC 2015 Pages 52, 86, 156 has served as an excellent editorial assistant during the Tanzania Case Study production of this report. The Mobile Banking Customer that Isn't: Susie Lonie, Meritxell Martinez, December 2015 Drivers of Digital Financial Services Inactivity in Côte d'Ivoire Rita Oulai and Christopher Tullis Banking with Agents – Experimental Evidence from Senegal Sinja Buri, Robert Cull, Xavier Giné and March 2016 Sven Harten Opportunities for Digital Financial Services in the Cocoa Value Susie Lonie, Meritxell Martinez, June 2016 Chain in Côte d'Ivoire: Insights from New Data Rita Oulai and Christopher Tullis Agent Banking in a Highly-Underdeveloped Financial Sector – Robert Cull, Xavier Giné, Sven Harten and February 2017 Evidence from the DRC (Policy Research Working Paper) Anca Rusu A Sense of Inclusion: An Ethnographic Study of the Perceptions Anna Koblanck, Soren Heitmann and November 2017 and Attitudes to Digital Financial Services in Sub-Saharan Africa Gisela Davico 186 DIGITAL ACCESS 187 DIGITAL ACCESS 4 MERCHANTS 9 DATA ANALYTICS 1 World Bank http://www.worldbank.org/en/country/cotedivoire/ 1 CIA factbook Cameroon https://www.cia.gov/library/publications/the- publication/financial-services-in-cote-divoire-banks-set-aside-in-favor- world-factbook/geos/cm.html of-mobile-money 2 IFC: A Sense of Inclusion – ethnographic study http://www.ifc.org/ 2 GSMA country overview: Côte d’Ivoire wps/wcm/connect/15e6158a-8e52-444b-9103-391547cb1730/ https://www.gsmaintelligence.com/ IFC+A+sense+of+Inclusion+DFS+Ethnographic+Study+2017. research/?file=d1553a76179408fc82301b75174bc281&download pdf?MOD=AJPERES 3 CGAP working paper http://www.cgap.org/sites/default/files/ 3 Business in Cameroon http://www.businessincameroon.com/ Regulatory-Framework-for-DFS-in-Cote-d’Ivoire-Nov-2017.pdf bank/3105-7160-ecobank-bets-on-digital-to-boost-financial-inclusion- 4 CGAP Branchless Banking 2010: Who’s Served? At What Price? What’s Next? http://www.cgap.org/sites/default/files/CGAP-Focus- in-cameroon Note-Branchless-Banking-2010-Who-Is-Served-At-What-Price-What- 4 APA News http://mobile.apanews.net/en/news/cameroon-societe- general-introduces-digital-banking REFERENCES Is-Next-Sep-2010.pdf 5 IFC- Drivers of DFS inactivity in Côte d’Ivoire 5 World Remit https://www.worldremit.com/en/news/cameroon- https://www.ifc.org/wps/wcm/connect/fe1c69804aa2b52e9f60df- diaspora-switches-to-worldremit-to-send-money-home 9c54e94b00/IFC+CDI+Inactivity+Study+-+ENGLISH.pdf?MOD=A- 6 IFC: Turning MFI Digital Strategies into Reality JPERES http://www.ifc.org/wps/wcm/connect/67a1ee9e-9f95-4baa- 6 La Banque Centrale des Etats de l’Afrique de l’Ouest 8430-2a101ca77a9e/MFI+Digital+Strategy+Field+Note_8. FROM REVOLUTION TO EVOLUTION: DIGITAL FINANCE IN AFRICA 1 STRATEGY 7 CGAP working paper http://www.cgap.org/sites/default/files/ pdf?MOD=AJPERES i The small-scale business sector is sometimes examined and referred to 1 The Global Findex Database 2017: Measuring Financial Inclusion Regulatory-Framework-for-DFS-in-Cote-d’Ivoire-Nov-2017.pdf 7 Business in Cameroon http://www.businessincameroon.com/ as the MSME sector and sometimes the SME sector, with the former and the Fintech Revolution. World Bank: Washington, DC. telecom/0407-7240-mobile-money-beac-bans-transactions-by- definition including micro-entrepreneurs. 2 Bank of Ghana: IMPACT OF MOBILE MONEY ON THE 5 MARKET RESEARCH telecoms-operator-mtn-cameroun-outside-cemac-zone ii There are several definitions of inactivity. The most common, used PAYMENT SYSTEM IN GHANA: AN ECONOMETRIC ANALYSIS 8 2,224,721,414,879 F CFA = 4,210,120,371.2439 USD 1 CGAP blog http://www.cgap.org/blog/when-digital-meets-traditional- here, is that the DFS has been used to perform a transaction in the last August 2017 (1 F CFA = 0.0019 USD, March 7, 2018) banking-new-concept-senegal 90 days. 3 GSMA Country Overview: Ghana https://www.gsmaintelligence.com/ 2 UNCDF blog http://www.uncdf.org/article/2529/mobile-money-and- 1 McKinsey Global Institute DIGITAL FINANCE FOR ALL: research/?file=986feba592e4e9c07ff793916212eb66&download digital-financial-inclusion-senegal 10 AGRICULTURAL VALUE CHAINS POWERING INCLUSIVE GROWTH IN EMERGING ECONOMIES 4 https://www.graphic.com.gh/business/business-news/mtn-ghana-pays- 3 https://medium.com/microcred-on-a-mission/baobab-creating-strong- September 2016 over-gh-25-million-in-interest-to-mobile-money-subscribers.html 1 World Bank: Shifting fortunes and enduring poverty in Madagascar roots-for-inclusive-financial-services-e8ada250d010 2 Central Bank of Kenya https://www.centralbank.go.ke/national- 5 CGAP – Unintended Consequences: Branchless Banking in Ghana http://documents.worldbank.org/curated/en/413071489776943644/ 4 CGAP blog: http://www.cgap.org/blog/wari-buy-tigo-senegal- payments-system/mobile-payments/ http://www.cgap.org/blog/unintentional-consequences-branchless- Shifting-fortunes-and-enduring-poverty-in-Madagascar-recent-findings opportunity-financial-inclusion 3 GSMA State of the Industry Report on Mobile Money https://www. banking-ghana 2 MFW4A Madagascar financial sector profile https://www.mfw4a.org/ 5 Reuters https://www.reuters.com/article/senegal-millicom-intl/ gsma.com/mobilefordevelopment/wp-content/uploads/2018/02/ 6 Bank of Ghana Guidelines for e-Money Issuers https://www.bog.gov. madagascar/financial-sector-profile.html senegals-wari-sues-millicom-over-cancelled-telecoms-deal- GSMA_State_Industry_Report_2018_FINAL_WEBv4.pdf gh/privatecontent/Banking/E-MONEY%20GUIDELINES-29-06-2015- 3 IFC field note 7: Turning MFI digital strategies into reality idUSL8N1N27AO 4 GSMA State of the Industry Report on Mobile Money Decade UPDATED5.pdf http://www.ifc.org/wps/wcm/connect/67a1ee9e-9f95-4baa- edition: 2006 – 2016: https://www.gsma.com/mobilefordevelopment/ 7 Mobile Money Africa http://mobilemoneyafrica.com/content. 6 PRODUCT DEVELOPMENT 8430-2a101ca77a9e/MFI+Digital+Strategy+Field+Note_8. programmes/mobile-money/industry-data-and-insights/sotir php?id=3736&mc_cid=df83d34983&mc_eid=e3fe1bb09d pdf?MOD=AJPERES 8 78,508.9 m GHS = 17,600.1273 m USD (1 GHS = 0.2245 USD on 1 BFA research 2010 5 IFC The mobile banking customer that isn’t: Drivers of digital 4 GSMA 2015: Connected Women case study https://www.gsma.com/ March 7, 2018) 2 Bank of Zambia payment system statistics, 2015 financial services inactivity in CÔTE D’IVOIRE mobilefordevelopment/wp-content/uploads/2015/08/HNI-case-study- 9 Of Banks and Non-Bank Financial Institutions 3 Telecompaper report https://www.telecompaper.com/news/bank-of- http://www.ifc.org/wps/wcm/connect/ final.pdf 10 96,529.30 m GHS = 21,639.9485 m USD (as 1 GHS = 0.2245 USD zambia-expects-national-financial-switch-to-be-up-and-running-by- fe1c69804aa2b52e9f60df9c54e94b00/IFC+CDI+Inactivity+Study+- 5 CGAP blog http://www.cgap.org/blog/small-farmers-mobile-banking- on March 7, 2018) year-end--1211385 +ENGLISH.pdf?MOD=AJPERES financial-inclusion-madagascar 6 http://pubdocs.worldbank.org/en/669641476811886656/Session-3- 4 FSDZ: Zoona case study 2015 http://www.fsdzambia.org/wp-content/ uploads/2016/04/Zoona-A-Case-Study-on-Third-Party-Innovation-in- 6 2,192,221,000,000 MGA = 707,738,826.8821 USD Arthur-Gichuru-CBA-Group-Mshwari-Infograph-USD.pdf 2 TECHNOLOGY Digital-Finance.pdf (1 MGA = 0.0003 USD, March 7, 2018) 7 Vodacom Tanzania, IPO Prospectus, 2017 1 Lund University School of Economics thesis: The development of 5 Zoona website https://ilovezoona.com 8 MTN Mokash FAQs: http://www.mtn.co.rw fintech in Nairobi 6 4,627,254,038.93 ZMW = 474,346,855.91 USD 11 INTEROPERABILITY 9 GSMA: The impact of mobile money interoperability http://lup.lub.lu.se/luur/download?func=downloadFile&recor- (1 ZMW = 0.1025 USD, March 7, 2018) in Tanzania https://www.gsmaintelligence.com/ dOId=8917326&fileOId=8917329 1 Finscope Tanzania 2013 research/?file=5176a26de119933587cb93811eb81be4&download 2 CGAP Working Paper 2017: Banking in the M-PESA Age http://www. 2 Intermedia Tanzania wave 3 FII tracker survey p. 35 10 FSDK Why fintech developers should pay attention to the opening of cgap.org/sites/default/files/Working-Paper-Banking-in-the-M-PESA- 3 AFA Fertile ground series: A 2016 Tanzania Ecosystem Review and 7 CUSTOMER ACQUISITION M-PESA’s API Age-Sep-2017.pdf Strategic Perspective on Digital Financial Services for Smallholder http://fsdkenya.org/blog/why-fintech-developers-should-pay-attention- 3 Kenya Communications Authority quarterly report (July – Sept 17) 1 Bank of Uganda 2016 https://www.telecompaper.com/news/ugandas- Farmers to-the-opening-of-m-pesas-api-2/ http://www.ca.go.ke/images/downloads/STATISTICS/Sector%20 mobile-money-transfers-rise-by-34-in-2016--1213020 4 GSMA: The impact of mobile money interoperability in Tanzania 11 GSMA State of the Industry Report on Mobile Money Decade Statistics%20Report%20Q1%20%202017-18.pdf 2 Uganda Business News http://ugbusiness.com/3762/this-is-how-mokash- is-faring-one-year-on https://www.gsmaintelligence.com/research/?file=5176a- edition: 2006 – 2016: https://www.gsma.com/mobilefordevelopment/ 4 Web Africa http://www.itwebafrica.com/mobile/309-kenya/235211-sa- 3 Airtel Uganda http://www.africa.airtel.com/wps/wcm/connect/ 26de119933587cb93811eb81be4&download programmes/mobile-money/industry-data-and-insights/sotir faricom-to-increase-lipa-na-m-pesa-usage-by-30 africarevamp/uganda/home/personal/about-us/media-room/press- 5 https://www.mobileworldlive.com/money/news-money/tanzania-eyes- 12 IFC Field Note 7: Turning an MFI digital strategy into reality 5 Brookings https://www.brookings.edu/blog/africa-in- focus/2018/02/15/figures-of-the-week-digitization-and-financial- release/march-16-2017 wider-mobile-money-interoperability/ 13 GSMA State of the Industry Report on Mobile Money Decade inclusion-in-kenya/ 4 Helix Institute Agent Accelerator Survey: Uganda 2015 6 59,425.39 billion TZS = 26.4654 b USD (1 TZS = 0.0004 USD) edition: 2006 – 2016: https://www.gsma.com/mobilefordevelopment/ 6 Capital Business report https://www.capitalfm.co.ke/business/2018/01/ http://www.helix-institute.com/sites/default/files/ 7 27,917.31 billion TZS = 12.4339 b USD (1 TZS = 0.0004 USD) programmes/mobile-money/industry-data-and-insights/sotir mpesa-airtel-money-tests-mobile-money-interoperability-ahead-of-roll- Publications/070931%20ANA%20Uganda%20Country%20 14 Intermedia 2015 FII Quickinsights www.finclusion.org out-in-march/ Report%20-%20FSDU%20-%20Final.pdf 15 The mobile banking customer that isn’t: drivers of DFS 7 Mobile Payments Accounts 5 GSMA: Mobile Economy – Africa https://www.gsmaintelligence.com/ inactivity in Côte d’Ivoire https://www.ifc.org/wps/wcm/connect/ research/?file=3bc21ea879a5b217b64d62fa24c55bdf&download fe1c69804aa2b52e9f60df9c54e94b00/IFC+CDI+Inactivity+Study+- 6 1 UGX = 0.0003 USD (March 7, 2018) +ENGLISH.pdf?MOD=AJPERES 3 AGENTS 7 540 mobile money agent outlets per 100,000 adults 16 The East African, May 2015 http://www.theeastafrican.co.ke/ 1 Africa News http://www.africanews.com/2017/02/02/world-bank- 8 Micro Deposit-taking Institutions (MDI) business/1-in-4-accounts-dormant-as-mobile-money-takes-over- warns-dr-congo-is-facing-enduring-economic-crisis// banking/2560-2727556-uaymqo/index.html 2 IFC PFI field note 5 http://www.ifc.org/wps/wcm/connect/16fafca1- 17 IFC Risk Management Handbook http://www.ifc.org/wps/ 8 RISK MANAGEMENT dbbc-4e0f-be83-4daf75aabadf/Field+Notes+5+-+Women+DFS+Agents. wcm/connect/06c7896a-47e1-40af-8213-af7f2672e68b/ pdf?MOD=AJPERES 1 EFInA Access to Financial Services in Nigeria Digital+Financial+Services+and+Risk+Management+Handbook. 3 IFC press release https://ifcextapps.ifc.org/ifcext/pressroom/ 2016 Survey https://www.gsmaintelligence.com/ pdf?MOD=AJPERES ifcpressroom.nsf/0/D1414FB32467BC2A852580AB00361016 research/?file=7bf3592e6d750144e58d9dcfac6adfab&download 18 GSMA: The Mobile Economy – Africa 2016 https://www.gsma.com/ 4 GSMA: Enabling Mobile Money Policies in the DRC 2014 2 Centre for Financial Inclusion blog https://cfi-blog.org/2015/08/13/ mobileeconomy/africa/ https://www.gsma.com/mobilefordevelopment/wp-content/ the-hold-up-with-mobile-money-in-nigeria/ 19 The Economist Intelligence Unit Global Microscope 2016: uploads/2014/04/Enabling-Mobile-Money-Policies-in-the-Democratic- 3 http://www.diamondbank.com/personal/financial-inclusion/diamond- The enabling environment for financial inclusion Republic-Of-Congo.pdf yello-account/ 20 Accenture https://www.accenture.com/gb-en/insight-billion-reasons- 5 GSMA Mobile Money in the DRC 2013 https://www.gsma.com/ 4 Digital Payment Will Save Nigeria N3.2trn – IMF: https://leadership. bank-inclusively mobilefordevelopment/wp-content/uploads/2013/07/Mobile-Money-in- ng/2017/12/18/digital-payment-will-save-nigeria-n3-2trn-imf/ 21 IIF/CENFRI THE BUSINESS OF FINANCIAL INCLUSION: the-DRC_July-2013.pdf 5 757 billion NGN = 2.1003 billion USD INSIGHTS FROM BANKS IN EMERGING MARKETS July 2016 6 The State of Mobile Money in Sub-Saharan Africa, 2016, GSMA (1 NGN = 0.0029 USD, March 7, 2018) 188 DIGITAL ACCESS 189 DIGITAL ACCESS The owner of a building supplies store, and a prospective MoMo Pay 190 DIGITAL ACCESS customer, in Abidjan, Côte d’Ivoire, on 7 December 2017. CONTACT DETAILS Anna Koblanck IFC, Sub-Saharan Africa akoblanck@ifc.org May 2018