Haiti Mobile Money Initiative

CASE STUDY
Haiti Mobile Money Initiative

Incentive Prize Competition
Version 1 - April 25, 2012
Authors:
Vijay Goel, MD
Principal, Goel Insights
Salah Goss
Financial Services for the Poor, Bill & Melinda Gates Foundation
2012 Goel Insights, LLC. All rights reserved
CASE EXAMPLEINCENTIVE PRIZE COMPETITION
HAITI MOBILE MONEY INITIATIVE
HMMI REQUIREMENTS
First-To-Market
$2.5M awarded to first operator to launch qualifying services within 6 months of the HMMI announcement. Operator must have processed a minimum of 100 qualifying transactions at each of 100 new outlets during that 6-month period. $1.5M awarded to the second operator to launch qualifying services, or for the first who does not meet the 6-month deadline but does launch such services within 12 months of announcement. Two equal awards of $1.5M is a possiblity.
OVERVIEW
The 7.0 earthquake that struck Haiti in January 2010 killed over 300,000 people, displaced an additional 500,000, and ruined about a third of the countrys formal banking infrastructure in earthquake affected areas. Prior to the earthquake, 76% of Haitians lived on less than USD $2 per day. Haiti suffered from chronic problems of food insecurity, hunger and political instability and was classified as the poorest country in the Western Hemisphere. Many of those who survived the earthquake had previously depended on the dilapidated and overcrowded banking and payments infrastructure that now lay in ruins. Rebuilding their lives and the economy would require a new model for financial services. This crisis was an opportunity to radically change how financial services were brought to the people of Haiti, ensuring that access to cash and services took place more quickly and more conveniently. Sensing an opportunity to accelerate reconstruction efforts while at the same time setting the basis for longer-term development, the Bill & Melinda Gates Foundation and US Agency for International Development (USAID) examined the tools they could use to quickly restore access to financial services in Haiti. Both USAID and the Gates Foundation desired to improve the welfare of Haitians living
Scaling Award: Incentive to reach scale

$6M in awards available to operators in proportion to each operators contribution to market scale. Scaling award eligibility starts on the first of the month following the public announcement of the winner of the First-to-Market award, or on June 10, 2011, whichever comes first. An award made against materially incorrect self-reports must be promptly refunded. Only Qualifying Transactions will be counted. No Scaling Awards will be made after 24 months from the date of this announcement. Eligibility Tranches: 1. $10 per transaction will be awarded in proportion to
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Photo courtesy of: Bill & Melinda Gates Foundation/Natasha Fillion
HMMI REQUIREMENTS (contd)

contribution to the total, up to 100,000 transactions. 2. $2 per transaction will be awarded in proportion to contribution to the total from 100,000<x 1,000,000 transactions. 3. $0.80 per transaction will be awarded in proportion to contribution to the total between 1,000,000<x 5,000,000 transactions.
in poverty, whose situation was exacerbated by the devastation of the earthquake. They thought to leverage the potential of lower cost mobile technologies to provide financial services rather than wait to rebuild more expensive physical bank branches. In the context of post-earthquake Haiti, for both USAID and the Gates Foundation, a prize was preferable to a traditional grant. From their experience, they knew that awarding money to ambitious proposals often entailed a lengthy process of proposal submission and review. Instead, they decided to utilize an Incentive Prize Competition to encourage multiple players to build the required infrastructure and prove they could successfully engage people on the ground. The Incentive Prize Competition model also has the benefit of engaging multiple stakeholders simultaneously while paying only for success. Competitive forces in the telecommunications and banking industries could be harnessed to focus on solving a specific problem, thereby transforming otherwise highrisk investments into potentially high-reward technology innovations. With the participation of the public and NGO sector, private companies could be incentivized to put up large amounts of capital toward developing commercial services that had far reaching social benefit. The Haiti Mobile Money Initiative (HMMI) was established in June 2010 for the purpose of expanding access to financial services, especially where bank branches were nonexistent or had been destroyed. Funded by the Gates Foundation, HMMI is a $10M prize fund created to incent development and scaling of mobile banking services in Haiti. HMMI offered rewards for the first two companies to deploy a qualifying service and all companies that subsequently contribute to the scaling of the Haitian mobile money market to 1M and 5M transactions. Up to $5M in USAID grants are also available to provide technical assistance in overcoming obstacles encountered in deploying the service. Haiti Integrated Financing for Value Chains and Enterprises (HIFIVE), funded by USAID and staffed by World Council of Credit Unions (WOCCU) was working with the financial sector to develop mobile money prior to HMMI and was a good choice to administer HMMI locally. HIFIVEs role as an administrator includes conducting verification of the prize claims and awarding the technical assistance grants. HIFIVE also works closely with the mobile money, banking and microfinance sectors to ensure a conducive environment for innovative financial services. By October 2011, $4M in prize money had already been awarded, as DigicelScotiabank successfully launched Tcho Tcho Mobile, the first mobile money
Qualifying Services
Full mobile wallet services (able to deposit, withdraw, transfer, and maintain a balance) Sustainable pricing Electronic value exchangeable for cash at outlets Mobile licenses and regulatory clearance in Haiti
Qualifying Transactions
Must be part of a qualifying service Must be made against the mobile wallet Do not include in-group electronic goods (e.g., phone airtime) Only counted when using New Outlets (non- banking or money transfer outlets prior to 2010) Only count if successfully completed
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service in Haiti, winning a $2.5M first prize. Voil-Unibank successfully launched a qualifying service to capture a $1.5M second prize. As market transactions surpassed 100,000 qualifying transactions, the first scaling prize has been awarded with Voila-Unibank and Digicel-Scotiabank both receiving a portion of the purse.
IMPACT
Rapid development of a mobile money platform in Haiti: In December 2010, both Digicel-Scotiabank and VoilUnibank launched mobile money services in Haiti in a bid to win the $2.5M First to Market prize offered by the Gates Foundation. Digicel-Scotiabank won this prize, as the first entrant to meet the requirements of achieving 10,000 transactions at 100 qualifying outlets (locations involved in no or a low level of financial transactions in the preceding six months), and performing at least 100 cash-in/cash-out transactions at each outlet. They were awarded the prize on January 10, 2011 at a ceremony in downtown Port-au-Prince. Voil-Unibank captured the 2nd place First to Market prize of $1.5M. On October 11th, both Voila-Unibank and Digicel-Scotiabank received their portion of the prize purse for the First Scaling Award. Both teams were rewarded for their contribution to growing the mobile money market past 100,000 qualifying transactions. Creation of a new nationwide financial services platform: Digicel has chosen to concentrate the deployment of Tcho Tcho Mobile in Port au Prince while Voilas approach has been to establish T Cash in the provinces outside of the capital. Between the two, over 800 mobile money outlets have been created, and access to financial services is expanding rapidly for the Haitian population.
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HOW HMMI WAS CREATED

As the Gates Foundation looked at the tragic situation in Haiti, it saw a devastated financial infrastructure that required faster and cheaper solutions than rebuilding the damaged banks. Had a widespread mobile money system already been in place in Haiti, such as M-PESA, everyday financial transactions would not have been so heavily impaired by a lack of cash in circulation and access to cash from accounts. Mobile money would have been able to unlock relief payments from relatives as well as provide an electronic alternative for cash transactions. However, this had not yet become available in Haiti. In a series of discussions and meetings, the Gates Foundation and USAID quickly identified two reasons why mobile money transfer could be particularly powerful and valuable if deployed quickly in Haiti: The devastation of traditional ways to access cash created needs that suggested adoption of mobile payments would be rapid. If humanitarian agencies and remittances services could be convinced to move quickly to electronic payments, they would induce a large uptake amongst recipients. Recipients would have a strong incentive to keep their funds in electronic form and use them for payments, since the option of cashing out (or in) remained difficult. In fact, it seemed possible that the entire system could reach scale quickly, thus bypassing chicken-egg network development challenges and accelerating the adoption of mobile payments. The destruction of the financial infrastructure hindered the ability of emergency funds to reach those in need. In any emergency, cash from friends and family is a major source of funds enabling household survival and reconstruction. If mobile money could make these, and humanitarian payments, cheaper, quicker and more transparent, there would be a much greater and more immediate human welfare impact than for typical mobile money deployments. The Gates Foundation and USAID assembled a team to work on this opportunity and began a rapid assessment of who they could work with and how. It quickly became apparent that mobile money could reach scale quickly in Haiti under the following conditions: If the Central Bank were to support mobile money deployment. The banking law in Haiti dates from 1980, and, therefore, didnt anticipate the existence of mobile money or any other electronic transactions. Initial banking support for this effort would allow for a less restrictive regulatory environment in the
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absence of clear regulation. If payers were willing to make payment
electronically. Payers, including the Red Cross and World Food Program which are among the major sources of cash for work programs in Haiti, were keen to move to mobile payments as soon as possible. A rapid shift to mobile payments would relieve the payers issues around security and expensive cash handling and allow for those in need to be able to better manage their finances discretely. This could aid in the rebuilding of the local economy. If mobile network operators (MNO) saw a business case for launching mobile money. The MNOs would have to commit a large up-front investment into a service that would not be immediately profitable. Significant resources would be required of the MNOs and their banking partners to integrate a mobile account management system, build up and manage a network of mobile money retail outlets, and drive customer adoption. In the aftermath of the earthquake, creating this business case would be more difficult. After extensive discussions with the major donor organizations interested in mobile money in Haiti, the Gates Foundation and USAID arrived at the most appropriate way to structure an intervention in Haiti. This would be an Incentive Prize Competition. The telecommunications market in Haiti is characterized by tight competition between a small number of companies, and has a track record of generating rapid adoption of new technologies. A time bound competition would aim to harness these competitive forces and know-how to incent mobile money deployments to roll out faster and deeper. Through the use of an incentive prize, both the private and public sector would be stimulated to address a development challenge with a solution that was market driven and commercially viable. Therefore the solution would be sustainable upon the exit of donor funds. The incentive prize would have the following structure: A speed award which incentivizes providers to enter the market as soon as possible. A provider should have achieved at least 100 mobile wallet transactions in each of 100 new outlets (i.e. not existing branches of banks and transfer houses). This bar was set fairly low to provide financial resources to operators as early as possible in the process, given the understanding that it takes a large up-front investment for mobile money deployments to get to scale. The requirement that these transactions take place at 100 new outlets was a key element that would differentiate a serious player from a half-hearted or opportunistic attempt. The first provider would get $2.5M; the second $1.5M, within 12 months. A scale award that incentivizes providers to achieve scale as soon as possible. This award represents a substantial incentive (totaling about $6M) for the mobile money market to reach at least 5 million transactions within 24 months. The award would be tranched and split amongst all providers contributing to the total. Any awards not achieved would be retired. The entrants had to put up their own money first and could only win the award if successful. Unsuccessful attempts would not be awarded the prize funds.
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DESIGN DECISIONS
HMMI was designed to incent the development and growth of the mobile money industry in Haiti. A multi-round structure was chosen to attract larger companies to invest in establishing a mobile money industry while still encouraging the participation of smaller, dynamic companies that might be able to enter the mobile money space by leveraging the momentum of a first mover. The qualifications to enter the competition were specific and exclusionary, with the barriers to attaining the first prize purse set relatively low for this small group of initial competitors. Subsequent rounds of the contest were meant to stimulate a race toward scale, with more companies enticed to form partnerships and compete, steadily increasing transactions and value-added services. In pursuit of this vision, some design decisions included: Optimize for speed: By creating the First-to-Market Awards, HMMI put a substantial premium on the development of a minimum infrastructure of 100 new outlets with each attaining a minimum of 100 transactions. Deadlines of 12 months for First-to-Market and 24 months for Scaling incentivized speed. Incent decongestion of banking infrastructure: Existing bank branches had long lines and a limited footprint. By requiring that qualifying transactions must be conducted at new outlets, the competition aimed at unlocking new, more convenient channels where consumers could access and manage their funds. Multiple awards: Several prize purses afforded all players several chances to win. A second-place award in the First-to-Market phase would draw multiple competitors into the market and the Scaling Phase was designed to encourage multi-company competition. Tiered scaling awards: HMMI subsidized the earliest transactions the most, as they are the most costly. Place a premium on scale: By awarding a higher percentage of the prize purse when the market reached certain benchmarks, HMMI placed a strong focus on the growth of the market. Real world utility: Basing awards on achievements required entrants to demonstrate the ability to reach out to customers and get them to use the product. An attempt to implement the technology that does not succeed is not rewarded. Require regulatory approval: Contestants were required to work in a way accepted by the Central Bank. This limited the number of entrants but maximized the chance for a quick real-world impact. Mix grants and prize purse: $10M from the Gates Foundation in prize purse was supplemented by $5M from USAID for technical assistance.
WINNING FORMULA
La Banque de la Rpublique dHati (BRH) has been critical to the launching of mobile money in Haiti. BRH has adopted a pragmatic regulatory stance, supporting the issuance of guidelines for branchless banking and engaging in a regular dialogue with the industry. Most notably, the BRH has enacted the implementation of tiered and simplified KYC rules for low value accounts, which are now offered by the both service providers. Both Digicel-Scotiabank and VoilUnibank won prizes in the First-toMarket round. They accomplished this by: Establishing new outlets. This meant making an up-front investment in infrastructure and new business partnerships. Dedicating significant resources and senior leadership attention to this effort. This cleared internal and external barriers and led to quick advances in product development, team cohesion, and technology.
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LESSONS LEARNED
A prize can be an effective way to stimulate both the private and public sector to address a development problem with a solution that is market driven, commercially viable and therefore sustainable upon exit of donor funds. Verification procedures need continual refinement as the dynamics of the market and competition evolve. If a prize intends to change peoples behavior, then it has to be transparent, criteria-based, achievable and verifiable. This is in contrast with prizes for achievement such as the Noble Prizes which are based on past achievement and are chosen by discretion or subjective judgment. The cost of running a prize program is substantial, including the costs required to design and set-up the effort. Experience spanning the X PRIZE Foundation and HMMI suggest that operational costs can be significant and may even approach or exceed the prize amount. Unlike a grant with distinct pay out dates, using a prize mechanism means having less control over when the incentive prize purse is awarded. While there are deadlines, the date when any prize may be claimed is unknown. This makes planning for a verification period a challenge. It also means extra costs. For example, the administrator has to hire people on retainer and has to be ready to execute service contracts quickly to make sure resources are in place once a contestant does claim a prize.
Map of haitian transport routes Bill Maurer, 2010

Common ways of transporting cash in Haiti before the introduction of mobile money included by boat and over land through the Dominican Republic.
No intellectual property rights encumbrance: Reward results without encumbering the IP of participants or winners. This enabled large for-profit companies to enter the competition and make substantial investments. Guard against gaming: To avoid providers entering the market, claiming a prize and then exiting quickly, the First-to-Market award was limited to MNOs. Other companies were allowed to compete only by exception. Other things to watch out for include providers claiming fictitious transactions or transactions occurring at outlets in existing bank infrastructure. Outlet spot checks, mystery shoppers, mapping of actual outlet locations and third party data verification were built into HMMI to mitigate these concerns.
KEY CHALLENGES FOR CONTESTANTS

Create the necessary partnerships between banks and mobile operators. Calculate the requirements for a sustainable business model. Develop a network of agents/locations that could offer mobile money service at new local outlets.
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Market and brand a new service to consumers and paying entities. Both sides of this two-sided payments market must be built up at the same time. There has to be enough customers to make offering mobile money services attractive to agents and at the same time enough agents up and running so potential customers can easily find a location and test out the service. Overcome the challenges of a post-earthquake environment. Haitis commercial and banking infrastructure were severely damaged and thousands of people were displaced. This level of destruction posed significant challenges to contestants. The mobile money industry is fairly new and still in its infancy in many countries. Getting the service up and running has proven to be challenging even in the most favorable circumstances.
KEY STAKEHOLDERS
Government of Haiti: wanted a financial service that can be regulated and monitored and that benefits Haitians. Gates Foundation: wanted to solve a social problem by putting financial services and the ability to safely and affordably store money in the hands of Haitian citizens. USAID: wanted to find a more efficient way to deliver cash for work transfers; aid in the economic recovery of Haiti. WOCCU: through the on-going work of HIFIVE, wanted to continue to promote innovative financial solutions for Haitian financial service providers. Mobile phone operators: wanted to develop a new and profitable service for their customer and to attract new customers. Banks: wanted to increase their customer base and/or decongest their branches. Haitian citizens: wanted to be able to safely and affordably store, send and receive money, by-passing the limited, damaged and overcrowded banking and money transfer infrastructure. Both qualitative and quantitative research was conducted in support of HMMI. InterMedia, a non-profit research and evaluation organization, conducted a household survey on the awareness and usage of financial services, including mobile money. Institute for Money and Technology and Financial Inclusion (IMTFI) documented the money ecology in Haiti pre-mobile money and captured the agent and customer experience once mobile money was launched. Both of these research initiatives will enable the Gates Foundation and USAID to better understand the social impact of HMMI.
SUMMARY
HMMI provides one example of how philanthropic funds can be deployed through use of an incentive prize competition. While a substantial amount of philanthropic money often goes to paying for services or paying for companies to attempt a product, HMMI highlights a path where funds can be utilized to reward the successful development and implementation of a new business model that has social benefits. The design of the HMMI combined a short window to earn a multi-million-dollar purse with an emphasis on de-risking the startup costs and infrastructure development of a new business. This initiative rewarded the initial development of the required
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distribution network and now further encourages scale. The combination of social goals with good business is likely to further blur the nonprofit and for-profit considerations of the major donor organizations interested in social enterprise and mobile money in Haiti. Incentive prizes are a powerful tool for philanthropic funds to unlock markets and create sustainable solutions: HMMI is notable for not being a grant awarded up front, but an award for performance targeted at the private sector. While the HMMIs story is not yet complete, it is off to a promising start and offers a number of lessons that others can learn from.
RESOURCES
1. M-PESA 2. Formation of the HMMI Initiative 3. Haiti Mobile Money Tracker
ABOUT THE EFFORT

Innovation in the Crowd is a project to describe the stories and best practices of pioneers in open innovation. Our goal is to write a book containing these stories as well as assemble a case library of examples and tools to help organizations utilize open innovation to advance their own concepts. We will explore Open Innovation across 5 models: Incentive Prize Competition, Open Source, Open Platform, Innovation Network, and Structured Crowdsourcing. Author, Dr. Vijay Goel is the founder and Principal at Goel Insights in Los Angeles. He was introduced to the tremendous potential of these models during an initiative at the X PRIZE Foundation where he led the development of a Health X PRIZE - a joint effort between WellPoint and X PRIZE. He was previously a consultant with McKinsey & Co. and CEO of HealthShoppr.com. He can be reached at vgoel@goelinsights.com. Salah Goss is on the Financial Services for the Poor team at the Bill and Melinda Gates Foundation where she focuses on innovative delivery models for financial services for the formal and informal sectors. In her current role, she draws on her past experience as Grants Administrator for the Soros Foundation West Africa Regional Office to design inventive funding mechanisms. She was previously a consultant for Development Alternatives, Inc. and a Financial Analyst for Sanabel Microfinance Network of Arab Countries. Salah is part of the team that designed HMMI and is currently managing the project for the Bill and Melinda Gates Foundation.
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CASE STUDY

2012 Goel Insights, LLC. All rights reserved

CASE EXAMPLEINCENTIVE PRIZE COMPETITION