Cross Country Bank Visa Credit Cards

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Innovations in
Financial Services for
the Poor
William Schoch
Vice President, Director Emerging Markets
Visa International
1 June 2007

Microfinance Centre Conference
Sofia, Bulgaria




                              For Visa Internal Use Only
Agenda

Introduction

Cards: funds disbursements and collections

Remittances: domestic and cross-border

Mobile phones: payment initiation and acceptance devices




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A global view of Visa

 Visa is a global network of over 20,000 member financial institutions

World’s largest processor of financial transactions
$4.6 trillion in global card sales volume
1.5 billion Visa cards
Unsurpassed merchant acceptance in 170+ countries around the world
Over 1 million ATMs
Capable of processing more than 12,000 transactions a second
Our role:
   • Process transactions thru VisaNet
   • Set rules for banks and merchants
   • Develop / enhance products for bank usage
   • Manage global brand



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Visa simplifies payment transactions
between banks and merchants




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MFI’s objectives

1. Increase scalability through more efficient operations
  – Boost client / loan officer ratio
    – Minimize paper-based processes
2. Improve cash management
  – Streamline loan disbursements
    – Simplify loan repayments and savings deposits
    – Invest idle funds
3. Increase security
    – Reduce assault / robbery of loan officers and clients
    – Ensure dependable access to funds



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MFI “pain points”
                                                             Payments

                                                                                         Record
                                                                                         Keeping




                              Collections




                              Technology can ease or increase the pain!

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New delivery technologies

                             Benefits                                            Challenges

                   Increased efficiency                         Processes may require change


 Improved management information                                 New skills required by the MFI


                  Greater connectivity                           Reliable infrastructure needed


 Greater convenience / Ease of use                                    Overcome fear of change




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Cards: funds
disbursements and
collections




             For Visa Internal Use Only
Bank / MFI partnerships – a promising
model




                                       Cooperation

           Retail Banks                                                              MFIs
    • Possess the electronic                                               • Possess the
      payments infrastructure                                                management skills and
      and retail footprint                                                   1-1 client relationships
    • Lack the appetite and                                                • Lack access to
      ability to manage the                                                  payment infrastructure
      target market                                                          and systems



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New microfinance payments paradigm


                                          Win / Win / Win proposition:
                                          • Clients – Greater security,
                                            improved convenience, and entry
                                            to the retail banking channel
                                          • MFIs – Disbursement cost
                                            reduction, efficient cash
                                            management, and frees staff time
                                            to grow the business
                                          • Banks – Further utilize existing
                                            electronic payment infrastructure
                                            and generate a new revenue
                                            stream



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How it works – microfinance + bankcard


MFI manages client relations and approves the microcredit loan
• Funds are disbursed
  – Proceeds deposited in a current account and accessed with a debit
    card, or
  – Proceeds are issued on a prepaid card, or
  – Credit account is opened and line of credit is extended
• Funds are collected (not available in every country)
  – Deposit slips are delivered with repayment schedule
  – Deposits made at ATMs or at specified agent locations
• Funds are accessed
  – ATM – full amount or smaller increments; 24 x 7 access
  – POS – purchase of goods or services; money is securely maintained
    until needed



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   Research findings
             The new program is considered attractive and motivating for clients

Savings Account                           Automatic Loan Funding                                   Visa Debit Card
Access to an account is a                  No longer have a loan cheque                          Easy access to money
very motivating benefit                    and run the risk of loss or                           • When bank is closed
                                           theft
High barriers to individual                                                                      • Avoid waiting in line
account ownership                          Can invest part of the funds                          • In case of an emergency
                                           and save part
Obliged to save in a secure                                                                      • In case of a whim
place that is out-of-sight and             Safer from family, thieves,
mind                                       and self at home                                      Security – do not have to
                                                                                                 carry cash
Can get ahead - improve life               Earns interest
and business                                                                                     Prestigious to have a Visa
                                                                                                 card


                                                 “If you have money at home
   “The banks do not have confidence in                                                       “With my card and my savings book
                                                   or in your purse, you will
     us. The MFI trusts us because the                                                       it is easier to keep track my loan and
                                                    spend it very quickly on
    requirements they had to open the                                                           for me it is much safer and more
                                                    things you really do not
          account were very few.”                                                                            practical.”
                                                             need.”


Note: Research findings are based on feedback from a single country in Latin America
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   Challenges remain

   Clients’ fear and distrust of financial institutions, coupled with high levels
   of illiteracy, make it a challenge to explain benefits and functionality of
   financial services
   Clients generally live in remote and hard-to-access areas
   • Distance from banks, transportation complexity as well as
     responsibilities in their homes and work make it difficult to visit bank
     branches
   • While acceptance of Visa products is perceived to be high, the
     locations of daily purchases (e.g., markets, street vendors, etc.) is not
     always well matched to point-of-sale usage




Note: Research findings are based on feedback from a single country in Latin America
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Is there a preferred card type for emerging
and developing countries?
Magstripe                                                 Chip
• 30+ years experience                                    • 20+ years of development
• Implemented worldwide                                   • Limited but growing deployment
• Relatively inexpensive                                  • US$1 and up per card
• Limited data and functionality                          • Broad functionality
• Most effective in “online”                              • Effective in “online” and “offline”
  environments                                              environments




                                     Answer: It depends
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Automating collections

Enabling loan repayment using a bankcard and point-of-sale (POS) terminal
at a participating merchant
Benefits
  – Greater utility for the consumer; added-value when visiting merchant
  – New service and revenue stream for merchant
Visa programs to enhance point-of-sale functionality
  – Bill payment (e.g., utilities) at select merchants in Brazil
  – Credit evaluation and new account opening at agent locations in
    Columbia (affiliated with the CGAP technology project)
Remote Transaction System (RTS) pilot in Uganda established a network of
merchants that link clients to their MFIs
  – Perform withdrawals and repayments
  – Independent program (non-Visa)
  – High start-up costs
  – Limited MFI participation

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Remittances:
domestic and cross-
border




              For Visa Internal Use Only
Funds can be sent directly to a card

Traditionally, we have taken money from a card:

                                                                                   ¥
                                                                       $           €
Now we can send money to a card:


                                 ¥
                                 $€
                                      Visa Money Transfer



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Visa Money Transfer – how it works

       Sender (Paris)                                                                      Recipient (Sofia)

                                         Card Account Information




                                              Visa Role
                                              • System
                       Instruction
                        to send €             • Interbank fees
                                              • Participation rules
                                              • “Visa Money Transfer” name                           €




                                         €

      Sender’s Bank                                                                        Recipient’s Bank

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 Options to use card networks for
 remittances
       Sender                                                                       Recipient
Source of Funds                                                                    Destination of
                                      Transfer of Funds                               Funds



  Visa Account
                                             Visa Money                            Visa Account
                                              Transfer



  Bank Account                                                                     Bank Account

                                              Proprietary
                                               Networks
           Cash                                                                           Cash
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 Visa Money Transfer in India


                                             Offered by 12 banks in India

                                             • Domestic-only money transfer and card bill
                                               payment

                                             • Funds can be sent to over 39 million Visa
                                               cardholders in over 150 cities and towns
                                               across India

                                             • Visa accepted at 150,000+ merchant
                                               locations and 17,000 Visa/PLUS ATMs and
                                               cash points *




*As of 31 December 2006. As reported by member financial institutions in India and therefore may be subject to change.
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 Prepaid cards for remittance recipients

 Sender initiates money transfer and recipient is issued Visa Giro
 prepaid card by a local card issuer
 Sender                                                                                              Recipient




Bank Account                     Bank Branch/          Proprietary                   Local Issuer
                                  MTO Agent             Network


                                     Consumers benefit from added security,
                                  convenient access to funds, and a relationship
                                        with a formal financial institution

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Adapting to local needs

A number of variables impact the
solution:
  – Profile of sender / recipient
    community
  – Sending / receiving corridor
  – Infrastructure availability in
    recipient country
  – Existing money transfer
    infrastructure
  – The goals of the banks




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Mobile phones:
payment initiation
and acceptance
devices




               For Visa Internal Use Only
Is it a channel, an application, or a
gadget?




                                                          Accept
                                         Promote                                 Sell

                                    Inform                                                   Distribute

                          Marketing                                                            Service


                                 More than the Internet, mobile can be engaged
                                across the entire spectrum of commerce activities


VWS All-Staff -- 27 ## 2007
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                                                                                                                               25
Mobile Payments

Three opportunities for mobile payment in emerging markets
1. Remittances and person-to-person (P2P) payments
  – Electronic funds sent from one telephone number to another
  – Typically for purchase, repayment, or as a gift
  2. Mobile POS acceptance
     – Modified phone acts as a payment terminal
     – Effective in rural areas with limited infrastructure
               3. Remote payment
                 – Payment for telephony and other goods and services
                 – Flexibility with voice, message, and data channels




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 Remittances and P2P payments

 Objective – Enable consumers to send
 funds electronically without disclosing
 sensitive financial account information
 • Potential to reach 2.5 billion mobile
   phone users*
 • Several business models
   – Prepaid funds stored on the mobile
     handset
   – External account used to fund/
     deposit transfers
 • Network operator programs launched
   by Globe and Smart in Philippines
   and Wizzit in South Africa for
   domestic transfers
 • Cross-border programs are being
   developed
* Source: GSMA, Morgan Stanley Research, 2006
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Mobile POS acceptance

                                                         Objective – Enable electronic
                                                         payments in rural areas with minimal
                                                         infrastructure
                                                         • Rechargeable mobile handset that
                                                            enables Visa acceptance at more
                                                            merchant locations globally
                                                         • Visa investment in Way Systems,
                                                            designer of mobile payment systems
                                                            and solutions
                                                            – Dual phone / terminal capabilities
                                                            – Built-in magnetic stripe and a
                                                              smart card reader
                                                            – Compatible with most GPRS
                                                              networks
                                                            – Meets all security requirements



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Remote payment

Objective – Enable convenient
payment for goods and services
through the mobile network
• Transactions can be initiated through
   the voice, message (SMS), or data
   channels (browser)
   – One channel can be used for the
      purchase and an alternate channel
      can be used for authentication /
      verification
   – Potential to use existing internet
      payment security (3D Secure) in
      the data channel
• Potential application for obtaining
   digital media and commodities
   information in remote areas


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Building a global financial highway

Visa’s payment initiatives in both developed and
developing countries makes it an authority on the
usage of electronic payment systems
Through the provision of electronic payments,
Visa is helping to:
  – Lower transaction costs
  – Stimulate higher consumption and GDP
  – Increase government efficiency
  – Bank the unbanked
  – Boost financial intermediation
  – Improve financial transparency




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Thank You




            For Visa Internal Use Only

				
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