An International Law Firm of More than 1,750 Attorneys

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1 COLUMBIA INSTITUTE FOR TELE- INFORMATION 2 nd April 2010 New York, New York U.S.A. CHALLENGES AND OPPORTUNITIES IN MOBILE BANKING IN AFRICA Judith O Neill, Chairman Telecom Dept. NY. Office Greenberg Traurig, LLP Tel: oneillj@gtlaw.com Presented by Judith O Neill, Esq. 2010, Greenberg Traurig, LLP. Attorneys at Law. All rights reserved. November April 2, GREENBERG TRAURIG, LLP ATTORNEYS 1 AT LAW Presentation to Pegasus 1 Corp. An International Law Firm of More than 1,750 Attorneys An international law firm with 1,750 attorneys in 32 offices on 3 continents serving clients in all major industries. TMT Group specializes in Telecommunications, Information Technology, Media and Entertainment; teams with M&A and IP Groups to advise clients on strategies for their future, based on industrial and regulatory trends. Legal precision and excellence with a thoughtful, responsive, practical and entrepreneurial approach. 2 1

2 CHALLENGES AND OPPORTUNITIES IN MOBILE BANKING IN AFRICA: OVERVIEW THE TOPIC OF MOBILE BANKING IS HOT IN AFRICA Kenya, Sierra Leone, South Africa, Ghana, Nigeria, and All 21 MTN Countries Are Moving Deliberately, If Not Cautiously, to Ensure Their People Are Not Left Out Kenyan Govt. Vows To Raise 27% of Population With Access To Formal Finance To 65% Within Decade Important Commercial and Roll Out Distinctions Are Beginning to Be Visible Mobile Banking Currently Predominantly Expands Relationship With The Banked and Is Often Lead by the Banks Mobile Ops. Are Leading the Expansion Into New Markets: The Unbanked Teaming of the Two Is Optimum In Either Case Commercial Results Best in Non fragmented Mobile Markets 3 BANKING IN AFRICA: THE PLAYERS PRODUCTS BANKING DEPOSITS/ MONEY LAUNDERING MOBILE OPERATORS BANKS BANKED AND UNBANKED CONSUMERS AGENTS/HUMAN ATM S 4 2

3 BANKING IN AFRICA: LIVE FROM KENYA 5 BANKING IN AFRICA Relative Success In Roll-Out SAFARICOM: Has 80% of Kenyan Mobile Market; Rolled Out With M- Pesa, Highly Successful, Trusted Brand; Expansion to Other African Countries; Provides Multiple Services MTN: SA-Based. Claims to Be Largest African Mobile, Teams with Standard Bank in South Africa (Mostly Banked vs Un Banked Market); Rolling Out to All 21 African Countries In Which It Operates; Deployment Slower Than Expected, Some Team Departures; 2 Million Subs and Growing MOBUX: SA-Based, Tech/Platform Oriented; Excellent Patented Technology, Focus on Platform; Self-Destructing PIN For Payments; Challenging Business Model; 90K Subs and Struggling AFRICEL, COMIUM, ZAIN, SIERRATEL: Overloaded Mobile Ops Market; Unmotivated Agents; Agents Who Participate in Mobile Banking Do It As Loss Leader To Get Customers Into Their Shop to Buy Goods 6 3

4 BANKING IN AFRICA: SOUTH AFRICA CASE SA Banking System Uses EFT that is File Based Settlement System It Runs Through Bankserve and ACB (Automated Clearing Bureau) 2008 Co-Operative Banking Bill Sought to Facilitate Cost Effective Banking A Bank Cannot Maintain an Account For Under R20-R-30 Per Month Mobile Banking Providers Seek to Run An Acct for R5 or Less/Month Estimated Underbanked And Unbanked Citizens In SA Is 17.6 Million SA Bank Charges Are Among Highest In Region At $40 - $50 Per Year On Purchasing Power Basis This Is Higher Than Any Other Developing Country including India and Malaysia. M. Toure, IFC, BANKING IN AFRICA: SOUTH AFRICAN CASE S. Africa Mexico Malaysia India USA Bank Branches per 1K sq. km ATMs per 1K sq. km Bank Branches per 1K pop ATMs per 1K pop

5 BANKING IN AFRICA: SOUTH AFRICAN CASE Estimated Costs for Remittance Channels Cost of a ZAR 300 money transfer Domestic Transfers Taxi Driver % Friends/relatives % Post office/money order % Post office/postal order % Bank deposits % Interaccount payments % International Transfers Taxi Driver % Friends/relatives % Post office/money order % Post office/postal order % Interaccount payments % Source: M. Toure, IFC, THE CHALLENGES AND OPPORTUNITIES OF MOBILE BANKING IN AFRICA: WIRELESS STATS BASED ON 100 IN POPULATION 10 5

6 CHALLENGES AND OPPORPTUNITIES FOR MOBILE BANKING IN AFRICA: STATISTICS ON MOBILE REVENUE BANKING IN AFRICA Dominance of Wireless in Africa Country Mobile Fixed Line Internet Seychelles Reunion South Africa Mauritius Botswana Gabon Mauritania Mayotte Gambia Senegal Namibia Swaziland Nigeria Ghana *Source: ITU 2006 Report and update 12 6

7 BANKING IN AFRICA: LIKELY PATH TO ADOPTION Expanded Services to the Banked Will Roll Out First and the Banks Will Drive the Service and Team With a Mobile Operator New Market Services to the Unbanked Will Roll Out Most Rapidly Where There are Dominant Mobile Providers and Be Driven by the Mobile Providers; Quality and Incentive of Agents is Key New Market Service Such as Market Information Services Will Be Coupled with or Provided Along Side Mobile Banking Services to Both Markets Those Who are Able to Capture, and Get Exclusives with the Best Agents, Will Capture and Hold Market Share Young Migrants Workers in the Cities will Drive Supplier Choices by Rural Family Members as They Send Mobile Money Home Once the Service Takes Hold in the Villages, Security Issues May Arise as Cash Patterns Become Known and Human ATM s Transport Cash on Their Bicycles on 3-Hour Trips Between the Village and the Bank Branch. So Far South Africans Say Theft is Not an Issue in the Rural Villages. 13 CHALLENGES AND OPPROTUNITIES FOR MOBILE BANKING IN AFRICA: GUESSTIMATE OF TIME TO COMMERCIAL ACCEPTANCE Consumer Adoption Time Mobile Banking Started to Develop in SubSaharan Africa in Appx Based on Historic Major Change Adoption, the Market Should Reach 50% Adoption Appx Source: PEW Internet Project

8 BANKING IN AFRICA BENEFITS OF MOBILE BANKING IN RURAL AFRICA Mobile Industry in LDC s Least Affected By Global Economic Problems Per ITU 2009 Report New Economic Opportunities, Time Efficiencies, Market Information and Transaction Ability Trickle Down To The Poor For The First Time In a Life Changing Way Young Male, Tech-Savvy Immigrants From Villages to Cities Sending Money Home Will Define Service and Agent in Rural Areas; They Appear To Be Starting With Brands They Trust, Particularly in Mobile Operator; To The Extent This Population Segment Tends To Be More Educated/Ambitious, the Model Is a Growth One Mobile Penetration Rate in Africa Makes Mobile Banking the Superior Product to A Card System Even For Urban Banked Mobile Banking Is Driving Other Mobile Products Such As Commodities Info For Farmers; Data Bases For Other Industries (MTN Recently Added This), Improves ARPU and Protects Against Churn Developing Countries Are Home to the Next Billion Mobile Subscribers * With Pin Numbers Employers and Pension Funds can Disburse Funds to Unbanked Recipients Through Agents; and Maintain Virtual Accounts for Them, Important in High Crime Environments/Cash Societies Like South Africa 15 BANKING IN AFRICA CHALLENGES TO BE ADDRESSED IN TIME Services to the Unbanked Will Deploy Most Rapidly in Markets With Dominant Mobile Operators; This Could Challenge Competition Goals in Telecoms Sector Once Mobile Banking Gets Traction In The Villages, Security May Be An Issue, Faced Currently Mostly If Not Exclusively In the Cities Emphasis on Education of The Rural and Poor Populations in Protection of Private Information, PINs, Public Data Entry, Etc. Will Be Essential; Many On-Line Contract Disclaimers Now Require New Subs to Read And Agree to Do Detailed Protective Measures ICT Laws To Be Enhanced With Gap Analyses (eg. Ghana) To Regulate and Protect New Streams of E Commerce and Future New E-Government Aps. Well Compensated Agents Have Challenge of Topping Up Cash Supply; 3-hour Bicycle Trips to the Nearest Bank: Villagers Willing to Wait a Day or Two for Cash: Security is Not an Issue Now but Bears Watching 16 8

9 BANKING IN AFRICA: CONCLUSIONS Mobile Banking is A Key Step In Economic Development of Africa Where 65% of Population Lives In Rural Areas and More Than That Are Considered Poor and Unbanked; Potential Is Enormous Security Is Not Currently An Issue, But As Success Grows, It Will be Interesting To Watch Rural Areas and How They Protect, Or If They Need to Protect, Agents And Others Uptake Requires Confidence in Provider of Underlying Credit, Identified in Rural Areas With Mobile Carrier; Products Are Virtually Limitless Once Traction Is Obtained (eg. All National Merchants Become Agents, Deposits and Transactions Add to Payments, etc. Unless Banking Laws Change, A Banking Partner Is Essential But Only The Mobile Ops Understand The Agent Business Model; Niche Providers Like Mobux at Market Start-up May Do Best As Superior Tech Providers to Mobile Ops and Banks vs as End User Service Providers 17 THANK YOU THANK YOU Judith O Neill, Esq. Greenberg Traurig, LLP Chairman Telecom Department New York Office Tel: Mobile: oneillj@gtlaw.com