Beyond Branch Banking with Mobile Phones

Sanjay PoudyalChief Financial Officer (CFO)

Kumari Bank Limited

“The biggest challenge for developing

economies is to get the banks to the unbanked,

rather than to get the unbanked to the banks.”

- ADB Special Studies

Core Issue

Who are the BOP population?Earnings less than $2 per dayDo not have access to financial resourcesIgnored by formal banking sectorMost vulnerable population – high cost of capital, susceptible to

predatory lending, exposed to risks of carrying cash

BOP Focus

Bank Branches (Per 100,000 People) 4.12

ATMs (Per 100,000 People) 3.40

Credit/Debit Card (Per 100,000 People) 2,000

Mobile Phones (Per 100,000 People) 35,000

Our Inspiration to Launch

Bottom line: Banking services through traditional means have not met the demand

Nepal has one of the lowest formal financial services penetration rates, compared to other countries even in South Asia

In around 75 years of formal banking era, today less than 30% of Nepali population ( population is 28 million) has access to formal financial services

Our Inspiration to Launch• Our continued focus on technology enabled delivery

channel • Empowers us to solve burning issues

Mobile phones are rapidly growing – YoY Growth > 40%

2006 2007 2008 2009 2010 2011 2012 2013 2014

2% 5%15%

21% 25% 35%40%

45%52%

Mobile Phone Users in Nepal

Year

18 million users

10 million users

% of Populatio

n

Our Inspiration to Launch

Why Should we Cater to the Unbanked?It is good for the country Improves access to sustainable financial resources vital for socio-economic

progress

Contributes towards Millennium Development Goals of reducing poverty by half by 2015

It is good for business 70% of the population yet to be tapped into formal banking – growth

opportunity

Brings informal remittance, domestic and international, into the formal sector

It is a good social initiative Services the most vulnerable population – high cost of capital, susceptible to

predatory lending, exposed to risks of carrying cash

Kumari Bank Limited

Leading commercial bank in Nepal

Leapfrog Technology

US based software company with a development center in Nepal

Institutions Behind Mobile Cash

Our sincere belief is that our service carries the promise to change Nepal’s financial services landscape by drastically improving the formal financial services penetration rate

Supports any phone Structured SMS for lowest common denominator J2ME application for java enabled phones allows greater usability

Features Fund Transfer using mobile phones Microcredit disbursements and payments using mobile phones Cash withdrawal and deposit at agent and branch locations Merchant Payment Link to bank accounts

Transfer money to and from bank accounts Transfer from one bank account to another

Prepaid airtime top-up and Utilities Bill Payments Flexible tariff rates Robust and flexible reporting system

Our Offered Solution Features

Successfully launched in 2010 Contractual agreement with two of the largest telecom providers:

Nepal Telecom and Ncell (95% of in country market)

Total users over 16,000 till date Close to 50% of registered members are non-bank customers 200 transactions per day and increasing

What have we achieved?

Total transaction volume till date US$ 900,000Total Deposits US$ 140,000Total Withdrawals  US$ 134,000Total Mobile to Mobile Remittance US$ 91,000Bank account to mobile transfer  US$ 252,000Mobile to bank account transfer  US$ 175,000Utility bill payments US$ 28,000Total Airtime Recharge US$ 43,000

Launch Event on August 2010 First ever Mobile Wallet Launch in the Country

Our Success Story

Payment Solution at the Largest Departmental Store Chain Across Nepal

Our Success Story

VPN Connectivity between the bank and the store makes for an instant transaction experience

Disbursement and repayment of microfinance loans by villagers in Surkhet district through a cooperative In coordination with Oxfam, a British INGO

Our Success Story

Airtime Recharge in remote district of Salyan One of the most poorest districts located in western Nepal Villagers saved from having to walk over 4 hours to top-up prepaid airtime

Our Success Story

Our Success Story

The mBillionth Award 2011 was held in New Delhi, India in July 2011, to honor innovative applications and services excellence in the field of mobile communications. 

The summit was sponsored by internationally acclaimed telecommunications giant Vodafone

Of more than 200 applicants from Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka, 21 were selected as winners in 11 core categories, with Kumari Bank, the sole winner representing Nepal

Won award under the m-Business & Commerce/Banking category

Our Success Story

Won the Manthan Award South Asia 2011 –at an International Summit 2011 held in New Delhi 2 weeks ago

The award was won in the e-business and enterprise category

Out of more than 481 applications from across Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, 38 were selected as winners in 30 different core categories, with Kumari Bank, the sole winner representing Nepal

We’re only 1% of where we want to be

But….

1%

• We understand that paradigm shifts do not occur overnight• Any strategic view requires a long term commitment

Future of Retail Banking in Nepal Banking 2.0

Low cost mechanism to bring greater access to finance Banks & FIs save on branch costs

Pension, government subsidy and social security disbursement through mobile phones More secure Reduces Fraud Saves tax payers from inefficiency costs

Increases the velocity of money More economic activities with a given money supply circulating at a faster pace

Enhance Population Productivity: 5-30% rise in income for people in countries where mobile wallet has been launched

How can Mobile Banking Help Nepal?

Studies by LBS, the WB, and Deloitte found that every additional 10%

mobile phone penetration adds 0.6%-1.2% increase

to the GDP

Challenges in Mobile Banking“Cash is king” society

Nationwide awareness campaign and training programs is capital intensive

Developing pervasive distribution channel throughout Nepal

Illiteracy (conventional & digital) and resistance to change

The solution has to be rural friendly

Setting up a regulatory framework that allows co-existence of social benefit along with profit potential to the solution providers

Need cooperation not competition among providers to achieve scaleo Joint efforto Interoperability (e.g. ATM Network)

It cannot be a one-way traffic

i.e. bringing rural savings for urban

loans

Customers

Merchants

Agents

Bank

Mobile Banking Ecosystem

Agents are crucial to the success of Mobile Banking.

They are the first interface to customers and they need to be

incentivized accordingly

Agents Key to the Ecosystem

21

Source: CGAP Five Business Case Insights for Mobile Money. April 2011.

How it is likely to evolve

Mostly P2P remittances and pre-paid value

storage

Merchant payments. Payroll, utility bills, P2P,

etc.

Any type of payments and

financial services

1st Year 2nd Year 3rd Year

Service Maturity

•Purchase Air/Bus/Movie Tickets•Disbursement of government pensions and subsidies•Payment of School Fees•Payment of Doctor & Hospital Services•International Remittance•Utility bills Payment – Electricity, Water, Waste

Boundless Opportunities

23

G2P

P2P

Payroll

International and

Domestic Remittance

s

B2B

23

Toward Interoperability

24

Single Player

Initial StrategyOperator or bank ledUsually proprietaryLimited customer reach

One-to-Many

Increased OpportunitiesLarger customer poolIncreasing product diversity

Many-to-Many

InteroperabilityGreatest benefit to customersAny carrier, any bankReminiscent of VISA modelS

ca

lab

ilit

y

Today Future

Low

High

Source: Sevak Solutions. 2008.

The promise is real and achievable Growth is not explosive, at least not until critical mass is obtained Training and awareness drive to increase consumer knowledge and

confidence is crucial Agents are the most important piece of the puzzle Ultimately what drives adoption is how useful your product is to

the people Localization Greater network for the network effect to take hold

From the Trenches

Thank You