Promoting financial inclusion in Peru

Leveraging mobiles to improve financial delivery infrastructure

October 2013

Copyright © 2013 Comviva Technologies Limited. All rights reserved. 1

Contents

Financial service landscape

Leveraging mobile as a channel for delivery

Tips for service take-off

Mahindra Comviva mobiquityTM mMoney

TM
mobiquity mMoney deployments best practices

2
 Scale of the opportunity
--20% of the populace has access to financial services
--Enormous cash conversion opportunity

Adult banking penetration in LATAM

80%
60%
40% 20%
20%
0%

Peru adult banking by income

Peru adult banking penetration quintiles
by region
31.3%
24%
13% 7.5%

Income quintiles I Income quintiles III,

Rural Urban (poorest) and II IV, and V (richest)

Source: World bank Global Findex 2012 Note: Adults refers to people above the age of 15
3
Quintiles: Each quintile represents 20% of population. Quintile I represents poorest 20% and quintile V represents richest 20% of population
 Unbanked have financial service needs, but
lack access
Need ways to: Current solution:

 Manage short-term  Borrow or lend to friends

volatility of cash flows and relatives

 Manage low-frequency,  Obtain short-term credit

high cost risks from moneylenders,
shopkeepers, employers

 Build lump sums for major  Informal savings clubs

occasions

 Receive money transfers  Informal money transfer

channels

 Make utility and merchant  Cash payments only

payments

Informal financial options are expensive and insecure

Source: Portfolios of the Poor; BCG analysis 4

 Majority of the unbanked are involuntarily
excluded
Financial service providers
Reasons for not having a bank typically ignore 'long tail'
account Profitability per
customer (indexed)
100
Services are expensive 61%
80 Top 20% of
Not shave sufficient customers =
57% 80% of profits
money to use services
60
Lack of trust in financial
40% Long tail of
institutions 40
unprofitable
customers
They are far away 25% 20

Do not have required

16% 0
documents

Someone in family
12% -20
already has an account

Affluent Mass Unbanked

Affordability, trust and convenience are important factors for deepening banking penetration

Source: World bank Global Findex 2012, BBVA, CGAP, BCG analysis 5
 Mobile can address infrastructure deficit
-- Decreasing cost and increasing power is driving adoption of mobile for
financial services delivery

The last three decades have witnessed tremendous

progress in digital connectivity and ubiquity
1990+ 2000+
1980+

Media/device Laptop/ Mobile

PC
Internet phone
Cost ~US$ 6,000 ~ US$ 2,000 ~ US$ 50 to100

Penetration 5% 38% 94%

Mobile provides a combination of device portability, localization and personalization which

create a new channel/business opportunity for reaching and attracting customers

Ubiquity Accessibility Convenience Localization Personalization

6
 Extend a range of products
-- Issue prepaid value electronically that can be redeemed for goods and services
-- Cement formalized financial relationship with unbanked consumers

• Financial Inclusion benefits the

Inflow Outflow underbanked –Expanded
Transfer from bank Merchant payment opportunities for individuals and
communities
• Corporate case–For large
Salary payment corporations and governments
Utility payment
mobile wallets provide an
effective payments/receivables
solution than cash
G2P payment mTicketing
• Lower cost accounts–
Research the cost of prepaid
mobile wallets is typically
IMT B2B payment
significantly less than living in a
cash economy and comparable
or less than bank account fees
Wallet Includes a single payment Instrument –the prepay
stored value account 7
 Customize offerings for different segments

MFS for banked customers

 Anywhere, anytime banking

Banked 20%
Affluent 2%  Speed and convenience of payments
Cosmopolitan  Various payment instruments converges on mobile
professionals 7%  Informational services – Bank statement, transaction SMS notification
 Transactional services – Fund transfer, utility and merchant payments
Rising strivers  Personalization - Offers, location based services, loyalty programs
20%
MFS for unbanked customers


Unbanked: 80%
Access to formal financial services
Working
30%  Safe storage of money
families
 Single payment instrument
 Send and receive money (P2P, B2B, G2P, Salary)
 Payments (bills, merchants, recharge etc)
 Asset based products – saving and insurance
Basic 41%  Liability based products – Loan and credit
survivors

Source: World bank Global Findex 2012, Scotiabank Peru 8

 Bridge banked and unbanked segments

Formal economy Informal economy

Make utility and

Utility
merchant payments company
using mobile
Transfer money

Merchant
Banked Unbanked
Employer/
Govt
Access banking
services

Banks

66% of Peru’s GDP is generated by the informal economy - Bringing the informal economy
into an electronic transaction system would capture massive amounts of payment flows
9
 Multiple issuers in the market
Banks
 39 banks: 16 commercial banks, 13 municipal saving banks, 10
rural saving banks
 Authorized to offer a full range of mobile transactional and
banking services

Mobile network operators

 3 mobile network operators: Claro, Movistar and Nextel
 Can partner with banks or become EEDEs (Electronic money
issuing company) to offer mobile financial services
 EEDEs can only offer transactional services and are not
permitted to grant loans

Third party organizations

 Include organizations such as banking agent networks and retail
chains
 Can partner with banks or become EEDEs (Electronic money
issuing company) to offer mobile financial services

10
 Banks have a distinct advantage
-- Stakeholders in MFS ecosystem have distinct advantages but up to a point
-- Partner with efficient entry economics but plateau quickly, banks have financial
sophistication but are unable to get early economics to work

High Comparative product value for MNOs and banks

P2P Cash- Cash- Bill Salary Int’l Retail Cards Credit SavingsLending Security VAS Insurance
Money in out payme Payme Transf purcha
Transf nt nt er se
er
Complexity and Sophistication

Driven by simple
products that leverage
MNO airtime distribution
infrastructure
Diminishing benefits as
individual actors go beyond
core product competencies
Driven by complex
products that leverage
bank transaction and
account systems

Low Service Evolution High

Value line Value line
Transactional Core payments Core banking11
for MNOs for banks
Other unique advantages

Float and liquidity management

Transaction processing and

settlement

Regulatory compliance and

transactional security

12
 Levers to displace cash

More More More More

merchants consumers volume transactions

Acceptance Financial Product Small ticket

growth inclusion penetration transactions

13
Tips for take-off
Customer experience
 Awareness on service features and benefits
 Contextual service portfolio
 Simplicity: easy to sign up, easy to use
 Device agnostic
 Affordable: Prices lower than other channels

Agents
 Choose brand ambassadors - not all can sell financial services
 Employ mix of direct distribution model and third party model
 Educate and incentivize
 Link commissions to activation and transaction completion
rather that customer registration
 Offer loyalty points (prizes on reaching targets/milestones)
 Track campaign effectiveness/per agent
 Train customer regularly on service features and benefits

Channel/Distribution Management
 System flexibility
 Flexibility to change the distribution hierarchy
 Send commissions in near real-time
 Float and liquidity management
 Frequent visit by agent network managers to
rebalance cash and float
14
 Phased services approach critical to
drive growth

Long runway beginning with simpler

wallets of converting cash to electronic Investment
and eventually becoming a multi-
function wallet Loan

Saving Loyalty
account card
Salary
transfer Credit

Merchant Insurance
payment
G2P
payment
Utility
payment
P2P
transfer

15
 In conclusion

Providing supply closer to where

demand is created

Drive increased acceptance

Invest in user experience

Create the right ecosystem of partnerships

to bring interoperability and drive usage

Deploy platforms that can scale in line

with evolving demand

16
Case studies
Extending the role of mobile Deepening
financial
Inclusion

17
 Branchless Banking from mobile
Tapping into India’s domestic remittance market
Need Solution Results
 Third largest private sector  Launched ‘ MyCash’ a convenient, low-  Launched service pilot along a
bank in India cost, mobile money transfer product for single inter-city remittance corridor
 Improve NII performance by unbanked migrants together with one of (Mumbai-Allahabad)
mobilizing zero interest mobile- India’s largest GSM operators, with 128  With 2,000 registered users, the
wallet accounts million customers service is handling 3,000
 Bring unbanked, domestic  Allows users to conduct wallet-based transactions monthly
migrants, a representative and over-the counter transactions at  Average transaction size is USD 20
base of 100 million people into authorized partner outlets using a USSD
the banking mainstream service code

 57% migrants use informal

channels to remit money

1000
Rapid Urbanization Bank Branch Spread
880
815 2000
750
636 590 1500
Millions

500 1000
290 340
220 500
0
0 Mar- 2008 Mar -2009 Mar- 2010 Mar-2011 Dec-11
1991 2001 2008 2030
Rural Population Urban Populaton Rural Semi-Urban Urban Metro

NII – Net Interest Income 18

 Barclays Botswana: Broadbase banking reach

 Leading international bank in Botswana

Transactions
 Broad base reach and extend convenient access to
Business banking services Mobile
Bill Pay Top Up Others
need  The bank operates in 13 areas in Botswana where no 1.8%
0.1% 2.2%
other bank operates Funds
transfer
 Achieve operational efficiency by moving customers away 10.0%
from branch based transactions to automated mobile Mini
transactions Statement
12.0%

Balance
 Deployed mobiquityTM to extend convenient banking Inquiry
services and drive financial inclusion 73.9%
Our
 The service allows customers to conduct fund-based
solution transactions (pay bills, transfer money to own and third
party account) as well as non-fund transactions (balance
inquiry, mini statement, order cheque book)

 39,800 registered customers in Botswana, 25% actively

Customer use mobile banking service each month
uptake  1.1 million transactions performed annually
 8.6 transactions per active customer per month

19
 Formalizing inbound remittances in Americas
15.416.4 Remittance inflows

Remittance inflows

Remittance as a % of
10 16.7% 15.9% 20%
8.0 8.1 9.1

(US$ bn)
6.3 4.9
5 9.6% 10%

GDP
1.9 1.0 0.6 2.9
3.9

Guatemala Honduras El Salvador 0 0%

Guatemala Honduras El Salvador
Population (mn) Mobile connections (mn)
Remittance Inflow 2012 (USD bn)
Banked population (mn) Remittance as a % of GDP

 Among top 10 remittance receiving nations

Canada in Latin Ameroica
US$ 0.3 bn,  59% migrants have primary education and
3% work in blue-collar jobs such as
USA Spain construction
US$ 9.8 bn, US$ 0.2 bn,  Earn US$ 2,000 monthly and remit 10% of
89% 2% salary home
Mexico  80% migrant are below the age of 30 and
US$ 0.2 bn, 40% below the age of 17
2%  70% migrants are male
 60% migrants are illegal with no
documents and Visa

Remittance values are sum of remittance inflow to Honduras, Guatemala and El Salvador
Source: World Bank 2011 20
from four major remittance corridors
 Partnered with Western Union for services

Sending Processing Receiving

Cash
Cash -out Agent
-in
Use for
mWallet
services

Sender Western Union Beneficiary:

• Deposits funds through • Accepts the funds • Receives funds in mWallet
western union agent • Processes the transfer • Receives SMS notification
• Shares beneficiaries • Remits funds in real time to • Withdraws funds at a Tigo agent or
mobile number Tigo mWallet of customers use funds for mWallet services

 IR contributes 30% to beneficiary household income, deepens Tigo entrenchment into the household
 Partnership with Western Union facilitates expansive network of 510,000 agents worldwide
 Customers can encash money at 6,000+ Tigo agents or use the funds for mWallet transactions
 USSD storefront supports Spanish
 Customers using IMT receive free international minutes along primacy corridors

21
 US$ 9.3 million received in remittance in a year

Key International Domestic  Processed 62,700 international

remittance remittance
remittance transactions amounting to
Average transaction value A US$ 160 US$ 28
US$ 9.3 million in a year
Earnings from commission
B 2.5% 5%
(% of transaction value)  Average ticket size of an international
Commission given to Tigo
remittance transaction is US$ 160,
agents for cash-in and cash-out C 1% 2%
(% of transaction value)  The size of IMT transaction is 5.7
Revenue earned by Tigo per
transaction D=B-C 1.5% 3.0% times higher than the average
(% of transaction value) ticket size of other domestic
Revenue earned by Tigo per remittance transactions (US$ 28)
E=D*A US$ 2.4 US$ 0.8
transaction
Revenues earned from 1 international remittance transaction is  IMT transaction value is 14% of total
equal to revenue earned from 3 domestic remittance transactions mobile wallet transaction value

Tigo El Salvador IMT transaction volume and value

Transaction values
12,000 1,500
IMT transactions

1,102 1,131

(‘000 US$)
718 684 917 1,006 938
8,000 730 826 1,000
671
235 300
4,000 7,984 8,178 500
4,576 6,145 6,799 4,731 6,141 6,880
1,512 1,906 3,935 3,915
- -
Oct/12 Nov/12 Dec/12 Jan/13 Feb/13 Mar/13 Apr/13 May/13 Jun/13 Jul/13 Aug/13 Sep/13

IMT transactions IMT transactions value ('000 US$)

22
 Banking on change in Zimbabwe
The ‘nickel and dime’ problem
 In 2010 Zimbabwe adopted USD and ZAR as local
currency
 High cost of shipping low denominations <USD1
has created a shortage of change
 For purchases of <USD 1, customers receive a
credit slip, which can be redeemed for a
subsequent purchase at the same outlet

Market landscape

13.3 mn 12.9 mn
populati mobile
on connectio 3.1 mn
ns banked

Narrow Wide
Gap Gap

23
 Digitizing payments in Zimbabwe
 Econet , Zimbabwe’s largest mobile operator with 8 million subscribers launched EcoCash, enabling
customers to transfer money, pay merchants and utilities, receive salaries and buy airtime
 Econet adopted a comprehensive strategy to drive service adoption:
Focus on distribution
 7,300 agents pan-Zimbabwe; 40% located rurally
 Partnership with post office - Service available over 300 ZimPost outlets

Establish extensive merchant ecosystem

 Focus on enrolling agents as merchants
 On-boarding small retailers such as general dealers, pharmacies, minibus owners

Interconnect with banks

 Collaboration with 5 major banks to allow bank to wallet and wallet to bank transfer
 Lowers cost of cash flowing in the system and bridges formal and informal economy
gap

Incentivize agents
 80% revenues given in agent commissions to build a motivated agent network
 Extra perks such as solar kiosks to top performing agents

Aggressive marketing
 Use of 300 brand ambassadors to educate people and register customers
 Promotions to increase transaction frequency – 25% off on bus fare, $100
to 100 people

24
 22% of the country’s GDP flows over Ecocash
 2.8 million customers (33% of the Econet’s
customer) uses Ecocash
 Processes USD 2 billion transaction value
annually – equivalent to 22% of Zimbabwe's
GDP\
 Channels US$ 100 million flows monthly to
rural Zimbabwe
 Bought 12% ex-banked into the financial
mainstream

EcoCash customers and service EcoCash transaction volume & value

penetration

Transaction value (US$ mn)

Transaction volume (mn)
Service penetration (%)

3.0 33.1% 40% 25 $307 400

Customers (mn)

31.8% $282
2.5 26.4% 28.7% 20 $247 $242
26.1% 30% 300
2.0 15 $190
3.6 3.7 3.7 4.5 200
1.5 2.8 20% 10 2.9
2.3 2.6
1.0 1.9 2.1 11.8 100
10% 5 9.5 10.4 10.3 10.6
0.5
0 0
0.0 0%
Sep-12 Dec-12 Mar-13 Jun-13 Aug-13
Apr/13 May/13 Jun/13 Jul/13 Aug/13
Non financial transaction volume (mn)
EcoCash customers (million) Financial transaction volume (mn)
EcoCash service penetration (%) Total transaction value (USD mn)

25
 Advancing financial services in Guyana

 50 % population have active bank accounts

Market  90 % have mobile phones
context  Good penetration of mobile phones, but not
many smart phones

 Difficult terrain and spread of population limit

banking reach in rural areas
 Banks have not found it profitable to reach out
Business to rural areas
need  Huge unsatisfied demand for money
remittances from rural locations (involved in
mining, forestry& agriculture) to families /
businesses in urban areas.

 Mobile Money Guyana service – enables customers to

transfer money, pay utility bills and buy airtime
 USSD interface available on all mobile phones

Our  Extends reach of financial services in rural areas – 77 mobile

solution money agents vs 11 branches of a bank, 30% agents in rural
areas
 Bridges urban-rural financial gap by allowing people involved
in mining, forestry & agriculture in rural areas to conveniently
send money to families/businesses in urban areas 26
 Mahindra Comviva mobiquityTM MFS platform

Copyright © 2013 Comviva Technologies Limited. All rights reserved. 27

 mobiquity addresses financial needs of banked and
TM

unbanked segments

 Wallet linked to
NFC existing account
QR code Banked  Cash based
wallet for
unbanked
USSD
Under-banked/
 Flexible access Unbanked
mechanisms
 Addresses user
preferences J2ME

P2B
SMS payments
 Domestic & international
G2P Money transfers
IVR payments
P2P  Bill and merchant payments –
STK payments remote & proximity
 Salary transfer
28
 Mahindra Comviva - leader in MFS

Vodafone M-Shop
Vodafone, India
MobiCash
• Bill payment
Maroc Telecom, Morocco
• retailer payment
Hello Money
• IMT • mTicketing
Barclays, India
• DMT
• Bill payment • mBanking
Orange Money Idea MyCash
• retailer payment • Fund Transfer
Orange, Niger Idea, India
• Bill payment
• DMT • DMT
Orange Money
Orange, Mali • Bill payment
Tigo Money
Tigo, Guatemala MobiCash
• DMT Tigo Cash Grameenphone, Bangladesh
• DMT Tigo, Rwanda
• Bill payment
Orange Money • DMT
Orange, Senegal • mTicketing
Tigo Money
Tigo, El Salvador • DMT Mobile Cash
• Bill payment Banglalink, Bangladesh
• DMT
Hello Money
Orange Money • IMT
Barclays, Kenya
Tigo Money Orange, Ivory Coast • Bill payment
Tigo, Honduras • mBanking • mTicketing
• DMT • Fund Transfer • Insurance Payment
• DMT • Bill payment • Bill payment
• retailer payment
Tigo Pesa
Tigo, Tanzania
TM
Orange Money
• DMT
Mahindra Comviva mobiquity deployments Orange, Cameroon
• Bill payment
• DMT
Country with single deployment • Bill payment Orange Money Orange Money
• retailer payment Orange, Botswana Orange, Madagascar
Country with two deployments • DMT
Key
• DMT
• Bill payment • Bill payment •DMT: Domestic money transfer
Country with three deployments •IMT: International money transfer

63 deployments globally* 49 operator led 13 bank led 1 aggregator

29
* includes both deployed and under implementation projects
 In conclusion

 Leader in mobile financial services – 40%

share of the MFS market

 Powers services for 130 service providers in 90

+ countries addressing 700 million people

 Processes US$ 20 billion payment flows in 2012

 Powers one of the top 3 mobile money

deployments in the world

 Multi-award winning solution - MWC GSMA,

Global Telecom Business, WCA, Asia
Communication

30
 Thank you
Visit us at www.mahindracomviva.com
Contact us at
ricardo.madronero@mahindracomviva.com

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Copyright © 2013 Comviva Technologies Limited. All rights reserved. 31