Towards Financial Inclusion in the Caribbean - Mobile Payments Solution
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Project for Financing for Development - Billions to Trillions to Action by The World Bank
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Towards Financial Inclusion in the Caribbean - Mobile Payments Solution
- 1. Towards Financial Inclusion in the Caribbean - Mobile Payments Solution By: Rhea Yaw Ching Part Fulfillment of: Financing for Development Course by World Bank
- 2. Agenda 1. Current State of Affairs 2. Qualifying the Opportunity 3. The Payments Solution 4. A Multilateral Approach to Success
- 3. Current State of Affairs
- 4. “The Caribbean’s ability to sustain levels of economic growth and social progress has been affected by the ongoing adverse impacts of the global economic crisis, declining foreign direct investment, increased indebtedness, the lack of adequate transportation, energy and information and communications technology infrastructure networks, limited human and institutional capacity and continuous climate vulnerability.” Summary Third International Conference on Small Island Developing States
- 5. Unlocking sustainable growth for your business means participating in the overall economic and social development of the Caribbean namely…. Enabling progressive Infrastructure • Enabling a resilient, innovation-based ecosystem Promoting Economic Resilience • Solutions that promote equal rights to economic resources Fostering Social Inclusiveness • Creating a conduit for local content, creativity and innovation
- 6. We must unleash Caribbean potential by creating a vibrant ecosystem of social and economic opportunity
- 7. Access leads to Opportunity which leads to Equality which leads to Prosperity
- 8. Financial Access leads to Economic Opportunity which leads to Income Equality which leads to Universal Prosperity
- 9. “Meeting our region’s development goals requires an overhaul in the way financial resources are accessed, organized, allocated and mobilized. The principle that every individual and business participate meaningfully to the agenda must underpin the creation of this new democratized ecosystem.” – Rhea Yaw Ching
- 10. The Current Ecosystem is BROKEN
- 11. 60% of Adults in the Caribbean do not have a bank account Source: Mobile Money Live/GSMA, ICT Pulse 2014 Note: Trinidad and Tobago – 76%
- 12. Not enough money Do not need an account Family member already has an account Accounts too expensive Source: Mobile Money Live/GSMA Financial Institutions too far away Lack of required documents Why?
- 13. There is also inadequate access to financial services, - 20.0 40.0 60.0 80.0 100.0 120.0 140.0 #ATMs per 100,000 pop #Bank Branches per 100,000 pop Haiti Jamaica Guyana Dominican Republic Suriname Trinidad and Tobago Barbados Aruba Saint Vincent and the Grenadines St Lucia Dominica Belize Bahamas Grenada Antigua and Barbuda Saint Kitts and Nevis High Income Country Avg. Source: World Bank 2013 / IMF Financial Access Survey 2009 High Income Country Avg.
- 14. Reference: CGAP’s market archetypes for financial inclusion There is also a strong correlation between access to financial services and GDP
- 15. Overall, the financial inclusion scorecard is poor 65.93 52.9 52.69 44.78 42.27 40.87 37.66 29.8 22.03 20.88 19.66 7.62 0 10 20 30 40 50 60 70 80 90 100 St Kitts and Nevis Bahamas Antigua and Barbuda Grenada Belize St Lucia Barbados St Vincent and the Grenadines Trinidad and Tobago Jamaica Guyana Haiti USA Canada UK Singapore Spain Note: average value from 2004 to 2012 Source: Asia Development Bank, World Bank Factors 1. ATMs per 100,000 adults 2. Commercial Bank Branches per 100,000 adults 3. Borrowers from Commercial Banks per 1,000 adults 4. Depositors with Commercial Banks per 1,000 adults 5. Domestic Credit to GDP Note: St Kitts and Nevis, Bahamas, Antigua seen as skewed due to large offshore financial sector
- 16. Trying to analyse the problem using current lens (will lead to the wrong diagnosis) Trying to solve the problem by using current tools (will only get us so far) Trying to build solutions in silos (will never give us scalable results) Trying to maximise value by addressing half the market (has proven to be unsustainable)
- 17. The Current Payments Conundrum • Capital heavy and expensive. • Layered with manual, administrative and operational costs • Multiple value-chain players. • Narrow Innovation Focus • Processing is highly complex to meet all governance and safety/soundness requirements • Electronic Payments (incl. cards) are targeted by criminals • Institutional “cartel” • Short Investment Horizons • Geographically bounded • Limited open network or interoperability
- 18. A Mobile Financial Services Ecosystem creates a cost efficient, scalable platform to reach everyone Percentage of the population in select Caribbean countries that use financial/banking services and own mobile/cellular phones Source: ICT Pulse
- 20. The M-Payments Opportunity is worth US$8 Billion annually 20M Market Size 12M Unbanked 6M Under-Banked >100% Mobile Penetration Growing smartphone penetration $US 12B Documented Remittances to the Caribbean 60% of all bills paid in cash High Internet Access and Usage 49% of Remittances go through informal channels
- 21. The potential extends beyond just payments Public Sector/Gov’t Easier payment solution for Citizens (e.g. taxes or fees), Mechanism for G2P transfers (e.g. pension or subsidies) Retail Instant and convenient remote or proximity payment for goods for both B2B and B2C stakeholders Money Transfer Low cost alternative for P2P transfers and remittances as well as opportunity for directed remittance funding FMCG Provides a mechanism to distribute Promo cash prize winnings Agriculture Provides farmers with away to purchase agricultural supplies and get paid for produce/crops NGOs Provides a mechanism to both receive funds (grants and donations) and distribute directed aid
- 22. The Solution
- 23. Is… An efficient, convenient, affordable, accessible, user-friendly and protected way to send and receive money or make and receive payments.
- 24. SMS Gateway Payment Processing Bank / Bank Network Low-End Mobile Phone Smartphone Point of Sale Terminal ATM Computer Browser Mobile Network Operator Internet-Based Web Services Terminal Network
- 25. Product Portfolio 1. Domestic Transfers 2. In-Network Payments 3. International Remittances 4. Payment Gateway Customer Segments 1. Low Income Adults with no bank account 2. MSME Owners operate in a cash environment 3. Middle Income Adults with bank a/c 4. MSMEs / Entrepreneurs with bank a/c Distribution Channels 1. Agent Network 2. Financial Institution Distribution Network 3. Mobile Operators Top Up Network 4. Other Retail Outlets Communication Channels 1. Peer to Peer Community-based Communication 2. Digital Communication esp. Social Media 3. Advocacy-based Business Model Principles
- 26. 26 This model can only work if… Private Sector Stakeholders: 1. leverage the entire Caribbean for Critical Mass 2. use their disribution network and in-house resources to multiply points of presence in order to reach everyone 3. Everyone shares the reward of success by sharing the burden of financial risk across all parties 4. agree part of the solution… and that means competitors too! 5. agree to full interoperability in order to reach everyone
- 27. 27 This model can only work if… Governments of the region play their role in de-risking the venture by: 1. being anchor users of the solution (for social services payments for example) 2. Facilitating proactive regulatory discussions 3. Facilitate greater access to grant funding for the social good component of the venture 4. Support the creation of blended finance options through policy reform
- 28. The biggest obstacle to success can be coined in two words: status quo. Success is dependent on evolving our inefficient but comfortable systems to an empowered resilient, innovation-driven ecosystem. THANK YOU
Editor's Notes
- Q1 Grenville Grenada, all international banks closed leaving only ATMS. Instead of dispensing a minimum of $20, the new minimum is $50. Talking to a market vendor about it she said: “I prefer to spend the money to go to town, go to the bank and take out how much I need. If I go to the ATM and pull out $50 when I only need $15, where you think the money going?” Lady showed me her system of savings; 7 envelopes each labeled. For transport or her child’s allowance, small change. For longer term plans like saving for school fees and supplies, middle notes. For rent, the big notes (if she gets it) Q2 EXPENSIVE Traditional options are capital heavy and expensive They are layered with manual, administrative and operational costs which beneficiaries have to bear the burden of Innovation happens at the top of the network, not at the core, only increasing costs to end users AVAILABIITY / SLOWNESS Cycle is dependent on points of presence, cycle of work days Processing takes a long time FRAUD / SECURITY ISSUES Cards are “exposed” Cash makes people vulnerable INSTITUTIONAL “CARTEL” The industry is led by large overseas banking interests No open network or interoperability to spawn outside development Excludes huge segments of the population instead of enabling them Q3 Many alternative payment have launched and failed. Scale does not begin until 10M. Even the region’s best example was a fantastic failure This can only happen for all, if all participate in the solution. Derisking for private sector Q4 FINANCING FOR DEVELOPMENT POST-2015: IMPROVING THE CONTRIBUTION OF PRIVATE FINANCE By European Parliament's Committee on Development "Internationally comparable information about remittances is limited. Data on remittances are generally regarded to significantly underestimate true volumes, due to informal money- sending channels that are not captured by the data. Between 25 and 49 % of remittance senders responding to a Gallup World Poll reported sending remittances via people rather than official channels8 . Available evidence suggests that a high proportion of remittances are for consumption rather than productive investment."
- Note that local banks are beginning to adopt ‘northern’ models in which commercial clients pay for deposits in order to offset the cost of physical cash handling. Narrow Innovation Focus - happens at the top of the network, not at the core, only increasing costs to end users Institutional “cartel” - The regional sector is dominated by large overseas banking interests Short Investment Horizons, with high return requirements Limited open network or interoperability to spawn outside development Excludes huge segments of the population instead of enabling them “Catch-22” – segment exclusion reduces transaction volumes, while segment inclusion increases behavioural complexity.