Equity Building Society
ATM Network Review
Identifying the need
• EBS are growing rapidly (circa 230,000 existing
customers)
• Target of up to 1 million customers in next 5 years
• Costs of branches high from a capital and
operating cost perspective
Requirement to handle existing customers at
lowest possible cost and provide the most cost
effective growth path possible
ATM Touchpoints
“The branch the never sleeps”
• Breaking away from the old idea of the ATM as
only a Cash Dispenser
• Customer convenience
• Creating customer touchpoints that extend service
reach
– Deposits
– Payments
– Money Transfer
– Enquiries
– Value added transactions
ATM Opportunity
• Increasing customer acquisition and
retention
– Creating a ubiquitous brand presence across the
market
– Serving customers convenience needs
– Some banks are deploying ATM:Branch ratios
of 5:1
• Allows them to attain market growth of competitors
with many more time the number of branches
ATM Opportunity
• Reducing teller cost
– ATMs can provide more efficient transaction
processing and increased convenience
• Increased flexibility
– Able to design smaller, more nimble retail
outlets
– Some banks have offloaded the majority of
their transactions to the ATM
Cost & Efficiency
Cash
Cheque Dispensing
5.0
4.50
4.0
Transaction 3.0
Cost
USD
2.0
1.60
1.0
0.40
0.0
Cheque Branch ATM
Teller
Source: Booz-Allen Hamilton
ATM Opportunity
• Cost reduction
– Need to optimize product and pricing design to
reinforce desired behaviour and discourage
costly behaviours.
Simple Maths
• Capital cost of new branch
– Ksh 13 million
• Capital cost of ATM
– Ksh 2,1 million
Naturally there are other considerations but this
justifies serious examination
Similar examples
CABS Zimbabwe
• Started with 750,000 accounts with 70 branches
country wide
• Low income customer base
• Implemented ATM’s / Cards in the early 90’s
• Currently have 71 ATM’s and 750 EFTPOS devices
• One of the most profitable FI’s in Zimbabwe
CABS believe their drive to electronic banking has
significantly enhanced profits and assisted in
delivering new products and services
The argument for Equity
Rapid conversion
• Total withdrawals in Nairobi per month – 46,000 (before
Mama Ngina)
• Total Deposits in Nairobi – 24,000 (before Mama Ngina)
• It is likely these volumes will double at the minimum with
the added convenience of ATM’s resulting in smaller and
more frequent withdrawals for security reasons
This will convert to card / ATM use very rapidly (3 months)
and deliver immediate volumes and subsequent benefits
The Argument for Equity
Medium Conversion
• Thika, Nakuru
• Total withdrawals per month – 20,000
• Total deposits per month – 8,000
This may take a little longer to convert the full
complement to Cards / ATM’s. Estimate 9
months.
The Argument for Equity
Up country branches
• Kangema, Karatina, Kangari, Kerugoya, Nyeri
and Meru would all ultimately justify ATM’s
• Murandia and Othaya might be marginal
There is no local data to show the potential
conversion rates, however the CABS experience
would suggest this is faster than you might expect
Reviewed by Paynet
• ATM Network Models
– Market alternatives
• Full outsourcing
• Partial outsourcing
• Equity owned and managed
– Operational impact
– Financial models
– Risk assessment
• Switch review
• ATM review
• Recommendations
Option 1 - Fully Outsourced Model
Outsourced services, supplier owns switch
and ATM’s. Equity makes no capital
investment.
Vendors include
Paynet Kenya
Kenswitch
(Cashnet)
Assumptions for all Options
• All models are like-for-like
• 200,000 ATM cards to 400,000 over 5 years
• 50,000 ATM trans to 400,000 over 5 years
• 10 ATMs to 40 ATMs over 5 years
• Income from transaction fees and interest
on deposits at current bank lending rates
Supplier Provides Full Infrastructure
and Services
Option 1 - Fully Outsourced Model
Impact on Operations
• Easiest of all the models from an operations
perspective
• Will require daily reconciliations
• Outsourcer will handle
– Vendor management
– Cash management
– Network management
– Card issuing
Option 1 - Fully Outsourced Model
Financial Modeling
OPTIONS CAPITAL Cost per Transaction NET PROFIT
At Start - At End OVER FIVE
YEARS
Kenswitch Ks 13m Ks 83 - Ks 41 Ks 311m
(K/S owns ATMs)
Paynet Ks 55m Ks 85 - Ks 32 Ks 371m
(Paynet owns ATMs)
Option 1 - Fully Outsourced Model
Financials
• All growth assumptions, revenue drivers etc
standard across both models
• Least attractive option profit wise
• Lower capital investment
• Kenswitch per transaction fee is punitive as
volumes increase
Option 1 - Fully Outsourced Model
Risks
• Difficult to change suppliers
• Lower profits
• Perceived loss of control (this can be partly
mitigated by a strong SLA)
• Less control over ATM models ordered and
features
Option 2 - Partial Outsourcing
• Technology partner provides switch and
services
• Equity provides ATM’s
• Potential Vendors
– Paynet Kenya
– Kenswitch
Supplier Provides Switch and
Services
Option 2 - Partial Outsourcing
Impact on Operations
• Different levels of services offered
– Paynet
• Full vendor management
– Communications
– ATM
– Cash management
– Card suppliers
• Reconciliations
• Full card management
• PIN management
• Switch management and reporting
– Easy to integrate into existing operations
Option 2 - Partial Outsourcing
Impact on Operations
• Easy model from an operations perspective, same
as full Outsourced but banks owns ATMs
• Will require daily reconciliations
• Outsourcer will handle
– Vendor management
– Cash management
– Network management
– Card issuing
Option 2 - Partial Outsourcing
Financial Modeling
OPTIONS CAPITAL Cost per NET PROFIT
Transaction OVER FIVE
At Start - At End YEARS
Kenswitch Ks 163m Ks 82 - Ks 36 Ks 345m
(K/S owns ATMs)
Paynet Ks 169m Ks 76 - Ks 26 Ks 463m
(Paynet owns
ATMs)
Option 2 - Partial Outsourcing
Financials
• All growth assumptions, revenue drivers etc
standard across both models
• High capital investment outlay
• Most attractive financial model for
profitability (Paynet)
• Kenswitch per transaction fee is punitive as
volumes increase
Option 2 - Partial Outsourcing
Risks
• Partner needs to demonstrate ability to
achieve service levels as required
• Ability to provide future product
development needs to be assessed
• Partner selection is essential
Paynet Kenya
• Have successfully launched NIC / Move
• Experienced in implementing CABS
Zimbabwe
• Have recruited highly experienced
operations team
• Replicated systems and sites
• Model supports volumes
Kenswitch
• Launched in 2003
• Currently have a number of small bank
customers + CBA
• Focus is initially on interconnection
• Partly owned by Fintech and founding
member banks
• No replication either hardware or site at
present
Option 3 - Own and operate
• Switch vendors
Oasis – Paynet
Large regional installation and high impact site with NIC /
Move launch
CR/2 – London based
Used by most of the large banks. Perceived to be inflexible.
Opus – Computerpoint
Used by CFC bank. Appears to be a competitively priced.
Postillion – Fintech
Large number of sites in Africa. Good technology, Windows
based O/S
Option 3 - Own and operate
Impact on Operations
• Significant impact on operations
• Full vendor management
– Communications
– ATM
– Cash management
– Card suppliers
• Reconciliations
• Full card management
• Vital to have experienced team
• Switch management and reporting
Option 3 - Own and operate
Financial Modeling
OPTIONS CAPITAL Cost per NET PROFIT
Transaction OVER FIVE
At Start - At YEARS
End
Equity owns Ks 178m Ks 70 - Ks 25 Ks 493m
switch and ATMs
Option 3 - Own and operate
Financials
• All growth assumptions, revenue drivers etc
standard across all models
• More attractive financially than full
outsourcing and part outsourcing but more
capital required and more risk
Option 3 - Own and operate
Risks
• Significant operational change
• Recruitment, integration and retention of
skilled technical staff
• Management of all staff and operations
• Vendor management skills required
• Increased capital investment
• Ability to develop and launch new products
Model Matrix
Flexibility Expertise Capital Risk Profitability
Available Cost
Own Switch Medium Low High High Medium
Own ATM’s
Outsource Medium High Medium Low High
switch
Own ATM’s
Outsource Low High Low Medium Low
Switch
Outsource
ATM’s
Interconnection Options
Data
EBS Branch
Network
EBS Central
Server
Cloud
EBS Switch
EBS ATM’s
Card Networks
Other networks
Barclays
Standard CBA
Chartered Akiba
Stanbic I&M
KCB Chase
CBA Kenswitch Consolidated
Which ATM vendors?
Paynet has a fully up to date ATM comparative
matrix for EABS
Key locally represented vendors
Full functionality comparisons
Price comparisons
Delivery lead times
Support infrastructure
ATM vendor and model selection is also based
upon the functionality required, the location and
the estimated transaction volumes
Cards
• EBS have existing ‘useable’ cards
• Need to weigh the collection and encoding
of these against issuing new cards
• Smart cards not necessary for the
foreseeable future
– Expensive
– Lack of infrastructure
– Visa / Mastercard will slowly change this
Project Deliverables
• Significant skills required to implement and operate a
successful network
– Design (DRP etc)
– Vendor selection and contract
– Support services contracts
– Cash management process
– Card and Pin Mailer process
– Product development and marketing
– Integration with host system
– Implementation and testing
– Operations
• Vendor management
• 24 x 7 x 365 monitoring
• Reconciliations
• Reporting
– New product development and implementation
• Sample project plan provided to Equity
Paynet recommendations
• Partially Outsource
– Find the most cost effective over 5 years
– Review the experience of the vendor
– Review the DRP
– Review the ability to introduce new services
– Look for a complete end to end service
including vendor management
– Cost any services not provided by the vendor
into business model
Paynet recommendations
• Partner where EBS do not have critical
mass, plan to interconnect to
– Kenswitch / other banks
– Cashnet or other micro finance organisations
– VISA in the future?