Fighting Poverty Profitably Full Report

Recommendations

Info

• Providers typically set account fees in conjunction with transaction fees. Though there are multiple approaches for doing so, at the country level, payment systems typically strike a balance between higher account fees or higher fees for transactions. • Countries with lower account fees have higher levels of financial inclusion, however low fees alone will not create inclusion. Some countries with low account fees still have low inclusion. However, the combination of low account fees and high digital payments can help make a system inclusive. Digital payments help lower costs overall (beyond just accounts), and increase the possibilities for adjacent revenues – thereby increasing the chances for making even poor customers profitable. Countries that we examined that have average annual account fees less than $25 and at least 45% digital payments enjoy over 85% financial inclusion. To elaborate on these insights, we have divided this chapter into five parts: • Activities involved in opening and maintaining accounts • Components of account costs • Methods to lower account costs • Account revenue and pricing models • Implications for poor people in developing countries Activities involved in opening and maintaining accounts While current accounts held by banks, mobile money accounts, and accounts with other payment service providers have some important differences, they all move through the same stages of life, and require the same broad activities to open and maintain them. Accounts move through three stages of life: A. Onboarding – Account providers attract consumers to obtain an account, work with her to get that account opened, and establish it for her use. B. Period of use – Once her account is open, a customer typically uses it for a period of time. For example, the average current account in Europe is active for 11 years, with country level averages ranging from 7 years in Slovakia to 23 years in Finland. Across countries we examined, average lifetimes are shorter in lower income countries. Thus, we expect that account lifetimes in developing countries, particularly among poor users, typically will be significantly shorter than 7 years. Consistent with this expectation, the average customer lifetime of telco users in developing countries is roughly 4 years (e.g., Safaricom, the parent company of the Kenyan mobile money system M-PESA, reports annual churn of 28%, coinciding with a customer lifetime of just under 4 years). C. Dormancy – Even after customers stop using accounts, they often lie dormant for one or more years. In Europe, levels of account dormancy indicate that a typical account is dormant for 1 year before closing or reactivating. Analogous data does not exist for developing countries. Dormant accounts still incur costs. FIGHTING POVERTY THROUGH PAYMENTS I SEPTEMBER 2013 www.gatesfoundation.org 24
Activities needed to open and maintain an account across these three stages of life fall into five categories. Exhibit 6 shows where these activities support stages in the account lifecycle. EXHIBIT 6 Activities needed to open and maintain an account across the three stages of the account lifecycle Account lifecycle A B C Onboarding Period of use Dormancy Marketing 1. Customer service 2. Channel maintenance Activities are not directly tied to current accounts but needed to support the overall activities of opening and maintaining them 3. Back-office processing 4. IT platform & application maintenance 5. Support functions Activities are not directly tied to current accounts but needed to support the overall activities of opening and maintaining them 1. Customer service. This includes all client facing, or front office, activities at a branch, agent, or through other channels (e.g., call center). During onboarding, an employee or commissioned agent may help a prospective customer understand options and fill out application forms, and often will enter data into the system while doing so. During the time a customer uses his account, customer service will include answering customer questions at the branch, through call centers, online, via email or through the mail 3 . 2. Channel maintenance. This category includes activities needed to maintain the channels used to reach the customer. In the case of banks, this includes all activities needed to maintain both branches and Internet banking. A portion of the cost to maintain ATMs that provide account-linked services is also included (e.g., printing a mini-statement of past transactions). Since all channels have uses beyond account establishment and maintenance, institutions charge only a percentage of the costs for operating a given channel against accounts. This percentage will vary significantly, depending upon institution-specific details of channel use and accounting practices. 3 Customer service here refers only to that directly related to use of the account itself (e.g., chequing an account balance or asking questions about rules or fees). Customer services associated with particular cash deposits or withdrawals (CICO) or transactions is accounted for in the CICO and “Transaction” portions of the ACTA framework. FIGHTING POVERTY THROUGH PAYMENTS I SEPTEMBER 2013 www.gatesfoundation.org 25
Page 1: Fighting poverty, profitably Transf
Page 4 and 5: FIGHTING POVERTY THROUGH PAYMENTS I
Page 6 and 7: FIGHTING POVERTY THROUGH PAYMENTS I
Page 8 and 9: ing from Poland and the Czech Repub
Page 10 and 11: EXHIBIT 1 Digital payments can simp
Page 12 and 13: spective in examining the major pay
Page 14 and 15: tems focuses on what is needed in t
Page 16 and 17: capabilities. Happily, major innova
Page 18 and 19: charging users - payers, payees, or
Page 20 and 21: EXHIBIT 5 Examples - A range of mod
Page 22 and 23: While the building blocks of a paym
Page 24 and 25: Market Behavior: Cost alone does no
Page 28 and 29: 3. Back-office processing. This inc
Page 30 and 31: Onboarding activities Onboarding co
Page 32 and 33: 5. Support function costs allocated
Page 34 and 35: EXHIBIT 10 In developing countries,
Page 36 and 37: 5. Eliminate paper statements. Movi
Page 38 and 39: include a minimum balance, minimum
Page 40 and 41: EXHIBIT 15 European countries with
Page 42 and 43: III. Cash-In-Cash-Out: Creating acc
Page 44 and 45: Activities involved in CICO CICO ne
Page 46 and 47: Defining characteristics of distrib
Page 48 and 49: The breakdown of costs across CICO
Page 50 and 51: hicles, as well as the overhead to
Page 52 and 53: EXHIBIT 19 Branch cash withdrawals
Page 54 and 55: EXHIBIT 21 There are five primary m
Page 56 and 57: opportunities to reduce back-office
Page 58 and 59: EXHIBIT 22 Most countries lose mone
Page 60 and 61: Implications for poor people in dev
Page 62 and 63: Transaction patterns across countri
Page 64 and 65: 80%. Cost per transaction ranges fr
Page 66 and 67: 3. What rules determine how money i
Page 68 and 69: Components of transaction costs Tra
Page 70 and 71: While the data shows that the digit
Page 72 and 73: “Push instruments” - such as cr
Page 74 and 75: Methods of lowering costs for a giv
Page 76 and 77:
Improving operational efficiency Im
Page 78 and 79:
The Netherlands gain efficiency We
Page 80 and 81:
across countries, as Exhibit 38 dem
Page 82 and 83:
customer’s payment, as well as fo
Page 84 and 85:
1. What is the cost structure for p
Page 86 and 87:
Walmart, for example, has expanded
Page 88 and 89:
of less than $1. As Chapter 2 showe
Page 90 and 91:
In the short-term, extending financ
Page 92 and 93:
occasionally have to borrow from th
Page 94 and 95:
The high cost is driven both by (i)
Page 96 and 97:
Non-financial adjacencies can be a
Page 98 and 99:
Implications for poor people in dev
Page 100 and 101:
Conclusion As we conclude this repo
Page 102 and 103:
Business correspondent (BC) Individ
Page 104 and 105:
Financial adjacencies Interchange (
Page 106 and 107:
Financial Services for the Poor Rea
Page 108 and 109:
How M-PESA Works, CGAP Video. An ea
Page 110 and 111:
Sources Databases CIA World Fact Bo
Page 112 and 113:
Other Bank and company websites Int
Page 114 and 115:
FIGHTING POVERTY THROUGH PAYMENTS I
show all

Fighting Poverty Profitably Full Report

Create successful ePaper yourself

Delete template?

Save as template?