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From OTC to Mobile Accounts: Easypaisa’s Journey

Posted on by MSC

In 2009, Pakistan spearheaded the over the counter (OTC) transaction revolution. But in the summer of 2017, the digital financial services (DFS) landscape may experience a watershed moment. In June 2016, the State Bank of Pakistan (SBP) announced that as of July 2017, all branchless banking players offering OTC transactions will be required to use biometric verification to send and receive funds. Currently, customers transacting using OTC only need a copy of their Computerised National Identity Card (CNIC) to send and receive payments.  This regulation will have major implications for DFS providers in terms of their investments and system developments, as well as the need to educate customers and agents.

While leading players like Easypaisa, a mobile money service from Telenor Pakistan and Tameer Micro Finance Bank, have focused on converting their OTC customers to mobile account holders for the last two years, the proposed regulation puts pressure on them to migrate the majority of their 16.2 million OTC customers to the mobile account. This is not an easy task. Nevertheless, in this blog we focus on the strategies that have helped Easypaisa gain impressive numbers in mobile accounts, often overshadowed by OTC usage, and provide lessons to Pakistani DFS providers hoping to do the same.

OTC Growth Rate Is Actually Decreasing  

The global annualised growth rate for the number of unregistered mobile money users who transacted using OTC was 22% in 2015, compared to 33% in 2014 and 102% in 2013.  In South Asia, the 19% growth (year-on-year) of OTC in 2015 was surpassed by the 47% growth in registered mobile accounts. Easypaisa experienced 194% growth in mobile accounts versus 35% growth in OTC customers during this time period.In fact, the ratio of mobile account to OTC transactions has been increasing every quarter since 2014 for Easypaisa, as demonstrated by Table 1, reaching 77% in Q4 2015. This decrease in the OTC growth rate is also reflected in the country at large — mobile accounts grew by 183% between Q4 2014 and Q4 2015. By December 2015, Easypaisa had 9.8 million registered mobile accounts—64% of the total mobile accounts in Pakistan.

Part of this growth is due to the nation’s successful GSM biometric verification drive, where all the telecoms together successfully authenticated 68.7 million SIMs within 90 days in 2015. Easypaisa leveraged this verification drive by enabling its biometrically verified GSM customers to also simultaneously open mobile accounts, thus increasing their registration rate.

Additionally, the decrease in the OTC growth rate may be attributed to an increase in number of DFS players in the market, who rather than investing in new agents, utilized the country’s existing agents and offer similar OTC products—such as Person-to-Person (P2P) transfers and utility bill payments—on the same channel. As a result, this has granted agents a much greater influence over customers on which provider they should transact with.  This power dynamic has put a lot of pressure on providers to offer competitive commissions—known as the infamous commission’s war—to their agents in order to have them specifically sell their services and lure new customers to their network.

Are Mobile Accounts Being Used?

Mobile account usage is a more useful indicator of the successful conversion of OTC customers to mobile accounts. Easypaisa has aggressively pushed new products and offered pricing incentives, among other approaches in an effort to increase usage of mobile accounts. For instance, Easypaisa dropped its P2P fees for mobile account holders in September 2014. Following this change, the number of P2P transactions increased from 15,000 that month to a peak of 783,000 P2P transactions in May 2016.  As demonstrated in Figure 1, Pakistan witnessed a remarkable growth in both registered and active mobile accounts in 2015, whilst concurrently offering OTC transactions. As of December 2015, Easypaisa had 26% of Pakistan’s total active accounts and expects this percentage to increase.

Figure 1. Mobile Money Accounts versus Active Accounts (Pakistan)

Source: State Bank of Pakistan, Branchless Banking Newsletters

Mobile Account Strategies: What’s Worked

One of the driving factors for Easypaisa achieving mobile account growth was the team’s commitment to this goal. Indeed, both Easypaisa and Jazzcash—Easypaisa’s competitor — committed to working together to end the OTC commission war that was decreasing both providers’ profit margins. They took this bold action to focus instead on mobile accounts, as they understood that this is where the lion’s share of opportunities in DFS lies.

Some of the successful strategies taken by Easypaisa are as follows:

  1. Pricing. With the prevalence of OTC transactions, Easypaisa recognised that a pricing incentive could lure customers to mobile accounts. Easypaisa then waived all cash deposit, cash withdrawal, and P2P transfer fees. While this strategy does not result in profits, it enables registered customers to get accustomed to their mobile account, while making them more likely to sign up and employ other use cases on the wallet.
  2. Offer compelling use cases to your target customers. First and foremost, Easypaisa had to understand their customers’ financial journey, recognising that not all segments have the same financial needs and patterns. Easypaisa conducted market research to understand customers’ needs, preferences, desires, aspirations, as well as attitudes to financial services. With this research, Easypaisa has come up with three unique customer segments and have started rolling out a diverse product suite targeted to them. These use cases aim to solve real financial pain points, and also influence customers of the value of storing money on their mobile account. These products vary from retail payments, online payments, lending, saving, and insurance products, to ATM/debit cards.
  3. ATL and BTL marketing campaigns. Easypaisa’s OTC marketing campaigns proved effective as ‘Easypaisa kara lo’ [‘conduct an Easypaisa’] became a euphemism for money transfers. In 2015, Easypaisa changed their strategy and started focusing on educating customers — particularly middle-income customers as they see this segment as early adopters — on the value of a mobile account, beyond money transfers to include bill and merchant payments, as demonstrated by their TV advertisements.
  4. An Easypaisa account is actually SIM agnostic (telco operator agnostic). A customer can have a SIM card from any service provider in Pakistan and still utilise Easypaisa’s mobile account services. This move was especially important as 60% of OTC customers do not carry Telenor SIMs, and in this approach, Easypaisa is the first DFS provider to offer their services to any telecom customer.
  5. The introduction of the Easypaisa Mobile App. The rapid adoption of smartphones in Pakistan — currently at 11% ownership with an ambitious projection of 40 million by the end of the year– convinced the Easypaisa team to start offering newer, more user friendly channel in addition to USSD. Easypaisa’s team developed a faster and intuitive smart phone application where users can register their mobile account.  Easypaisa understands that while smartphone penetration is increasing, there is a large customer segment that relies on feature phones that they will need to target and address according to their needs.
  6. Interoperability with the financial ecosystem. All Pakistani banks are connected to the 1-Link switch, and in addition to facilitating ATM transactions, the Inter-Bank Funds Transfer (IBFT) services offered by the 1-Link service, allows Easypaisa mobile account users to move funds from any bank to their mobile account and vice versa. This interoperability also facilitates fund transfers between different DFS mobile accounts today.

What Does the Future Hold?

Easypaisa has always maintained that rolling out OTC transactions first was the right thing to do and they would undoubtedly do it all over again.  Usage matters, and as discussed in our previous blog, OTC does not prevent product evolution and usage of mobile accounts, but can enable customers to build familiarity with DFS services through OTC first, whilst encouraging them to register for mobile accounts when there are more compelling use cases.

Easypaisa believes OTC will be around for a while given low literacy levels in Pakistan (58%), and the trust and influence an agent garners with customers, amongst other factors. While Easypaisa recognises that not all of their OTC customers will migrate to the mobile account, it takes just a few account-based transactions to influence customers. Easypaisa faces this challenge with unwavering courage. They have faith that the future of mobile accounts is in the payment space—a hugely untapped market among 180 million Pakistanis of whom only 7% are banked and rely on cash to conduct their transactions.

Omar was part of the core Mobile Financial Services team at Telenor that designed and deployed the OTC and e-Wallet businesses for Easypaisa, which was launched in 2009 as the first Mobile Money service in Pakistan. He has been involved in developing and managing the distribution channels for Easypaisa and is currently the head of Strategy and Payments.

Mitigation of Consumer Risks in Digital Financial Services -Perspective from Indonesia & Beyond

Posted on by MSC

Ghiyazuddin Mohammad – Manager, Digital Financial Services and Country Programme Development for Indonesia – presented at the International Telecommunication Union (ITU) workshop on “Digital Financial Services and Financial Inclusion” in Geneva, Switzerland on 14-15 December 2015.

Ghiyaz was part of the Customer Protection working group and presented on the topic – “”Mitigating Consumer Risks in DFS: Perspectives From Indonesia””. The presentation highlighted top five consumer risks related to digital financial services as identified in Indonesia. These risks are – low customer awareness, poor customer experience, poor quality of agents, remote transactions in the absence of customers and liquidity management issues. Ghiyaz talked about ways to mitigate these risks both from a policy and provider perspective.

Digital Financial Services and Financial Stability – Perspective from Indonesia

Posted on by MSC

Ghiyazuddin Mohammad – Manager, Digital Financial Services and Country Programme Development for Indonesia – presented at “”International Conference on the Linkages between Financial Inclusion and Financial Stability”” organised by Alliance for Financial Inclusion (AFI) in Bali, Indonesia on November 30th & December 1st, 2016. More than 100 participants across 30 countries from AFI members and partner organizations participated in the conference. The conference was co-hosted by Bank Indonesia and the Alliance for Financial Inclusion (AFI) with the participation of AFI member and partners including: the International Monetary Fund (IMF); the World Bank Group, the Financial Stability Board, the South East Asian Central Banks Research and Training Centre (SEACEN), and academic institutions.

Ghiyaz presented on the topic “”Digital Financial Services & Financial Stability – Perspective From Indonesia””. He spoke about the growth of digital financial services in Indonesia and abroad and its benefits and systemic risks to financial stability. He also deliberated upon the existing DFS regulatory framework in Indonesia and its compatability with the objectives of financial stability. Other presenters in the panel included representatives from Bank Indonesia, Bank of Tanzania, Bank of Ghana and the University of New South Wales, Australia. The session was moderated by Dr. Alfred Hannig, Executive Director of AFI.

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What does training actually do to agents?

Posted on by MSC

The Helix Institute of Digital Finance recently concluded the second wave of the Agent Network Accelerator (ANA) study in Bangladesh, which, along with a number of other key findings, highlights the importance of agent training in the first three months of inception (‘starting the agency business’).The ANA 2016 Bangladesh Report highlights that agents who receive training in the first three months of starting the agency business conduct, on average, 20% more transactions per day compared to those who do not. These agents also earn USD 27 per month more than their untrained peers. We witnessed similar trends in Senegal (2015) and Uganda (2015), where trained agents conducted 33% and 10% more transactions per day, respectively. Agents in Senegal and Uganda also reported higher profits*. (See Figure 1 and 2 below)

Figure 1

Figure 2

It is not the first time we are learning about the importance of agent training. The Helix Institute, in partnership with the Harvard Business School, conducted econometric analysis and found that well-informed agents perform better in the face of competition and also experience higher demand for services. Well-informed agents, it argued, are a product of inception and refresher training.

While it is evident that training makes agents more knowledgable and, thus, the preferred choice of customers, we wonder whether training only influences agent knowledge. Is it also that a trained agent is more motivated to expand and improve his business? Does training change anything else for agents?

Recent data from Bangladesh (2016), Senegal (2015) and Uganda (2015) demonstrate a rather interesting story of what else training might be doing to the agents.

Compliance,** too, is affected by training

We find that agents who are trained in the first three months of starting their agency business are more likely to be compliant – they display tariff rates, grievance redressal cell numbers, call centre numbers, and unique ID or certificate from the provider (Figure 3). Interestingly, these, more compliant, agents also perform better than the non-compliant ones.

Since the number of transactions at an agent point is primarily a function of customer’s trust in service and in the agent, in the light of findings above, we hypothesise that training in first three months is a significant factor in helping make agents more compliant, and hence, more trustworthy, from the customer’s perspective.

Agent compliance enhances the “appearance and impression”/ “look and feel” of an outlet, and contributes to a sense of legitimacy that makes both the agent and customer more confident. It can be argued that this helps improve customer services by making agents more client-centric, which can help build agent/customer trust and improve the customer’s experience.

A trained agent who is more likely to show tariff sheet is also more likely to gain customers’ trust because of the transparency of pricing – a major driver of performance. Similarly,a trained agent who displays an agent’s certificate is more likely to gain customers’ confidence because of the transparency he/she promotes. The confidence that an agent gains ultimately helps in building customers’ trust, which is otherwise in danger of being lost if customers get inadequate information – a key risk in digital financial services.

A logical extension of agent compliance to outlet set-up is their modus operandi of running the outlet. A compliant agent will be more likely to follow providers’ instructions/suggestions on liquidity management and customer engagement. A compliant agent will, therefore, be more hands-on in managing liquidity (critical to DFS) to ensure minimal denial of transactions due to lack of liquidity; and will be more pro-active in supporting customers when the latter face challenges.

Where does this hypothesis lead us?

The current data provides preliminary empirical evidence to the hypothesis  – “agent-training->more compliance->higher trust->more transaction”. Nevertheless, it does open up the probability of more nuanced inter-linkages, perhaps on what changes training can bring along and/or other parameters that affect compliance, customer trust, and number of transactions.*** While more data will help us understand and explore these nuances and inter-linkages, for now, we see a clear theory that identifies changes that an agent witnesses due to agent training – thereby answering the question we started with. We will be closely watching evidence from further ANA research to evaluate how this hypothesis may be supported further.

* For Senegal and Uganda, the profit numbers aren’t statistically significant.

** Compliance is measured by the display of tariff sheets, agent’s ID, grievance redressal number, call centre number, provider sign, provider colours, etc., and performance is measured by transactions and profitability of agents

*** We know training might not be the only cause for better compliance. Monitoring visits by the provider, for example, is also likely to impact agent compliance. Compliance is likely not the only factor that builds customers’ trust in DFS.  Service reliability, for example, influences a customer’s trust too. Similarly, external factors, such as ATL and BTL marketing by the provider, also contribute to a customer’s trust in DFS.

Top Blogs from 2016

Posted on by Parul Tandon

Presenting MicroSave‘s top picks for the year. Do you see your favourite blog here?

e-KYC and the India Stack – A Transformative Blueprint for Emerging Markets

Billions of people around the world are required to meet know your customer (KYC) norms to avail of services considerably important to their lives. Yet, widely prevalent archaic methods for KYC come in their way. e-KYC, a fully digital solution, leveraging resident Indians’ centrally stored demography details and biometrics (fingerprints and/or iris recognition) is changing how KYC has been done for ages. This blog examines how e-KYC is an established and proven solution and (together with the India Stack presents a compelling and transformative blueprint for a majority of the emerging markets to consider.

Payment Systems in India and Current Status: A Perspective

The payment system in any country needs to pass the litmus test of safety, security, soundness, efficiency, and accessibility. In order to address all these, payment systems have evolved from barter to currency, to digital systems. Read how India is witnessing enormous change in the payment systems, disrupting the monopoly of physical/paper-based system by electronic ones.

Leveraging Fintech to Achieve Financial Inclusion in Indonesia

“Fintech” – an intersection of financial services and technology – is taking the traditional financial world by storm. Indonesia is no exception, with a fast-evolving ecosystem that includes a host of financial services offered by new generation fintechs.

Indonesia is the fourth largest mobile market in the world with 339.9 million connections – a SIM penetration of 131%! 43% of Indonesians already own a smartphone. Furthermore, Indonesia is going “mobile-first” with 64.1 million out of a total of 88.1 million users accessing Internet through mobile devices. This is fuelling social media usage by platforms such as WhatsApp, Facebook, Blackberry, Line, Path, etc. This trend is also leading to explosive growth in electronic and mobile commerce, with big names such as Alibaba, Softbank, Sequoia, Rocket Internet, and Temasek backing local ventures. In contrast, only 36% of 250 million Indonesians have access to formal financial services.

Keeping these technological advancements in context, the blog highlights how Indonesia is well placed to leverage “fintech” towards the cause of financial inclusion.

Over the Counter (OTC) Money Transfer in India: The Remittance Silver Bullet for Migrants

Globally, mobile money services are being offered primarily over the counter (OTC). This underlines the demand for readily available, quick and convenient fund transfer services. Even though OTC is a well-established concept, there are varying views on what actually constitutes an OTC transaction. Moreover, OTC in India differs in some respects from OTC services in other countries. The blog outlines OTC in India.

Predictions for Regulators of Digital Financial Services

It is always dangerous to make predictions in an industry which is expanding and evolving rapidly, so it is with trepidation that I now do so. The blog presents predictions in Digital Financial Services based on market insights and observations from working many years within the mass retail financial sectors and in Digital Financial Services.

What lies ahead for Bangladesh’s DFS market?

Posted on by MSC

The Helix Institute of Digital Finance recently concluded the second wave of Agent Network Accelerator (ANA) study in Bangladesh which found signs of growth in the digital financial services landscape in Bangladesh on all the key performance metrics*. The number of providers, agents, and users –all have increased since the previous wave of the study was conducted in 2014 and the research indicates that the Bangladeshi market is poised for the next level of digital financial services. Service providers are likely to lead this wave of change, while the regulator – Bangladesh Bank, and agents will play their respective parts in contributing to it. You may call us victims of optimism bias, but study findings and interaction with various stakeholders clearly indicate that the market already has a good appetite for better digital financial services – or DFS 2.0, as we refer to it in this blog.

Providers will lead the change

The current DFS product offering in Bangladesh is limited to the basics – account opening, cash-in/cash-out transactions, bill payments and money transfers, although bill payments and merchant payments have a negligible presence in the product suite (Figure 1). Compared to other factors that contribute to successful DFS ecosystems – players, agent networks, technology, customers, and products, the Bangladesh market is still nascent, in terms of the range of products and services. The country shows positive growth trends and is comparable to other ANA countries in terms of the training and liquidity management of its agent network.

More Bangladeshis are embracing DFS and it is likely that providers may want to offer them more than the basic wallet and P2P services. We predict that providers will begin to focus on diversifying and offering more sophisticated products.

Figure 1: Products offered by by Agent in Bangladesh

Agents also noted that “individual clients’ demand for (DFS) service is not regular”. This perception could be largely due to the P2P nature of the market which is not predictable as it is governed by a degree of migration in the market. The demand might become regular and/or predictable if there are more use-cases in the form of sophisticated products by providers that motivate more usage and uptake of DFS offerings.

As  DFS market continues to evolve, acquiring a large customer base that understands and uses digital financial services is critical (Davidson and McCarty). We believe that the Bangladeshi market has reached this critical juncture and providers have attained a customer base ready to use more sophisticated financial services.

Bangladeshi providers have much to learn from the success of African markets where digital financial services have successfully offered savings and credit services – KCB-MPESA, M-Shwari, Equity Bank, are all shining examples. There are also examples of agents offering savings, credit, and insurance products. These experiences, irrespective of whether they were successes or failures, provide immense literature and learning on customer behaviour towards a credit product or role of agents in offering insurance products. This will be hugely beneficial to the providers in Bangladesh in designing both products and strategies.

Fortunately, all DFS providers in Bangladesh are banks or their subsidiaries. Unlike non-banking providers who lack expertise in the area, banks, in general, are far more proficient in designing banking products. The changing landscape of new product development that involves big data and Behaviour Economics principles will further help banks to design products that are tailored to meet the critical financial needs of customers. All these factors add weight to our optimism about DFS 2.0 in the country.

Agent optimism will support the launch of more complex financial products

The ANA study found that Bangladeshi agents are the most optimistic ones among all the ANA markets – almost all agents see themselves continuing as agents for another year. About one-third (31%) of agents in Bangladesh are high performing, that is, they conduct more than 1.5 times the country median level of transactions. Agents are critical to the development of digital financial services, and a happy army of agents is one of the most useful assets for a provider. There is, therefore, a good probability that agents in Bangladesh would be willing to promote and service complex financial products. The road to agent management, however, is not without its own challenges, as with more sophisticated products, agents will be more prone to fraud. The data shows that fraud has risen three percentage points – from 19% in 2014 to 22% in 2016.

Support from the Regulators will be key

It is worth noting that the regulator in Bangladesh supports both – mobile financial services (mostly wallet based payments offered by the banks) as well as agent banking (to promote bank-branch like experience for customers). We reckon that the competition for market share between these two models will catalyse the development of more sophisticated products. The objectives of both models are largely the same – increasing the penetration of financial services and achieving financial inclusion. Although there is a slight variation in the basic modus operandi of the two models, agents appointed by the bank play a key role in both of them during customer interaction. The best practices of agent management have already been established for the market, therefore, the next phase will be about providers competing to get the customer value proposition right. It is time to wait and watch how providers who offer either MFS (for example bKash) or agent banking (for example, Bank Asia), try to win customers over; and how provider(s) who offer both type of services (for example, Dutch-Bangla Bank) consolidate their value propositions. We believe that these two guidelines (agent banking and revised mobile financial services), will create opportunities for developing more complex financial products. The push for DFS 2.0 will, therefore, be greatly determined by how regulation facilitates this while ensuring customer protection at the same time.

Markets evolve in terms of the products they offer; Kenya evolved from ‘send money home’ to ‘payments’ to ‘get credit on the phone’ and beyond. India evolved from no-frills accounts to Basic Savings Bank Deposit Accounts to Jan Dhan Yojna accounts. In Bangladesh, the stage is now set for the evolution of the DFS ecosystem to take place.

*The data referred to in the blog is taken from ANA Bangladesh Report 2016, unless otherwise referenced