56724 BRIEF Window on the Unbanked: Mobile Money in the Philippines Earlier this year, CGAP teamed up with the GSM Association (GSMA) (a global trade association for the mobile communications industry) and McKinsey (a global management consulting firm) to measure the global market for financial services delivered via mobile phones (mobile money) in 147 developing countries. This is the first study of mobile money and the unbanked--those without access to formal financial services--estimated to be almost 4 billion worldwide.1 Based on the analysis, 1 billion people do not have scenario at a time when subscription growth is a bank account but do have a mobile phone. By slowing and average revenue per user (ARPU) has 2012 that number will grow to 1.7 billion, making been falling by more than one-quarter since 2007 mobile phones a direct conduit to nearly half of in emerging markets.4 To take advantage of this the world's unbanked. As many as 364 million low- mobile money opportunity, MNOs, banks, and income, unbanked people will use mobile money their partners must deepen their understanding of three years from now, generating US$7.8 billion in unbanked consumers' needs and behavior. new revenues for the mobile money industry via transaction fees, improved loyalty, and more cost- efficient airtime distribution. About 120 mobile Insight from the Philippines money services will be launched in developing countries in 2009.2 The Philippines provides a window onto the complex financial lives of low-income families. This needs to be put into context. Mobile network Three out of four Filipinos are unbanked operators (MNOs) in developing countries took (Demirgüç-Kunt, Beck, and Honohan 2008). in US$169 billion in revenues for the year ended The country hosts two of the earliest pioneers March 2009.3 Thus, US$7.8 billion would represent in mobile money--Smart's Smart Money just 4.6 percent of the industry's income. However, launched in 2001 and Globe's GCash launched we believe only a minority of MNOs will ultimately in 2004. CGAP, GSMA, and McKinsey gathered succeed with mobile banking. This cohort could data on 1,042 unbanked consumers in the see substantial benefits, possibly adding more than Philippines, split between mobile money users 10 percent to gross revenue. This is an attractive and nonusers.5 Key Findings from the Philippines · One-half of active mobile money users are unbanked. · 26% are poor, living on less than US$5 per day (the poverty line in the Philippines). · Mobile money users have ARPUs 40% higher than peers who don't use mobile money. · Mobile money boosts loyalty: 68% of users with multiple SIM cards say their mobile money SIM has become their primary one for calls and texting. · Distribution is key: intensive users who do four or more transactions per month are 40% more likely to live within five minutes of an agent. · 1 in 10 unbanked users saves an average of US$31 (one-quarter of their family savings) in a mobile wallet. 1 CGAP, GSMA, and McKinsey analysis using data from Demirgüç-Kunt, Beck, and Honohan (2008). 2 To arrive at these conclusions, we conducted a forecasting exercise based on relatively conservative assumptions. We assumed that for each country, only one mobile money service would win greater than 10% uptake by users. Further, we assumed relatively modest usage by consumers and stable prices. The number of mobile money implementations is based on a comprehensive survey of MNOs and vendors. 3 Wireless Intelligence: total revenues for 150 operators in 80 developed countries through March 2009. 4 Wireless Intelligence: connections growth since 1995, prepaid ARPU for 49 operators in 27 countries. 5 Data were gathered in March 2009 from 1,042 unbanked people with different incomes, ages, and urban/rural locations. All have access to a mobile phone. We included a booster segment of users living on less than US$5 per day. Unbanked mobile money users are defined as people who have used Smart Money or GCash in the past three months. The margin of error is 5% with a 95% degree of confidence. December 2009 2 We found a rich vein of new How Do the Unbanked Use Mobile Money? information. One-half (1.6 million) of active mobile users in the Philippines Send money $57 are unbanked. Further, 26 percent Average transaction value (US$) Receive money (dom) $48 of active users have incomes below US$5 per day (the poverty line in the Buy airtime $7 Philippines). On average, unbanked Receive money (int) $277 mobile money users spend US$1.9 more per month than their peers, a Store money $40 considerable gain for Filipino MNOs Cashless payments $22 who face ARPUs ranging from US$4.04 to US$5.72 among prepaid customers.6 Receive salary $93 The survey also found evidence that Receive payment $17 mobile money can help combat 0 10 20 30 40 50 60 customer churn (switching to other Consumers who use mobile money (%) providers). Among users surveyed who had subscriptions with more than one network, 68 percent say their mobile money has gained traction with customers who (a) are provider is the MNO they use most for calls and breadwinners for their families, (b) do not have SMS messaging. a bank account, and (c) have a need for remote payments because they live outside of cities. There is also a "super-user" group in which 1 in every 11 How Do the Unbanked active unbanked mobile money users does more Use Mobile Money? than 12 transactions per month. Low-income Filipinos are primarily using Overall, users give their mobile money service mobile money to send and receive domestic high marks: 92 percent would recommend mobile remittances--on average sending US$57 and money to friends and family, and 90 percent feel their receiving US$48. However, this masks a more money is safe in a mobile wallet. This suggests that complex reality. Mobile money users are far from once people try mobile money, they find it has value. homogenous. Surprisingly, 12 percent of low- The focus for industry should be on encouraging income, unbanked users do not own a phone. This potential customers to try mobile money. suggests mobile money can reach lower than even the current bottom of mobile ownership. Who Are Potential Customers? Not all users focus on remittances. In fact, one- third of mobile money users do no remittances at Filipinos are active managers of their money. This all. They use mobile money to purchase airtime mirrors findings in other countries showing the and make purchases remotely, providing evidence poor use a wide number and range of financial that the unbanked want and will pay for financial instruments.7 For Filipinos surveyed, informal services that go beyond remittances. mechanisms dominate. Ninety-eight percent of unbanked Filipinos receive their income in cash, Most active users (52%) access the service twice and they overwhelmingly use informal savings a month or less. However, there is a significant instruments, such as saving at home in a safe hiding group (40%) of high-intensity users who do more place, giving money to a friend or family member than four transactions per month. They are 50 to hold, or joining a savings club. All told, low- percent more likely to live outside urban areas, income Filipinos hold an estimated US$450 million and they are 20 percent more likely to have a in informal savings balances, actively managed with full-time job, suggesting that mobile money frequent deposits and withdrawals. 6 Wireless Intelligence: prepaid customer ARPU for Globe Telecom and Smart for the first quarter 2009. 7 For example, Collins, Morduch, Rutherford, and Ruthven (2009) conducted financial diaries with 300 poor families in Bangladesh, India, and South Africa and found households used an average of 8 to 10 different financial instruments over the year. 3 Who Are Potential Customers? new customers to try mobile money. If trial is key, then it also makes sense to experiment with 80 inducements to bring in new clients. Unbanked 70 64% users are most enthusiastic about incentives that 60 54% reduce the cost and risk of trying mobile money, 50 either explicitly (a money back guarantee or free Percent 39% 40 first transaction are the second and fourth most 30 24% popular) or by offering something else of value that 20 would make up for the time and cost of trialing it 10 (free airtime and prizes are the first and third most 0 Awareness Understanding Have friends Do not have popular potential incentives). using friends using mobile money mobile money Second, understand the financial profile of Mobile money is a product for people like me potential customers. After its low level, the most salient feature of poor people's income is its variability. When income dips, willingness to Low-income Filipinos who do not use mobile money pay for financial services does as well. Targeting do have very high awareness of MNO brands recipients of government-to-person (G2P) welfare and even mobile money brands: 64 percent of payments is worth exploring, because these cash respondents are aware of at least one mobile money transfers give users a steady stream of payments product, and overall they are 25 percent more likely that smooth income (and not coincidentally would to know the brand name of an MNO than a bank. also generate a steady flow of fee-generating Fifty-four percent understand the potential uses transactions for the mobile money provider). For for mobile money (sending and receiving money, example, a new social transfer scheme (Pantawid remote payments, airtime top-up, etc.). Further, 75 Pamilyang Pilipino Program) is already making percent think mobile money would be easy to use. monthly welfare payments to 700,000 people and may be expanded to as many as 2.7 million in the This looks like fertile ground for quick uptake: near future (but is not yet using mobile delivery potential customers know about services, believe channels) (Santo Domingo 2009). they won't be hard to use, and are already actively managing their money. And yet, the potential isn't Third, build out a dense network of agents. For converting into reality. Only 13 percent of low- mobile money to be at all convenient, it must offer income unbanked Filipinos say they are interested easy ways to convert cash to electronic value and in trying mobile money. Forty-eight percent are back again. To date, the fulfillment infrastructure uncertain, suggesting hurdles to overcome. for Filipino mobile money users has been limited, particularly in rural areas and outside of malls and ATM kiosks. Urban mobile money users say they Driving Greater Trial, have four times more bank branches and ATMs Adoption, and Usage Trial Usage The evidence points at four steps the industry "Would you use mobile money to access Product A in the next six months?" should take. 60 54% First, get the marketing right. Targeting influential 50 36% May use % responding positively consumers and offering incentives to try the 40 Will definitely use service must be part of the marketing mix. Family and friends are a critical reference group. Family 30 and friends are the most common way users say they learn about mobile money (66%). Nonusers 20 17% 18% 15% 12% with family or friends who use mobile money are 10 12% 63 percent more likely to say mobile money is a product "for people like me". Providers might 0 2% 1% Savings Insurance Loans consider offering bonuses or prizes for referring than mobile money agents within 15 minutes money transfer company. By promoting mobile December 2009 of their house. On average, rural users report money as a remittance product, Smart and Globe no agents nearby and that they must travel to have put themselves in direct competition with reach a location where they can transact. Ease of global giants like Western Union and strong local All CGAP publications access is a defining feature between high- and players. are available on the low-intensity users. Intensive users who do four or CGAP Web site at more transactions per month are 40 percent more www.cgap.org. likely to live within five minutes of an agent than The Bottom Line CGAP low-intensity users. 1818 H Street, NW While banks are not reaching the unbanked half of MSN P3-300 Finally, explore services beyond remittances and the world's population with traditional distribution Washington, DC airtime top-up. Savings hold particular promise channels of branches and ATMs, mobile phones 20433 USA as a service much in demand. When asked what are penetrating to the unserved, with more Tel: 202-473-9594 additional services they would be likely to try than 4 billion mobile subscriptions in the world Fax: 202-522-3744 beyond mobile money, existing mobile money today according to Wireless Intelligence (www. users in the Philippines enthusiastically say wirelessintelligence.com). This deep reach of Email: savings (54%). Without any marketing and with a mobile is a potential launch pad for a considerable cgap@worldbank.org poor fulfillment infrastructure, 1 in 10 unbanked commercial opportunity--up to US$7.8 billion in © CGAP, 2009 mobile money users already stores an average direct and indirect revenues by 2012. Belief in this of US$31 in his or her mobile wallet. They report opportunity will spark an estimated 120 mobile this amounts to one-quarter of their household money launches in 2009. But to fully exploit it, savings. One could imagine a differential pricing MNOs, banks, and technology providers must (with deposit transactions priced more cheaply enhance their understanding of how unbanked than money transfers) that would make depositing (potential) consumers behave. Analyzing the and withdrawing from mobile wallets economical, needs of the unbanked can shine a light on more in turn encouraging clients to keep more funds in effective marketing, pricing that recognizes the storage and conducting transactions electronically variable income of low-income people, the critical instead of in cash. nature of building out a network of cash-handling agents, and demand for service offerings beyond The mobile phone industry should also look at remittances. how mobile money competes against the informal options already used by the unbanked. Currently, the most popular means of saving are hiding Resources cash at home (52%) and giving it to a friend or family member to keep (35%). Savers say they Collins, Daryl, Jonathan Morduch, Stuart prioritize quick access (49%) and safety (29%). Rutherford, and Orlanda Ruthven. 2009. Portfolios While the proverbial mattress is hard to beat in of the Poor. New Jersey: Princeton. terms of liquidity and quick access, the mobile money industry may very well be able to pitch Demirgüç-Kunt, Asli, Thorsten Beck, and Patrick mobile money as safer--without risk of theft or Honohan. 2008. Finance for all? Policies and family making demands on cash at home--and pitfalls in expanding access. Washington, D.C.: nearly as convenient (provided a more dense World Bank. agent network is developed). Having Filipinos convert from informal products may be easier Santo Domingo, Bernadette. 2009. "Arroyo to than competing on remittances: 77 percent of Seek Legislation Institutionalizing CCT Program." unbanked Filipinos currently already use a formal Business World, 26 June. AUTHOR Mark Pickens