Fighting Poverty, Profitably:
Transforming the economics of payments to
build sustainable, inclusive financial systems
Jason Lamb
September 11, 2013
Financial Services for the Poor
Converting the poor’s financial transactions into digital
form is the catalytic change that will strip enough costs out
of the system to enable robust public and commercial
efforts to serve the poor
© 2013 Bill & Melinda Gates Foundation
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Payment Systems Research
 6 Country Deep Dives
 100+ In-Person Interviews
 McKinsey Payments Database
 External Advisory Board
© 2013 Bill & Melinda Gates Foundation
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Payment Systems are Complicated
Payments value chain (US frame)
Payee device/
gateway
Collecting
bank
DDA/check
ACH
Credit card
POS / ECR
POS / ECR
systems
systems
providers
providers
ATM
ATM
manufacturers
manufacturers /
/ servicers
servicers
Prepaid card
Payments
Payments
gateways and
gateways and
software
software
companies
companies
Money transfer
Wireless
Wireless device
device
manufacturers
manufacturers
Debit card/ ATM
Transaction
acquirer
Emerging
Acquirer
processor
Collecting
bank or
processor
Originating depository
financial institution
Network
Fed,
Clearing
clearinghouses
houses
Fed,
EPN
Issuer
processor
Paying bank
processor
Payment
instrument
issuer
Payer device
Paying
bank
Federal
Central
Reserve
Bank
Receiving depository
financial institution
American
Global
Express
card associations
/ Discover / GECC
Merchant
acquirer
Merchant
processor
Prepaid acquirer
Agent
Card
associations
Visa, MC,
EFT
networks
EFT
networks
Issuer
processor
Issuer
processor
Money transfer operator
Money transfer operator
(e.g., Western Union, MoneyGram)
Specialist payments providers
Specialist payments providers
(e.g., PayPal, DebitMan, Bill Me Later)
Issuer
U.S.
National
Mint
Mint
Check
Check
printers
printers
Plastics
Plastics
providers
providers
Issuer
Issuer
Electronic
Electronic
banking/
banking/ bill
bill
payment
payment
services
services
Agent
Treasury
Treasury
workstations
workstations
Payments
Payments
software
software
providers
providers
Source: McKinsey Global Payments practice
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User-Oriented View of Payments
A
C
T
A
ACCOUNTS
CICO
TRANSACTIONS
ADJACENCIES
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Key Findings
Business
Models
Cost
Reduction
Innovation
Market
Behavior
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Three Business Models
Balance-Driven
1
Mixed-Revenue
2
3
T
A
A
KEY:
C
T
Accounts
Usage-Driven
A
Cash-in-cash-out
C
A
C
Transactions
T
A
A
Adjacencies
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Model 1:
Balance driven profitability ($/year)
France
ACCOUNTS
CICO
TRANSACTIONS
ADJACENCIES
NETS
198
2
8
0
-47
-145
Source: McKinsey Global Payments practice
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Model 2:
Mixed drivers of profitability ($/year)
Denmark
ACCOUNTS
CICO
TRANSACTIONS
ADJACENCIES
NETS
183
69
40
0
-44
-110
Source: McKinsey Global Payments practice
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Model 3:
Usage driven profitability ($/year)
ACCOUNTS
CICO
TRANSACTIONS
ADJACENCIES
NETS
6
4
4
7
0
-7
Source: McKinsey Global Payments practice
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Key Findings
Business
Models
Cost
Reduction
Innovation
Market
Behavior
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Three Levers Drive Cost Variation
Across Countries
A
Channel: Digital is cheapest,
with smallest variance
B
Scale: High transaction volume
necessary – to a point
C
Efficiency: Drives costs down
throughout the system
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A
Digital channels are cheapest and
have smallest cross-country variance
Credit transfer transaction cost by channel (USD)
Digital
ATM
Min
Max
0.16
0.04
0.30
0.17
0.05
0.20
0.30
0.90
0.40
1.30
1.00
6.50
0.61
Call center
0.75
Mail
2.36
Branch
0
0.5
1.0
1.5
2.0
4.0 6.50
SOURCE: McKinsey Global Payments Map 2012 (2010 data)
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B
C
Minimum scale and
Operational efficiency are essential to
reach low costs
More efficient system given volume
Illustrative scale curve for more efficient systems
Illustrative scale curve for less efficient systems
Trnx cost per digital credit transfer
>0.41
B Minimum scale needed
0.3
C Operational
improvement
potential
0.2
0.1
0.04
0
0
250
500
750
1,000
3,000
3,250
3,500
3,750
4,000
8,550
Electronic credit transfer volume, m
SOURCE: McKinsey Global Payments Map 2012 (2010 data); BIS
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Key Findings
Business
Models
Cost
Reduction
Innovation
Market
Behavior
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Innovation: New players, new value
Jumio
ID scanning
software to
reduce error
LianLian Pay
Distribution
networks
expanding through
unconventional
means
Dwolla
Faster & cheaper
alternative
payment
processing
M-KOPA
Pay-as-you-go
model for goods,
powered by mobile
money
A
C
T
A
ACCOUNTS
CICO
TRANSACTIONS
ADJACENCIES
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Key Findings
Business
Models
Cost
Reduction
Innovation
Market
Behavior
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Market Behavior: Cost alone does
not determine price to transact
Consolidated
Market Structure
Coordinated
Government
Stance
Laissez-Faire
Government
Stance
Fragmented
Market Structure
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Implications for the Poor
Business
Models
Cost
Reduction
Innovation
Market
Behavior
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Implications for the Poor
Balance-Driven
1
Mixed-Revenue
2
3
T
A
A
C
T
A
Balance driven revenues are
insufficient
KEY:
Accounts
Usage-Driven
C
Low revenues; providers lose
money on poor users
Cash-in-cash-out
C
A
Transactions
T
A
A
Incentives aligned around driving
system usage – benefits both
providers and poor users
Adjacencies
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Implications for the Poor
Business
Models
Cost
Reduction
Innovation
Market
Behavior
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Conclusion
Parting Thoughts
Open Questions
 Activities rather than
institutions
 Work across industries
 Higher complexity
 Need solid baseline system
understanding
 Challenges and
opportunities
 Short vs. long-term solutions?
 Usage driven model at country
level?
 Degree of government
coordination of the market?
© 2013 Bill & Melinda Gates Foundation
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Thank You
Jason Lamb
Deputy Director, Global Development
Bill & Melinda Gates Foundation
Jason.Lamb@gatesfoundation.org
Appendix
Price tends to depend on structure
and competitiveness of the market,
with utility-type systems charging
lower fees

Most utility
systems
USD
0.24
Issuer
Network
Acquirer
0.16
0.14
0.10
0.01
0.09
0.07
0.02
0.03
Kenya
US¹
0.09
0.04
0.07
0.02
0.02
0.06
0.04
0.01
0.02
India
China

0.01
0.01
0.01
0.04
Nigeria²
0
0
Netherlands

SOURCE: McKinsey U.S. Payments Map Release Q1-2012, McKinsey Global Payments
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