Beyond Branch Banking with Mobile Phones

1. Beyond Branch Banking with Mobile Phones Sanjay Poudyal Chief Financial Officer (CFO) Kumari Bank Limited

2. Core Issue “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

3. BOP Focus • Who are the BOP population? • Earnings less than $2 per day • Do not have access to financial resources • Ignored by formal banking sector • Most vulnerable population – high cost of capital, susceptible to predatory lending, exposed to risks of carrying cash

4. Our Inspiration to Launch 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 Bottom line: Banking services through traditional means have not met the demand • 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

5. Our Inspiration to Launch • Our continued focus on technology enabled delivery channel • Empowers us to solve burning issues

6. Our Inspiration to Launch • Mobile phones are rapidly growing – YoY Growth > 40% 18 million users 10 million users % of Population

7. 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

8. 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 Kumari Bank Limited Leading commercial bank in Nepal Leapfrog Technology US based software company with a development center in Nepal

9. Our Offered Solution Features • 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

10. What have we achieved? Total transaction volume till dateUS$ 900,000 Total DepositsUS$ 140,000 Total Withdrawals US$ 134,000 Total Mobile to Mobile RemittanceUS$ 91,000 Bank account to mobile transfer US$ 252,000 Mobile to bank account transfer US$ 175,000 Utility bill paymentsUS$ 28,000 Total Airtime Recharge US$ 43,000 • 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

11. Our Success Story Launch Event on August 2010 First ever Mobile Wallet Launch in the Country

12. Our Success Story • VPN Connectivity between the bank and the store makes for an instant transaction experience Payment Solution at the Largest Departmental Store Chain Across Nepal

13. Our Success Story • Disbursement and repayment of microfinance loans by villagers in Surkhet district through a cooperative • In coordination with Oxfam, a British INGO

14. 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

15. 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

16. 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

17. But…. • We understand that paradigm shifts do not occur overnight • Any strategic view requires a long term commitment 1% We’re only 1% of where we want to be

18. 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 • 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

19. 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 scale • Joint effort • Interoperability (e.g. ATM Network) It cannot be a one-way traffic i.e. bringing rural savings for urban loans

20. 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

21. Agents Key to the Ecosystem Source: CGAP Five Business Case Insights for Mobile Money. April 2011. 21

22. How it is likely to evolve Service Maturity 2nd Year 1st Year 3rd Year • 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

23. Boundless Opportunities G2P Payroll P2P International and Domestic Remittances B2B 23 23

24. Toward Interoperability High Many-to-Many One-to-Many • Interoperability • Greatest benefit to customers • Any carrier, any bank • Reminiscent of VISA model Scalability • Increased Opportunities • Larger customer pool • Increasing product diversity Single Player • Initial Strategy • Operator or bank led • Usually proprietary • Limited customer reach Low Today Future Source: Sevak Solutions. 2008. 24

25. From the Trenches • 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

26. Thank You