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CLSA: Bharti Airtel - OUTPERFORM
Banking the unbanked
Bharti Airtel has signed a joint-venture agreement with State Bank of
India for mobile banking services. Almost 50% of India’s 700m mobile
subscribers have no bank accounts hence mobile banking is a promising
value added service. Leading services are likely to be rural banking
mainly money transfers, bill payments and ticket bookings. Bharti has
149m subscribers of which ~39% are rural and already dominates the
VAS market with 38% share. Success in new mobile-banking services
could lead to further share gains and Arpu stabilisation for Bharti.
JV with SBI on banking the unbanked
Bharti has entered a joint-venture agreement with State Bank of India, the
country’s largest commercial bank, for mobile-banking services. In India,
almost 50% of the 700m mobile subscribers have no bank account and
mobile banking has been a promising value-added service (VAS) which can be
converted into profitable revenue stream and also reduce churn. Bharti has
149m subscribers of which 39% are rural spread across 500,000 villages
while State Bank has 13,000 branches of which 8,800 are in rural/semi-rural
and the JV details will be concluded by end-FY11. In comparison, China
Mobile last year agreed to buy a 20% stake in Shanghai Pudong Bank, which
has 33 branches and 565 outlets, for Rmb39.8bn (US$6bn).
Bharti’s licence for mobile payments from RBI
Recently, Bharti also received a licence from Reserve Bank of India to offer
mobile-payment services. The licence is for “semi-closed mobile wallet” in
which Bharti will be able to offer a mobile-payment service where subscribers
will be able to exchange physical cash for virtual money stored on the mobile
wallet. With growing regulatory support (which has been a hurdle so far) we
see mobile banking as a promising area with three sub-segments: (1) using
mobile for regular banking such as financial and non-financial transactions,
(2) micropayments for mobile subscribers without bank accounts and (3) for
unbanked mobile subscribers to use their mobile as a bank account and carry
out services such as mobile money transfers.
In rural mobile banking we see two successful models for India G-Cash and
M-Pesa. G-Cash is a micro-payment service which transforms mobile into a
virtual wallet for money transfers at the cost of a text message. Globe
Telecom has established a wide network of partners that includes government
agencies, utility companies, cooperatives and commercial establishments.
While M-Pesa in Kenya allows subscribers to send/receive money costing an
average US$1, besides the subscriber can deposit, withdraw and transfer
money from a network of retail outlets that act as banking agents. Already
Bharti dominates the VAS market with 38% share and now success in new
mobile banking VAS could lead to further share gain and Arpu stabilisation.
Bharti & SBI press release on JV
SBI and airtel join hands to usher in a new era of financial inclusion for unbanked
India
- Form joint venture to target financial inclusion on the ubiquitous mobile platform -
New Delhi, 12 January 2011: State Bank of India, the country’s largest commercial bank,
and Bharti airtel, India’s largest telecommunications company, today announced that they
have entered into a Joint Venture (JV) agreement to make available banking services to
India’s unbanked millions. The newly formed entity, will harness the power of State Bank’s
strengths and airtel’s mobile telephony to add value to the banking and financial services
sector and empower millions of financially excluded in the country to enhance their
livelihood and quality of life. The Joint Venture will become the Business Correspondent of
SBI and offer banking products and services at affordable cost to the citizens in unbanked
and other areas.
Speaking on the occasion, Mr. O. P. Bhatt, Chairman, State Bank of India said, “State
Bank of India has always been in the forefront of Financial Inclusion initiatives. More than
67% of its massive (13,000) branch network is in rural and semi urban areas. In the last
four years, the bank has set up more than 15,000 Customer Service Points of Business
Correspondents as well as 13,000 Business Facilitators, to increase its outreach. The Bank
has already reached out to more than 1 lakh unbanked villages. This joint venture which
brings together the commitment of two of India’s greatest institutions, one in the financial
services sector known for its innovation and dedication to the under privileged sections of
the society, the other in mobile telephony whose drive for growth and excellence is
unmatched, will enable the bank to fulfil its mandate of reaching out to every Indian
leveraging the distribution network of airtel to provide banking services in a cost effective
and secure manner. With this, we look forward to taking the benefits of banking to the
Indian masses and building a more inclusive society thereby carrying forward State Bank’s
vision of being the Banker to every Indian”.
Commenting on the partnership, Mr. Sunil Bharti Mittal, Chairman and Managing
Director, Bharti Airtel said, “This historic collaboration between SBI and airtel brings
together two sectors that have made the most impact in addressing inclusive growth. The
services offered by the JV will enable financial inclusion and economic empowerment for
people across India. This will be a complete game changer, leveraging SBI’s expertise in the
banking sector along with Airtel’s 150 million strong customer base and ecosystem of over
1.5 million retailers and distributors across India. Together, we will create a scalable
operation that will address the banking requirements of millions of Indians through the
mobile platform.”
With the penetration of mobile teledensity standing at a strong 60 percent, the market
possesses great potential for a collaboration that combines the strengths of both banking
and telecom sectors. Airtel is the country’s largest telecom operator, present across 5,101
towns and more than 500,000 villages, with its network covering 85% of India’s population
carrying an average of over 200 billion minutes per quarter. Airtel will leverage its strength
in distribution, highly scaled product and service design, low-cost operations and technology
in making inclusive financial services a viable model.
SBI is the largest commercial bank in India with more than 13,000 branches (8,800 in
rural/semi urban areas) serving 210 million accounts and peak transactions of about 43
million per day. SBI is rightfully ‘the banker’ to every Indian, has the consumer’s trust and
has been at the forefront of driving inclusive growth.
The JV as Business Correspondent will engage Airtel’s retailers as Customer Service Points
(CSP) all over India in a phased manner. With this, existing and new Airtel mobile customers
will be able to visit these outlets and open new SBI bank accounts and avail of other
banking products and services available at the CSPs. Additionally, existing SBI customers
will also get serviced at these outlets.
This partnership between India’s leading mobile and banking service providers represents a
first-of-its-kind collaboration aimed at making the concept of inclusive banking a reality for
customers in India.
The JV incorporation between SBI and Airtel will be concluded by 31 March, 2011.
Mobile banking, M-commerce, money transfers
Mobile banking and M-commerce are promising VAS, which can be
converted into profitable revenue streams and have large subscriber
bases. According to the Reserve Bank of India (RBI), > 46% of mobile
subscribers in India do not have a bank account, which shows that a large
number of individuals today are unable to access banking since
conventional banking is either inaccessible or expensive in relation to the
individual’s income. Mobile banking is a promising area with three potential
sub segments.
Using mobiles to do regular banking for financial and non-financial
transactions - credit-card penetration is only 2%.
Micropayments for mobile subscribers without bank accounts to use
mobiles for low-value financial transactions, ie, a prepaid mobile wallet.
These are possible even for the 2G subscribers.
Unbanked mobile subscribers to use mobile as a bank account and carry
out basic services such as mobile money transfers
Regulations holding back “mobile banking”
Despite ongoing market developments, mobile banking in India was so far
held back by regulations. The RBI had a cautious view and believes it will
be difficult to regulate and could cause uncontrolled credit creation outside
the banking system. It was only in December 2009 that the RBI revised
guidelines to lift banks’ daily transaction cap to Rs50,000 per customer for
both funds transfer, as well as transactions involving goods purchases and
services (versus Rs5,000 and Rs10,000, respectively). Earlier RBI’s
“mobile wallet” guidelines allowed mobile subscribers to transact only
Rs5,000. In only the last six months there has been regulatory buildup
including RBI backing for providing financial services without links to
banks - getting the unbanked to the bank.
Figure 2
RBI mobile banking guidelines
RBI first issued the guidelines for mobile banking transactions in October 2008. The
guidelines permitted banks to provide mobile banking transactions but mandated that all
transactions have to originate from one bank account and terminate in another bank
account. The guidelines permitted banks to extend this facility through their business
correspondents. Alongside (in August 2009) non-bank entities were permitted, to issue semi
closed prepaid m-wallets up to the value of Rs 5000/- with full KYC compliance.
However the mobile banking guidelines were further relaxed only in December, 2009 to
enhance the daily cap on both funds transfers and transactions involving purchase of
goods and services to Rs.50,000
Requirement of end-to-end encryption relaxed for transactions up to Rs.1000/- for small
value transactions.
Facilitate funds transfer from a bank account using a mobile phone with cash payout at
ATMs/BCs up to Rs 5000.
RBI has permitted 40 banks to do mobile banking and the customer base availing of mobile
banking facilities as on September 30, 2010 stands at only 0.9m. During September, 2010,
0.5m transactions of only Rs440m were carried out using this mode of payment both for
transfer of funds and purchase of goods and services.
Almost 50% of mobile subscribers have no bank account
Our past interaction with mChek, a leading player in mobile banking VAS
space highlighted the need for easing regulatory boundaries and greater
marketing/education as prerequisite for these services to ramp up.
Management said that the leading services are likely to be bill payments,
ticket bookings and rural banking through money transfers. At present
mChek’s available services are free to subscribers (sharing for mChek is
via the operator) and though margins are thin, the involved parties are
confident of build up in transaction volume.
Of India’s mobile subscribers, 50% do not have access to banking services.
Thus, mobile can become an exciting medium to reach out to both higher-end
customers and the unbanked population. At present, mChek and PayMate are
two mobile payment-solution providers that link subscribers’ credit/bank
account to their mobile number thus helping make payments directly from the
phone.
These have been approved by Visa, MasterCard and by leading banks like
ICICI bank, HDFC bank, State Bank of India, Corporation Bank, Citibank, and
Standard Chartered to provide mobile banking services. Subscriber can pay
their mobile bills, flight tickets, insurance premiums, movie tickets, utility bills
(like water, electricity, telephone and gas) and transact on e-commerce
websites.
Similarly PayMate links the subscribers mobile to an existing bank account,
credit card or prepaid voucher and use the mobile to make secure payments.
PayMate also lets the mobile subscriber send and receive money, pay for
retail purchases, monthly utility bills, flight and movie tickets. At present
most constituents in M-commerce business are betting on bill payments and
ticketing to be the initial driver for consumer adoption.
VAS revenue ramp-up to lead Arpu stabilisation
India’s 2G mobile VAS revenues for operators is estimated at US$2.1bn by
TRAI, of which Bharti account for estimated 38% share. The traditional VAS
services, such as SMS and entertainment content (CRBT) have accounted for
majority of VAS revenue but with newer VAS, the usage patterns are likely to
change and also with the upcoming 3G services. Success for Bharti in mobile
banking will be an opportunity to further gain share with incremental
revenues, which may also lead to Arpu stabilisation.
Bharti runs “Airtel money” for mobile banking in Africa
Last year Zain in Africa (now owned and operated by Bharti Airtel in 15
countries ) won the inaugural GSMA’s 2010 ‘Mobile Money for the Unbanked
Service’ award for ‘Zap’, its mobile commerce service. Zap, was launched in
February 2009, in partnership with banks, and provides a package of mcommerce
features. It has more than 12 million subscribers already fullyenabled
for the service across seven African countries.
Zap provides customers with a virtual mobile wallet, which allows them to use
their mobile phone in much the same way as a bank account debit card,
managing their money through their handset. It provides customers with
increased security and flexibility, reducing the need to carry cash and
ensuring payments between friends and family from around the world remain
secure. Customers also benefit from being able to access the service 24/7
through their handset, allowing them access to their money anytime,
anywhere. Bharti has recently rebranded Zap to Airtel Money.
China Mobile’s 20% stake in SPB for >US$6bn
China Mobile in early 2010 had agreed to buy a 20% stake in Shanghai
Pudong Development Bank (SPD Bank) for a total consideration of
Rmb39.8bn (>US$6bn). The acquisition price was Rmb18.03/sh, a 13%
discount to SPD Bank’s share price. Strategically, the acquisition made sense
and was to accelerate China Mobile’s expansion into mobile payment service.
SPD Bank was trading at 3.9x P/B before its share was suspended. Valuation
is not cheap, but SPD Bank has strong franchise in Shanghai.
SPD Bank was established in 1992 with headquarter in Shanghai. The bank
has a nationwide operation licence but have 33 branches directly controlled
by its head office and 565 outlets in all important cities across the country. In
China other big banks may have a bigger footprint nationwide. However, they
were more difficult to acquire and too big for China Mobile.
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