Accessing the Unbanked - iVeri

1 Accessing the Unbanked : Branchless Banking in AfricaDelivering a secure and cost-effective solution to gain new customersSeptember 2014 iiiVeri Whitepaper - Branchless Banking in Africa - S 2014iVeri White Paper Accessing the Unbanked : Branchless Banking for AfricaDelivering a secure and cost-effective solution to gain new customersResearch compiled by 2014 - iVeri Payment Technologies1iVeri Whitepaper - Branchless Banking in Africa - September 2014 Introduction - Accessing the Unbanked ..page 02 The needs of the Unbanked ..page 03 Bank services vs mobile money services ..page 03 Overview of existing banking channels ..page 04 Retail Banking Strategies for Acquiring Customers in Africa ..page 07 Advantages and disadvantages of different channels ..page 07 Driving growth in your target 08 Innovative solutions for customer acquisition.

2 Page 09 Solution Models ..page 10 The iVeri Solution - Microbank+ ..page 11 Solution overview ..page 11 Rolling out the solution ..page 13 Conclusion ..page 14 CONTENTACCEssiNg ThE Unbanked : brANChlEss bANkiNg fOr AfriCA Delivering a secure and cost-effective solution to gain new customers2iVeri Whitepaper - Branchless Banking in Africa - S 20141. Introduction - Accessing the UnbankedIn Africa there is a saying that cash is king and while there have been many initiatives towards financial inclusion and electronic payments, it is as true now as it ever was. According to a study published by the World Bank , in Africa less than a quarter of all adults make use of bank accounts or other financial products from a formal financial institution and 90 percent of all consumer payments are conducted with cash. But one must also keep in mind that Africa is the world s second largest and second most populous continent, with 1 billion people spread across 56 countries it is difficult to make any statements that will apply uniformly.

3 While overall, 23% of adults in the Africa region have a bank account. Within Africa, there is a large variation in account ownership: 24% of adults in Sub-Saharan Africa report having an account at a formal financial institution, though this ranges from 51% in Southern Africa to 11% in Central Africa In the Democratic Republic of Congo and Central African Republic, more than 95% of adults are Unbanked ( do not have an account at a formal financial institution). In North Africa 20% of adults have an account at a formal financial institution ranging from 39% in Morocco to 10% in Egypt. One of the main reasons for this large Unbanked population in Africa is geographical inaccessibility and poor infrastructure, with many of the Unbanked living in remote rural areas. This, combined with the high cost of banking services and a lack of financial education and understanding, creates very high barriers to banking for poor rural populations.

4 There is therefore an undeniable benefit for large enterprises to invest some time in understanding the significance of telecommunications expenses, what makes them up, and the practices and tools that can improve their value to the sector does however represent a market that is underserved, one that could prove profitable if banks can tap into it and this large Unbanked population is no longer going unnoticed. Many banks and financial institutions are seeing the potential in reaching out to the Unbanked population as they are the last great untapped market in banking. With the growing consumer market in Africa and the increased penetration of mobile phones and internet access fostering economic drive and entrepreneurship, demand for retail banking is likely to increase substantially, but Accessing the widely dispersed population is a challenge that any bank who wishes to access this market will have to overcome.

5 1 Demirguc-Kunt, Asli and Leora Klapper. Financial inclusion in Africa: An overview, World Bank Policy Research Working Paper No. WPS 6088, June Gautam Bandyopadhyay Banking the Unbanked : Going mobile in Africa Infosys Technologies Limited3iVeri Whitepaper - Branchless Banking in Africa - September The needs of the Unbanked There are many factors which limit access to banking in Africa. Some of these include : high distance/low population density low income relative to the cost of services low education and illiteracy, particularly with regards to banking and finance lack of credit history poor product/channel design narrow range of products offered One must therefore keep these factors in mind when looking at ways to tap into the Unbanked population in Africa. In order to successfully position themselves and their services financial institutions need to look at the unique needs of the Unbanked and what they require.

6 Proximity and ease of access. People in remote rural areas are not always able to travel long distances to a bank branch. They need an easy solution that is convenient to them. Low barriers to entry. Low cost products and low-balance accounts which are simple and easy to use will make it easier for the Unbanked to move towards financial inclusion. Basic financial education. Many of the Unbanked will have no experience of banking, how it works or what the benefits are. Banks must be prepared to educate them on the various products offered and how they can be used to optimal effect. A flexible approach to savings and repayment schedules. Many people in informal or micro businesses may not have a steady or reliable income. Bank services vs. mobile money servicesPossibly the most significant move in financial inclusion in Africa in the last 10 years has been the success of mobile money services.

7 The most obvious example of this is M-Pesa, the mobile money transfer service in Kenya. Launched in 2007 by Safaricom, the country s largest mobile -network operator, it is now used by over 17 million Kenyans, approximately two-thirds of the adult population, and around 25% of the country s gross national product flows through success of M-Pesa has led to many other countries in Africa attempting to replicate the phenomenon with varying success. Regulatory barriers, a lack of interoperability between different service providers, and push back from formal financial institutions against telcos encroaching on their business, has stopped it from taking off to the same degree in other areas. mobile money is however making inroads in several countries. In Tanzania for example it is estimated that over half of the adult population now have access to financial services through their mobile phones.

8 This is up from 27 percent in 2009 . 3 Adapted from: Stefan Staschen, Branchless Banking for Inclusive Finance: Business Models and Regulations CGAP Technology4 Why does Kenya lead the world in mobile money? 5 FinScope Tanzania 20136 Simone Di Castri and Lara Gidvani Enabling mobile Money Policies in Tanzania GSMA7 Serving Communities on the Cusp of Change TA Telecom4iVeri Whitepaper - Branchless Banking in Africa - S 2014 According to a study by the GSMA many mobile money users in Tanzania find the service cheaper, quicker, easier to use, safer and more convenient than using either cash or other formal financial services . While mobile money was slower to take off in Tanzania it has grown very quickly and is fast approaching Kenya s level of usage. With Africa s mobile penetration sitting at 80 percent and growing many say that mobile is the key to unlocking access to the Unbanked in Africa.

9 mobile money does however have its limitations. While many people might use a service like M-Pesa, it is often just used as a way to move cash around, putting it in at one point and drawing it straight out again at another. While many people find it beneficial to have a system that allows the movement of cash in a safe secure manner, it is still not a full financial service offering and does not provide all the services formal financial services might. Traditional banks on the other hand offer a full range of financial services which allow for savings, payments, investment and credit options. The challenge is to find a way to provide these services to the Unbanked in a way that is as easy and convenient as mobile money and can therefore see the same levels of adoption. Overview of existing banking channelsBanks use a variety of channels to access customers, these include:Branch While many banks in Africa are trying to implement new channels for Accessing the customer it is interesting to note that according to the KPMG 2013 Africa Banking Industry Customer Satisfaction Survey, of the people who already utilise banks, 99 percent of respondents said that they still use branches.

10 This shows that branch is still an important part of any retail bank. MobileMobile money services have seen various levels of success across Africa. After the huge success of mobile money offering M-Pesa in Kenya many other countries have attempted to follow suit, some have fared better than others. Because mobile money was originally offered by telcos and not financial service providers it has taken some time for banks to recognise and address the potential market mobile banking can offer them. Experts predict that mobile banking apps will be the next big trend in mobile banking in AfricaOnlineWith only 15 % internet penetration in Africa , online banking is considered a very minor channel across Africa. ATMATMs have the potential to be a very popular banking channel in Africa but because of the high cost of installing and maintaining ATMs their penetration in Africa is generally lower than the rest of the world.