Mobile Money for the Unbanked: State of the Industry 2013

Posted on February 28, 2014 by Sumita Kale

With the RBI Governor drawing attention once more to the use of technology in achieving inclusive growth, the latest MMU’s State of the Industry Report shows that mobile money services are catching up across the world:  110 deployments across 56 countries responded to the 2013 survey (up from 78 deployments in 2012 and 52 in 2011)India can use the experiences from other countries, drawing its own appropriate lessons.

The key data points as revealed by the survey are as follows:

  • ·         Registered accounts: As of June 2013, there were 203M registered mobile money accounts9 markets have more mobile money accounts than bank accounts (compared to 4 in 2012)All 9 of these markets are in Africa: Cameroon, the DRC, Gabon, Kenya, Madagascar, Tanzania, Uganda, Zambia and Zimbabwe
  • ·         Active accounts: 61M mobile money accounts were active on a 90-day basisThis translates to a 30% active rate.
  • ·         Large deployments: 13 deployments have more than 1M active users, 7 of which passed this threshold between June 2012 and June 2013
  • ·         OTC: In June, there were 17.3M unregistered users of mobile moneyThis comprises unregistered over-the-counter (OTC) users plus off-net transfers from registered accounts to unregistered users (or vice versa)Note that unregistered users were not counted in the registered and active account figures listed aboveSouth Asia comprises 88% of the world’s unregistered users.
  • ·         Competition: 52 markets now have more than one deployment, signaling increased scope for account-to-account integration
  • ·         Gender: For the first time in 2013, MMU collected data on the gender of mobile money usersAll participants were asked whether they knew the gender composition of their customer base32% of respondents gave a positive answer and were able to report a numberWithin this sample, on average, 36% of mobile money users were womenThis percentage ranges from 4% to 86%Women represented the majority of users in only 6 deploymentsPerhaps FSP should explore collaboration with MMU to figure out how to boost the response rate among MNOs on this question.
  • ·         Breakdown by transaction: Airtime top-ups represent 75% of mobile money transactions (up from 61% in 2012), followed by domestic P2P transfers (18%), bill payments (4%), bulk payments (2%), and merchant payments (2%)Bulk payments was the fastest growing product with numbers of transactions increasing at an annualized growth rate of 617%.
  • ·         Breakdown by value: Domestic P2P transfers represent 69% of the value transacted (down from 82% in 2012), followed by bill payments (11%), airtime top-up (9%), bulk payment (7%), and merchant payments (4%).
  • ·         Average active customer: In June 2013, the average active customer conducted 5.8 airtime top-ups, 1.3 P2P transfers, 1.1 cash-in, 1.1 cash-out, and 0.3 bill payments.
  • ·         Ecosystem development: 29% of the value transacted involved external partners (e.gmerchant partners; bill collectors; enterprises; etc.)
  • ·         Revenues: 69 deployments reported revenue figuresOf these, 5 reported that mobile money contributed to over 5% of their revenues and 8 reported revenues of more than $1.0M in June 2013.  These 8 deployments generated a total of $41M in revenue in June 2013M-PESA’s contribution to Vodacom TZ’s overall revenues increased from 12.6% in September 2012 to 18.7% in September 2013.
  • ·         Airtime sales: 10 operators reported selling more than 10% of their airtime through mobile money.
  • ·         Beyond payments: 123 mobile insurance, savings, and credit services are live – 27 of which were launched in 2013.
  • ·         Agents: The number of agents has reached 886,000; the number of agents outnumbers the number of bank branches in 80% of markets in the surveyHowever, 48% of registered agents were inactive in June 2013! The average agent conducts 6.7 transactions per dayOn average, there are 28.4 agents per 100,00 adults compared to 4.6 bank branches per 100,000 adults; 39% of agents are in rural areas
  • ·         Some formalized agent sharing:  In several markets, providers are recruiting and managing agents that other providers use to deliver servicesExamples of this model already exist in Nepal, Nigeria, and Zimbabwe.

MMU predicts three developments in 2014:

  • ·         More examples of account-to-account interoperability, among mobile wallets and also with banks:

     In 2013, Indonesia was the first market where three operators – Indosat, Telkomsel and XL - enabled their mobile money schemes to directly transfer money in real-time between each otherGiven how there are already 52 markets which have 2 or more mobile money services, MMU expects that more markets may also seek to interoperate their mobile money platforms, once they have identified the right technical and commercial models to do so successfullyThere is also an opportunity for mobile money services to connect with more traditional financial services, enabling transactions and new products between bank accounts and mobile walletsMany deployments have already started to integrate their services in this way, and we anticipate that many more will follow.

  • ·         Ecosystem development: In 2013, transactions involving external companies have been driving the growth of mobile money globally, representing 29% of the value transacted in JuneThis is especially true among more mature services, where external companies and merchants contribute to an even larger share of the product mixGoing forward, we expect to see more mobile money services capture the payments demand from companies and institutions to drive high volumes of transactions on their platforms.
  • ·         Other mobile financial services: A growing number of providers are interested in launching mobile insurance, credit and savings services, and we expect to see many new launches over the next couple of yearsMobile insurance, credit and savings are important new offerings and could serve to deepen financial inclusion, not only in terms of expanding access of these services to low-income customers, but helping to ensure financial stability and security as wellHowever, more proof points are needed for how these services can be offered sustainably, in order to ensure adequate levels of investments are made by the industry.

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Advent of Virtual Banks in India – A relook at Nachiket Mor Committee Report: Guest Post by Probir Roy

Posted on February 25, 2014 by Sumita Kale

The Nachiket Mor Committee recommends the creation of Payment Banks as a step towards using the strengths of non-banks in payments and remittances, to raise access to financial services amongst the unbanked.

The concept of Payment Banks is perfectThis allows existing Non Bank Pre Paid Issuers (Non Bank PPI’s), already licensed by the RBI, to apply for such a license.

Here are a few thoughts from a Non Bank PPI perspective (there are more than 20 such non-banks providing payment services since the RBI allowed non-banks as Pre-Paid Instrument Issuers (PPIs) in 2009)Some points to begin with:

  1. PPI customers are synonymous with having an ‘account in the cloud’ or ‘Universal Electronic Bank Account’, as the Nachiket Mor Committee terms it, that is a digital account. Today already over 500 million Indians have Aadhar nos, and this already overlaps very strongly with the telco subscriber base, which in turn overlaps significantly with the DBT recipient baseFor e.gLPG customers in 291 districts have  linked their Aadhar number to their consumer no with their local LPG distributor, and ‘seeded’ the same with their bank accounts, thus allowing  for the subsidy amount to be directly credited in near real timeIn January 2014 about 20 million such credit transactions were made by the NPCI & SBI.  Now, this could be also be ‘seeded’ with a mobile wallet base of Non Bank PPI’s (who already have a substantial user base of their own) i.epeople averse to ‘seeding’ with regular Banks, or those already with digital wallet accounts - but no regular bank accounts  This approach will beat the extreme challenge of banks being the whole and sole medium having to provide ‘UEBA’ to all adult citizens by 2016.
  2.  PPIs can send and receive money to/from regular account holders in banks and eventually should be able to do so to other PPI accounts, across an interoperable network.
  3.  Though currently restricted, wallet cash out/cash-in should be allowed at larger base of legitimate outlets since cash-out is an important part of the remittances flow. This effort is now best complemented  by established private players (vizFMCG, retailers, fair price shops, etc) to allow for ‘network effects’ to kick-in‘a la Tanzania with its 27000 agents for a population of 37 million, or Somaliland with its 8600 agents for a population of 3.85 millionIn India a clear a million existing unique established and ‘trusted points’ of presence are there built up over the last 100 years,  even if we don’t count Telco touch points.

The Mor Committee recommends the following: "Given the difficulties being faced by PPIs and the underlying prudential concerns associated with this model, the existing and new PPI applicants should instead be required to apply for a Payments Bank licence or become Business CorrespondentsNo additional PPI licences should be granted. This may work for new applicants but forces existing PPIs to rethink their business model, and may push out some with considerable valuable operating experience, first mover risk taking, network aggregation & innovation.

One recommendation that ties in with this ‘fear’ of losing some players concerns the minimum capital requirement: "In view of the fact that they will therefore have a near-zero risk of default, the minimum entry capital requirement for them will be Rs50 crore compared to the Rs500 crore required for full-service SCB.

Why Rs50 crore is not explained in the report.

Currently there are no capital requirements for PPIs, so there should be some justification for making the jumpWhy not an instead have a capital limit of say Rs 25 crores for Payment Banks?

The need for initial capital and prudential norms is accepted: a reasonably well capitalized company can ensure proper governance, compliances, technology, customer complaint redressal, professional management and fiduciary obligationsToo low a capital requirement can bring in fly- by- night operators, a high one may run the risk of a greater tendency towards innovative financial engineering & accountingBut the Rs50 crore capital requirement for both Payment Banks and Wholesale Banks (which have a wider mandate, role and a credit-spread based business model) has been put for both Payment Banks and Wholesale BanksThis seems a mite unfairWhile Payments Banks can hold maximum balance of Rs50,000 per customer, Wholesale Banks can accept deposits only greater than Rs5 croreWhile Payments Banks cannot issue credit, the primary role of Wholesale Banks is lending.

Payment Banks will definitely have a cost structure which is much more economical as compared to Wholesale and SCB’s based on its lower human resources and physical asset costs, use of technology and lower risk profileWhich all lend itself to its transactions-based business modelSo could very well do with a lower capital limit.

What would instead be more rational, again following the European Union Standards is to have a tiered system that will allow small and large firms, banks and non-banks to provide services:

  1. Existing Non Bank  PPIs with a capital base of RsX crores
  2. Payments Banks (PB’s)with minimum capital of RsY crores (where Y > X, but < Rs 50 crores)
  3. Wholesale Banks (WB’s)with minimum capital of Rs 50 crores
  4. Scheduled Commercial Banks (SCB’s) with minimum capital of Rs 500 crores

Finally, whatever is the entity, capital requirements cannot circumvent the need for regulatory oversight & supervision and monitoring of transactions, inspections, audits, etcAll types of banks and non-banks, as well as the RBI have to upgrade supervisory systems and processesFor the first two categories RBI can help itself out by allowing for a Self Regulating mechanism under the aegis of the respective Industry Associations/Bodies entrusted with regulating its own.

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Posted on February 19, 2014 by Sumita Kale

At a seminar last year, we heard from the RBI that the KYC (Know Your Customer) process had become more of a KYD process (Know Your Documents), where the customer was less important than the documents, making the target of inclusion more difficult.

The sheer variety of documents required by various agencies (see Table at the end of the post, compiled last August by my colleague S V Divvaakar) shows why India desparately needs a new approach to the norm.

RBI Governor DrRaghuram Rajan had this to say recently,

One roadblock to access, even to something as simple as a universal basic savings account, is Know Your Customer (KYC) requirementsExperts have emphasized the need to make it far simpler to open basic accounts, and have suggested minimizing the required documentationIn an effort to do so, the DrNachiket Mor Committee recommends requiring proof of only a permanent addressThis is nevertheless more onerous than current RBI norms, which allow an applicant to self-certify her address and other details for accounts below Rs50,000But despite the RBI’s exhortations, few banks have reduced their demand for documentation – they fear that they will be held responsible if something goes wrong, no matter what the regulatory normsThe acceptance of third party KYC certification is particularly difficult.

Today, stringent KYC norms keep too many out of the banking system, and lead to unnecessary harassment for othersBanks may adopt these norms more because of regulatory or legal liability than to safeguard against true criminal or terrorist activityCan’t we do better? Some bankers suggest that by monitoring activity patterns in accounts carefully, even while putting some limits on basic accounts (such as holding a large value cheque for a few days before it is cashed), much of the suspicious activity can be detected and stoppedCould we allow a commercial bank some regulatory dispensation in case there is minor mischief in some low value accounts, provided the bank has a reliable system in place to detect greater mischief? Could the gains in easing widespread access to safe accounts outweigh the costs of minor fraud? How can we get entities within the system to rely on each other’s KYC, without the process having to be continuously repeated? How can technology assist in effectively addressing the above issues? These are questions we have to examine and address.

Meanwhile DrK C Chakrabarty went on to add some deeper understanding on the very concept of KYC:

This is to my mind one of the most misunderstood concepts in banking parlanceKYC to a certain extent can be considered as a necessary evilBut, KYC goes much more beyond a simple proof of identify and proof of address for the banksKYC is a critical component of a bank’s risk management frameworkA customer-centric business needs to know its customer, the nature of his business and the inflows/ outflows into the accounts, if it is to provide customised business products and solutionsThis, I call as KYC-BThe banks further need to understand the risks associated with customer’s business to manage risks arising from potential delinquency, fraud and consequent losses as also legal and reputational risks arising from exposure to customers having links to Multi level Marketing (MLM) business/terrorist activities/ hawala transactions, etc, which is another manifestation of KYC and may be termed as KYC BRThe Know Your Customer (KYC), Know Your Customers’ Business (KYC-B) and Know Your Customers’ Business Risks (KYC-BR) should be ingrained in the DNA of the bank’s businessIt should be understood that it is not just procedural compliance, but that good KYC and KYC-BR compliance are important for the bank’s business.

One way to resolve this issue is to by moving to a singular KYC protocol that can be authenticated online anytime anywhereIndia already has such a system in place and Aadhaar is presently the only e-KYC document compliant with the requirements of digital documents under the IT ActIt resides in a centralized depository under unitary control of the UIDAIIn comparison, KYC data of all other institutions reside in different locations, exist independent of one another, and do not lend themselves for immediate, online verification or for external exchangeFurther, the eKYC service, already recognised by the RBI and being used by banks over the past few months, consists of a digital verification of the Aadhaar number and identity, with the digital signed response being accepted as an official online verification of the detailsThis makes it an online verification and authentication service that can be used to monitor transactions in real time, and if banks can set up the processes in line with the technology, the questions on risk, fraud and efficiency raised by the Governor in his speech will be answered.

Given that the capabilities exist currently, it is a shame that the legal and political battles have not been sorted out yetAs Jamal Mecklai has said, these issues will be sorted out,  a mere hiccough and in another four-five years, we are set to see Aadhaar as much a part of our lives as mobile phonesTill we wait for that paradigm shift to happen, the paperwork tangles over KYC will continue to plague the inclusion objective.

 TABLE: List of KYC documents required by various types of agencies, for identity and address proof purposes


Identity Passport, PAN card, Voter ID, Driving license, Identity card (subject to bank satisfaction; letter from recognized public authority or public servant, to the satisfaction of bank
Address Telephone bill, bank account statement,  electricity bill, ration card, letter from any recognized public authority, letter from employer (subject to satisfaction of the bank

Nationalized Bank

Identity Passport, PAN card, Voter ID,  Govt./Defence ID card, Driving license, Identity card of reputed employers, Pension Payment orders issued to retired employees by Govtdepts, PSUS; Photo IDs issued by Post office, Photo ID of students issued by UGC/ AICTE approved university/ institute;  letter issued by UIDAI with name, address and Aadhaar number; Job card issued by NREGA, signed by officer of state government; Ex-Serviceman card with photo issued by Defence Ministry; Bar Council/ Medical Association/ ICAI/ICWAI/ICSI card with photo, attested or embedded to members applicable to area where card is issued; valid Student ID card issued by Principal of recognized/ affiliated colleges; Defence dependent’s card issued by Defence Ministry; married woman ID proof with maiden name, with verified true copy of marriage certificate issued by competent authority, Valid /enforceable Arms License issued by competent authority or state/ Govtof India; Freedom Fighter’s pass issued by Ministry of Home Affairs, ESIC card with latest month pay slip; Talat/ Patwari attestation with rubber stamp and signatures; Gram sarpanch/ mukhiya attestation by rubber stamp and signature
Address Credit card statement, Salary slip of reputed employers, Income/Wealth Tax assessment order; electricity bill; landline phone bill; bank statement; letter from reputed employer; letter from recognized public authority with verifiable record of issue of certificates; Ration Card, Voter ID;  registered leave and license/ sale deed lease agreement; Passport, PAN card, Voter ID,  Govt./Defence ID card, Driving license, Identity card of reputed employers, Pension Payment orders issued to retired employees by Govtdepts., post office savings book; Certificate of VEO, Court divorce order for opening account of divorcee; Gas connection pass book;  PSUS; Photo IDs issued by Post office, Photo ID of students issued by UGC/ AICTE approved university/ institute
No Frills Account Kisan Bahi/ Kisan passbook issued by Revenue authority, Job card issued by NREGA, signed by officer of state government; letter issued by UIDAI with name, address and Aadhaar number; any other document to bank’s satisfaction

Foreign bank HSBC

Identity PAN Card; Passport; Election Voter ID; GovtEmployee ID card; Defence ID card; Photo Ration Card
Address Passport, Voter ID, Driving License, Society outgoing bill, electricity/water/phone bill; property tax bill, domicile certificate with address issued by municipal corporation

Association of Telecom Service Providers

Identity Passport, PAN card, Arms License, Voter ID,  Govt./Defence ID card, Driving license, Ration card with photo; CGHS/ECHS health card;  Certificate of Address issued by MP/MLA/ Gazetted Officer/ Govtrecognized educational institutions/ village Panchayat; Photo credit card; Address card with photo issued by Dept of Posts; ; Smart Card issued by CSD, Defence, Paramilitary forces; Current Post office Passbook or Scheduled Commercial bank; Photo ID of State/Central Govt./PSU employee; Caste and Domicile certificate issued by state Govt.; Pensioner Card/ freedom fighter card/ Kisan passbook.
Address Passport, PAN card, Arms License, Voter ID,  Govt./Defence ID card, Driving license, Ration card with photo; CGHS/ECHS health card;  Certificate of Address issued by MP/MLA/ Gazetted Officer/ Govtrecognized educational institutions/ village Panchayat; Water bill/ fixed line phone bill/electricity/ credit card statement ( less than 3 months old) ITO assessment order; vehicle registration certificate, registered sale/lease agreement, Address card with photo issued by Dept of Posts; Photo ID of State/Central Govt./PSU employee; Caste and Domicile certificate issued by state Govt.; Pensioner Card/ freedom fighter card/ Kisan passbook.

Bharat Petroleum

Identity Aadhaar No, Passport; PAN Card; Voter ID; ID card issued by state/centre; Driving License
Address Aadhaar; Driving License, Lease Agreement, Voter ID, Telephone/water/electricity bill; Passport; Ration Card, Flat Possession/allotment letter; house registration document; LIC Policy; Bank/ Credit card statement

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