INTERNATIONAL FINANCE CORPORATION Mobile Financial Services for Microfinance Institutions: mBank in the Philippines Vanessa Vizcarra and Minakshi Ramji Table of Contents List of Acronyms...................................................................................................................................................v Acknowledgements......................................................................................................................................... vii CHAPTER 1:  Overview of the Philippine Financial Sector.....................................................................1 Introduction.......................................................................................................................................................................................................................... 1 Mobile infrastructure....................................................................................................................................................................................................... 2 Lack of Access & Unmet demand............................................................................................................................................................................ 2 Regulation of Mobile Financial Services.............................................................................................................................................................. 3 CHAPTER 2:  Introducing mBank....................................................................................................................5 Overview of mBank Operations................................................................................................................................................................................ 5 MFS Business Model and Strategy..................................................................................................................................................................6 Partnership management............................................................................................................................................................................................. 7 How the MFS model works.......................................................................................................................................................................................... 8 Revenues, Commissions and Fees........................................................................................................................................................................... 8 Strategic Fit and Future Plans..................................................................................................................................................................................... 8 MFS Channel Operations.............................................................................................................................................................................................. 9 IT Platform................................................................................................................................................................................................................9 mBank Network Management.......................................................................................................................................................................9 Marketing and Promotion.................................................................................................................................................................................9 Risk Management.................................................................................................................................................................................................9 Performance of the model: Cost and Benefit Analysis.............................................................................................................................10 Performance of FAs............................................................................................................................................................................................10 CRC Costs...............................................................................................................................................................................................................10 Benefits for mBank...........................................................................................................................................................................................................10 Challenges............................................................................................................................................................................................................................10 Lessons Learned................................................................................................................................................................................................................11 iv MOBILE FINANCIAL SERVICES FOR MICROFINANCE INSTITUTIONS: MBANK IN THE PHILIPPINES List of Tables Table 1:  Loan Repayment Sample Table................................................................................................................................................................... 6 List of Figures Figure 1:  Smart and mBank Distribution Structures.......................................................................................................................................... 6 Figure 2:  Number of mBank Borrowers..................................................................................................................................................................... 7 Figure 3:  mBank Client Sign Up Process................................................................................................................................................................... 8 Figure 4:  Number of mBank CRCs and Loading Stations............................................................................................................................... 9 List of Acronyms ASP Active Server Pages BSP Bangko Sentral ng Pilipinas or Central Bank of Philippines CRC Customer Relationship Center DSP Distributor Sales Person FMO The Netherlands Development Finance Company IP address Internet Protocol Address IT Information Technology KYC Know Your Customer MFI Microfinance Institution MFS Mobile Financial Services MMS Multimedia Messaging Services MNO Mobile Network Operator OTC Over the counter PD Provincial Distributor PHP Philippines Peso SMS Short Message Service USSD Unstructured Supplementary Service Data Acknowledgements The authors wish to recognize the exemplary support people at mBank for their support and patience in an- received from mBank Philippines during the preparation swering our questions: Arnaud Ventura, Founder and of this case study. Without their willingness to share their Board Member; Arnaud de Lavalette, CEO of mBank; An- experiences, this case study would not have been pos- drew Tolentino, Financial Controller; and Joshua Deoma- sible. In particular, we would like to thank the following no, Head of Sales. CHAPTER 1 Overview of the Filipno Financial Sector This report is part of a series of four case studies conduct- partnerships. While the set up costs for the mobile chan- ed under IFC’s “Business Case for Mobile Financial Service nel were relatively high, the cost of operations was rela- (MFS) Channels in Microfinance Institutions (MFI)” project. tively low. The quick ramp up of operations is attributable The purpose is to analyze how MFIs can implement MFS to the strong partnership that the institution was able to channels to achieve profitable growth while extracting engender with a major mobile network operator and its lessons to help different stakeholders in the microfinance dealer network, the scalable business model and the full industry design better targeted and successful m-banking automation of the credit appraisal. projects. IFC selected a variety of organizations as case study subjects, spread over different regions with each imple- INTRODUCTION menting different business models. mBank was chosen for its unique model which relies wholly on the mobile The Philippines has a comprehensive financial system en- channel to deliver financial services. Additionally, it has an compassing various types of banks, from large universal innovative partnership with its telecom partner for expan- banks to small rural banks and even non-banks. As of sion. Finally, mBank uses an automated credit appraisal March 31, 2011 there were 19 universal banks, 19 com- method to set loan amounts for borrowers. mercial banks, 73 thrift banks, 595 rural banks, 40 credit The focus in this particular case is mBank’s operations unions and 15 non-banks with quasi-banking functions, in the Philippines. As of December 2013, the organiza- all licensed with the Bangko Sentral ng Pilipinas (Central tion had reached three out of 17 regions in the country Bank of the Philippines, BSP). through its 30 branches or customer relationship centers, According to MixMarket, there are 4 million borrow- garnering 10,212 clients. A unique feature is the bank’s of- ers and 4.8 million depositors in the Filipino microfinance fering of its services via the mobile channel with the help sector, compared to an adult population of approximately of its mobile network operator (MNO) partner, Smart. 69.8 million1. There is a wide diversity of products and ser- The mBank case study was conducted in January vices available to microfinance clients. MFIs offer products 2014. The team relied on secondary research and visits to to corporate clients, medium—small—and micro-busi- the organization to collect and analyze data, and inter- nesses, consumer loans and mortgages. Savings products view MFI staff along with users and agents of the mobile include term deposits, recurring deposits and demand financial service. deposits among others. Only a few organizations offer The study concluded that the institution was able micro-insurance products. Some of the other services to successfully extend outreach to many geographic ar- eas over a relatively short period of time, using innovative technology and business model, and leveraging the right 1  CIA World Factbook (the Philippines), accessed on June 17, 2014. 2 MOBILE FINANCIAL SERVICES FOR MICROFINANCE INSTITUTIONS: MBANK IN THE PHILIPPINES offered by MFIs include: remittances, bill payments, for- Philippines has an enabling environment for mobile eign exchange, and interbank transfers. payments as evidenced by high literacy rates, popularity The Philippines central bank has played a positive of SMS, ubiquity of mobile phone, and low access to fi- role in creating an enabling environment for microfinance nancial services. In spite of the mobile money solutions in the country. In fact, for every year since 2009, the policy in the market, the World Bank’s Findex database revealed and regulatory framework for microfinance in Philippines 2 percent of adults used their mobile phone to pay bills; has been ranked number one by the Economist Intelli- 12.5 percent of adults received and 7.3 percent sent mon- gence Unit in a global survey of microfinance. Funding in ey on their mobile phone5. the sector comes primarily from domestic sources, in par- ticular from deposits. LACK OF ACCESS & UNMET DEMAND MOBILE INFRASTRUCTURE The Philippines is a densely populated country with very little access to financial services. The percentage of pop- As of 2012, there were 107 mobile subscriptions for ev- ulation with an account at a formal financial institution ery 100 inhabitants. Thus, mobile penetration is virtually stands relatively low (27%). Population with access to a ubiquitous in the Philippines. The country is also the glob- debit card (13%) is even lower. As of 2012, for every 100,000 al capital of texting. In 2011, the average Filipino mobile adults, there were 8.13 commercial bank branches and phone user sent and received about 400 text messages 19.31 ATMs. per month, although there is evidence that texting is de- Since the Philippines is composed of islands, many ar- clining over time with the advent of messaging applica- eas are remote and difficult to reach. There are only 17.26 tions. In all, Filipinos send two billion SMS messages on a commercial bank branches for every 1,000 square kilome- daily basis2. ters6 and much of the banking infrastructure is concen- Currently, there are 3 telecom operators in the coun- trated around the national capital region (NCR). Forty six try, Smart PLDT with 53% of the market share, Globe (30%), percent of commercial and universal bank offices and 30% and Cure (1%)3. With falling revenues and fears around in- of thrift bank offices are located in the NCR. In contrast, creasingly higher churn rates, the competition between only 3% of rural and cooperative bank offices are located the two big players is heating up as they seek newer and in the NCR7. more innovative ways to encourage customer loyalty. There are two major mobile money initiatives launched by the two primary MNOs. SMART Money was launched by SMART communications in partnership with Banco de Oro. Operational for over a decade, customers could send and receive domestic payments, purchase 2  Philippines—Telecoms, Mobile, Broadband and Forecasts, ac- airtime, and avail of a pre-paid card through this service. cessed on 17 June 2014. Although SMART telecom has close to a million loading 3  National Telecommunications Commission Annual Report (2012), stations, customer activity in SMART Money has been low. accessed on 17 June 2014. 4  Interview with Globe staff. A few years later, Globe launched GCASH which allows cli- 5  Global Financial Inclusion Database (2011), accessed on 17 June ents to send and receive domestic payments, buy airtime, 2014. make merchant payments, etc. Of the current 1.8 million 6  IMF Financial Access Survey, 2012, accessed on 17 June 2014. wallets, about 300,000 are active4. 7  BSP data on Philippine Banking System, accessed on 17 June 2014. Overview of the Filipno Financial Sector 3 REGULATION OF MOBILE FINANCIAL SERVICES ruled that non-bank agents may provide cash in/ cash out services, which allow MNOs to leverage their network of The BSP has a strong financial inclusion mindset and has agents, network of pawnshops, and mom and pop stores tended to adopt a ‘Test and See’ approach to mobile mon- around the country. However, agents cannot be used for ey regulation. In other words, they have allowed non-finan- any ‘inherent’ banking activity related to deposit accounts; cial entities such as MNOs to operate mobile money pilots implying agents cannot handle cash for bank accounts. with sufficient risk mitigants in place. Regulations are devel- Smart is able to offer a pre-paid account rather than a de- oped based on market reaction to the pilots. BSP has also posit account and is able to get around this regulation. CHAPTER 2 Introducing mBank mBank is a thrift bank that provides microfinance services OVERVIEW OF MBANK OPERATIONS (currently loans with a savings product planned) through mobile banking, the prime beneficiary being Smart air- Although mBank’s license also covers savings and mi- time resellers. It is registered with the country’s Securities cro-insurance products, mBank only offers loans to clients. & Exchange Commission and approved by the Banko Sen- Still early into its operations, the organization reports ap- tral ng Pilipinas. proximately 10,212 loans through 30 client relationship mBank began with the goal of improving financial in- centers (CRCs) in three regions of the Philippines. These clusion by delivering financial services to unbanked and are the result of the efforts of 141 personnel. under-banked users through a technologically-enabled plat- Meanwhile, mBank’s portfolio has grown steadily form. In the late 2000s, buoyed by the success of Safari.com since its inception. Its 2013 aggregate portfolio value was in Kenya and Smart in the Philippines, PlaNet Finance began pegged at $981,000 (or 39,394,000 Philippine pesos). The to look at ways to improve financial inclusion by leveraging average amount loaned is about $96. The vast majority mobile money solutions. To this end, mBank and Smart pilot- (86 percent) of mBank clients are women. ed a small initiative to assess the viability of launching a 100 mBank loans are a form of revolving credit facility. In- percent branchless bank which would offer mobile financial dividual credit extended ranges from 5,000 to 25,000 Phil- services in partnership with Smart money. This proved suc- ippine pesos ($125–$625). Withdrawals are at the client’s cessful and demonstrated high customer take-up. discretion based on their needs. For example, if a client As a result, in 2011, FMO, the Dutch development is approved with a 5,000 pesos credit limit, the client can bank and Finnfund, Finland’s development finance com- draw down 3,000 pesos during the first week, and 2,000 pany, partnered with the PlaNet Finance Group to es- pesos the second week, and so on, up to 5,000 pesos. tablish mBank Holdings—to establish banks driven by Loans can be repaid in full or in part at any time, at no mobile money solutions. The Philippines was identified as cost. At each loan amount level, the client has four install- having a suitable environment for such an initiative. Thus, ment options; she, or he, can choose the option that best mBank Philippines was founded with the following share- fits their cash flow situation and convenience. A higher holders: mBank Holdings (40 percent share participation), installment leads to shorter repayment tenures. Likewise, FMO (10 percent), Finnfund (10 percent) and PLDT Smart small installments lead to longer repayment tenures. Im- Foundation (Smart’s independent foundation arm). This portantly, however, the weekly repayment installment marked the first operational deployment of mBank Hold- may not be changed once set. ings in the country. The initial capital was $5.6 million or In order to be eligible for a larger loan, the client 250 million Philippine pesos. In 2012, mBank Philippines must be paying at least the minimum amount required began operations in the province of Tacloban, one of the on the larger loan. For example, as shown in the figures areas later devastated by typhoon Haiyan in 2013. below, a client currently accessing a 2,500 pesos loan can 6 MOBILE FINANCIAL SERVICES FOR MICROFINANCE INSTITUTIONS: MBANK IN THE PHILIPPINES TABLE 1: Loan Repayment Sample Table Loan Weekly No. Total Total Loan Weekly No. Total Total Size Repayment Weeks Interests Repayment Size Repayment Weeks Interests Repayment 2,500 100 30 462 2,962 7,500 300 30 1,386 8,886 200 14 214 2,714 400 22 991 8,491 250 11 171 2,671 600 14 641 8,141 — — — — 750 11 512 8,012 5,000 200 30 924 5,924 10,000 400 30 1,848 11,848 300 19 580 5,580 500 23 1,422 11,422 400 14 427 5,427 800 14 855 10,855 500 11 341 5,341 1,000 11 682 10,682 be approved for a 5,000 pesos loan only if her or his cur- introduces mBank to its provincial distributors (PDs) and rent installment is at least 200 pesos. Additionally, to be mBank establishes individual partnerships with the PDs, qualified for the next level, the client must also have been who are in charge of selling airtime in a specific area. diligently paying the regular installment reimbursements At each PD office, mBank co-locates a branch or cli- chosen, with no late payments. Over time, good clients ent relationship center (CRC). This is a type of satellite of- are granted loan increases, and notified by SMS when fice in the PD’s back office space. CRC staff is responsible they are eligible. for sourcing loans, while PD staff is responsible for cash-ins and cash-outs. When mBank has reached an agreement MFS Business Model and Strategy with an individual PD, it activates mWallet accounts for its region. This means that mWallet accounts are eligible for mBank offers its services through its main partnership cash out services at their respective PD. with the MNO, Smart and also via individual agreements An example of both companies’ respective structures with Smart’s distribution network in the provinces. Smart is shown in the figures below. FIGURE 1: Smart and mBank Distribution Structures Smart Distribution Network mBank Structure PD1 PD3 120 PDs in total CRC1 CRC3 30 CRCs in total PD2 CRC2 DSP1 DSP3 ~100DSPs in total CRC Manager Clerk O cer 2 Field Agents DSP2 100 airtime resellers each to total ~1million resellers Source: Interviews with mBank Philippines operational staff. Introducing mBank 7 mBank supports loan delivery through two networks: FIGURE 2: Number of mBank Borrowers CRC staff and the Smart PD network. The CRC staff—who 10,212 are employees of mBank—are tasked with sourcing and monitoring loans and addressing client grievances. The 8,599 CRC staff includes CRC Manager, clerk officer (CO), and 6,607 field agents (FAs); they are complemented by the Smart PD network whose staff (called Distributor Sales People or DSPs) are responsible for cash-ins and cash-outs. MFS transactions available through mBank are loan disbursements (cash-out) and loan repayments (cash- 2,875 2,180 2,263 in, although the cash is collected manually by DSPs, not 1,184 1,520 by the PD outlets). In 2013, banking agents conducted Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 July-13 Aug-13 1,233,769 cash-in and cash-out transactions, representing Source: mBank internal data. a total volume of $5,228,225. At present all of mBank’s clients are Smart telecom airtime resellers, associated with their respective PDs. Each PD decides whether the partnership is attractive mBank offers resellers the option of receiving loans either for them and enters into individual contracts with mBank. as cash or electronic load or a combination of the two. For Through such contracts, PDs and mBank agree to tap into resellers, this loan is an important source of working cap- Smart’s airtime reseller network, facilitating market pene- ital. When purchased as e-load, it frees the client’s capital tration by introducing resellers to mBank’s products and for investment into other businesses in which she or he services. mBank clients can cash-in their loan repayments may have an interest. at least on a weekly basis with DSPs. PSDs agree to facili- tate loan repayment collection via DSPs on a weekly ba- sis. The repayment collection conforms to their existing PARTNERSHIP MANAGEMENT routes, so no special routes are required. This agreement delivers important benefits for both The Smart-mBank agreement mandates collaboration be- partners. In Smart’s case, assuring its airtime resellers have tween the two companies in providing financial services access to a working capital loan guarantees their loyalty. to the Smart customer base under the mBank model, As well, for individual PDs, it boosts airtime sales for those which leverages Smart’s airtime distribution network and PDs—by as much as 10 percent per DSP enrolled. And mobile banking technology. These partnerships are criti- this, in turn, increases commissions for PD and DSP alike. cal for the success of the initiative. In this regard, Smart has It also helps PDs achieve sales targets set by Smart, which committed to provide to mBank with Smart’s subscriber, leads to even higher commissions8. For mBank, having a dealer, and airtime reseller data, as associated with their member of Smart’s sales team involved in the marketing respective PDs. Smart also provides a full time program manager for the entire duration of the partnership whose 8  With a pre-paid mobile phone, topping-up or reloading is needed salary is paid for by mBank. This team member helps to enjoy the services offered by the operator. The most popular op- mBank establish relationships with regional PDs. Having a tion to do this is to purchase a prepaid card; but for security reasons, Smart sales team member involved in the marketing the electronic reloading was developed. Electronic reloading technol- channel to the PDs is crucial to the initiative’s success. As ogy was first introduced in the Philippines by Smart Communica- tions, which branded the service as SmartLoad. It is considered the PDs and regional team members note, Smart’s involve- world’s first electronic reloading service. It is now commonly used ment has engendered trust among PDs. And that has by other service providers. From Wikipedia: http://en.wikipedia.org/ translated into airtime resellers trusting the channel. wiki/Electronic_reloading, accessed on June 18, 2014. 8 MOBILE FINANCIAL SERVICES FOR MICROFINANCE INSTITUTIONS: MBANK IN THE PHILIPPINES the channel to the PDs is extremely important for the suc- With the applicant enrolled in the system, a credit fa- cess of the initiative. As the PDs and regional team members cility is simultaneously created, which can be cashed-out. say, Smart’s involvement helped to foster trust in the minds of Cash-outs can happen in three ways: all cash, all e-load, the PDs. The PD and the PD staff involvement in turn allowed or some cash and some e-load. The third is the most airtime resellers to trust the channel. common method used. The borrower is able to withdraw the cash amount at her/his PD, or at an assigned loading station belonging to his PD. A loading station is simply a HOW THE MFS MODEL WORKS smaller kiosk of the PD which sells airtime to resellers. If the reseller chooses e-load, then she/he can indicate through The typical process for a loan involves client enrollment their mobile how much e-load she or he requires. When and follows a procedure which can be paraphrased as the DSP receives this SMS, she or he transfers the e-load “Introduce, Visit, Know Your Customer, and Credit facility”. to the borrower. The main steps of this process are represented in the fig- Cash-ins or loan repayments typically happen at the ure below. retailer’s shop since DSPs are often ambulant, meeting In the introductory phase, field agents (FAs) accom- with retailers and selling airtime. On a set day in the week pany DSPs in their daily routes, carrying a register of cli- they collect mBank loan repayments. For any given bor- ent names and phone numbers. Sourcing loans begins rower, the DSP accepts a cash repayment from the bor- with DSPs introducing mBank FAs to potential clients. rower and simultaneously transfers e-money to his/her FAs query clients regarding their interest in a loan and account. This e-money is automatically withdrawn from leave general mBank material with retailer (a “welcome” the account as a repayment at the end of the day. leaflet). If the introduction goes well, the FA arranges an individual visit. During this subsequent visit, FAs provide further de- REVENUES, COMMISSIONS AND FEES tail about the credit facility. Then an application form is filled out, and a photograph of the key supporting docu- There are two types of commissions paid to the PD and ments is taken and transferred electronically to mBank by its personnel: the mobile phone application. Once information arrives in the mBank platform, the a. Cash out Fee: For every cash-out made by an mBank clerk officer of the corresponding CRC performs some ini- client at a loading station, the PD gets a commission tial checks and if ok enters the applicant information into b. Performance Fee: Additionally, at the end of each the system. The latter, using an automated credit appraisal month, the mBank system computes the loan book system, will either accept or reject the applicant for a spe- quality for each PD and is certain KPIs are met, based cific loan amount. The credit appraisal is based on a set of on volumes and portfolio quality, additional bonuses policy rules, segmentations and credit scoring. are awarded. STRATEGIC FIT AND FUTURE PLANS FIGURE 3: mBank Client Sign Up Process mBank has shown strong growth during its first year (85 Introduction Credit percent). This underscores that its initial strategy of part- Visit KYC to mBank Facility nering with Smart clients has proved successful. Repeat loans are pervasive since working capital loans are in high Source: Interviews with mBank operational staff. demand. However, mBank management is aware that Introducing mBank 9 future growth will require serving Smart subscribers. This These outlets are the PDs’ responsibility in conjunc- will require different/additional financial products, stron- tion with the network of DSPs that make client introduc- ger branding, and a large network of agents, to be recruit- tions and execute collections. ed among the base of retailers who has successfully used mBank works within a network of 30 CRCs via collab- mBank’s products. orations with 30 PDs. There are a total of 120 Smart provin- Thus, once the roll out to Smart retailers is completed, cial distributors in the Philippines. Each has between one mBank plans to move to the subscriber market and reach and three outlets or loading stations and 100 DSPs. millions of customers. Marketing and Promotion MFS CHANNEL OPERATIONS Given the captive nature of mBank’s clients (Smart airtime resellers), little marketing was required thus far since these IT Platform resellers know the Smart PD in the area very well, and trust the Smart brand. Since mBank has been introduced mBank’s mobile platform is provided by Experian MicroAn- through this channel, the bank’s credibility was swiftly alytics. This provider has allowed a full automation of the established. To add to this initial thrust, mBank chose to initial loan appraisal and the subsequent loan renewals. lead with small loans. This was a key selling point for these Client communication is via a mix of SMS and USSD, resellers who are essentially small entrepreneurs running including “welcome” messages, cash-in notifications, noti- mom and pop stores. Because a working capital loan is a fications of qualifying for a higher loan et al. critical need for them, not much marketing was necessary to convince them to take up the loan. mBank Network Management The bank has found that the most effective market- ing strategy is word of mouth (locally known as: “mouth CRC management depends exclusively on mBank CRC to ear”). mBank has learned that people can be easily con- managers. The PD outlets support any client cash-out vinced to use the service if someone they know recom- activity. Client cash out activity happens at the PD main mends it to them. office or at loading stations. Risk Management Number of mBank CRCs and FIGURE 4:  mBank, along with their technology provider and Smart, Loading Stations has devised an automatic credit appraisal algorithm to 70 determine eligibility and appropriate credit amounts. This 60 60 system uses a combination of classic and alternative data, 50 such as airtime usage and airtime sales of the reseller. This 40 has led to producing a credit scoring system with a high 30 level of predictive power, allowing therefore to effectively 30 detect future defaulters. 20 When field agents (FAs) collect pictures of “Know 10 8 Your Client” documents from potential borrowers, these 4 0 are transmitted automatically to the mBank central sys- 2012 2013 tem, ensuring that no time is lost in the transportation or mBank CRCs Loading Stations copying of documents and that each step of the credit Source: mBank Internal Data. approval process is time stamped and digitized. 10 MOBILE FINANCIAL SERVICES FOR MICROFINANCE INSTITUTIONS: MBANK IN THE PHILIPPINES PERFORMANCE OF THE MODEL: COST AND capital loans. Loans are a good way to build client BENEFIT ANALYSIS loyalty, the expectation being to ultimately leverage this customer relationship into other financial services Performance of FAs and products. iv. Partners are adequately rewarded: The target client base for the initial stage of mBank oper- Each of the partnership stakeholders benefits from ations is the Smart airtime resellers. Key performance indi- the initiative, which boosts their incentive to continue cators for FAs are measured on a weekly basis and include working for the success of the partnership. For Smart, number of visits, number of KYCs and number of cash it amounts to an excellent way to increase their PD’s outs (disbursements). business and thereby keep them satisfied. For the PDs, the increased sales in e-load imply increased CRC Costs commissions for them. v. Repeat customers: Setting up a CRC costs approximately $2,500 (in furniture, At the moment, 30 percent of the partnership client IT and communications expenses). Thus the total invest- base consists of repeat customers. Since working cap- ment for mBank’s 30 CRCs has been around $75,000. ital will always be a need for these retailers, it can safe- Maintaining each of them, including personnel, market- ly be assumed that there will be sustained demand ing materials and connectivity, requires about $1,307 on for mBank loans. a monthly basis. vi. The importance of data analytics when evaluat- ing a client: The speed disbursing the loans is due to the ability BENEFITS FOR MBANK of the system to take the client information and an- alyze it. In places where information about clients is Following are the benefits accruing to mBank from pursu- scarce, data analytics is a powerful tool that supports ing their MFS channel strategy: the swiftness and accuracy of the client information. i. Increased number of service points in more geo- graphic areas: CHALLENGES mBank exists in 30 PDs across the Philippines. ii. High ramp-up attributable to partnership i. Operational fraud, while limited, is still a risk, mainly management: due to the lack of understanding from some clients of By partnering with Smart and leveraging their distri- the need to perform a cash-in transaction when the bution network, mBank has been able to expand very cash is handed to the DSP for the repayment. mBank quickly, garnering 10,000 clients by the end of their performs a daily cash reconciliation with all the DSPs first year of operations. Similarly, the strong trust that but some fraudulent behaviors are still present but clients have in mBank is a function of the firm’s part- quickly detected on the collections process, where nerships with individual PDs, all of whom are well- a client is contacted because he/she is overdue, but known to Smart airtime resellers. claims to have performed the payment to the DPS. iii. Leading with loans, a highly in-demand product: This triggers an immediate check with all the clients mBank started its business with loans, which are served by that DSP and a few fraudulent behaviors much in demand among its client base. In particu- have been detected, which led to the immediate lar, mBank has targeted airtime resellers, all of whom dismissal of the DSP and the reimbursement of the are small entrepreneurs needing to access working funds to the client. Introducing mBank 11 ii. Repayments only happen weekly on a pre-assigned LESSONS LEARNED day. This creates significant risk. If this is well known throughout the region, it makes it much easier for any i. Finding the right partners and creating the right set miscreant to plan a robbery of the DSP. It may also of incentives is critical in getting a strong start. Part- imply physical danger for the DSP to have so much nerships can make or break MFSs implemented by an cash on his person. MFI. Managing the over 100 PDs of Smart has revealed iii. mBank is very dependent on Smart’s network for its to be more challenging than previously expected, expansion, so a close cooperation with each indi- but possible with the right dedication, structure and vidual PD is required, which take time to create and incentive plan. maintain. ii. For mobile money, “fake cash-in” are a clear fraud iv. mBank incurred significant losses as a consequence opportunity and need to be closely monitored. of typhoon Haiyan in November 2013. Up to 20 per- Constant training to the client to understand the cent of their portfolio had to written off because of cash-in process is required to minimize these fraud its direct impact on one of their oldest and biggest opportunities. CRCs. v. Out of the 50+ CRCs deployed by mBank, very few have reached sustainability, which is expected about 12 months from the launch of the CRC operations.