Building a Business Case
for Savings
Evolution
Business
Strategy
Business
Model
Business
Case
Business Strategy for Savings
gy
g
Fermin Vivanco, IADB/MIF
Contents
Understand Different Savings Clients Needs
Understand Different Savings Clients Needs
Select a Savings Approach
Develop a Savings Products Strategy
Develop a Savings Products Strategy
•
10 Key Elements to help you
Develop a Distribution Channel Strategy
Develop a Distribution Channel Strategy
Adjust Market and Financial Goals
This
presentation
is
based
on
studies
of
commitment
savings
in
Latin
America
and
the
Caribbean
Select a Savings Approach
g
pp
Need for adapted products that help people move
Need
for
adapted
products
that
help
people
move
from
informal
to
formal
savings
mechanisms,
and
that
instill savings habits.
instill
savings
habits.
Liquid
savings
Select a Savings Approach
g
pp
Total
clients
served
Average
savings
size
Savings
mobilized
Select a Savings Approach
g
pp
Total
clients
served
Average
savings
size
Savings mobilized
served
size
Savings
mobilized
Sight
Deposits
98,500
US$24
US$2,364,000
Certificates
of
Deposit
1,200
US$12,500
US$15,000,000
Commitment
Savings
300
US$40
US$12,000
Adapt a Savings Product
p
g
10 rules to Design a Commitment
Savings Product
Savings Product
Both Appealing to Clients and Financially Viable
l
b
d
d k
f
d
Conclusions
based
on
a
desk
review
of
780
commitment
savings
products
available
in
Latin
America
and
the
Caribbean
and
site
visits
to
16
financial
entities
in
the
region.
1. Relevant
Focus on large underserved market niches
Focus
on
large,
underserved
market
niches
and
respond
to
their
needs.
US$61,3
BILLION
TOTAL
AMOUNT
OF
2. Easy to open
y
p
Opening requirements
Opening
requirements.
•
Look
at
Basic
Accounts
Regulations
3. Easy to use
y
Products must be easy to understand and use
Products
must
be
easy
to
understand
and
use.
b l
ll
f l h
h
d ff
l
•
Mobile
wallets
fail
when
they
are
difficult
to
use
•
Example:
First
version
of
Tigo
Paraguay
P
t
ti
h
ibl
•
Pursue
automation
when
possible
4. Follow-up
p
Financial offer must be accompanied by support
Financial
offer
must
be
accompanied
by
support
and
monitoring
S t
t
t
•
Set
up
targets
•
Microcredit’s
success
and
scale
was
partially
due
to
follow
‐
up
efforts,
,
same
must
apply
pp y
to
savings
g
•
Adapt
MIS
for
follow
‐
up
purposes
•
Example:
–
Cooperativa
Comultrasan
5. Good incentives
Apply incentives to encourage deposits and
Apply
incentives
to
encourage
deposits
and
discourage
withdrawals
E
l
Fi
H i
C
i
C di
•
Examples:
First
Heritage
Cooperative
Credit
6. Interest rate isn’t everything
y
g
Studies and observations reveal that attractive
Studies
and
observations
reveal
that
attractive
interest
rate
is
not
what
motivates
clients
to
adopt and use a product
adopt
and
use
a
product.
•
For
liquid
savings
products
interest
rate
becomes
almost
irrelevant. Clients are willing to pay for the service
irrelevant.
Clients
are
willing
to
pay
for
the
service
•
There
is
no
interest
rate
competition
•
Example:
–
Caja de
Ahorros (Panama)
7. Motivated employees
p y
Sales cannot be passive
Sales
cannot
be
passive
•
Loans
sell
themselves
but
savings
products
have
to
be
actively promoted
actively
promoted
•
Ensure
top
to
bottom
buy
‐
in
8. Marketing
g
Learn from informal mechanisms and take advantage
Learn
from
informal
mechanisms
and
take
advantage
of
their
opportunities
to
market
new
products
Si
l
d l
l
•
Simple
and
clear
popular
messages
•
Examples:
•
EcoFuturo (Bolivia)
(
)
•
First
Heritage
Cooperative
Credit
Union
(Jamaica)
•
Banco
Azteca
(Mexico)
•
Banca Comunitaria Banesco (Venezuela)
9. Innovation
Innovate
from
informal
mechanisms
(savings
(
g
groups)
and
popular
culture/behaviors
•
Unbanked
population
demand
for
a
combination
of
credit
and
savings
•
Design
products
that
combine
credit,
savings
and
microinsurance
elements.
•
Design
products
that
have
elements
of
commitment
and
flexibility
•
Design
g p
products
that
incorporate
p
a
positive
p
peer
p
pressure
p
to
motivate
savings
g
•
Innovate
based
on
behavioral
savings
habits
‐
compartmentalization
10. Scale Up
p
Identify elements that allow scale up
Identify
elements
that
allow
scale
up
•
Set
reasonable
but
ambitious
goals
•
Finance 20% of loan portfolio with savings
•
Finance
20%
of
loan
portfolio
with
savings
•
Example:
Banesco,
Venezuela
•
Design
es g
intelligent
te ge t p c g (bu d es,
pricing
(bundles,
multi
u t c a
‐
channels,
e s, c oss
cross
‐
selling
of
products)
•
Find
ways
to
mitigate
impact
of
seasonality
Adapted Channels:
p
Evaluate
the
cost
of
savings
products’
transactions
in
different
channels
Price
transactions
accordingly
so
clients
can
make decisions on costs and scaling up is
make
decisions
on
costs
and
scaling
up
is
viable
financially
To
find
out
more
about
inclusive
business
models
using
bank
agents
in
Latin
America
and
the
Caribbean,
view
the
recent
publications
on
Bank
Agents
and
Financial
Inclusion:
Regulatory
Frameworks
and
Bank
Agents
and
Financial
Inclusion:
Business
Models
of
the
Basic Financial Analysis for a
Liquid Savings Account
Business Models
Business Models
The Business Model Canvas
Key Partners Key Activities Value Proposition Customer Relationships Customer Segments
Who are our key partners? Which key resources are we
acquiring from partners? Which key
activities do partners perform?
What key activities do our
Value Proposition require?
Our distribution channels? Customer Relationships?
Revenue streams?
What value do we deliver to
the customer?
Which one of our customers
problems are we helping to
solve?
What bundles of products and
services are we offering to
What type of relationships does
each of our Customer Segments
expect us to establish and
maintain with them? Which ones have we
established?
How are they integrated with
For whom are we creating
value?
Who are our most important
customers?
Examples: Mass market
Key Resources
services are we offering to
each customer segment? Which customer needs are we
satisfying?
How are they integrated with
the rest of our business model? How costly are they?
Examples: Personal assistance, Self
Service, Automated services
Mass market Niche Market Segmented Diversified Multi‐sided Platform
Channels y
What key resources do our
Value Proposition require? Our
distribution channels? Customer Relationships? Revenue streams?
Through which channels to
dour customer segments want
to be reached?
How are we reaching them
now?
How are our channels
Cost Structure Revenue Streams
integrated?
Which ones work best and are
most cost‐efficient?
Cost Structure
What are the most important costs inherent in our business model? Which key resources are most expensive?
Which key activities are most expensive?
Is your business more:
Cost driven (leanest cost structure, low price value proposition, maximum automation, extensive
Revenue Streams
What value are our customers willing to pay? What do they currently pay?
How are they currently paying? How would they prefer to pay?
How much des each revenue stream contribute to overall revenues?
Source: www.businessmodelgeneration.com
( , p p p , ,
outsourcing?
CASHPOR
Business Model Overview
Business Model Overview
CASHPOR will act as the Business
Correspondent (BC) agent to ICICI Bank
Eko Technologies will provide the
technology solution
gy
Use existing credit infrastructure
Customer-owned mobile handsets along
with CASHPOR agents (Center Manager)
to perform transactions
CASHPOR Delivery Channels are:
SCSP
Located at the branch
CM
(CSP)
•
the branch for new customers that are not
CASHPOR loan clients
•
Center Meetings for existing CASHPOR loan
clients
Non Clients
Existing Members
clients
Loan business uses Center Manager’s
mobile-based application from ATOM
Technology
Cashpor Service using Eko technology
*543*9811234389*
BENEFICIARY
BENEFICIARY
AMOUNT
AMOUNT
AUTHORIZATION
AUTHORIZATION
*543*9811234389*
999*1598271234#
Authorization is based on using an Okekey PIN BookletCARD Bank
Business Model Overview
Business Model Overview
Revenue drivers = cross selling
d
t
i t
di ti
f
d
d
products, intermediating funds and
ATM fees
Customer segment = existing
customers living below $2.50/day plus
general public
Delivery Channels:
Sales
Offcers
Account
Officer
Delivery Channels:
•
Deposits during center meetings
•
Bank branches
•
Withdrawal through ATMs
•
Withdrawal through ATMs
•
MFS for loan disbursements and
payments
•
Dedicated Sales Officers – SMS
General Public
Existing Members
•
Dedicated Sales Officers – SMS
Example of Business Model Canvas
CARD MFS
Partners • Platform Provider Partners • Platform Provider Key Activities• Agent network that is liquid and
Key Activities
• Agent network that is liquid and
Value Proposition
• Do CARD transactions in the
Value Proposition
• Do CARD transactions in the
Segments
• Customers of CARD: Urban
Segments
• Customers of CARD: Urban
CARD MFS
• Platform Provider • Grameen Foundation • Billers
• Mobile Operators
• Outsourced Service Providers • Funders
• Platform Provider • Grameen Foundation • Billers
• Mobile Operators
• Outsourced Service Providers • Funders
• Agent network that is liquid and high quality
• Call centre that’s available to clients
• Technology platform that never fails
• Continual development of the • Agent network that is liquid and
high quality
• Call centre that’s available to clients
• Technology platform that never fails
• Continual development of the
• Do CARD transactions in the barangay
• Pay your bills/top-up • CARD accepts me when
others don’t
• More options for handling cash and managing money
• Do CARD transactions in the barangay
• Pay your bills/top-up • CARD accepts me when
others don’t
• More options for handling cash and managing money
• Customers of CARD: Urban and rural customers, borrowers and savers
• Non-customers of CARD: Insurance buyers, OTC bill payment/money send customers, micro-enterprises • Customers of CARD: Urban
and rural customers, borrowers and savers
• Non-customers of CARD: Insurance buyers, OTC bill payment/money send customers, micro-enterprises p ecosystem • Change management p ecosystem • Change management Key Resources • Call center
• MBO Agent Management
Key Resources
• Call center
• MBO Agent Management
g g y
• Generate income and increase footfall (agents)
• Send and receive money easily • More time for yourself for the
important things
g g y
• Generate income and increase footfall (agents)
• Send and receive money easily • More time for yourself for the
important things
Cost Structure
• Mixed business model of value driven and cost driven
activities.
• Partnerships – value driven • Agent Management – value
Cost Structure
• Mixed business model of value driven and cost driven
activities.
• Partnerships – value driven • Agent Management – value
, p (agents) , p (agents) Channels A t ffi Channels A t ffi g g Capability • Training team • CAPEX/OPEX budget • Agent Management Unit • Technology Platform • MFS Management team IP Assets g g Capability • Training team • CAPEX/OPEX budget • Agent Management Unit • Technology Platform • MFS Management team
IP Assets • Agent Management – value
driven
• Call center – cost driven • Agent Network – cost-driven • Training – value-driven • Customer Acquisition –
value-driven
• Agent Management – value driven
• Call center – cost driven • Agent Network – cost-driven • Training – value-driven • Customer Acquisition –
value-driven
Customer Relationships
• Maintaining personal
relationships if desired through
Customer Relationships
• Maintaining personal
relationships if desired through
• Account officers • Tellers • Savings officers • CSO • Agents • Call center • Customers • Account officers • Tellers • Savings officers • CSO • Agents • Call center • Customers • IP Assets • Biller/MNO Integration • Outsourced relationships • Marketing/Comms • IP Assets • Biller/MNO Integration • Outsourced relationships • Marketing/Comms • Service Delivery – cost driven
• Technology platform – cost driven
• Service Delivery – cost driven • Technology platform – cost
driven
group meetings monthly • Giving self-service as an option • Personalized relationships with
agents
group meetings monthly • Giving self-service as an option • Personalized relationships with
agents
Customers
• Agent Management Unit Customers
• Agent Management Unit
Revenue Streams
Transaction Fees Insurance Premiums Commissions from airtime/billers
Loan Income Retailing Margin G2P payment fees
Cross-sell Deposits
Revenue Streams
Transaction Fees Insurance Premiums Commissions from airtime/billers
Loan Income Retailing Margin G2P payment fees
3 Golden Rules to
Building a Business Case
Building a Business Case
#1 Understand the present
p
before planning the future
Understand the present
In the case of product change or new product design using data for
In the case of product change or new product design, using data for
similar existing operations (and/or having access to some industry
standards), is helpful
New
Project
Context
Financial
Model
Base
Degree
of
innovation /
New project within
New
Organization
Industry
Standards,
Benchmarks
Industry
Standards,
Benchmarks
innovation
/
uncertainty
Planning for existing
New
project
within
existing
organization
Current
metrics
and
drivers historical
Current
metrics
and
drivers historical
Planning
for
existing
operations
drivers,
historical
data
and
trends
drivers,
historical
Complex Financial Model
Allocation Method for
Portfolio per loan productexisting Credit and
Savings
Challenged with high
14%8%
4% 3% 1%
Challenged with high
level of manual data
entry prone to errors
Automation to increase
70%
Portfolio per Savings product
Automation to increase
speed by 8x, increase
accuracy, & allow for
branch-level focus
SIKAP 1 SIKAP Additional Microagri Loan Educational Loan
Micro Housing Loan Other Loans 7.87% 3.00% 2.91%
0.26% 0.12% 0.05%
branch level focus
‘Contrived Precision’
62.37%23.41%
Centre Fund Tiwala Savings Kayang-Kaya Savings Pangarap Curent Account Matapat Tagumpay Savings Maagap
#2 K
d l
i
l
#2 Keep models simple
Keep models simple
Si
li it i k
Simplicity is key
•
For accuracy
•
For regular updates
•
For an understanding confidence in the outputs
Don’t focus on everything, but parameters that matter
Pareto principle
•
80% of the effects come from 20% of the efforts
Certainty of predictions and impact on bottom line
Certainty of predictions and impact on bottom line
Eff t / Ti
Impact on bottom line
Impact on bottom line
Effort
/
Time
spent
Impact
on
bottom
line
Impact
on
bottom
line
Certainty
/
accuracy
Certainty
/
accuracy
Cashpor Business Case
Using Variable Cost Model
Using Variable Cost Model
Income
•
Account Opening fee
•
Transaction fees for deposits and
withdrawals
•
Float
Expenses
•
Incentives for field officers
•
Automation of account opening
p
g
Application and staff
•
Administrative, e.g., Couriers
•
Training Costs
#3 Rephrasing the questions
p
g
q
and objectives often
Rephrase questions & objectives often
p
q
j
Needs have to be clearly identified
Needs have to be clearly identified
Requires discussion from a number of
stakeholders
What is the caseload for 1 Savings Officer?
Parameters
Notes
Total
Monthly
Cost
of
an
SO
16
009
Compensation,
transports…
(data
checked,
as
of
March
2013)
Interests
paid
to
customers
1.5%
%
of
balance
generated
available
(regulation)
75%
Estimated
cost
of
capital
6.5%
From
latest
Microsave
Costing
Model
Cumulative
balance
necessary
to
cover
cost
4
000
718
At
maturity,
balance
necessary
to
justify
SO
position
financially
(breakeven)
Average
balance
of
customer
1000
Currently
PHP
654.
Study
of
14
months
Matapat
history
shows
downward trend.
downward
trend.
Total
caseload
/
SO
4001
At maturity, with previous hypothesis, an SO position would have to
maintain a
Php 4M
savings balance to cover its costs. This represents
Current Product Mix
additional
products
Matapat
Maagap
Tiwala
Kayang
‐
Kaya
Total
Interests
paid
1.5%
1.5%
3.0%
2.0%
A
t b l
1 000
1 452
127 131
12 907
2 748
Average
account
balance
1
000
1
452
127
131
12
907
2
748
Current
Product
Mix:
65%
28%
0.7%
6%
100%
Total caseload / SO
934
405
10
92
1 441
Total
caseload
/
SO
934
405
10
92
1
441
Cumulative
balance
934
152
588
123 1
246
134 1
192
149 3
960
557
Financial
Opportunity
3
738
2
386
5
050
4
835
16
009
Savings Officers are currently opening other types of savings
accounts: only 65% of accounts opened are Matapat.
Change in Product Mix
•
Changing
g g
the
mix
of
SO
portfolio,
p
,
especially
p
y
with
higher
g
balance
products
like
Tiwala
and
Kayang
‐
Kaya,
reduces
the
caseload
•
Example:
A
portfolio
of
150
Maagap
Accounts,
22
Tiwala
and
55
Kayang
‐
Kaya
reduces
the
total
caseload
to
455
accounts
additional
products
Matapat
Maagap
Tiwala
Kayang
‐
Kaya
Total
Interests
paid
1.5%
1.5%
3.0%
*
2.0%
*
*
p
Average
account
balance
1
000
1
452
127
131
12
907
8
687
Current
Product
Mix:
65%
28%
1%
6%
100%
Modified
Product
Mix:
50%
33%
5%
12%
100%
Total
caseload
/
SO
228
150
22
55
455
Cumulative
balance
228
006
217
823
2
796
887
709
859
3
952
575
Financial Opportunity
912
884
11 334
2 879
16 009
Financial
Opportunity
912
884
11
334
2
879
16
009
* Maagap and Kayang‐Kaya avg balances include staff, as systems don’t separate staff from non‐members for these products * For Tiwala: 3% average interest rate assumption
Simplified model – 5 years projection
Assumptions
Year 1 Year 2 Year 3 Year 4 Year 5
Assumptions
SO
opens
non
‐
members
accounts
only,
and
collects
from all clients
SO
Cost
192
110 195
952 199
871 203
868 207
946
Accounts
opening
Cumul.
accounts
opened
360
720
1
080
1
440
1
800
Cumul.
Balance
1 296 000 2 592 000 3 888 000 5 184 000 6 480 000C ll
i
inflation
rate
2%
openings monthly
30
from
all
clients
Collections
Amount
collected
2 700 000 5 400 000 8 100 000 10 800 000 13 500 000Cumul.
Balance
270 000 540 000 810 000 1 080 000 1 350 000Interests
Paid
23
490
46
980
70
470
93
960 117
450
*
openings
monthly
30
average
acct
balance
3600
collections
monthly
250
average
deposit
900
% deposits building balance
10%
Available
for
credit
(75%)
1 156 883 2 313 765 3 470 648 4 627 530 5 784 413Est.
financial
opportunity
75
197 150
395 225
592 300
789 375
987
as
%
of
Costs
39%
77%
113%
148%
181%
Bottom Line
116 912
45 557
25 721
96 921
168 041
%
deposits
building
balance
10%
Bottom
Line
‐
116
912
‐
45
557
25
721
96
921
168
041
Cumul.
Bottom
line
‐
116
912
‐
162
469
‐
136
748
‐
39
826
128
215
Findings:
•
Portfolio gets big enough to cover monthly cost on Year 3
*
Average
account
balance
higher
than
in
previous
slides,
as
it
reflects
non
‐
members
account
openings
only
•
Portfolio gets big enough to cover monthly cost on Year 3
Conclusion - Summary
4M Ph
Targeted
portfolio
4M
Php
4000
1400
450
less
?
P1000
avg
balance
(Matapat like)
65%
Matapat
28%
Maagap
6% Kayang
‐
50%
Matapat
33%
Maagap
12% Kayang
‐
Targeting
high
balance
clients
Related
caseload
(Matapat
like)
6%
Kayang
Kaya
1%
Tiwala
(today)
12%
Kayang
Kaya
5%
Tiwala
Additional Recommendations
•
Importance of strong data systems and
Importance of strong data systems and
reporting practices
•
Identify staff skill gaps& organize trainings
•
Identify staff skill gaps& organize trainings
•
Document - for current and future users
•
Separate assumptions design & model design
A ti it
Activity
The Business Model Canvas
Key Partners Key Activities Value Proposition Customer Relationships Customer Segments
Who are our key partners? Which key resources are we
acquiring from partners? Which key
activities do partners perform?
What key activities do our
Value Proposition require?
Our distribution channels? Customer Relationships?
Revenue streams?
What value do we deliver to
the customer?
Which one of our customers
problems are we helping to
solve?
What bundles of products and
services are we offering to
What type of relationships does
each of our Customer Segments
expect us to establish and
maintain with them? Which ones have we
established?
How are they integrated with
For whom are we creating
value?
Who are our most important
customers?
Examples: Mass market
Key Resources
services are we offering to
each customer segment? Which customer needs are we
satisfying?
How are they integrated with
the rest of our business model? How costly are they?
Examples: Personal assistance, Self
Service, Automated services
Mass market Niche Market Segmented Diversified Multi‐sided Platform
Channels y
What key resources do our
Value Proposition require? Our
distribution channels? Customer Relationships? Revenue streams?
Through which channels to
dour customer segments want
to be reached?
How are we reaching them
now?
How are our channels
Cost Structure Revenue Streams
integrated?
Which ones work best and are
most cost‐efficient?
Cost Structure
What are the most important costs inherent in our business model? Which key resources are most expensive?
Which key activities are most expensive?
Is your business more:
Cost driven (leanest cost structure, low price value proposition, maximum automation, extensive
Revenue Streams
What value are our customers willing to pay? What do they currently pay?
How are they currently paying? How would they prefer to pay?
How much des each revenue stream contribute to overall revenues?
Source: www.businessmodelgeneration.com
( , p p p , ,
outsourcing?
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