Fighting Poverty Profitably Full Report

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Onboarding activities Onboarding costs comprise under 20% of total annual account costs in developing countries, and account for an even smaller fraction in developed countries where customer lifetimes are longer (e.g., average onboarding cost contribution in Europe is under 10%). While this cost is small overall, it is useful to understand the process by which onboarding occurs because better onboarding may increase access and adoption. Onboarding requires a significant amount of human labor over a series of five steps, whether at a bank, mobile money operator, or other payment service provider. 1. Application – The customer fills in an application, sometimes with the help of an employee or commissioned agent. 2. Processing – The account provider will then process the application. In general, an employee will do this manually, both keying information from the application into the bank IT system and checking the potential customer’s ID. However, new technologies that scan IDs for information can automate this process. ID requirements vary by country. In some countries, all applications for a transaction account must show a government-issued ID. This step generally is significantly easier in countries with universal IDs. In other countries, people opening low-balance accounts do not need to show formal identification. 3. Verification – Next the account provider verifies the applicant. It will use ID information to check that the applicant is not on any watch lists (e.g., for terrorist activity), and perform any other checks in accordance with country-level regulation. If the potential customer is applying for an overdraft line or other form of credit, the bank will also check his credit worthiness, based on the application and ID information. In countries that have a credit bureau, the bureau will generally perform this job. In some cases, the bank will ask the customer for more information, in which case it will need to repeat at least a portion of processing and verification steps. Providers can automate verification, but it still tends to involve a final manual decision. 4. Notification – Following verification, the account provider notifies the potential customer that his application has been approved (or denied). In case of denial, the provider will often ask the customer for more information. In case of approval, the provider will sometimes need to wait for the customer to accept the account. 5. Initiation – Once the customer has accepted the account, the provider initiates processes needed to open and maintain it. This includes data entry into the system, and the initial deposit. This process may also require additional customer service, since the customer may not yet know how the system works. When a customer applies for a current account at a bank branch, the above steps often occur while he waits. However, the process can be significantly less efficient when initiated at an agent. In most countries, agents do not have authority to verify new customers, and often do not have the technology needed to process the application. Hence, agents or another person responsible for delivery will need to transport applications to a bank branch for processing and verification. When some needed information is missing, the agent may need to go back and forth between the bank and the customer (often at his storefront) multiple times. This increases turn-around times significantly and can increase cost, through additional labor time. FIGHTING POVERTY THROUGH PAYMENTS I SEPTEMBER 2013 www.gatesfoundation.org 28
Cost breakdown by account activity Today, the cost breakdown among the five activities needed to open and maintain an account varies significantly between current accounts and mobile money accounts, with annual mobile money account costing roughly 25%-to-50% of traditional current accounts. Current account cost breakdown. Exhibit 8 shows an estimated breakdown, by activity, of the $20-to-$30 in annual costs for a current account held by a bank in a developing country. EXHIBIT 8 For current accounts in developing countries, the largest costs are in back-office processing and IT Average costs, 2010 US Dollars 1. Customer service 1-2 2. Channel maintenance 4-5 3. Back-office processing 7-11 4. IT platform & application maintenance 4-7 5. Support functions 4-5 Total 20-30 SOURCE: McKinsey Global Payments Map 2012 (2010 data), McKinsey BTO – Cost Per Product Benchmark, European Commission, EIU, Finalta, ABI, Banco de España, World Databank; Expert interviews 1. Customer service costs are $1-to-$2 and come from front-office labor. This corresponds to roughly 1 hour of employee time. 2. Channel maintenance costs are $4-to-$5 annually and are split between on-boarding and account maintenance. The appropriate split will vary by bank, depending upon the combination of channels that customers use. 3. Back-office processing costs are $7-to-$11. Of this, up to $9 comes from printing and distributing paper statements. By contrast, for on-line or SMS-based statement access, costs of generating and distributing statements is only about $1 annually. This cost is equivalent to a customer looking up her account balance once a week via SMS. The remaining back-office cost comes from labor, corresponding to slightly less than 1 hour in employee time. 4. IT platform & application maintenance costs are $4-to-$7. These come from both IT hardware and software costs. FIGHTING POVERTY THROUGH PAYMENTS I SEPTEMBER 2013 www.gatesfoundation.org 29
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Page 8 and 9: ing from Poland and the Czech Repub
Page 10 and 11: EXHIBIT 1 Digital payments can simp
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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 26 and 27: • Providers typically set account
Page 28 and 29: 3. Back-office processing. This inc
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
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across countries, as Exhibit 38 dem
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customer’s payment, as well as fo
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1. What is the cost structure for p
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Walmart, for example, has expanded
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of less than $1. As Chapter 2 showe
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In the short-term, extending financ
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occasionally have to borrow from th
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The high cost is driven both by (i)
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Non-financial adjacencies can be a
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Implications for poor people in dev
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Conclusion As we conclude this repo
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Business correspondent (BC) Individ
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Financial adjacencies Interchange (
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Financial Services for the Poor Rea
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How M-PESA Works, CGAP Video. An ea
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Sources Databases CIA World Fact Bo
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Other Bank and company websites Int
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FIGHTING POVERTY THROUGH PAYMENTS I
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