Bridges to Cash:

Challenges for the retail end of

Mobile Money
Serving customers as

Agency Network Manager

Bogota, 24 November 2011

Frederik Eijkman
PEP Intermedius Ltd
PEP Intermedius Ltd

How mobile money works, the M-pesa case

http://www.cgap.org/p/site/c/media/?play=1.9.45741

PEP traces its roots to the developmental needs

of the under banked
Mission
To deliver financial services in a safe and secure environment, that help to enhance
the welfare of those who have been excluded from, or have had limited access to the
current providers of financial services.

Business at PEPs network of agents has

experienced strong growth since inception
Rapidly expanding branded network
of branches

15,000 transactions per day

450,000 USD daily value moved

PEP currently operates 177 stores in

three different formats:
Supermarket: 30 shop-in-shop
outlets (15 Nairobi and 15 urban)
PEP stores:7 stores (4 rural and 3
urban)
Franchise agents: 140 stores (80%
rural and 20% urban)

30 USD average transaction size

Currently PEP operates 2 networks totaling 36

own agents and 140 franchise agents
Although PEP operates as a
single company with the Head
Office in Kisumu, it
differentiates between its sub
networks of agents.

Sub Network

Being a multi-format operator,

enables PEP to cater to
different opportunities to enter
the market, while applying a
common management
approach to agent support
and liquidity provision
PEP owned
Franchise

Location

# Agents

PEP has successfully built key strategic

partnerships with leading financial players
Depending on contractual arrangement PEP
agents may be registered to act for single or
multiple money transfer services.
PEP has partnered with leading financial
players such as M-Pesa, YU Mobile, Kenya
Commercial Bank, Mukuru.com, Orange
Money and Western Union/MoneyGram.

The result is that PEP currently offers a broad

spectrum of payment services, making it the
ideal transaction destination for both private
as business customers.

PEP Value Chain- Offering a broad spectrum

of value propositions to a variety of stakeholders
Upstream Customers
(Producers of
financial services)

Safaricom

PEP

Downstream Partners
(PEP Agency
network)

End Users
(Main customers
segments)

PEP-Owned
Agents
Individuals

Airtel
Franchise
Agents
Orange
Traders
Others

Effectively offering
Distribution Channels

Nakumatt
Stores
Managing liquidity and
channel management
support

Serve as welfare
enhancing partner

PEP Value Chain- End Users

Upstream Customers
(Producers of
financial services)

Safaricom

PEP

Downstream Partners
(PEP Agency
network)

End Users
(Main customers
segments)

PEP-Owned
Agents
Individuals

Airtel
Franchise
Agents
Orange
Traders
Others

Effectively offering
Distribution Channels

Nakumatt
Stores
Managing liquidity and
channel management
support

Serve as welfare
enhancing partner

Level 1:End Users

450,000 transactions per

month (+/- 85 transactions
per day per store)

Over $ 13.5M monthly value

moved (+/- $30 per
transaction)

Private clients (household)

and commercial clients
(traders)

Client transaction profiles

differ significantly by
geographic location

Clients display different transaction profiles;

geographic locality makes a difference
City: CBD Kisumu
Peri-urban: in and around two
main city markets and bus
terminal
District: small towns

Rural: village markets

Rural clients do fewer and smaller transactions

In the city centre transactions are much larger
Average number of client transactions per
store per trading day

Average client transaction size per

store, in Kshs

Different domestic remittance patterns

Rural areas are strongly cash out, whereas urban areas tend to be more
cash in

Average daily net value of client

transactions in Kshs '000

PEP Value Chain- Downstream Partners

Upstream Customers
(Producers of
financial services)

Safaricom

PEP

Downstream Partners
(PEP Agency
network)

End Users
(Main customers
segments)

PEP-Owned
Agents
Individuals

Airtel
Franchise
Agents
Orange
Traders
Others

Effectively offering
Distribution Channels

Nakumatt
Stores
Managing liquidity and
channel management
support

Serve as welfare
enhancing partner

Level 2: Downstream partners

140 agents doing 50 200
transactions per day
$200 $1000 commission
revenue an agent takes
home every month
4000 rebalancing
transactions per month
between $1000 - $1250

Customer Service is a strong determinant of

profitability of outlets
Two nearby M-PESA stores and their daily cash transactions with clients, in Ksh '000 over a period of 6
months

Privacy and security

Cash out

Friendly and speedy service

Cash and float availability

Lake
Market

Cash in

Cash out
Cash Joint
Cash in

Agencies offset their customers transactions with

their own cash or e-float
Composition of agent working capital balances

Cash
Cash
50,000
50,000

Cash
Case 1:
Client
deposits
10,000

60,000
Cash

Case 2:
Client
withdraws
30,000

Cash
Cash
30,000
30,000

60,000
E Float
E Float
70,000

50,000

E Float
40,000

Managing liquidity is the central aspect of the

agent's business
too many cash-in transactions: agent runs out of e-float
too many cash-out transactions: agent runs out of cash
In either case, the agent needs to rebalance its liquidity

Case Study 1. Liquidity Management in

Urban Areas
Molly, Lake Market, Kisumu
Mollys shop is located in a busy market area of
Kisumu city. Her customers are businessmen
who pay suppliers via m-pesa or salaried
workers who send money home.
Her outlet is typical of urban outlets where there
is an excess of cash

In October 2011:
Total cash out:

$55,000 (2,000 p/day)

Total cash in:

$122,000 (4,500 p/day)

Difference:

$67,000 (2,500 p/day)

Molly's working capital: $1,500

Case Study 2. Liquidity Management in Rural

Areas
Evelyn, Siaya Market
Evelyns outlet is located at a busy corner of
Siaya market and the bus stop. Typical of rural
areas, Evelyn sees more cash withdrawals and
constantly needs to replenish cash.

In October 2011:
Total cash out:

$81,000 ($3,000 p/day)

Total cash in:

$51,000 ($1,900 p/day)

Difference:

$30,000 ($1,100 p/day)

Evelyn's working capital:$750

Case Study 3. Liquidity Management in City

Area
Lynet, Karen Supermarket, Nairobi
Lynets outlet is located in a busy supermarket in
Kenya's capital Nairobi.
Typical of rural areas, sees more cash deposits and
constantly needs to replenish float.

In October 2011:
Total cash out:

$240,000 ($8,000 p/day)

Total cash in:

$100,000 ($3,300 p/day)

Difference:

$140,000 ($4,700 p/day)

Lynet's working capital: $3,000 Ksh

Agent liquidity management is costly

Stores need to rebalance their liquidity holdings daily
Number of transactions with PEP per store
per trading day, by type of store

Daily net value of client transactions in Kshs '000

Frequency with which stores transact with

PEP per trading day, by type of store

Statement Float Account Aggregator

PEP Intermedius Ltd

Rebalancing Super Agent

PEP Intermedius Ltd

Cash Distribution Challenges

Stores require quite intense daily liquidity management support:

They must rebalance on at least 60% of days and often several times
per day
Rural areas face greater difficulties: lower commissions;
transactions lopsided towards cash out; and high travel and time costs
There is evidence of market discipline between stores: favouring
certain stores offering exceptional service + substantial trading
volumes

PEP Value Chain Upstream Customers

Upstream Customers
(Producers of
financial services)

Safaricom

PEP

Downstream Partners
(PEP Agency
network)

End Users
(Main customers
segments)

PEP-Owned
Agents
Individuals

Airtel
Franchise
Agents
Orange
Traders
Others

Effectively offering
Distribution Channels

Nakumatt
Stores
Managing liquidity and
channel management
support

Serve as welfare
enhancing partner

Level 3: Upstream customers

Providing physical infrastructure/ transaction

platform

Customer Channel and Interface; mobilising

and registering

PEP: Core competencies executed at 3

operation levels
Core competences
Responsible level

Channel management

Front desks

Back Office (Treasury)

Management

Customer interaction and

generate repeat visits
Local knowledge

Liquidity management

Timely commission payments

to agents
Technical support

channel/back-up

Network selection
Product development
Agent location
Seed capital provision
Staff training

Active monitoring and timely

managing of float
Interact on basis of trust with
end-users (ie in some
instances provide advances)

Guarantee availability of
cash for agents
Rebalance agent accounts
Provide operational support
and oversight
Manage overall cost of
capital

Revenue and cost structure in the agency model

Turnover
Commission

Number of
transactions

Commission per transactions

Type of
transactions

Commission per transactions

Size of
transactions

Higher Commission if size is higher

Agency profile influences the three drivers of turnover:

Result
M-Pesa

-/-

Costs
M-Pesa agents

Relationship
with PEP

PEP owned: 100% commission for PEP

Franchise: 30% commission for PEP

Location
Agency

Urban, District, Rural

Accomodation
costs

Rent PEP owned Agencies

Staff costs

Salaries and wages PEP owned agencies

Overhead
Costs

Support HQ

WC costs

WC multiplied by costs of capital

Other costs

Bank Costs, Costs of Sales,

Travel Costs.

28

Take Aways

Sound business proposition for agents: Compensating them

for the cash solution he/she is offering, considering the risks and
resources required.

Incorporation of Aggregator model: Identifying institutions

that have the financial cloud and presence to quickly rebalance
agencies accounts.

When mobilising rural agents, stick to local people: when it

comes to money, the unbanked prefer to deal with people they
know

Thank You
For more information: eijkman@pepintermedius.com