Mobile Money Overview

BUSINESS CASE: MOBILE MONEY
Author: Gabriele Farei
Date: 20 March 2014
1/26

Overview of the presentation
1.  Overview of the Mobile Money Ecosystem
•  What? Mobile Money definition in different markets
•  Who? Market characteristics
•  By Whom? The Mobile Money ecosystem
•  How? Overview of the technologies used to perform transactions
•  What can be the role of the client in the ecosystem?
2.  The Mobile Money landscape in 2013
•  Access, Usage & Product offering statistics
•  MM Revenues statistics
•  Trends and outlook
3.  Conclusion and recommendation
2
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20.03.14

Mobile Money in different markets
What? Mobile Money
•  Electronic money with attributes related to mobility and portability, replicating
attributes of traditional money (Liquidity, Acceptability, Anonymity )
Although the concept of Mobile Money stay the same it can take different
intrinsic meaning and the strategic position depending on the market:
3
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Developed world Developing world
Mobile Money is one of the alternative
channels
Characteristics:
•  Using disruptive smartphone technologies
•  Strategic position of Mobile Money:
a convenient alternative to obtain financial
services (incentives are needed: ex. Rewards )
Mobile Money can represent the only channel
to get financial services for unbanked:
Characteristics:
•  Using ubiquitous technologies, as mobile phone
GSM networks
•  Deliver financial services where they are not
accessible
20.03.14 Mobile Money

Mobile Money in different markets
What? Mobile Money demand in different markets
4
ITU-T Technology Watch
MNO-centric models tend to be more prevalent in developing economies, where financial service
infrastructure is not well developed. Bank-centric models are more likely to be prevalent in countries where
there is a good level of infrastructure development and regulation for such transactions. In the collaboration
phase, mobile money must integrate the financial infrastructure. The partnership business model is likely to
be prevalent in such countries, which are mostly developed economies.
Figure 3: Mobile Money Demand Curve
Source: World Bank: Maximizing Mobile. Report on Information and Communications for 2012.
http://www.worldbank.org/ict/ic4d2012.
In the MNO-centric model, the role of the bank/financial institution is limited in the payment delivery and
settlement. In developing countries, MNOs dominate the mobile money transfer market and handle the
customer relationship (e.g. M-PESA). MNOs provide an alternative infrastructure for financial services (see
Figure 5). MNOs also provide a network of agents for payment and settlement functions. MNO-led model
have been successful in developing countries because they have been able to reach large numbers o
Source: World Bank: Maximizing Mobile. Report on
Information and Communications for 2012.
http://www.worldbank.org/ict/ic4d2012
Different shape of the
Mobile Money demand in
different market states.
How to read it:
Black curve: demand for low
cost, low-speed, infrequent
transactions (left Y-axis)
Greet curve: demand for high-
speed, high-volume transactions
(right Y-axis)
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Developing Markets
Who? Focus: Why developing markets?
5
1.  High penetration of mobile
•  Population is comfortable with mobile technology
•  Low fixed line penetration
•  Mobile operator is trusted brand
2.  Limited access to financial services
•  Low banking penetration
•  Financial services mainly available in urban areas
•  Limited credit and debit facilities available to mass
3.  Migrant population
•  High need to transfer money from urban to rural areas
4.  Poor infrastructure/security
•  Limited public transport
•  Traditional money transfer services are costly
•  Security concerns associated with carrying or transporting cash
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Developing Markets
Who? Mobile users vs. Access to financial services
•  Low-moderate income markets: less likely to have home internet access
•  BUT, Mobile phone viewed as a necessity and trust and dependence to mobile network
operators is already very high in those markets.
6
•  2.7 billion people worldwide
have no access to financial
services
(Asia, Africa, Latin America and Middle-
east = 90% of unbanked people)
•  1 billion of these people have
a mobile phone
The elephant in the room
Mobile phone are used among people without access
to financial services (in Billion)
Sources:SNCR Symposium – Prof. Igrid Sturgis
4.451
1
1.7
2.7
Access to financial
services
No access to financial
services
Mobile phone
No Mobile phone
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Actors in the ecosystem
7
By Whom? Defining and understanding the actors in MM
Definition Expectations
Mobile Network
Operators (MNO)
•  Can act as intermediaries or providers of
financial services.
•  These services may or may not be linked
directly to a bank account.
•  Potential to add value to existing services
•  Increase customer loyalty
•  New revenue channels
•  Increase average revenue per user
•  Reduce airtime distribution cost
Bank •  A bank can be the provider of financial
services or just an intermediary for some
financials services offered by the MNOs.
•  Branding and customer loyalty
•  New customers
•  Ownership or co-ownership of the new payment
application
•  Secure and trusted payment service
•  Anti-money laundering requirements
•  Integration/use of existing infrastructure and payment
methods
Distribution:
Agents and
Agent network
•  Physicals point in the network
•  Facilitate the important cash-in and cash-out
transactions by converting physical money to
eMoney and vice-versa (OTC Transactions).
•  They also perform registration of users.
•  Earns commission on transactions
•  New revenue streams (for already existing businesses)
•  Increase traffic and sales
Subscribers •  Mobile phone owner that through the agent
network subscribe to the service and
potentially buy eMoney.
•  Reduced risk of carrying cash
•  Minimal learning curve
•  Low or zero additional cost of usage
•  Security of transactions
•  Person-to-person transactions
•  Able to send and receive money
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Example: P2P Transaction
8
Provider:
MNO / Bank
Partner Bank/ MNO
Agent 1
Subscriber 1 Subscriber 2
Agent 2
Subscriber 1 Agent 1
Subscriber 1
Subscriber 2
Agent 1
Agent 2
Step 1:
The provider partner with a Bank or a MNO to
offer the service, additionally the provider
selects agents for the MM network
Step 2:
Subscriber 1 register for the service
Step 3:
Subscriber 1 converts cash to eMoney
with Agent 1 (Cash-in) - OTC
Step 4:
Subscriber 1 can now perform a
transaction to Subscriber 2 – Via MNO
Step 5:
Subscriber 2 receives the message from
Subscriber 1 and can perform a Cash-
out at Agent 2 - OTC
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Technologies enabling Mobile Money
9
How? Technology in all pockets
1.  USSD (Unstructured Supplementary Service Data)
•  A protocol that is used by GSM cellphones to communicate with the MNO systems and servers.
It is available on all cellphones and is commonly used for balance enquiries or for airtime top-
ups. An example command is *101#
2.  STK: SIM Toolkit
•  Menu that resides on the SIM card within the phone that users can access directly from
the handset. When in use, it communicates with the MNO systems and servers generally
using SMS.
•  Requires SIM Swap
3.  Others
1.  APP/Mobile Internet - WAP (Wireless Application Protocol)
•  Need a smartphone and a good data connection
2.  NFC
•  Uses an internal CHIP to activate the money transfer to other NFC enable devices
•  Need a last generation smartphone as well as an hardware enabled counterpart
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What is the role of a Bank in the MM Ecosystem?
10
Client X in the MM Ecosystem
Different business models have emerged, depending on regulatory regime, culture, and population size:
Bank have sole
control on the
accounts offered
to individuals
which can be
managed through
other channels
such as mobile
phones.
Banks offer
accounts to
individuals
through non-bank
(MNO) agents
and/or
technological
platforms online.
Banks issue e-
money which is
purchased from
the bank and
redistributed by
non banks to
customers.
Non-bank issues
e-money and
keeps equivalent
asset value in
pooled accounts
in regulated bank.
Bank-centric model MNO-centric model
Source: CGAP: Nonbank E-Money Issuers: Regulatory Approaches to Protecting Customer Funds. CGAP Focus note No. 63, July 2010,
http://www.cgap.org/sites/default/files/CGAP-Focus-Note-Nonbank-E-Money-Issuers- Regulatory-Approaches-to-Protecting-Customer-Funds-Jul-2010.pdf
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This model has seen slow uptake because of
low perceived value proposition vis-à-vis
traditional payment services and its limited ability
to reach the unbanked.
Examples: CAIXA (Brazil), Barclays, Xac Bank
(Mongolia).
In this model, the role of the bank/financial
institution, if any, is limited in the payment
delivery and settlement.
Examples: Safaricom and M-PESA (Appendix 2),
GCash.

What is the role of a Bank in the MM Ecosystem?
11
The contenders in the Mobile Money era are many:
•  Mobile Carriers (MNO)
•  Technology/Internet firms (Google, Facebook, Apple, Paypal,…)
•  Retailers (Starbucks, Amazon,…)
•  Credit cards processors
•  Other Banks
New contenders, new challenges
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Overview of the market statistics
12
Source: Report of GSMA – Mobile Money for the Unbanked
State of the industry 2013 (June)
Global Adoption Survey of Mobile Financial Services is an annual survey conducted by MMU which captures quantitative
information about the performance of mobile financial services.
2013: 110 respondents from 56 countries.1
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GSM services (Global System for Mobile Communication)
•  Standard collection of applications and features available to mobile phone subscribers all over the world.
•  The common standard makes it possible to use the same phones with different companies' services, or even roam into
different countries.
•  GSM is the world's most dominant mobile phone standard.
GSMA Mobile for Development
A pool of initiatives bringing together mobile operator members, the wider mobile industry and the development community
to drive commercial mobile services for underserved people in emerging markets.
MMU Programme : GSMA Mobile Money for the Unbanked (MMU)
A project to accelerate the availability of mobile money services to the unbanked or under banked population in developing
countries
Objectives of the program:
•  Accelerate to scale
•  Extend the digital ecosystem
•  Create enabling regulation
•  Build industry intelligence
What is GSM, GSMA, and MMU?
1 Sample Informations: http://www.gsma.com/mobilefordevelopment/wp-content/
uploads/2014/02/MMU_Adoption-Survey_Participants-2013.png

Mobile Money Access
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•  The distribution channel has
significantly increased in 2013.
•  In developing markets the Agents
network is 6 times more present
then the Banking network.
•  We observe also a large increase
in the average Agent network for
each service provider.
2013 2012
Agents 886’000 252’510
AVG Network
of Agents
2’000 1’000
2013 2012
Countries 84 75
Services 219 179
•  Growth of 20% in both countries
and services
(it is the first decrease in growth
acceleration since the 2001)
•  28.4 agent outlets per 100,000 adults globally. (6x)
•  4.6 banks per 100,000 adults.
•  Only 52% of the Agents where active in 2013
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Source: Report of GSMA MMU – State of the Industry 2013
Distribution channel
Services providers

Mobile Money Access
14
PART 1 - MOBILE MONEY
250
200
150
100
50
0 2001 2002 2003 2004
5221 6 7 11
16
38
64
116
179
219
2005 2006 2007 2008 2009 2010 2011 2012 2013
FIGURE 1
NUMBER OF LIVE MOBILE MONEY SERVICES FOR
THE UNBANKED BY REGION (2001-2013; YEAR END)
EUROPE AND
CENTRAL ASIA
MIDDLE EAST AND
NORTH AFRICA
EAST ASIA AND
PACIFIC
LATIN AMERICA
AND CARIBBEAN
SOUTH ASIA
SUB-SAHARAN
AFRICA
TABLE 2
PERCENTAGES OF LIVE AND PLANNED MOBILE MONEY SERVICES
FOR THE UNBANKED BY REGION (DECEMBER 2013)
Number of live mobile money services for the unbanked by region
(2001-2013; year end)
Rest of the World APAC
Europe & Central
Asia
Latin America &
Caribbean
Middle east &
North Africa
South Asia
Sub- Saharan
Africa
June 2011
9.3% 6.5% 0.4% 1.9% 5.6% 3.5% 72.8%
June 2012
9.4% 5.6% 0.3% 3.6% 11.1% 5.9% 64.2%
June 2013
8.4% 3.2% 0.8% 4.2% 29.2% 6.7% 47.5%
The market share is heavily concentrated in Sub-Saharan Africa and Middle east & North Africa.
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Mobile Money Usage
15
Number of registered customer accounts and active customer
accounts by region by region
(June 2013)
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Globally, only 29.9% of registered accounts were active in June 2013 and only
one third of respondents had more than 100,000 active accounts.

Mobile Money Usage
16
Number of active (90 days) and registered mobile money accounts
globally
(June 2013)
19
already have more than 1 million active users, seven of which passed this threshold between June 2012
and June 2013 (see figures 6 and 7).
However, despite the growth, activating customers remains a challenge for a large number of services. Globally, only 29.9% of
registered accounts were active in June 2013 and only one third of respondents had more than 100,000 active accounts. A customer’s
journey from awareness of mobile money, to registration, and finally to regular usage, is quite complex. Even when customers are
aware of the service, they may not necessarily understand how they would benefit from using it. Using mobile money represents
a significant behavioural change in economies where almost all payment transactions are conducted in cash (read the text box for
examples of customer activation strategies).
money accounts
FIGURE 6
NUMBER OF ACTIVE (90 DAYS) AND REGISTERED MOBILE
MONEY ACCOUNTS GLOBALLY (JUNE 2013)
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
250
203
61
200
150
100
50
0
REGISTERED MOBILE
MONEY ACCOUNTS
ACTIVE MOBILE MONEY
ACCOUNTS (90 DAYS)
MILLIONS
12. Population data from the IMF Financial Access Survey Database, available at http://fas.imf.org and regions defined by World Bank, available at http://www.worldbank.org/en/country
13. 37m active users on a 30-day basis
“A customer’s journey from awareness of mobile money, to registration, and
finally to regular usage, is quite complex. “
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Mobile Money Product Offering
17
33
With the growing willingness of the different entities within the ﬁnancial ecosystem to interconnect, and innovations like Ripple
being developed in parallel, we seem to at the beginning of a long path towards healthy global interconnected systems.
P2P
TRANSFER
BILL
PAYM
ENT
M
ERCHANT
PAYM
ENT
BULK
PAYM
ENT
INTERNATIO
NAL
REM
ITTANCE
CASH-IN
CASH-O
UT
FIGURE 8
PRODUCT OFFERING (JUNE 2013)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1.0% 2.1%
4.1% 5.3%
94.9% 92.6%
DO NOT OFFER THE PRODUCT BUT ARE
PLANNING TO LAUNCH IT NEXT YEAR
OFFER THE PRODUCT
DO NOT OFFER THE PRODUCT AND NOT
PLANNING TO LAUNCH IT NEXT YEAR
AIRTIM
E
TO
P-UP
0.0%
4.1%
95.9%
2.1%
2.1%
95.8%
2.1%
11.7%
86.2%
10.2%
28.5%
61.3%
6.0%
28.5%
65.5%
11.0%
45.2%
43.8%
* This text box is based on a blog post by Claire Pénicaud (MMU) that was published on MMU website on November 7, 2013
Product offering (June 2013)
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18
Product mix (June 2013)
E INDUSTRY 2013
17.8%
4.0%
1.8%
1.6%
0.0%
74.8%
FIGURE 9
GLOBAL PRODUCT MIX BY VOLUME (JUNE 2013)
INTERNATIONAL REMITTANCE
BULK PAYMENT
MERCHANT PAYMENT
BILL PAYMENT
P2P TRANSFER
AIRTIME TOP-UP
FIGURE 10
74.8%
BULK PAYMENT
MERCHANT PAYMENT
MERCHANT PAYMENT
BILL PAYMENT
P2P TRANSFER
P2P TRANSFER
AIRTIME TOP-UP
10.8%
6.7%
4.0%
0.8%
9.4%
68.3%
FIGURE 10
GLOBAL PRODUCT MIX BY VALUE (JUNE 2013)
BULK PAYMENT
MERCHANT PAYMENT
BILL PAYMENT
P2P TRANSFER
AIRTIME TOP-UP
10.8%
6.7%
4.0%
0.8%
9.4%
68.3%
FIGURE 10
GLOBAL PRODUCT MIX BY VALUE (JUNE 2013)
Volume Value
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19
Financial services
Ÿ ¤ Ÿ
Potentially more then just payments
•  Mobile Insurance
•  Credit
•  Savings
However, these additional services rely on the infrastructure created by
mobile money deployments and therefore depend on the growth of mobile
money to succeed. (A reality in already successful markets: Kenya)

Mobile Money Revenues
20
•  MM is rewarding for deployments that have reached scale
(8 MM services represent the 86% revenue of the total revenue of the MM services)
•  A large part of the MNOs have less than 5 % of their revenue
generated by Mobile Money.
•  Small compared to MNO’s total revenue but could be important for
future revenue growth, strategic channel.
PART 1 - MOBILE MONEY
FIGURE 17
PERCENTAGE OF TOTAL REVENUES GENERATED
BY MOBILE MONEY FOR MNOS (JUNE 2013)
FIGURE 18
PERCENTAGE OF TOTAL REVENUES GENERATED BY MOBILE MONEY
30 31 32
60%
50%
40%
30%
20%
10%
0%
LESS THAN 1% 1% TO 5% 5% TO 10% ABOVE 10%
50%
32%
7%
11%
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Outlook and Trends
21
•  Mobile technology are expected to be as disruptive as the
Internet.
•  Mobile use now exceeds PC Internet Access
•  Mobile phones outnumber ATMs, cell phones operator have virtually a
greater reach than banks.
•  Trust in mobile devices is increasing
•  In developing markets, MM has the potential to lift low-
income people out of poverty.
•  Financial services access is one of the key factor for economic growth,
increases money circulation in the economy and creating wealth across all
actors in the value chain
•  National Bureau of Economic Research (2013):
“the M-Pesa1 phenomenon has improved economic activity among families
by making money transfer safe, easy and inexpensive”
Ÿ ¤ Ÿ
1 see Appendix 1

Outlook and Trends
22
•  The Mobile Money ecosystem is expected to increase: 93% of the MM
services in the survey said to want to increase investments in 2014,
one third of them says they want to invest 50% more than 2013.
•  GSM deployment tracker2 has identified 113 mobile money services
that are planning to launch.
APAC
Europe &
Central Asia
Latin America
& Caribbean
Middle east &
North Africa
South Asia
Sub- Saharan
Africa
TOT
% of Live deployments
12% 1% 13% 6% 16% 52% 219
% of Planned
deployments

9% 7% 19% 13% 11% 42% 113
Regional share of the live and planned deployments
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2 http://www.mobileworldlive.com/mobile-money-tracker

Conclusion and recommendation
23
Ÿ Ÿ ¤
•  Opportunity: As cash transactions are still the vast majority in
emerging markets, Mobile Money could potentially reach a multi
billion dollar industry.
•  Banks are not there
•  But Non-banks like MNO could be strategically positioned to dramatically expand
the reach
•  Potential movement from e-payments to a full service banking channel
•  The key element of success of Mobile Money are:
1.  Network effect (Kenya example): the value of joining a network is directly
proportional to the number of people already on it.
2.  Chicken-and-egg trap: To work, the system must attract both Agents and
Subscribers.
3.  Trust: Hard trust barrier in using non-banking channels to meet their cash-in/out
needs and initiating transactions through their mobile phones.
Source: Scaling mobile money, Ignacio Mas, Bill & Melinda Gates Foundation

Conclusion and recommendation
24
Ÿ Ÿ ¤
•  Challenge and Rewards: For a bank it is critical to be part of the
mobile era, but it requires flexibility as MM is changing the traditional
economics of retail banking
•  Mobile money turns fixed costs (banking infrastructure, staff salaries) into variable
costs ( commissions through the value chain) by using an already existing
infrastructure (Agent Network and MNOs)
•  With MM a bank is not using float-based revenue model anymore (collecting and
reinvesting deposits) but it is using an usage revenue model.

Appendix 1 : examples of MM
M-PESA
•  In 2007, Safaricom and Vodafone launched a mobile money transfer
service called M-PESA.
•  Five years later M-PESA provides services to 15 million Kenyans (more
than a third of the country’s population)
•  Serves as a conduit for a fifth of the country's GDP. M-PESA9 now
processes more transactions domestically within Kenya than Western
Union does globally and provides mobile banking facilities to more than
70 per cent of the country’s adult population.
•  However, the service cannot function without the presence of the formal
financial sector. Bank branches are a vital part of the cash management
operation of an M-PESA agent. Moreover, the early adopters of the
service in Kenya were more likely to be banked than non-users.
•  The M-PESA application has also served as a platform for innovations in
other areas such as insurance, savings and banking in Kenya.
25
Source: The Mobile Money Revolution – ITU-T Techonology Watch Report 2013

Appendix 2 : Interesting readings
2620.03.14
•  Scaling mobile money - Ignacio Mas
•  GSMA Mobile Money for the Unbanked - Fionán McGrath
•  Mobile Banking and Mobile Money in Asia and Africa - Vairavan Ramanathan
•  Mobile Money - Igrid Sturgis
•  Developing Mobile Money Ecosystems - Beth Jenkins
•  State of the Industry 2013 - GSMA MMU
•  The Mobile Money Revolution 2013 - ITU-T Technology Watch Report
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