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AL&A A suitable model for banking the poor? By: Andrew Lake Telephone # +27 83 212 4144 Email [email protected] Converged banking AL&A Agenda Convergence? Possible models of convergence The true value of converged banking Challenges and lessons learned Legislative

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AL&A

A suitable model for banking the poor?

By: Andrew Lake

Telephone # +27 83 212 4144

Email [email protected]

Converged banking


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AL&A

Agenda

  • Convergence?

  • Possible models of convergence

  • The true value of converged banking

  • Challenges and lessons learned

    • Legislative

    • Technical

    • Go to market model

  • Discussion


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AL&A

Convergence?

  • Very abused term

    • For some:

      • Using a phone as a modem represents converging IT and Telecoms

      • Placing limited banking capability on the Internet – convergence of IT and Banking

      • Placing a subset of one’s Internet capability on the Cellular handset is convergence of telephony and banking

  • Definition of convergence

    • Oxford Dictionary – Converge (verb) Come together from different directions so as eventually to meet.

    • WhatIs.com - In general, convergence is a coming together of two or more distinct entities or phenomena.

    • Talkorigins.Org - Convergence is an amorphous evolutionary term that is used in somewhat different senses by different authors (or even by the same people at different times). It generally refers to similarities between organisms that evolved independently, i.e. similarities not directly inherited from a common ancestor. Convergent similarities can involve structure, form, and function. Strict convergence of both function and structure is very rare.


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AL&A

Possible convergence models

  • 2 Dimensions to consider

    • Service extent

      • Remittance initiation and management

      • Mobilization of some aspects of an existing banking relationship

      • Fully fledged, mobile centered banking

    • Ownership

      • Bank only

      • Operator only

      • 1 Bank and 1 Operator

      • 1 Bank and many Operators

      • Many Banks and 1 Operator

      • A third party payment service provider

  • Choice dependant on local business conditions and regulation


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AL&A

Model chosen for South Africa

  • Convergence implemented as

    • the complete joining together of two distinct entities

    • in different industries

    • leveraging the strengths and assets of both

    • to fundamentally re-engineer banking

    • to deliver mind blowing power to the customer!


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AL&A

Convergence!

  • We see it as the complete joining together of two distinct entities, in different industries, leveraging the strengths of both to fundamentally re-engineer banking to deliver mind blowing power to the customer!

  • Telco

    • Customer Base

    • Extensive market reach

      • Physical distribution

      • GSM coverage

      • LSM 3 to 10+

    • Knowledge of how to mobilize

    • Mobile Security

    • Retail mindset

  • Bank

    • Trust

    • License

    • Banking experience

    • Payments linkages

    • Payment Security


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AL&A

So – what’s new?

  • Total solution to challenges of pervasive banking in SA

    • Access

    • Affordability

    • Attitude


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AL&A

Access

  • A bank which fits into the customer’s life because:

    • It defies geography

      • The customer can open their account in their home or office via television / radio / the press / word of mouth

      • The customer can collect new or replacement cards 24 hrs a day, via access to more than 14 000 outlets nationwide in less than 60 seconds

      • The customer has a real bank in his pocket

        • Pay anyone anytime (without having to pre-register them)

        • Pay anyone – irrespective of whether or not you can see them

        • Funds paid over are immediately available as cleared effects

        • Control the card from the phone

          • Switch it on or off

          • Replace it entirely

        • Set up and manage beneficiaries on the phone

        • Pay bills on the phone

        • Purchase any prepaid

      • Even if he has no airtime loaded on his phone

      • You can open and run your account without EVER going into a branch

      • unless you really want to

  • No un-converged bank can do all of these things


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AL&A

Affordability

  • Convergence means access to all existing infrastructure

    • Branches

    • ATM’s

    • Point Of Sale

    • Retail outlets

    • Handsets

    • SIM cards

    • Call Centre infrastructure

  • Savings made are shared with the customer

    • Pricing is very affordable

      • Basket of transactions costs between between ~20% and ~65% less

      • No minimum balance

      • No monthly fees


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AL&A

Attitude

  • Customer is always comfortable because:

    • Call centre

      • is multi lingual

      • Calls to call centre are free – customer comfortable to speak until request is satisfied

  • Distribution channel extensive in terms of:

    • Geography

    • Segmental reach


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AL&A

Real world solutions become possible


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AL&A

End to end security

  • Customer authentication is linked to:

    • SIM card

    • Bank Card

    • Pin

    • Customer’s voice biometrics

  • Every transaction has at least 2 factor authentication

    • Often more

  • Every mobile transaction is encrypted

    • Under 128 bit triple DES encryption

    • From the phone

    • To the back end

    • Back to the phone

  • Therefore, the customer has complete control over the security of his money!


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AL&A

Access to consumer credit

  • Accounts deployed are deposit and transact only accounts

    • Decision taken to simplify go to market project

    • Existing accounts record a transactional history of all customers which could be used for credit scoring purposes

  • Granting credit against the underlying accounts is a relatively simple product extension

  • Therefore – full transactional product could be implemented over a credit facility suitable to the market.


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AL&A

Lessons learned

  • Legislative

    • Marketing and customer acquisition costs are a very significant component of OPEX for a low income bank

    • Exemption 17 is a step in the right direction

    • More exemptions from registration requirements in exchange for more rigorous control over the account would better serve the low income market

  • Technical

    • Mobile integration works and is assimilated by the market relatively easily

    • Test, test and test again (before launch)

  • Go to market model

    • Commercially – doubt any bank’s ability to sustainably service only the poor – need a mix of mid and lower mid market customers too

    • Mobile facilitates this dual market reach

    • Mobile has strong traction in the market – customer trial rate exceeded expectations

    • Had registration worked at a 70% efficiency rate, MTN Banking would already be number 4 in SA retail market!


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AL&A

So, Converged banking is:

  • Quicker

  • Cheaper

  • Safer

  • Fits into the customer’s life - Not the other way around

  • The future of banking!


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AL&A

Thank You

Converged Banking

A suitable model for banking the poor?

By: Andrew Lake

Telephone # +27 83 212 4144

Email [email protected]


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