Project: Mobile Wallet

Organization: Vodafone Romania and M-Pesa Corp.

Location: Romania

Duration: Three Years

Cost: $14.1 Million

Author: Lindsay Voirin

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Vodafone Romania and M-Pesa Corp. Mobile Wallet Project

Summary description of project

The M-Pesa mobile wallet expansion to Romania will address thegap in mobile telephone ownership and bank account ownership.While mobile telephone ownership is prevalent, only half ofRomanians have a bank account. Mobile banking services will allowusers to create a savings account, accept cash assistance fromaid organizations, receive payments from employers, and makepayments for goods and services including utility bills. Theproject will involve building cell phone towers to ensure thatthe M-Pesa software and services are accessible through Vodafoneairwaves. In Romania, ten rural cities per year for the nextthree years will be given cell phone coverage in exchange for theright to use the land to build the tower. The cities wereselected based upon their lack of cell phone coverage1, theirpopulation, and their access to a Raiffeisen banking center. Mostof the thirty cities have a population of between 6,000- 25,000people. All but one of the cities has a Raiffeisen bankingcenter, and that city, Salonta, has a Raiffeisen ATM center.

The objective of the Vodafone Romania M-Pesa mobile walletprogram is to enroll ten million users within the first threeyears, and to realize an average of ten transactions per personfor a total of one hundred million successful mobile bankingtransitions in Romania during that timeframe. The project isprojected to cost $14.1 Million over the course of three years.This project will meet the capacity-building priorities of theWorld Intellectual Property Organization (WIPO) by giving the1 http://www.cellmapper.net/map

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poorest of the poor accessibility to financial and bankingservices. With the use of a mobile phone and cash aid or paymentsfor employment, a poor person will have the tools to manage theirsavings, expenses, and financial transactions.

Background

Romania was chosen as the situs of the project because there is alarge percentage of the population without bank accounts andspecifically, there is a significant gap between mobile ownershipand bank account ownership.

Romania’s political system is in a state of flux with the recentinauguration of Klaus Iohannis of the National Liberal Party, theformer mayor of the Transylvanian city of Sibiu. The formerleader, Victor Ponta of the Social Democrat Party, will stay onas prime minister and his Social Democrat party currently enjoysa working majority in parliament. The disenchantment of thepeople with corruption could signify that the Romanian governmentmay benefit from the use of M-Pesa technology to pay governmentemployees or policemen and potentially reduce corruption byproviding a platform that has the capability of integratingtransparency in government employee payments. The scope of thisproject encompasses expansion and use of the mobile bankingservices offered by M-Pesa. This includes personal accounts aswell as the possibility of using the M-Pesa services formicrofinance loan borrowing and repayment, the receipt of cashassistance, or the payment and receipt of salaries. Thegovernment has shown preliminary approval of the M-Pesa mobilewallet technology.

In Romania, the population typically uses cash currency ratherthan credit cards. The mobile wallet will give many individualsthe opportunity to save money, conduct business remotely, andborrow and repay microfinance loans. The M-Pesa services aredesigned for those at the bottom of the economic pyramid withoutaccess to debit cards and bank accounts. Cash assistance can alsobe distributed via M-Pesa accounts. Users can easily track andmanage their financial transactions to improve their financial

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status. The system can also be used by government officials topay salaries of employees and provide government cash transfers.2

This project is being proposed to provide Romanians with safe,secure mobile payment, transfer and savings services. M-Pesaprovides new and current banking customers with mobile paymentand transfer capabilities. In Romania, there is a much largerpercentage of the population that owns mobile telephones thanbank accounts. Thus, the aim of the project is to bring thenumber of Romanians with access to banking up to par with thenumber of Romanians with mobile telephone services. This willlead to increased savings, an increase in commerce in the bottomsegment of the population, and a more robust economicenvironment. These measurable objectives can be assessed by thenumber of customers who begin using M-Pesa mobile bankingservices, the amount of savings they accrue after signing up forservices, and the number of transactions that are processed usingM-Pesa mobile banking services.

M-Pesa’s expertise lies in rolling out mobile banking services indeveloping regions. The creator of M-Pesa, Nick Hughes, joinedVodafone in 2001 and was tasked with identifying the role thatVodafone could plan in addressing the Millenium DevelopmentGoals.3 The organization first began offering mobile banking inKenya and Tanzania, and followed up with projects in India,Egypt, Lesotho, Mozambique and South Africa. As of December 2013,M-Pesa had 16.8 million active customers and 186,000 authorizedagents globally.4 In Kenya, M-Pesa partnered with the CommercialBank of Africa and Faulu Kenya, a microfinance institution. InKenya, users often make transfers to family members that are faraway. And beyond the physical security that M-Pesa provides itscustomers in safely storing their money, the M-Pesa services have

2 In Afghanistan, payment of police officers using the mobile wallet technology drastically reduced the incidence of corruption and led to higher net salaries realized by employees. See http://www.wired.com/2014/05/how-digital-currency-could-end-corruption-in-afghanistan/.3 http://ryanhunt.com/m-pesa/4 Vodfone M-Pesa comes to Europe for the First Time, Press Release, March 31, 2014, hhtp:www.vodafone .com/content/index/media/Vodafone-group-releases/2014/m-pesa-romania.html.

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improved food security in the region by enabling farmers toeasily hire and pay day-laborers.

M-Pesa is partnered with Vodafone Romania to allow users topurchase airtime, pay utility bills, make deposits, and purchasegoods and services. Thus, the mobile wallet functions much like adebit or credit card, in much the same manner that bankingcustomers use ATMs or bank tellers.

The M-Pesa project’s roots are based in an African projectoriginally funded by the Department for International DevelopmentUK (DFID). Researchers noticed a trend in using air time as aproxy for money transfer in Africa. DFID introduced theresearchers to Vodafone to discuss mobile banking to supportmicrofinance and poverty alleviation.

The requested funder of this project, WIPO, focuses much of itsefforts on capacity-building and commercialization of technologyin developing regions. In poor regions, the poorest are oftentrapped in poverty because of inadequate and inaccessiblefinancial and banking services. People require access to bankingto invest in better opportunities, start a microenterprise, oraccumulate savings in a safe and secure place.

Stakeholders, consultation and participation

There are two main groups of stakeholders – beneficiaries andpartners. The beneficiaries of the mobile wallet project are thesegment of the general population of Romania that sign up to useM-Pesa mobile banking services, Vdoafone and Raiffeisen Bank,whom will expand their services, humanitarian organizations thatdesire more efficient ways to distribute aid and microfinanceorganizations that would like to utilize efficient methods ofloan disbursement and repayment.

The primary partners of M-Pesa in the mobile wallet project arethe telecom service provider, Vodafone Romania and the suggestedbanking partner, Raffeisen Bank. Ideally, M-Pesa will roll outits services in conjunction with Raffeisen bank and then expand

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its services by working with other banking partners in thefuture. The scope of this project, however, is confined to theuse of M-Pesa mobile wallet with Vodafone and Raffeisen Bank.

Other stakeholders include the Romanian government whom maychoose to utilize M-Pesa services to transmit secure governmentcash transfers and payment of employee salaries, as well ashumanitarian organizations and microlenders. Humanitarianorganizations such as USAID may utilize the M-Pesa system toreach the poorest segment of society and provide direct, securecash assistance.

In Romania, M-Pesa will be partnering with a major bankinginstitution and a microfinance organization to integrate andoffer services. These offerings will include basic cash-in andcash-out transfers, deposits, withdrawals, microfinance loanrepayment services, savings services, and even insurance.Vodafone will be offering the M-Pesa sign-up and servicemanagement at its stores and service centers in Romania. TheRomanian banking partner, Raiffeisen, will be consulted todiscuss the software offerings and the extent of integration withits traditional banking services.

In collaboration with M-Pesa and Vodafone executives, WIPOrepresentatives and international development experts will becalled upon to provide expertise in planning the locations of M-Pesa will work with Vodafone to build new towers in rural regionsand will largely rely upon Vodafone’s expertise and management ofmobile airwave issues and regulatory requirements in Romania. Theaverage cell phone tower costs $150,000.5 Vodafone, as an expertand leader in the telecom industry, will monitor and advisethroughout the development process of the new towers.

Programme Description

5 http://www.steelintheair.com/building-your-own-cell-tower-checklist.html#.VHFMG4m9LCQ

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Of the 21.7 million residents in Romania, only ten million haveaccess to a bank account. M-Pesa aims to sign up 10 million userswithin the first three years of commencing operations in Romania.By offering the services as a standard offering at all existingVodafone locations, and by rolling out new services in ruralregions through the creation of new towers and expansion of itsmobile banking services, M-Pesa believes that it will meet andsurpass this goal.

Cell phone towers will be built by Vodafone at a rate of tentowers per year, during years 1-3. See Appendix A for a list ofthe cities in which cell phone towers will be built in years 1-3.See Appendix B for a map of current cell coverage in Romania.

Stakeholder involvement and training programs will contributeimmensely toward success of the mobile wallet program during itsinitial three year pilot phase. As one of the major telecomproviders in Romania, Vodafone will monitor M-Pesa customers’usage of the airwaves. Other stakeholders such as the Romaniangovernment, a Romanian banking institution, and a microfinanceinstitution, will be involved in the monitoring of the financialtransactions. Stakeholders will work collaboratively to make theM-Pesa services an integral part of the economic fabric ofRomanian commerce.

Training programs comprise a large part of the stakeholdercollaboration. Upon receipt of funding, the M-Pesa team willcommence training each of the stakeholder groups. Ample fundshave been set aside for these training sessions. First, M-Pesawill train WIPO program officers in the commercialization of themobile wallet technology in Romania. Second, WIPO programofficers and M-Pesa personnel will work together to train theRomanian Government. Then all three of these stakeholder groupswill work together to train rural regional leaders. Lastly,Vodafone employees will be trained so that they can properlyexplain the offerings to potential customers.

Risks and Assumptions

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There is a risk that the government could object to Vodafone’sexpansion of services and impose legal and financial sanctions iftheir business practices are deemed monopolistic. Vodafone andOrange are the main telecom service providers, each holding about40% market share. The Court in Bucharest imposed a $28.5 Millionfine on Vodafone Romania in June 2013 for abusing its dominantposition in the telecom market. Nonetheless in the year or sosince the judgment, Vodafone has continued to operate profitablyin the region and will be a strong telecom partner in Romania.Vodafone has numerous existing service locations and rights tothe use the airwaves in the region. Vodafone is recommended torequest assurances from the Romanian government prior tocommencement of the program. This project proposal assumes thatthe government will provide assurance that Vodafone will bepermitted to operate in the rural regions of Romania to providemobile banking services.

A risk of the project pertains to potential offerings ofVodafone’s Competitor Orange. This project proposal is notcontingent upon future interoperability plans, but these plansare noted in this section because of the likelihood that M-Pesaservices will become prevalent enough to warrant creating M-Pesasoftware for Orange and other mobile devices.

This project proposal makes the assumption that Vodafone willcontinue to enjoy the right to operate freely in the region andthat the Romanian government will approve of Vodafone and M-Pesatower construction in rural regions of the country. This projectmakes the further assumption that Romanian laws will continue tobe interpreted in support of universal access to mobile banking.

Sustainability

The project is financially sustainable in the long term, due tothe small charge that attends every M-Pesa transaction, whichamounts to around 50 cents in USD. If each user completes anaverage of ten transaction in the first three years, then onehundred million charges will be realized in the first three

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years. At fifty cents per transaction, this will provide M-Pesawith $50 Million in funds to continue its project for at leastfour more years.

The M-Pesa program will be subject to a formal review and fullinternal audit every year. This will ensure that the business isoperating as planned and that M-Pesa is preparing for sustainableprofitability.

Budget

M-Pesa is requesting $14.1 Million in funding. $4.7 Million isrequested per year. After the thee year period is completed, M-Pesa will be operating at a profit and plans to continueexpansion of its operations at a rate of ten cell phone towersper year.

The proposed budget includes $1,000,000 to pay personnel eachfiscal year (21% of total funds each year). $500,000 of personnelfunds are allocated to M-Pesa management and training teams.Management will be allocated $400,000 per year, and training teamemployees will receive a total of $100,000 per year.

42.5% of funds will go toward training programs. $500,000 peryear is allocated to the training of WIPO program officers.$500,000 per year is allocated to the training of Romaniangovernment officials, and $500,000 is allocated to the trainingof Vodafone employees. Training of the Romanian governmentinvolves many stakeholders. Training of the Romanian governmentwill involve WIPO program officers, M-Pesa management, andVodafone executives. $500,000 per year is allocated to thetraining of rural regional leaders.

10.6% of program costs are allocated to marketing, publicrelations, and the creation and distribution of communicationmaterials pertaining to the M-Pesa program. The funds will beused to educate the public about the M-Pesa mobile walletcapabilities. In addition, a small percentage of the M-Pesamarketing funds will be used to create materials to educate

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stakeholders and potential investors about the M-Pesa program. M-Pesa views the Kenya project as a model of success to emulate.The Kenya program has successfully expanded its services to allowfor mobile payments to institutions, employee payments andbenefits, insurance offerings, and savings services. M-Pesamarketing materials will be created with an eye toward thefuture, to ensure long-term sustainability of the M-Pesa mobilewallet program.

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Projec Indicat Source Assumptio

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t Logic

or ns

Goals Universal access to financial banking services, microloans and cash assistance.

Number of M-Pesa mobile banking customers

Increase in average savings of M-Pesa patrons

Increase in direct cash assistance torefugees and people in areas struck by disaster.

WIPOVodafoneSusie Lonieand Nick Hughes of M-Pesa

Outcomes Change in economic conditions for the poorest segment of the population (increase insavings)

Expansion ofbanking services

Increased use of mobile wallet services to borrow/repaymicroloans

Increased use of

3 Million users signed within three years

At least 10 million successful mobile banking transactions in Romania

Average dailybalance of mobile banking users, since using the services

Measurable increase in the number ofmicroloans

M-Pesa, VodafoneIBM statistics from Africamobile wallet projectsRomanian government

Cash kiosks willbe safe to use.

The region has access to airwaves for mobile services.

Vodafone will contractually agree to build towers.

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mobile wallet services to pay / receive government cash transfers

Measurable increase in the number ofdirect cash assistance transactions

Project Outputs

Government cooperation with Vodafone andM-Pesa for the provision ofmobile banking services forprovision ofservices andinfrastructure such ascash kiosks andmobile telephone service towers

Service contracts signed with Vodafone, Microlenders, and if applicable humanitarianorganizations and the government

Customers trained to use mobile wallet

Government contracts signed to allow for provision of mobile banking services

Cash kiosks built and in service

Number of newusers to signup for service.

Local, state and national government regulatory requirements satisfied

Government data showing number of kiosks built and in service

Regulatory authorities willallow Vodafone and M-Pesa to operate, even iftheir business operations constitute a near monopoly.

Romanian and international “Know Your Customer” requirements will be satisfied.

Project Telecom and Telecom Romanian The government

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Activities

mobile software capabilitiesconfirmed tobe operatingconsistentlyand securely.

Kiosks builtand used to deposit/withdraw money

towers installed

Kiosks installed

Training program for WIPO officerscompleted

Training program for Romanian government completed

Training of Vodafone employees completed

Financial institution signed on as M-Pesa/Vodafone project partner in Romania

Microfinance organization signed on as M-Pesa/Vodafone project partner in Romania

Mobile banking texting software downloaded asan add-on

government

M-Pesa Corp.

Vodafone

will allow Vodacom and its banking partnersto operate in the territory.

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software for mobile deviceby ten million userswithin the first three years

Appendix A

Cell Phone Towers Added in Year 1Targu Jiu Lugoj Motru Alexandria Blaj Fagaras Dragansani Lovrin Brad Verendin

Cell Phone Towers Added in Year 2Roman Ianca Faiticeni Dorohoi Nehoiu Pogoanele Tandarei Ploiesti Oltenita Barlad

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Cell Towers Added in Year 3Lupeni Petrosani Marghita Tasnad Agnita Trusesti Mizil SalontaBorsa Radauti

*Vodafone may agree to build cell phone towers in exchange for exclusive rights to the towers. The government will have to agreeto give them a license to use the land for a certain period of time.

Appendix B

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