Saturday, July 12, 2014

Cambodia Embraces Mobile Money

I have written widely on this blog previously on WING but having just come back from a week in Cambodia on holiday I felt compelled to write a short blog on how the business model is developing. In short the growth and success of the business has been outstanding. 

At the time we launched WING there were a number of opportunities we believed made the business model compelling:
  • There was no national payments system in Cambodia
  • At least US $8 billion of payments lay outside existing formal payment channels
  • The Garment Industry was seeking a solution to its manually intensive payroll process
  • The Cambodian market was ready for a product that could provide basic financial services to the unbanked segment
  • There was an emerging global trend that was seeing convergence of mobile operators and banking services in the mass market.
When I think back to 2008 when we created WING to address these opportunities, it is fascinating to see how WING is performing in 2014. After a year away from Cambodia, the over-riding impression I had on the drive to the center of Phnom Penh was the sheer number of WING Cash X-Press outlets (agents). I was also very interested to see how they had morphed in many cases from mobile phone shops or general grocery stores to become primarily agents. This was clear from the infrastructure paid for and built by agents, including small branch and teller areas. This is a compelling difference from the early days of WING, and I imagine most mobile money providers - agents are now competing to provide the WING business, and will invest in their own shops to attract customers. Whilst I didn't visit the provinces on this occasion, I have been told that the agent infrastructure is of similar quality. 

The second observation I had during my brief time in Cambodia was the number of people who used and knew of WING. Every single remork (tuk tuk) driver I spoke to, every wait staff in shops and restaurants knew of and in many cases used WING. In addition, WING is now providing payroll and commercial services to many corporates in Cambodia leveraging their liquidity solutions. With anecdotal payment volume of US$350 million in June, and a projection for this year of well over US$3 billion, WING has become the national payment system for micro payments and money transfer in Cambodia. 

So, approximately five years after the launch of WING, it is fantastic to see that the opportunities we first identified in 2008 and 2009 have been realised. It is also interesting to speculate whether previous owner's ANZ now have some regret in divesting when they did in 2011, given the success of the business since that time, and the opportunity to offset some of the negative public relations they have experienced in that market recently with a positive story of how WING is helping low income Cambodians to save and send money cheaply. 

- Brad Jones

Brad Jones was Managing Director of WING Cambodia from late 2007 until mid-2010. He then worked at Visa on their emerging markets mobile strategy in Africa, Middle East and Asia before spending a year consulting to IFC and a number of other clients. He now works in a transformation and growth role for a bank in Singapore.

Friday, April 25, 2014

Indonesian regulations favour the Four biggest banks

Since my post of last week, I have obtained a better copy of the new e-money regulations in Indonesia.  It's still an Unofficial Translation and is pending an accompanying Circular Letter which has yet to be released, but it does add more clarity on the uncertain regulatory environment for financial inclusion.

You can download them here or send me an email. 

The new category of “Digital Financial Services” (LKD) is specifically designed for financial inclusion. However, it appears to be identical to other e-money licenses except that it allows Book 4 banks to appoint individual agents. These could be individuals or non-legal business entities such as grocery stores, retail merchants and (phone) credit sellers. Having access to these points will be a serious leg-up to any of the Book 4 banks who are interested in extending their services.  However, this new concept of LKD won’t do anything to benefit the telcos or smaller banks who are seeking to capitalize on their e-money licenses and existing distribution networks; they will still have to rely on companies or institutions with a formal legal entity to act as Cash In / Cash Out agents.

On the KYC front, there is some increased clarity. It is clear that the issuer has responsibility for opening the account, so they will need to dedicate some back-office staff for account approvals. However, it is also clear that the agents are capable of conducting the initial registration and data entry. The account records will need to be in compliance with AML and CTF laws, but according the the accompanying explanation this should, “At least cover name, address, date of birth and other data as stated in the proof of the identity of the holder.” E-money can be either unregistered or registered, so it should be fairly easy for issuers to design a tiered KYC process.

Regarding G2P, there is also mixed news.  These regulations do specify that e-money and LKD can be used for the disbursement of social payments. However, the Ministry of Finance has an outstanding regulation (PMK 81) that specifies these payments must be made through either banks or the Post Office. Again, this will leave telcos out in the cold as they would be unable to deliver these G2P payments unless there is more regulatory reform.

Michael Joyce is a policy advisor working with the Government of Indonesia on mobile money and financial inclusion. He has been working on mobile money in Asia for six years, specialising in risk, regulation and operations. The views on this blog are his own and do not represent the views of the Government of Indonesia or constitute legal advice.

Saturday, April 19, 2014

Had enough of mobile money hype? Look at Cambodia and renew your faith.

I will start this blog post by declaring my bias. I was the founding managing director of WING Cambodia and spent close to three wonderful years living and working in that beautiful and mesmerizing country. I also spent seven years working in mobile money, and have observed business models in Kenya, South Africa, Indonesia, Bangladesh, Pakistan, India and China, in addition to numerous other countries. I have recently moved back into the mainstream financial services world, so now have the benefit of looking at mobile money from a distance. An article was recently published on the growth of mobile money in Asia and sadly there was no mention of WING in Cambodia, despite in being one of the first mobile money operations in Asia and globally, hence I felt compelled to write this blog.

I recently joked with a group of industry friends that ‘2014 was going to be the year of mobile money’. The reason why this was a joke is that we have been saying the same thing for the last five years! Our cynicism is driven by the fact that the success of mobile money has been incredibly hyped. The reality is that there are very few successful mobile money operations in the world, and most media and attention focuses on the same three every time; M-Pesa in Kenya, Easy Paisa in Pakistan, and bKash in Bangladesh, with a liberal sprinkling of MTN in Africa. Without undermining the success of those operations, isn’t it time that other successes be celebrated, particularly in an industry with such little success? So recognizing my innate bias, I challenge the mobile money world to take a closer look at what is happening in Cambodia. Initial owners ANZ started WING in early 2008, and a small and dedicated team managed to build and launch the business within nine months. The first couple of years were tough, with middling interest by the owners, and the normal development time it takes for a payment business to build scale. ANZ divested WING in 2011, and it would not be an understatement to say that the business has gone from strength to strength since that time.

WING broke even as a business in 2013, and reports that it will have its first profitable year in 2014. Whilst a longer period then the original business case estimated, five years to profitability is a reasonable outcome considering the margins on transactions and the need to build sufficient payment volume. Payment volume in 2013 was a whopping US$1.5 billion in a country where GDP is approximately US$14 billion. Contrast this with Easy Paisa in Pakistan who reported payment volume of US$1.4 billion in 2012 after launching at a similar time to WING. The GDP of Pakistan in 2012 was $225.1 billion or 16 times that of Cambodia! So WING is now profitable and has achieved significant payment volume in a relatively small country. Fantastic stuff. However the really interesting development in Cambodia for me as an emerging market payments professional is what WING is now leveraging given its mass.

The core business of WING is similar to that of Visa or MasterCard, with one exception. Visa is a four party model where they bring together the customer, the merchant, the issuer and the acquirer. In the WING model, they are both the issuer and the acquirer, and therefore maintain their own merchant network and issue accounts to customers. Like Visa however, WING is using its volume in Cambodia to leverage into new products. Visa devotes a lot of time and investment to products outside its core in order to maintain its value proposition in a world of challengers. Information products, digital wallets and corporate propositions all provide Visa with an improved ability to drive transactions to the core.

WING appears to be following a similar strategy. As payment volume increases exponentially, WING is finding new ways for customers to transact, and like Visa recognizes that these new products will drive transactions to the core. Here is an example of some of the new products that WING has launched over the last couple of years:
  • eCommerce transactions with PIN authentication on the mobile
  • A joint WING & FTB Bank Visa prepaid card, topped up using a WING account
  • Loan repayments at a variety of microfinance institutions
  • Bill payments at almost all major billers in Cambodia including electricity and water
  • Integration with online games platform including Facebook to allow in-game purchases
  • Payroll and disbursement services

WING is focused on both its core service of transferring money safely and cheaply, but is also leveraging its capabilities by providing an increasingly sophisticated suite of services for Cambodians in urban and rural locations. Coupled with its impressive growth I would challenge the mobile money industry to turn its attention to the success of WING. With its many political and economic challenges Cambodia needs positive media attention and how better to do so then by focusing on how a local company is changing the financial services landscape for the better.

-       Brad Jones

Brad Jones was Managing Director of WING Cambodia from late 2007 until mid-2010. He then worked at Visa on their emerging markets mobile strategy in Africa, Middle East and Asia before spending a year consulting to IFC and a number of other clients. He now works in a transformation and growth role for a bank in Singapore.

Thursday, April 17, 2014

New e-money regulations in Indonesia.

Bank Indonesia yesterday announced the release of long-awaited new rules on electronic money  . Since the termination of the Branchless Banking pilots in 2013, and the subsequent shift in regulatory authority to the newly formed Financial Services Authority (OJK), banks and telcos alike have been waiting for news on how they can use e-money and alternative financial services to reach the huge population of financially excluded in Indonesia.

Although the new rules don’t cover the extension of bank accounts through agents, they do provide much-needed clarity and consolidation of existing e-money regulations. E-money has been growing in Indonesia, but so far the majority of transactions are of closed-loop card-based transactions, especially for public transport and toll roads. The extension of financial services to rural and underserved populations has not yet eventuated, largely due to onerous requirements on the ability to cash-out or withdraw funds.
The new regulations have a multi-tier approach to appointing agents for cashing out.  There is good news for the Book 4 banks (BNI, Mandiri, BRI, BCA) in that they can appoint individuals as agents to provide a wide variety of services for e-money. The news is not so good for other e-money issuers, including smaller banks and telcos, in that their agents must be incorporated legal entities.  This will prove frustrating in a country where the majority of businesses lack formal registration, especially as these small businesses have proven to be the best agents in other markets.
However, other components of the regulation are more progressive. Agent exclusivity is forbidden, which is seen as an important step in working towards an interoperable and universally accessible system. Service providers will also be able to determine their own fees, although BI has retained the ability to cap these if needed.

The new regulations are available in Bahasa Indonesia only I will post more details on this blog once I have a translation, and welcome any questions or discussions.
Michael Joyce is a policy advisor working with the Government of Indonesia on mobile money and financial inclusion. He has been working on mobile money in Asia for six years, specialising in risk, regulation and operations. The views on this blog are his own and do not represent the views of the Government of Indonesia or constitute legal advice. 

Friday, January 17, 2014

Indonesia- what happened to the regulations?

There was a lot of excitement in the Mobile Money industry when Bank Indonesia announced it would allow pilots of Branchless Banking in 2013 for five banks and three telcos.  There was considerably less excitement at the end of November when the pilots ended. 
The most common course of action after a regulatory pilot is either to extend the length of the pilot or issue regulations, but in this case BI declared that the pilot were closed and banks proceeded to close or suspend their agent operations.

Since then, there has been a shift in regulatory authority in Indonesia with the creation of OJK, the Financial Services Authority. They now have micro-prudential authority and thus would be the key regulatory body for Branchless Banking.  However, BI maintains control of the payments system and plans to issue regulations on Digital Financial Services as part of this authority.  The details of this are unclear, but it is expected that they will only allow “Book 4 Banks” (BRI, BNI, Mandiri and BCA) to participate, at least initially. BI has stated that other banks and non-banks may also participate in the future, but this is troubling news for banks such as BTPN, CIMB Niaga and Sinar Haparan Bali who participated in pilots but are now in regulatory limbo as to how to proceed.

These new regulations on Digital Financial Services (layanan keuangan digital or LKD) have not yet been released but are being keenly anticipated by all involved.


Wednesday, January 15, 2014

Analysing my mobile money predictions for 2013...solid but a few surprises

In January 2013 I wrote a blog with my five predictions for mobile money in 2013. I didn’t quite realize how momentous 2013 would also be for me personally, as I stepped out of the developing markets payments world in July last year to take up a new role transforming a developed markets bank in Asia. As a result, the time commitment of a new role has meant that this has been my first post on Mobile Money Asia for six months so I thought it would be a good opportunity to recap on 2013 and my bold predictions!

My predictions at the start of 2013 were:
  • Pakistan and Bangladesh will become the new stars of mobile money.
  • Agent-initiated over the counter transactions will be recognised as the ‘killer app’ in mobile money.
  • Mobile money interoperability will become a reality in some markets.
  • Google will launch mobile money in more emerging markets.
  • There will be further platform consolidation in mobile money, potentially leaving only three to four big players.
So how close did I get? I think I was pretty spot on with a few of these and a little wide of the mark (or perhaps a little early) in some of the others.

At the start of 2014 Kenya still leads the world in the penetration of mobile money. The most recent statistics indicated that mobile payment volume was close to US$20 billion in 2013, a 24% increase over 2012.  Interestingly a lot of the growth is linked to increased integration to commercial banks, particularly with the introduction of lending products. Progress in Bangladesh and Pakistan is also very exciting however, with multiple banks and operators launching and scaling services. The digital money blog of Charmaine Oak’s ‘Shift Thought’ quoted that 17 banks in Bangladesh were now offering services, with over 7 million accounts, 100,000 plus agents, and payment volume of US$1.03 billion in the first quarter of 2013.  This blog from CGAP echoes those figures, and also contrasts Pakistan’s volume, which is roughly the same.

So on my first prediction that Pakistan and Bangladesh would become the new stars of mobile money, I would give myself a C+. Whilst there are some fantastic developments in both markets, Kenya is still moving ahead in leaps and bounds. Whilst the population in the two South Asian markets should eventually build to bigger volume, M-Pesa is still the poster child of mobile money at the start of 2014.

Whilst missing the mark a little bit on my first prediction, I think I hit A+ for my prediction on OTC transactions being the killer app in mobile money. Despite Pakistan having stellar growth in mobile money volume, 83% of transactions are over the counter and nearly two thirds in Kenya are conducted the same way. Many customers are comfortable with the concept of agents completing transactions for them, and it is recognized that in markets like Pakistan and Bangladesh, shifting customers from OTC to mobile initiated transactions will take time.

Just this week there was also a very interesting article in Bloomberg Business, which outlined, through the lens of Bitcoin and developing markets, how OTC is the primary method for conducting mobile money transactions in markets like Kenya, Bangladesh and Pakistan. Greg Chen of CGAP notes that illiteracy, a lack of technology proficiency and distribution remain the real barriers in branchless banking and moving beyond OTC payments.

My third prediction was that we would see mobile money interoperability become a reality in some markets. Whilst we have not yet seen MasterCard and Visa achieve and enable the dizzy heights they predicted for mobile money interoperability a few years ago, Visa has certainly been putting its money where its mouth is. Visa announced its initiative in Rwanda in 2011 with a goal of providing banks and mobile operators with true mobile money interoperability. In addition to providing the technology to allow this to occur, Visa also developed rules and regulations to allow for disputes between parties and to build a mutually beneficial commercial ecosystem. As of December 2013, Visa now has five banks signed up for its mVisa service, providing the mobile money world with a fascinating live test case on how interoperability can develop.

In 2013 we also saw further developments in mobile money interoperability, with the announcement by Telkomsel, Indosat and XL the three major mobile operators in Indonesia, that they would provide real time money transfer between mobile wallets. With the developments of Visa in the market and a number of other initiatives, I would rate my prediction for interoperability as B+, as we have positive early signs of interconnectivity occurring, but we still don’t have sustainable commercial models of interoperability in mobile money.

My fourth prediction was that the industry would see a lot more from Google in developing markets, particularly continuing the development of their BebaPay prepaid transit card product in Kenya. The development of BebaPay appears to be slow in Kenya, as resistance to the product from bus conductors and drivers as well as technology barriers impact acceptance.  From discussions I had last year with Google insiders, the next markets to be tapped included the Philippines and Indonesia. I had heard that Indonesia was proving to be difficult due to payments regulation so it is not surprising that Google launched in Manila in September 2013. The launch, partnering with major local bank BPI, has focused initially on universities in order for students to have a prepaid card for general use. Merchants are predominantly food and beverage at this stage, although Google have ambitions of moving into transit as they have done in Kenya.

So I am scoring myself a B for the development of Google in emerging markets in 2013. Whilst development hasn’t been as fast as I would have expected, Google are on the move with a prepaid card product for developing market customers in Asia.

My last prediction for 2013 was that we would see further consolidation of platform vendors, leaving only three to four in the market. This has probably been my lowest performing prediction, and in addition I would guess that this year has not been a great year for those selling mobile money platforms. Most clients who already need a platform have one, and those that have already invested are more interested in trying to make money out of the service rather than buying new technology.

To get a sense of how the vendor industry is looking for mobile money currently, I used a highly unscientific method of assessment! I googled each of the major vendors to get a sense of how many press releases they had released recently. The statistics were interesting. Fundamo/Visa had press releases in recent months announcing developments in ATM cards linked to mobile money in Pakistan and a new client in the same market. Mastercard had announced a tie up with eServ Global and BICS to establish a mobile money international remittance hub.  The latest news on new client acquisition for Telepin was January 2013, and for Utiba it was October 2012! So in summary, I would give myself a D for that prediction, with the qualification that it appears that there has been very little vendor success in general in 2013, which may lead to consolidation in 2014 and beyond as smaller companies struggle to survive in a maturing market.

In closing then my consolidated scorecard for 2013 doesn’t look too bad. I would be very interested in views from the industry on what I am right or wrong on?

- Brad Jones