There has been a confusion around the business case for digital transformation. Most financial institutions think of it as a cost. The business case anchors on increased revenues, lower costs, and enhanced significance. The video looks at a case study of how Equity Bank has over the years transformed from a brick and motor bank to a digital bank and the support that MicroSave has offered through this process.
Blog
Mobile wallets for the oral segment (mowo) – presentation
MicroSave presented its work on developing mobile wallet interfaces for oral customers at a Learning Event co-organised by CGAP, LeapFrog, Dvara Trust, and SPTF. Globally, the number of oral customers is estimated to be 1.5 billion. We define the oral segment as those who rely on visuals, audio, signs, etc. to communicate. At the event, Akhand Tiwari of MicroSave argued that it is indeed possible to develop a range of icons which both literates and the oral segment can easily understand. He highlighted MicroSave’s learning that we can perform usability testing for digital interfaces better on the field rather than in closed room environments. A focus on oral customer segments has a wide range of benefits, including the possibility of a reduction in the gender gap and adoption of financial services. He concluded by highlighted how MoWO (MicroSave’s mobile wallet interface) can lay the foundations for better digital interface designs for education, health, and livelihoods.
Between literacy and learning: Community engagement in public education – Part 2
In the first part of this IFN, we discussed the hurdles to quality learning for elementary-level students, specifically in government schools in India. The government has already taken steps to address some of the issues, but there is still a long way to go. In this part of the IFN, we describe some successful and tested models from across the globe that can improve education outcomes.
Between literacy and learning: Community engagement in public education – Part 1
India has made significant progress in facilitating quality education for all. Today, education is considered a ticket to a better future. However, positive sentiments toward education and improved enrolment numbers have been ineffective in curing low attendance. After the range of investments in transformational initiatives, such as Right to Education (RTE), Sarva Shiksha Abhiyan (SSA), and mid-day meal (MDM), these performance issues are quite puzzling. Administrations across the world have handled the challenge of addressing the quality of education in government schools in different ways. While schools indeed have a major role to play, the support and encouragement from the community also contribute to effective learning.
WhatsApp with Agent Monitoring and Support?
We met Cyrus Kibuchi on a Monday morning at Kamangu, a town 40 km from Nairobi. Cyrus works as an agent in Kamangu, and days like this usually find him busy at work. He is an agent who serves seven digital financial services (DFS) providers. These providers comprise five banks and two mobile money operators (MMOs). Our interview is interrupted thrice in 25 minutes as Cyrus attends to his customers. A majority of his customers are from the locality.
On Monday mornings like this, most transactions are deposits or cash-ins. Members of savings groups come to deposit their contribution in the group account from their business earnings over the weekend. Church representatives come to deposit Sunday offerings collected from worshippers. Farmers walk in to either withdraw or deposit their income from the weekend. Suddenly, Cyrus informs us that the receipt roll in the POS device is about to run out, which means he cannot continue transactions until he gets a new roll from the provider. He does not seem worried by this and continues his business as usual.
We ask him what will happen once he runs out of the roll. He responds, “I have already placed my request for a new roll in the bank’s WhatsApp group. A fellow agent has replied that he has an extra roll that he can lend me. I will also receive a new roll from a bank staff in the afternoon. I have sent my son to pick one up on my behalf from the agent. WhatsApp has really simplified my life as an agent.” Cyrus goes on to say that he would have otherwise had to wait for the bank staff to come to his shop or he would have travel to the nearest branch. “This would cost KES 120 (approximately USD 1.2) for transport. Loss of business is an additional expense that is difficult to calculate,” he says.
Cyrus’ story highlights the importance of effective and responsive agent network management especially to monitor and support agents in order to optimise customer experience and thus increase uptake and usage of DFS. In 2015, a MicroSave study for Consultative Group to Assist the Poor (CGAP) revealed that factors that impede customer usage of DFS are primarily related to hygiene in the agent network – most of which could be fixed with agent monitoring and support. In 2017 alone, DFS providers reported having spent over half of their revenues on commissions and agent network management.
A comparative analysis of data from Wave I and Wave II of our Agent Network Accelerator(ANA) survey in Kenya further revealed that providers’ visits to agents had dropped by 15% between 2013 and 2014 This is intriguing, especially since the reduction in agent visits happened amid a surge in competition from banks. However, conducting these visits is expensive since they are intensive in terms of labour, capital, and time. Some providers may choose to reduce the visits and assume that other providers are monitoring the agents in non-exclusive agent networks. For agents who provide services to multiple providers, a mutual collaboration between providers on agent monitoring may result in standardised monitoring and cost optimisation.
The frequency of monitoring and support visits is more erratic
A follow-up qualitative study on agents dubbed ‘Agent Diaries revealed, in part, the cause of this drop in agent monitoring. We commissioned the study to deepen our understanding of quantitative insights into agent networks derived from the ANA studies in four years. ‘Agent Diaries’ involved shadowing a panel of 10 agents in Kenya on a regular basis and conducting regular, in-depth, qualitative interviews with agents over six months. We will disseminate the findings across a number of blogs – this being the first in the series.
Phenomenal change in providers’ approach to agent support
In Kenya, providers have been increasingly engaging agents through social media forums to monitor and support them. Interestingly, WhatsApp groups have emerged as the most popular platform for agent monitoring and support. This trend appears to be common among almost all providers – banks and mobile money operators (MMOs). However, banks seem more inclined to support agents remotely through WhatsApp groups compared to MMOs.
This could probably be because banks mostly manage their agent network from the branches. They are thus likely to have smaller and dedicated in-house field support staff compared to MMOs, who typically have robust human capital to manage their vast airtime distribution network.
How do WhatsApp groups facilitate agent support?
WhatsApp groups act as information hubs for agents and agent managers. Providers create these groups for agents and field staff from a particular territory. The provider’s field staff function as group admins to ensure the chat conversations remain relevant to the purpose of the group.The group provides agents with a forum to share experiences of their day-to-day operations and seek solutions to business challenges that include liquidity, emergent fraud, and support required.
Members also communicate new developments including products, commission structures, and system downtime within the group.
“I am a member of five different WhatsApp groups from the five providers that I serve. Through these groups, I am able to get alerts on a threat such as a conman who is defrauding unsuspecting agents. Sometimes agents with a surplus of float or hard cash at a particular time communicate in the group and connect with other agents in need of the same.”– Cyrus Kibuchi, an agent in Kamangu town.
Recourse system for agents
Agents can post any issue they face on the group by either addressing it to the provider’s staff or to other agents. When these issues can be easily fixed remotely from the branch, the field staff facilitate the recourse process. In some instances, agents are able to provide solutions to each other. While social media is not an official communication channel for financial institutions, agents are grateful to receive assistance from either their supervisors or other agents instantly.
“When I am in need of receipt rolls or if my POS has issues, I post my request on the group explaining what the problem is. If the Territory Manager insists that the POS has to be fixed at the branch, another agent in the group who is located close to my outlet and has plans to visit the branch that day may volunteer to take the POS to the branch on my behalf. Sometimes the Territory Manager also delivers the receipt rolls to my outlet.” – Esther Syokau, agent, Embakasi
What is in it for providers?
While agent support visits are an important component of agent network management, they remain an expensive proposition. Hence, providers are increasingly making use of technology to complement their support visits. Providers that have been already implementing this initiative report immense benefits that include but are not limited to the following:
A cost-effective way to manage agents
A number of providers are investing less in physically visiting the agents. They are thus able to compensate for this by engaging agents in WhatsApp group forums where they support them on a real-time basis. The WhatsApp groups unite agents and also give them an easier way to interact with their respective provider’s field staff and also with other agents frequently.
“My support staff do not have to be constantly in the field paying agents visits. They can engage them in real-time through the WhatsApp group. The time saved from not having to visit agents physically helps the staff contribute productively to the organisation.” – Head of Agent Banking for one of the leading banks in Kenya.
Effective communication and agent resolution channel
Complaints and dispute resolution systems for agents remain challenging and are a constant area for improvement for most DFS providers. Our ANA studies from Kenya and ten other countries reveal that agents consider dealing with call centres only when something goes seriously wrong.
A senior staff in the agent banking department of a leading bank in Kenya attributed this challenge to a lack of dedicated support staff and insufficient investment by banks that could support agent banking channels. For example, most banks lack a toll-free agent care line dedicated to agents. However, WhatsApp has been acting as the workaround that provides an instant and cost-effective way to communicate with bank gents and resolve disputes.
“Information reaches all agents in the group at once. Agents are quick to report any operational challenges experienced to us. We are able to act quickly on these and provide recourse to agents.” – Agent Network Manager, Branch-level, Kikuyu
Complements refresher training
Making use of technology to offer support is critical in the roll-out of new products or for fine-tuning product features. Agents reported finding value in WhatsApp updates compared to refresher training when seeking clarity on product details and transaction mechanics. The real-time communication enables the agents to understand new product features without having to close their businesses to attend the training.
“When the bank introduces a new product or fine-tunes a product, I am expected to notify all agents in my territory and also train them. The first thing I do is post on the WhatsApp group of agents in my territory. If the change affects the mechanics of transaction on the agent till, then I offer a step-by-step guide on how to conduct transactions with the new change through WhatsApp.” – Agent Network Manager, Branch level.
Way forward
As most DFS markets mature and competition increases, providers have increasingly taken a back seat on agent support visits. This could be because of the proliferation of non-exclusivity, meaning agents could receive support from more than one provider. While leveraging social media as a support tool could be a cheaper and more efficient way that takes advantage of technology to support agents, it does not work for agents who do not have smartphones. However, our studies prove the importance of in-person monitoring and support as the agents feel a sense of belonging to the provider’s brand and perform better, a sentiment echoed by a panel of agents who were interviewed.
Social media may not effectively replace the official communication channels, but providers should seek ways to incorporate its attributes to support their agents and consequently provide better service to their customers. There are already some premium solutions, such as Ongair that incorporate social media management for corporate institutions.
Social media group administrators could constantly monitor and review conversations, including verifying advice and solutions that agents may share with each other on the platform. It is also imperative that all the group participants be aware that they are sharing their business information on a relatively open forum and should practice caution in handling their own data and that of customers.
Please tune in for our upcoming blogs that highlight liquidity management and agent profitability from our agent panel studies.
Reducing Friction To Succeed
A wage labourer from Bihar, India, swipes a metro rail card, as he runs to catch a train to a construction site he works at in Delhi. A mother enters a few digits on her Equitel mobile phone to pay the monthly school fee of her daughter in remote Eldoret, Kenya. A small shop owner outside of Pokhara, Nepal, pays cash to an IME agent to transfer to a consumer goods supplier in the capital Kathmandu. A housewife in Badlapur in the deep suburbs of Mumbai, India, orders a new thirty-dollar smartphone through Amazon and selects the option of ‘cash on delivery’. The smartphone is delivered to her next day by a boy running a small store around the corner. A garment worker in Dhaka hands over some savings in cash from his weekly earnings to a bKash agent to transfer to his wife in rural Chittagong, Bangladesh. A retired soldier swipes his fingers to authenticate and withdraw his monthly pension in cash at a SAVE agent in distant Gonda, Uttar Pradesh, India. A coffee farmer in Masaka, Uganda goes to a MTN agent to withdraw cash paid into her account by an aggregator for Nescafe.
What is common in these events? These are examples of massive and thriving, consumer demand-driven business models in emerging markets around the world. What leads to these success stories that many a business in the payments space would aspire to? A vital element is the low friction of these transactions from the standpoint of the consumers and the distribution/delivery channels. And what constitutes “friction”? Inconvenience, high tariffs, system downtime, low commissions, slow speed, poor service quality, inaccuracy, lack of an underlying compelling need and technology instability, to name the important ones.
Reducing friction can make a difference
An ability to reduce friction makes all the difference between the winners and the also-rans. For every Safaricom, bKash and MTN, there are hundreds of mobile money offerings that haven’t reached any noticeable scale (a mere 21 out of 255 mobile money deployments across 89 countries, tracked by GSMA-MMU, had more than one million active accounts as of December 2014). Likewise, for every Alipay, Amazon and Flipkart, there are countless “alsoran” payment services and wallets.
In this blog, I present a perspective on the upcoming Payment Banks in India – what they will be up against; a reality check amidst the hype; and the acute need for a sharp focus on reducing friction through disruptive innovations and business models.
Understanding the limited degrees of freedom for the Payments Banks
Payments Banks is somewhat of a misnomer. They can certainly do more than provide just payment or remittance services. They can accept demand deposits (current and savings deposits) with an end of the day balance of up to INR 100,000 per individual customer. They can issue ATM/Debit cards and provide Internet banking; function as a business correspondent (or an agent) for a (full service) bank; distribute simple third party financial products such as mutual funds, insurance and/or pension products (albeit after prior approval from the central bank); and undertake utility payments.
However, unlike full service banks, they cannot accept time deposits or undertake any form of lending activities. At least 75% of their ‘demand deposit balances’ have to be invested in government securities or treasury bills as statutory liquidity ratio (SLR). The remaining can be held in current and time deposits with scheduled commercial banks. They need to maintain the stipulated cash reserve ratio (CRR) with the central bank for their ‘outside demand deposit and time liabilities’.
This does considerably limits the degrees of freedom for Payments Banks. RBI data for all scheduled commercial banks for the period 2012 to 2014 shows that 66% of their total earnings are from interest on advances; another 21% are from investments; fee, commission and brokerage income is in the range of 6% to 7%; while 1% is earned on balances with RBI and other inter-bank funds. Therefore Payments Banks have an opportunity to target less than 10% of the revenue streams available to scheduled commercial banks. However they are expected to be game changers and should not be limited to traditional revenue streams. For one, they can potentially earn a lot more on fees from remittances, transfers and payments. Let us take a closer look at how that might pan out.
Avoiding the danger of over dependence on consumer tariffs for a business case
The most prominent, and much written about, remittance and payment business models in Africa, particularly East Africa (e.g. Lipa na M-PESA, M- Shwari, Equity Bank, MTN, Airtel Money), earn primarily from customer tariffs. Below is a comparison of tariffs for diverse mobile money models to transfer an equivalent of USD 100 in the respective local currencies on a purchasing power parity (PPP) basis.
As can be observed, the tariffs for most of the East African providers, and in Pakistan and Indonesia are quite high on a purchasing power parity (PPP) basis. Some providers like M-Shwari charge as high as 7.5% facility fee on small loans for 30 days. This is a flat rate and remains the same even if the loan is taken just for a day; and it translates to an annualised interest rate of at least 138%.
In India, earnings which are solely from high consumer tariffs are coming under pressure. The payments space is witnessing hyper competition with several national banks doing quite well along with many of the PPI (PrePaid Instrument) licensees or business correspondent partners who have not received a Payments Bank license (Oxigen, ItzCash, Suvidhaa, SAVE et al). In addition, new players/models are emerging. These include: Apple Pay, Samsung and Android Pay, besides a multitude of wallets (Chillr from HDFC Bank, Buddy from SBI, Pockets from ICICI Bank, FreeCharge from Snapdeal to name a few). Payments Banks’ pricing models will compete head on with many of these, and face an added pressure to offer highly attractive tariffs to even draw the attention of consumers in such a crowded market place.
Constant innovation to compete with disruptive models
The second and perhaps a more important factor will be disruptive pricing models. In China and India, some of these alternate models have already taken deep roots. Alipay and AliExpress with 800 million registered (and 400 million active) users making 171 million transactions daily, do not charge the buyers anything for their services. Instead, the business model depends on generating revenue from sellers or partners. Flipkart, Snapdeal and Amazon follow a similar model in India. In Nepal, eSewa virtually offers most of its services free to registered users. These include merchant and bill payments. Remember how mobile voice (and now data) tariffs fell from INR 16 per minute to a per-second pulse in a period of five years?
Coopetition with the right partners will be crucial. Partnerships to offer innovative micro-credit, micro-insurance and other financial products will be crucial to go beyond the limited 10% revenue streams that Payments Banks can target on their own. Fino PayTech and Snapdeal’s announced partnership and Janajeevan prepaid card from Janalakshmi (a small finance bank licensee) with DCB Bank illustrates this need. Though collusion might prove to be short-sighted.
Navigating the dynamics and limitations of retail distribution
Beyond reasonable price points, and assuming Payments Banks’ products have a consumer pull, convenience through widespread, 24 hours and 7 days (or even 12 by 5) availability, and quality of service at the transaction points are very important considerations for consumers. To offer these, financial service providers are highly dependent on distribution channels. Nearly two thirds of the Payments Banks have received the licenses partly on the strength of their distribution networks. The caveat is – these are diverse, third party and multi-brand distribution / retail networks that function entirely on sound commercial opportunities. There is no aspect of loyalty or permanency to them. (This is one of the reasons that despite extensive distribution and outreach, MNOs as PPIs could not make significant inroads into mobile money business. What they will do differently as Payments Banks is yet to be seen).
Moreover, and sadly so, retailers can have considerable downward influence by bad-mouthing a product or simply by limiting its visibility on their shelves, until the product or service (even from a renowned brand) has attained high consumer pull. In their one-upmanship to gain adequate traction with distributors and retailers, Payments Banks will be required to offer large commissions. In the end, those with deeper pockets might survive this war. And as Vinod Khosla, the renowned investor put it, ‘Bad ideas, and copycats will throw a lot of money in blowing each other’s tanks, but might not eventually survive’.
Retail networks in India are best suited for quick, low-involvement, sales transactions – not for selling of new products or ideas. In a descending order of priority, retailers’ strategy is to: (a) push what fetches them a higher commission; (b) sell what consumers ask for, without a willingness to explore alternatives; and (c) spend time on what provides a high return on time invested (ROTI) to them. As a result, achieving a desired service quality or directing retailers’ behaviour is quite an uphill task (except within the organised retail outlets – company/franchisee owned and operated (COCO/FOFO), that, given their cost structure, can usually be very small in numbers).
Does this mean, one of the fundamental reasons why several Payments Banks received a license in the first place, the strength of their distribution, might come to a naught? Possibly! Unless they can apply implement the various lessons learned and do more of what is really warranted.
Making the right technology and user interface choices
Another key factor that determines user experience (more importantly retailer experience, as self-service transactions by the masses are still a distance away) is technology – the cost and ease to install/access; the user interface design; the steps to navigate; the speed to transact; the accuracy of transaction fulfilment; the ease of exception management and grievance management. While the USSD channel is the most prevalent form around the world, in India, Internet enabled and POS devices (including micro-ATMs) have a substantial adoption and acceptance rate. Payments Banks with MNO lineage will enjoy some advantage with USSD. After all, the MNOs managed to vanquish Movida India, a joint venture of Visa and Monitisethat was heavily dependent on viable pricing and availability of USSD channels.
Nevertheless, interface options beyond USSD will continue to be vital and so would be seamlessness of transactions routed through national switches. During a MicroSave internal market research, several retailers were found to be swapping providers that provided better navigation options or managed to contain failures of / delays in transactions routed through NEFT or IMPS at the back end. The decision to swap was taken almost instantaneously, without pondering much about the vintage of their previous relationship – so much for their loyalty! While this can be interpreted as an opportunity for the incumbent Payment Banks to make inroads into competitive retailers, it will require them to be always at the cutting edge of delivering a seamless retailer (and user) experience. And of course, there is always the risk that another smarter player will arrive and snatch a well-oiled network, proving MicroSave’s oft-repeated early mover disadvantage in mobile money and payments.
Bottom line: Inevitable need for a compelling consumer value proposition
The bigger question is, will efforts towards reducing friction eventually lead to a higher consumer demand and adoption? Not necessarily. These are necessary but not sufficient requirements. Consumer demand is the outcome of a compelling value proposition delivered through suitable products and services that address needs, better than prevailing options. Lower friction is a critical constituent but it does not complete the equation.
Nevertheless, as Nanden Nilekani says, ‘There will be winners and losers in any hyper competitive market. The good news is, the sector will be transformed and customers will benefit”. Watch this space for more views on strategies for Payments Banks.