Launching Digital Financial Services. FINCA’s experience implementing Agency & Mobile Banking in Africa.

SAM’15.

Nathan Were. PMP. SIPM. 6Sigma B/Belt. Msc (Italy). MBA (India). MCF Project Manager, Africa

>> What to expect <<

Brief Background about FINCA international

Scope of our Digital Financial Services work in Africa

Lessons and insights

The future of microfinance in the wake of Technology

>> About FINCA international

Global MFI. Founded in 1985.

23 Countries, 06 in Africa

1.8 million customers

$894m OLP.

$155m in Deposits **

Scope of our Digital Financial Services.

The Channels..

#1. Agency Banking

FINCA proprietary agents.

Use GSM enabled biometric Point of Sale terminals to facilitate & authenticate transactions.

Customers cash-in and cash-out at FINCA branded

Agents.

#2. Mobile Banking

Partnering with MNOs to leverage there Mobile Money / Payments platforms.

Integrate FINCA’s CBS with MNO Mobile Money Platforms to enable customers transact using a USSD code on there feature phone. *150*19# for TZ.

Customers cash-in & cash-out at an MNO Agent outlets.

Agents >>

% of Mobile to total # of Transactions

27%

% of Agents to total # of Transactions

10%

% of Tellers # of

Transactions to total

transaction 63%

June

Channels performance >> % of Txns per channel >> TZ

% of Mobile to total # of

Transactions 27%

% of Agents to total # of

Transactions 21%

Teller as a % of Total Txnz

[PERCENTAGE]

August

% of M-PESA to total # value

12%

% of Agents to total

value 7%

% of Tellers Value to

total value 81%

Value of Txns: June, 15

Channels performance >> % Value per Channel >>TZ

% of Mobile to total # value

14%

% of Agents to total value

10%

% of Tellers Value to total

value 76%

August

Lessons and Insights.

#1. Clarity on the business case.

At Strategic level, it is critical to have clarity around;

The business case for venturing into the channel.

Implications, value to the business and expectations from your team.

We have found clarity to be important;

Managing change. People don’t see it as a threat but a compliment to there work

Tactical and strategic decision making at the business units, branches on distribution.

#2. Make right investments in the IS infrastructure.

Be ready to invest. IS is the hallmark of delivery channels

Poor connectivity, slow processes cause transactional failure, service availability and impact customer experience. Usage can drop in days.

Be prepared to make investments in hardware, software and connectivity

Hiring technical staff to support the channel and set aside professional fees to bring on consultants for enhancements and other support services.

22%

6%

16% 52%

4%

Tx failure by reason - Tanzania

Error

Not sufficientfunds - Agent

Not sufficientfunds - Customer

Systemmalfunction

Unknown

Tx failure by reason >50% IS related.

18%

6%

13% 59%

4%

Tx failure by reason - Zambia

Error

Not sufficientfunds - Agent

Not sufficientfunds - Customer

Systemmalfunction

Unknown

#3. Build trust and confidence to drive uptake + usage

In Digital Finance, trust is a critical ingredient for uptake and usage

Traditionally, MFI customers are comfortable transacting at branches. They perceive branches as safe & secure, especially for savings.

Some customers still wonder if there eMoney is safe when there phones are stolen. All this points to trust, but also limited awareness of how DFS functions.

At FINCA, we have and continue to implement a number of measures to build trust

• Initial stages of the pilot, we opened agents a few meters away from the branch.

• Customer education on how DFS works.

• Invested in IS to ensure the channel is stable and the service is available

#4. Build and nurture trust relationships with agents

The quality of service agents extend to your customer will be determined by the service & support they receive from your institution.

• Timely response to address technical & operational issues they face. Routine visits by the branch Channel Business Officers.

• If not well supported, agents can deprioritize your customers. MNO competition.

At FINCA we continue to build & nurture this relationship

• Dedicated Channel Business Officers based at the branch mandated to monitor and support agents. >> We purchased low cost phones for our agents and put them on our CUG. It is cheaper to call the CBO in case of any issue.

• Agent forums, at-least twice a year to collect agent feedback and areas of improvement

#5. Sales drives + remote A/C opening to direct traffic to agent.

To drive traffic to agent locations, run sales drives + complement them with Remote account opening.

Sales drives are sales activities organized at agent locations or within the area the agent operates to create awareness about;

• The availability of an agent in the area. Letting people know that they can now access FINCA services (Deposit, Withdrawal, Loan repayments, Check balance) at that location.

• Quarterly sales drives build momentum, but can also be directed to agents whose txns are seen to dwindle.

• Sales drives, increase uptake and usage and are a big motivation for agent.

>> Sales drives + remote A/C opening…

#6. Customer Education: >> Train, Train & Train some more…

Customer education is critical for the success of DFs. It drives uptake and usage.

• Our clients are still hesitant to try technology driven solutions. We just have to continue talking about it to break this fear.

• The goal is to drive them to at-least make the first Txn.

Training focuses on;

• The service. How it works, what it does, How to locate it. Keep it SIMPLE! BUT also talk about customer rights, responsibility & security.

>> Some of our Customer Education - Materials…

#7. DFS will have unintended consequences. So, be prepared to change the way you deal with your clients

For group based methodologies - with groups required to meet and make payments as a group, DFS will be disruptive.

• In some ways, it will impact on the group solidarity and

or affect repayment quality for some group members.

• This is a trade-off. It is a LOOSE and WIN situation for

MFIs and they must be clear which way to go.

• DFS presents an opportunity for MFIs to think

creatively and build a strong value proposition to support Village, group based meetings – BEYOND - PAYMENTS!

#8. Strengthen risk control and management systems.

The MFI internal control and risk management function is normally built around credit risk and a few operational risks.

• DFS will add a whole new layer of processes onto your operations and with them fresh risks.

• Develop capabilities to manage these risks. Both from a systems approach, but also development of human capital.

• Train your internal controls and risk staff on Digital Finance so they have a good understanding of what is involved. Helix Institute of Digital Finance runs a course.

• But also invest in robust IS systems to detect fraudulent transactions… Fraud software.

#9. Implemented well, channels have the to potential to create efficiency & lower Opex costs for MFIs and improve profitability.

With all the hype around DFS, very little is unknown about the impact of channels on business operations & customers.

At FINCA we have conducted some preliminary analysis on the impact of the channels on our business i.e. cost efficiency.

Our analysis shows that mobile banking is the lowest cost channel. Followed by Agency Banking & then Branch.

**3rd party MNO costs however can impact on Mobile Banking usage. E.g. 1% P2B charge imposed by Vodacom in Tanzania. Uganda’s 15% tax on MM fees.

The future of BOP Financing in the wake of technology advancement.

Deloitte Global Study on the future of financial services…

Deloitte has been working with the world economic forum last year on global study to unravel 5 mega trends that will change the future of financial services.

• Its report “Cleared for Take-off: Five Mega trends that will change financial

services” published last month predicts greater shifts in financial services delivery, driven by technological advancements.

• Consumer behavior will change, they will demand more and more everyday.

• Convenience, simplicity and agility, will be the defining facets of competition. Transactions will be more cashless.

The future survival of the industry is greatly threatened. “We MUST evolve TO survive or do nothing & die”

? Collaboration rather than competition is the way to go

>> How MNOs are threatening B.o.P Financing <<

>> MNO Credit Scoring Products….

Collaboration rather >> COMPETITION > Other threats

?

Mshwari >> The numbers will shock you!

Last word…

MFIs need to leverage technology to remain afloat and relevant in the future.

Funding opportunities to support launch of digital finance available in many of our markets….

www.finca.org/inclussion