Untitled

School fee payments, and
the opportunity to increase digital savings uptake in Zambia

2
Objective
To provide low-income users,
particularly women, the
opportunity to fulfill a family’s
desire to educate their
children, by:
1. Offering low-cost, easy to

Savings access, and use digital
school fee payment
solutions.
2. Encouraging accessible and
affordable digital savings.
@2017 Catholic Relief Services | All Rights Reserved

3
Our research methodology
Secondary research: Supply Demand

Financial inclusion
and the digital 25 + interviews with banks, 8 savings group interviews
finance landscape of mobile network and OTC covering 126 respondents
Zambia. operators, back end across Northern and
aggregators, payment Copperbelt Provinces.
solution providers and
private sector companies 4 in-depth interviews with
with digital finance individual savings group
projects. members.
Primary research on Primary research on
the demand side: the supply side: 9 in-depth interviews with 7 in-depth interviews with
Understanding of Interviews to mobile money, over the Private Service Providers.
user needs, wants understand current counter, and banking
and potential offerings, potential agents. 7 in-depth interviews with
solution attributes. challenges and schools in both Copperbelt
opportunities. and Northern Provinces.

4
What to expect?
1. Overview of Zambia’s financial inclusion landscape
2. Hypothesis and scope of research
3. Insights from the demand side: the payer and the payee
4. Landscaping of the supply side
5. Key Takeaways
6. Potential Solutions – Blue Sky Thinking

5
Zambia’s financial inclusion landscape

6
Zambia’s formal financial sector does not include majority Zambians, yet.
hi
~60% Formal
3.32 Million
Financially 38.2%
Addressable Target
Target Included
Market Customers
Market adults
16 Million 16 Million
8.7 5.2 Million
Population of Adult
Zambia Population of
Zambia
21.1%
Informal
1.83 Million
Formal includes all entities supervised by Bank of Zambia – Informal: include entities not formally supervised by Bank of Zambia
banks, e-money issuers, deposit taking MFIs, and payment e.g. savings and lending groups, informal MFIs, etc.
service providers.
@2017 Catholic Relief Services | All Rights Reserved Data Source: Finscope 2015
7
Non-bank formal, notably mobile led services have grown over the past 6 years
Banks only Bank + non-bank non-bank Informal only Excluded

formal formal
Non bank formal includes:

money transfer operators,
9.60% 15.20% 13.40% 21.10% 40.70%
mobile money, MFIs, etc.
Source: Finscope 2015
Graph reads: % of adults that use a certain financial service or are excluded
Awareness to
trial: Poor Low awareness
Awareness to
conversion
Ownership
However, ownership of
Digital financial
accounts and usage of
digital services has a
long way to go in
Zambia.

Source: Finscope 2015 and MM4P
Women and urban dwellers dominate the growing informal financial 8
services segment
Banks only Bank + non-bank Informal only Excluded

formal
Non bank formal includes:

money transfer operators,
9.60% 15.20% 13.40% 21.10% 40.70% mobile money, MFIs, etc.
Source: Finscope 2015
Graph reads: % of adults that use a certain financial service or are excluded
non-bank
formal
Urban > Rural Women > Men
17.5% 13.7% 51% 49%
Both sets of data points seem to suggest that current suite of formal financial
products don’t entirely address the needs of Zambian adults. `
9
Understanding the financial needs of Zambian adults

Daily Income Daily Expenses
$ 5.7 Average adult Income Consumption (food and clothing)

School Fees
$ 2.1 Median adult Income
Rent
Zambian adults save as

Zambian adults regard 33% cash-flow management
to plan for school fee
61% children’s education as
payments.
the most costly event of
their lives. Rely on gifts from friends
10% and family.
Borrow from friends and
9.1% family.
Source: Finscope 2015 @2017 Catholic Relief Services | All Rights Reserved
10
So what?
There seems to be a need for financial products that help
smooth the financial lives of Zambian adults, especially around
school related expenses.
Savings products that not only encourage savings for school

related expenses, but also enable payments could be a sticky
value proposition for greater adoption of Digital Financial
Services (DFS).

11
We then decided to test that hypotheses
3 Questions
Who to target first?
And why?
What are we testing?

12
Hypotheses testing: The Who, Why, and What
• According to Finscope 2015, adults that are formally included are more likely to be male,
above the poverty line and urban.
• If we strictly look at only formal financial inclusion, then 60% of the Zambian market is
untapped.
• Women are even less likely to be formally included.
Financial access strand: 25.80% 17.50% 18.00% 38.80%

% of male adults
Women are 1.3x times more likely Formal Informal

1.3X to be informal users than formal
compared to men. Informl + Excluded
Formal FI
Financial access strand:

17.20% 16.10% 24.10% 42.50%
% of female adults
Women comprise of 51% of the adult Zambian population. They not only save but are
dominant users of savings groups that help them manageSource:
cash-flow.
Finscope 2015
13
Hypotheses testing: The Why, Who, and What
Adults in informal savings

groups, particularly
women have built a
history of savings and
credit. Compared to the
financially excluded, they
are more primed to
adopt formal financial
services that speak to
their daily lives.
Therefore, we began our hypotheses testing with CRS’ savings group members,
84% of who are women.
14
Hypotheses testing: The Why, Who, and What
Hypothesis test: Our demand side research examined 2 products – Savings and School fee payments
Savings
• Why savings groups?

Motivation 64.5% 61% 86% 47%
• Savings goals: needs and
aspirations.
Zambian Do not want
• What do they like about Adult Want to
Attributes households have Zambians to carry
savings groups? learn new
access to phones own a phone. technology. cash.
• Are these transferrable?
(ZICTA-2015).
• Group Economics.
Volumes and Digital How many savings members own or
• Volume: How often do people save,
Values of how much they saved, and over what Readiness have access to phones?
savings time-period. Willingness to make digital payments
• Credit: Savings linked credit attributes and pay for it.
Data Source: Finscope 2015

15
Hypotheses testing: The Why, Who, and What (contd.)
Payments (1/2):We examined school related payments through the 4 components of a digital payment
Store of Value Payer Digital channel Payee-School
One who pays The medium through which One who accepts a payment
money is digitally transferred.
Transaction is initiated using Transaction is received into payee’s

customers digital store of value store of value i.e. bank a/c or mobile
i.e. mobile wallet or card. wallet using a digital channel.
An ideal definition of digital school fee payments.

16
Hypotheses testing: The Why, Who, and What (contd.)
Payments (2/2): The typical ingredients necessary to ensure a seamless digital school related payment.
• Backend Integrator
• High quality agent penetration.
• Typically connects to the backend of a FSP.
• Well stocked with float and cash.
• Either directly connects or has a platform that allows payees like
• Ability to facilitate school related payments.
schools to upload payer information.
Agent • Validates payer information, amount and does transaction
processing.
• Provides notifications, end of day reconciliation, etc.
Payer Payment Instrument School FSP
Remote payment
• Financial Service Providers

• Customer acquisition • Channel / USSD access. • School acquisition (FSPs) that collect payments.
• Registration • UI / UX that is easy to • Student payment identification system.
• Account Activation follow. • Automated real time or end of day
• Deposits & Withdrawals at reconciliation system.
agent • Liquidation from wallet to bank account
• Real time notifications of (depending on how school fees are collected).
all transactions

17
Key Insights from our demand side study of

savings groups
Payer: Savings & School fee payments

Payee: Schools

Current suite of formal financial products do not speak to women in 18
savings groups
Why savings groups?
100%
“The reason why I chose to join
the group and not the bank is of group members are saving or borrowing
because there are no balance for specific short term and long term goals.
reductions and I get interest at
the end of the cycle”
“We realized that the

group was the only way
to help ourselves and it
has offered us an “My priority is paying my
opportunity to save” school fee balance and
“I want to expand my then I will reinvest the rest
business. I do in my business”
hardware and rear
“I joined SILC to chickens”
empower myself”
Data Source: Field Interviews (not representative of all SILC Groups) @2017 Catholic Relief Services | All Rights Reserved Data Source: Consumer Behaviors in Zambia, MM4P
Product features that groups appreciate can be translated to a 19
formal financial product

• Rules of engagement are clear • Proximity. • 429 Private Service Providers,
(min-max deposits; interest rate • No barrier to entry. financially certified, providing
payments; repayment schedule • Faster turn around of credit and financial management and
etc.). emergency funds. accounting services to groups.
• No unobvious charges or • Administrative fee per meeting.
unexpected payments.
Transparency Affordability Accessibility Simplicity Support
• The floor of savings value ranges • Savings linked to credit facility.

from ZMW 1-5 encouraging any
savings amount.
Data Source: Field Interviews (not representative of all SILC Groups) @2017 Catholic Relief Services | All Rights Reserved
20
Accumulated savings portfolio of current active groups -$5.2 MN
180,919 Savings Group Members
Savings Fund Emergency Fund Dividends
Higher value fund, with a range of Lower value fund, with flat rates,
rates, used for accumulating used for emergency grants.
savings and providing credit. Dividends, including
individual savings and
ZMW 1 - 500 ZMW 1 - 10 earnings on interest, are
Per member per week Per member per week paid out annually then a
new savings cycle begins.
LOAN with 10-15% GRANT or INTEREST PSP SERVICE

INTEREST FREE LOAN PAYMENT
Data Source: Field Interviews (not representative of all SILC groups) @2017 Catholic Relief Services | All Rights Reserved Data Source: CRS Zambia SILC Program Indicators
21
Digital readiness and compartmentalization of usage
Copperbelt Vs. Northern “I can save in it” Usage of mobile money
predominantly for
92% Of all members 64% “I can withdraw money any payments.
own their own day, including weekends”
phone.
Frequency of usage
ranges from weekly to
“If you don’t have a phone, monthly.
51% Of those who own it’s more difficult to have
phones have a mobile
38%
an account”
money account.
Informal and formal

“If you don’t have people to
51% Of all members help you, then you can’t financial services are co-
8%
have a bank understand (mobile money), existing.
account. especially if you are poor”
Users assign a specific
purpose to each
channel.
Data Source: All percentages sourced from field interviews (not
nationally representative)
22
Current school fee payment processes are determined by the school and are
cumbersome for guardians
Example of a Current Secondary School Fee Payment Process
Payer Cash Bank
Transaction
82% of savings group

members have school
going children.
Transaction
Payee Confirmation Payer
The average secondary school fee payment per term is

ZMW 338. The range of travel costs to the bank is ZMW
4 – 40, which means payers are paying between 1 and
12% of the fee to make the transaction.
There is a willingness to pay for the convenience of digital services.

Data Source: Field Interviews (not representative of all SILC groups) @2017 Catholic Relief Services | All Rights Reserved
23
Infrastructural barriers to digital payment adoption
Agent Exclusivity Agent Penetration
# of Financial Access Points by Ward (including mobile agents)
91% 219
Of all Zambian agents are Mobile Money agents per
exclusive. 100,000 Zambian adults.
100% of agents interviewed However, this penetration

were exclusive. is not uniform. There are
agent clusters.
Although 6 out of 8 groups
had at least 1 agent a 5 For example, in Luanshya
minute walk away, agent and Mungwi, SILC groups
exclusivity left customers would have to incur travel
with a lack of provider cost and time to get to
choice. the closest agents. Digital
financial inclusion is an
expensive value
proposition.
Data Source: Field Interviews (not
Data Source: The Mix, 2016 Data Source: Helix Institute @2017 Catholic Relief Services | All Rights Reserved
representative of all SILC groups) Data Source: National Financial Inclusion Strategy
24
Infrastructural barriers to digital payment adoption
Liquidity Management Network Coverage
78%
“sometimes they do not
have cash”
According to ITU’s
2015 Statistics,
“agents are often closed
only 78% of
during the weekend and
rarely have cash” Zambia’s
population is
-Respondents of savings covered by mobile
groups when asked about network.
the service their closest
agent offered.
Data Source: The Mix, 2016 Data Source: Helix Institute @2017 Catholic Relief Services | All Rights
DataReserved
Source: http://onlinesystems.zicta.zm:8585/statsfinal/ITU%20Indicators.html
25
Digital payments can solve a real pain point for schools
The Current Secondary School Process
4 out of 6 schools use an entirely

manual system for recording and
reconciling payments.
“It is May. Parents are going to deposit in the bank, but they are not going to
give the accountant the deposit slip immediately. Then we do reconciliation,
but realize that there is more money in the bank than can be accounted for.
Then matching that to parents who have paid becomes a nightmare”
Accounts Assistant, Chimwemwe Secondary School
@2017 Catholic Relief Services | All Rights Reserved Data Source: Field Interviews (not representative of all schools)
26
Schools understand the benefits of digitization, but are not ready for it
No schools had considered using a More price sensitive than savings group
digital school fee payment system and members.
payments via banking agents are
actively discouraged. Infrastructural barriers to accepting
digital payments.
The school, who determines how and where payments are

made, is less ready than the payer.
Icons: Creative Commons, Noun Project @2017 Catholic Relief Services | All Rights Reserved Data Source: Field Interviews (not representative of all schools)
27
Landscaping the supply side
How is it structured?
What solutions already exist?

28
Zambia’s Digital Financial Services market –At a glance
No. Category of FSP Current Services Offered
Savings Domestic Payments Credit
remittances
1. Commercial Bank Yes Yes Mixed Yes
(direct deposits) (utility, cable,
merchant and
school payments)
2. Mobile Money Store of value, not a Yes Yes Yes-MTN Kongola

special savings (some utility and (not savings linked
product cable payments) like MoKash / M-
Shwari)
3. Over-The-Counter providers Mostly Not except Yes Yes No

including retailers for Zoona’s Sunga. (some utility and
Retailers like cable payments)
Shoprite that offer
OTC transfers are
not licensed.
4. MFIs (Deposit taking) Yes Direct deposits-Yes Not yet Yes

29
Zambia’s DFS market (contd..)-Payment Aggregators
• Backend Integration with 10 Banks in Zambia.

• Backend Integration with 2 MNOs.
• Service offerings: Payment facilitation for utility
payments, cable TV payments, Bank to wallet
Push-Pull.
• School fee payments: Currently have an online
payment solution with the University of Lusaka. • Backend Integration with 13 Banks in Zambia.
• They also have the ability to offer an offline • Working agreement with the 2 large MNOs.
solution. • Service offerings: Enabling big Person-to-Government
payments, particularly Zambia Revenue Authority (ZRA)
payments.
• School fee payments: Currently have an full school
management solution and are working towards a school
fee payment component.
• The platform supports primary, secondary and tertiary
Cellulant charges the payer
education institutions.
(parent) a flat fee of 10 kwacha.
• Currently have on-boarded around 6-7 schools.
30
There is a willingness Agent exclusivity School
Digitizing school
to pay a convenience lowers consumer acquisition and
related payments
fee for digital school choice of payment onboarding is
solves a real pain
related payments. method. crucial.
point – both for
guardians and
schools. Schools determine
Lump sum payments are hard for
how and where
most parents. A lay-away or locked
payments are
savings option could provide real
made are
value.
unprepared to
Guardians are accept digital
looking at Lack of financial access points i.e. payments.
affordability, agent density is a real challenge.
convenience and
proximity of
Digital school payment solutions exist, but are yet to see
payment points.
mass market uptake.
31
Potential Solutions- Blue Sky
An OTC school fee payment option: Think money

transfer, but for school payments
An end-to-end digital school fee payment: A

cashless transaction

32
The OTC school fee payment solution
Frontend process.
Using an aggregator’s online Parent receives the Parent travels or Pays cash using the An (non-exclusive) agent
or offline school platform the reference number either walks to closest unique reference accepts cash, conducts a
school generates a unique on paper or via SMS. agent number pay bill transaction.
Payment Reference Number Parent gets an electronic
for each child of that school. receipt and so does the
school.
Backend process.
Agent wallet is End of day or T+1 School is able to log in to the aggregator
debited and collections are platform and view amount collected – an
aggregator / MNO pushed to the automated reconciliation process.
collection account is school’s bank Could even offer parents a lay-away
credited. account. option.
33
The OTC solution: Sender pays (one potential revenue model)
Sender / Parent The convenience fee is used to Banks earn from School pays the
pays for compensate agent and agent corporate accounts aggregator a small
convenience model. operators i.e. bank, MNO, OTC like a school’s annual fee for hosting
and maybe even partially account. the solution and other
compensate the aggregator. admin expenses.
Gains for each party

Payer Agent Agent Operator Backend Banks School
Aggregator
Convenience. Reduces Commission Revenue via Commission Cost-savings via Convenience,
the time and cost commission split unclogged banking automated
factor to just the halls and school reconciliation
nearest financial payment handling
access point.
34
The OTC solution: Receiver pays (another potential revenue model)
Sender / Parent The agent is Banks earn from School pays the The % earned from the
does not pay for compensated by corporate aggregator a % of the school is split between
making a school fee the payment accounts like a value of payments the channel provider,
payment. solution provider school’s account. facilitated. and aggregator.
or the channel
provider for school
fee cash-ins.
Payer Agent Agent Operator Backend Banks School
Aggregator
Convenience. Commission Revenue split Commission Cost-savings via Convenience,
Reduces the time and from the paid by school. unclogged banking automated
cost factor to just the commissions paid halls and school reconciliation
nearest financial by school. payment handling.
access point.
35
The OTC school fee payment solution (contd..)- Positives and areas for
further discussion
Positives:
• Solves an immediate pain-point, and has no barrier to adoption.
Areas for further discussion:
• This approach is limited in increasing digital account adoption and
consequently greater formal financial inclusion.
• Does not necessarily create a data trail on the individual payments
history making it harder to offer additional financial products.
• Makes it difficult for new comers / 3rd parties to offer competitive and
tailored financial solutions based on a users digital transaction history.
• Scalability of this solution will hinge at the very least on agent footprint,
liquidity management, and schools on-boarded.
36
The digital school fee payment solution
Frontend process. Cash-in to wallet at
agent.
School
Using an aggregator’s online Parent receives the Parent dials a USSD Parent gets an electronic
or offline school platform the reference number code, uses an app, notification and so does
school generates a unique either on paper or via or internet banking the school.
Payment Reference Number SMS. to initiate a digital
for each child of that school. transaction from a
wallet or bank
Backend process.
account.
Amount is debited Amount is credit to School is able to log in to the aggregator

from customer school bank account. platform and view amount collected – an
account. automated reconciliation process.
Could even offer parents a lay-away
option.
37
Digital payment: Sender pays (one potential revenue model)
Sender / Parent The fee is split between the Banks earn from School pays the
pays for transfer. FSP and the backend corporate accounts aggregator a small
aggregator. like a school’s annual fee for hosting
account. the solution and other
admin expenses.

Payer Agent Operator Backend Banks School
Aggregator
Convenience. Revenue via Commission Cost-savings via Convenience,
Reduces the time and commission split unclogged banking halls automated
cost factor to just the and school payment reconciliation
nearest financial handling
access point.
38
Digital Payment: Receiver pays (another potential revenue model)
Sender / Parent Banks earn from School pays the The % earned from the
does not pay for corporate aggregator a % of the school is split between
making a school fee accounts like a value of payments the channel provider,
payment. school’s account. facilitated. and aggregator.

Payer Agent Operator Backend Banks School
Aggregator
Convenience. Reduces Revenue split from Commission Cost-savings via Convenience,
the time and cost factor the commissions paid by school. unclogged banking halls automated
to just the nearest paid by school. and school payment reconciliation
financial access point. handling.

39
Digital fee payment solution (contd..)- Positives and areas for further
discussion
Positives:
• Has a barrier to adoption – phone ownership / internet penetration and maintaining
an active account.
• This solution encourages periodic usage of a digital account and has the potential to
increase customer adoption and formal financial inclusion.
• It is easier to layer on products once users already have an existing account.
Areas for further discussion:
• Many current users in Zambia are used to ’agent-assisted’ transactions. Hence,
financial service providers might need to incentivize users to switch from agent
assisted payments to initiating remote payments. Some examples could include –
remotely initiated payments being cheaper, target based interest bearing savings
accounts that help save for large payments like school-fees e.g. KCB M-Pesa
• Other dependencies include USSD access, agent footprint, liquidity management and
schools on-boarded. @2017 Catholic Relief Services | All Rights Reserved
40
The Digital school fee payment market in

Zambia significant
10 million $86 million

annual annual
payments payments
(Volume) (Value)

41
Next Steps
1. Feedback and Partnerships
2. Group Exercise on potential solutions.
Thank you

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School fee payments, and

the opportunity to increase digital savings uptake in Zambia

1. Offering low-cost, easy to

@2017 Catholic Relief Services | All Rights Reserved

Our research methodology

Secondary research: Supply Demand

@2017 Catholic Relief Services | All Rights Reserved

1. Overview of Zambia’s financial inclusion landscape

2. Hypothesis and scope of research

4. Landscaping of the supply side

6. Potential Solutions – Blue Sky Thinking

@2017 Catholic Relief Services | All Rights Reserved

Zambia’s financial inclusion landscape

@2017 Catholic Relief Services | All Rights Reserved

Banks only Bank + non-bank non-bank Informal only Excluded

Non bank formal includes:

@2017 Catholic Relief Services | All Rights Reserved

Banks only Bank + non-bank Informal only Excluded

Non bank formal includes:

Urban > Rural Women > Men

17.5% 13.7% 51% 49%

Understanding the financial needs of Zambian adults

$ 5.7 Average adult Income Consumption (food and clothing)

Zambian adults save as

Savings products that not only encourage savings for school

@2017 Catholic Relief Services | All Rights Reserved

We then decided to test that hypotheses

@2017 Catholic Relief Services | All Rights Reserved

Financial access strand: 25.80% 17.50% 18.00% 38.80%

Women are 1.3x times more likely Formal Informal

Financial access strand:

Adults in informal savings

• Why savings groups?

Data Source: Finscope 2015

Store of Value Payer Digital channel Payee-School

Transaction is initiated using Transaction is received into payee’s

An ideal definition of digital school fee payments.

@2017 Catholic Relief Services | All Rights Reserved

Payer Payment Instrument School FSP

• Financial Service Providers

@2017 Catholic Relief Services | All Rights Reserved

Key Insights from our demand side study of

Payer: Savings & School fee payments

@2017 Catholic Relief Services | All Rights Reserved

“We realized that the

formal financial product

Transparency Affordability Accessibility Simplicity Support

• The floor of savings value ranges • Savings linked to credit facility.

Savings Fund Emergency Fund Dividends

LOAN with 10-15% GRANT or INTEREST PSP SERVICE

Informal and formal

82% of savings group

The average secondary school fee payment per term is

There is a willingness to pay for the convenience of digital services.

100% of agents interviewed However, this penetration

4 out of 6 schools use an entirely

Accounts Assistant, Chimwemwe Secondary School

The school, who determines how and where payments are

Landscaping the supply side

@2017 Catholic Relief Services | All Rights Reserved

2. Mobile Money Store of value, not a Yes Yes Yes-MTN Kongola

3. Over-The-Counter providers Mostly Not except Yes Yes No

4. MFIs (Deposit taking) Yes Direct deposits-Yes Not yet Yes

• Backend Integration with 10 Banks in Zambia.