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Liquidity—Solving agents’ perennial problem

Posted on by MSC

Based on insightful inputs from Maurice Oyare (PesaPoint), Joseck Mudiri (IFC), Edwin Otieno (Software Group), George Muga (Airtel-Africa), Edwin Odira (Telkom), Paul Langlois-Meurinne (Optimetrics), Nic Wasunna (GSMA) and Wilfred Ndirangu (Eclectics).

The Helix Institute’s Agent Network Accelerator (ANA) surveys show that agents across the globe cite four key challenges to effective liquidity management. Almost all agents express concerns about their inability to predict and respond to fluctuations in the demand for liquidity. Many wonder how long it takes to get to, and how much time they must wait at, their rebalancing point, which is usually a bank. Agents also worry that they must close their businesses when they have to devote time to rebalance. Furthermore, many agents cite their lack of resources to buy sufficient float to keep their agencies liquid.

Inefficient cash and e-float management make for unreliable services. As a result, agents find themselves unable to conduct as many as one in five transactions for want of liquidity (see graph below). They are also not able to adopt innovative, if occasionally risky, workarounds.

Illiquid agents negatively impact customer trust in DFS. This, in turn, reduces both uptake and usage of the service – thereby decreasing the return on investment for agents and providers alike. In many cases, the response of agents and providers is to further reduce their investment in the service, thus creating a negative downward spiral. Small wonder that for each among GSMA MMU’s 35 “sprinters” (with more than a million active customers), there are eight deployments that limp along, operating in the sub-scale trap.

Leading players in the DFS industry, including providers, regulators, aggregators, and technology providers, came together in a recent workshop organised by MicroSave’s Helix Institute. They deliberated on innovative ways to address the challenges facing agent networks. The participants divided themselves into three groups to look at key issues in the context of policy and regulation, strategy and market evolution, and operations.

The operations group unanimously identified liquidity management as the primary challenge to agent networks. They began by defining the problems to then devise solutions. The following issues were identified as a result of the exercise.

1. ‘Hands-off’’ Approach to Liquidity Management by Providers

Outside Bangladesh and Pakistan, (where liquidity is usually delivered by ‘runners’ who visit agent outlets to provide e-float or cash), most providers operate on the assumption that liquidity management is the responsibility of the agent.

In the case of better deployments, efforts are being made to establish ‘Super Agents’, such as banks, microfinance institutions, cooperatives and even supermarkets, etc. These Super Agents provide re-balancing points where agents can exchange excess e-float for cash and vice-versa. Many deployments also use a ‘Master Agent’ system to recruit, manage and monitor agents. This often plays an important role in liquidity management, particularly in urban/peri-urban areas in countries like Uganda and Tanzania.

Agents located in rural areas face a specific set of problems. Their far-flung locations imply long distances from providers or Master Agents. They are thus less likely to receive effective or regular support. Moreover, many of the transactions in these areas require ‘cash-out’ of P2P remittances sent from urban areas – so rural agents end up accumulating e-float.

More sophisticated platforms allow providers to track how much e-float an agent holds at a given time. In some cases, the platforms may also provide a portal for Master Agents. These methods allow providers to alert agents and their supervisors when they need to rebalance e-float. However, these systems are unable to track cash balances, which change as the agent sells (and sometimes buys) goods in addition to performing DFS cash-ins and cash-outs.

2. Absence of a Digital Ecosystem

Even in the most developed DFS ecosystems, cash remains king. While providers seek to grow ecosystems through merchants and businesses that accept mobile money payments, interoperability between providers remains rare. The lack of fully interoperable platforms implies that non-exclusive agents who service multiple providers have to maintain separate e-float pools for each. These e-float silos compel agents to spread their working capital for agency across multiple providers, which often reduces the amounts held for each.

What Can Providers Do in This Situation?

Most of the key problem areas are manageable. Some ways in which the providers may address the issues related to improving agents to liquidity are outlined in the following section.

1. Innovative Agent Platforms 

Providers need to reconsider existing approaches to agent monitoring and management. Centralised monitoring systems can help identify agents who consistently fail to hold adequate liquidity. Alerts can then be sent to agents whose float levels have dipped below a recommended level to encourage rebalancing.

Novopay in India has a Network Operations Centre (NOC) ‘war room’ with an enormous screen that lets its staff see agent behaviour and transactions at different levels, from country-wide, through individual states, all the way down to individual agents. At the agent-level, Novopay can identify the device being used, track liquidity and even watch the progress of agents through each transaction screen. They can identify if and where the agents make mistakes. Remote-monitoring of tariff display and branding are done by asking agents to submit date-stamped photos of their outlets. Training, alerts and tips are delivered through the agents’ mobile devices. As a result, Novopay has a limited number of in-the-field monitors. Almost all the monitoring is done from their head office in Bangalore over the phone.

These platforms could also facilitate a variety of rebalancing mechanisms. These include rebalancing at ATMs, as well as through inter-agent transfers, where agents can ask for and receive e-float from fellow agents. Agents may also choose to deposit/withdraw money from their personal account into the float account remotely without involving the bank. This is already being done informally on WhatsApp groups set up by Master Agents to manage their agent networks. If providers are able to monitor these activities, they could monitor compliance and define standard operating procedures for their agents.

2. Uber-isation of Agents

Building on the ideas around inter-agent transfers, the group discussed the potential to reduce the dependence on agents by empowering almost every customer to act as cash-in/cash-out (CICO) points. This, of course, is already being done on an informal basis across the globe – particularly in remote areas that are poorly served by agents who are formally supported by providers. Often, local business people or community leaders provide services to convert cash into e-value or vice-versa in an informal manner for a small commission. Using such an approach would mean an increased network of CICO points as well as reduced agency management costs for providers. Customers would benefit from the convenience of proximate services.

In “Reimagining The Last Mile – Agent Networks in India” MicroSave highlighted that “fintech companies can come up with smartphone applications that enable any user to act as liquidity merchants ― mimicking what Uber has done for transportation. Similar initiatives can help address cash needs in the ‘last few hundred yards,’ while agents provide the ‘last-mile’ backup underpinning a more decentralised cash market. To make it work effectively, it needs to be ubiquitous and interoperable across providers.”

“Such a smartphone app should implement a geo-referenced marketplace for cash, to supplement an agent network. Users who have need for cash-in or cash-out should be able to search for other willing users in their vicinity. The application should do the match-making on the basis of availability and willingness to connect two ends of the network. The transactions need not be intermediated by the service provider (though the transactions between the two parties should be on the service provider’s system). The app should offer a search capability, as well as a variety of trust-building mechanisms.” – MicroSave.

Along these lines, Eko Financial Services Pvt. Ltd has launched an app called Fundu, which is being geared up for a pilot-test in Kenya. “This app will allow you to act as an ATM… Whenever a Fundu app user near you needs cash, you will get a notification. If you have cash and are willing to provide it, you can accept the request.” The individual will transfer the money to the user’s bank account using his or her virtual address. – LiveMint.

The elegance of this solution is that the users do not need to meet or even know one another. The shortcoming is that there is no scope for the exchange of physical cash. Our discussions with industry stakeholders highlight concerns for the security of agents who currently operate on such ‘Uber-ised’ solutions. Their concerns are that if agents highlight that they have cash at their outlet, it is an invitation for robbery and/or fraud, both of which are growing at an alarming rate.

3. Use of Data Analytics to Predict Demand

Data analytics could be used to monitor transactions and facilitate liquidity management on the basis of historical experiences and trends. This idea is built on a recommendation made by The Helix Institute in 2014 and Harvard Business School in 2017. Using the DFS platform data to identify trends in agents’ demand for e-float or cash will assist in planning for peaks and troughs. This information could be automatically shared with agents and Master Agents by the platform to assist them to maintain adequate levels of liquidity. The analyses would need some modifications to account for unusual ‘outlier’ events that create spikes in demand for liquidity, such as general elections, large sporting events and intermittent bulk payments like remittances to refugees or government subsidy transfers.

Nonetheless, regular SMSs to agents that predict the likely demand for liquidity on a monthly, weekly and daily basis would help them to plan better. It would also inform provider and Master Agent support such as facilitating e-float overdrafts for agents (see below) or organising cash pick-up or drop-off at agent outlets. Providers can also use this data to monitor agent activity, which will help identify unusual or fraudulent practices, such as remote deposit, split transactions and float hoarding.

4. Credit to Allow Agents to Access Working Capital

Agents often cite lack of resources or working capital as key impediments to financing their liquidity requirements. These impediments are sometimes (but not always) temporary, as a result of seasonal fluctuations. While few mobile network operators are willing to take the risk of lending to their agents, extending e-float on credit provides a significant opportunity to improve liquidity and enhance agent loyalty. If lenders use methods like data analytics, they would be able to predict liquidity needs and assess past performance of agents. This should allow lenders to significantly reduce the risk inherent in offering credit to agents.

Furthermore, a system that provides agents with e-float overdrafts to allow them to rebalance using their mobile phones could unlock significant value. It would also reduce the number of transactions declined for want of liquidity. Safaricom, for instance, offers their premium M-PESA agents short-term weekend/public holiday financing to meet their liquidity requirements. This not only boosts the availability of float but also increases the number of agents working over the weekend when banks and other Super Agents are closed. A few banks, such as Commercial Bank of Africa and Kenya Commercial Bank, are already making steps towards this. However, given the sophisticated data analytics and credit platforms required in the process, fintech companies may be best-suited to provide these lines of credit.

5. Set-up Digital Ecosystems 

Digital ecosystems consisting of open APIs and fully interoperable platforms would facilitate and encourage the use of digital payments. This can reduce demands to cash out and need for agents to rebalance. Similarly, when FMCG suppliers insist on payment for supplies in e-value rather than cash, it can help rural agents use the e-float they accumulate. High-functioning digital ecosystems can only be achieved if all the players collaborate to increase opportunities for additional digital transactions.

Effective liquidity management is key to any trusted and successful agent network. Yet the much-vaunted challenges are all manageable, particularly if providers leverage data analytics and the capabilities of fintechs.

 

Study on adoption of cashlite among MFIs in India

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MicroSave, with support from MFIN, conducted this study to capture the experience of cash-lite/cashless models adopted by MFIs in India. The report identifies ways to accelerate the adoption of cash-lite models.

More Than Hygiene – Improving Agent Network Performance to Maximise Profitability

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Over the last four years, as part of the Agent Network Accelerator (ANA) project, we have interviewed more than 34,000 agents from over 40 leading providers of digital financial services (DFS) across 11 countries in Asia and Africa.

So what did we learn?

Agent Dedication and Exclusivity is Declining

We see a general trend towards agents running a DFS agency as an add-on to other existing businesses (non-dedication) and working for more than one provider (non-exclusivity). While the trend is most pronounced in Tanzania and Pakistan (see Figures 1 and 2). In Bangladesh, on the other hand, third party models have emerged.

At the same time, many providers see their agent networks as a source of differentiation from the competition and direct control over the agent channel. Our data confirms that agents trained and monitored by their providers perform significantly better than those left to their own devices (see Training and Monitoring Can Improve Agent Performance below).

So, while the move towards shared 3rd party agent networks seems an obvious next step to containing costs of platform management and maintenance, and of agent training, management and monitoring; as well as improved liquidity management (particularly in fully interoperable environments), there are limited signs of this emerging in many markets. In some markets regulations also limit the potential for 3rd party shared agent networks because regulators want to be able to hold a regulated financial institution accountable for agent performance.

Ultimately, providers should compete on product rather than channel. So we may see the emergence of a few exclusive sales agents working for specific providers to sell products, open accounts and conduct larger transactions. These would then be complemented by large numbers of shared agents servicing a range of providers by conducting small cash in/out transactions.

NOTE: ANA surveys were conducted in 2013 in Uganda, Kenya, and Tanzania; in 2014 in Bangladesh, Kenya, Pakistan, and India; in 2015 in Zambia,Tanzania, Uganda and Senegal; in 2016 in Bangladesh and in 2017 in Pakistan.

Insight: Service and support to agents can be a key success driver and differentiator – but 3rd party model/outsourced services may be the way to go in the future, at least for cash in/out transactions.

Inability to Transact Remains a Problem

Many agents report experiencing periods when they are unable to transact, be it due to network interruptions or system downtime. Service downtime not only causes inconvenience, it also erodes trust. Service downtime is particularly frustrating for customers, who feel that they are unable to access their money and, in some cases, complain of missing important opportunities or deadlines as a result. It also often results in customers leaving money with agents to complete the transaction when the system is back up, which raises fraud risk.

Furthermore, too many transactions are still being denied due to liquidity management challenges. Agent illiquidity may also mean lost access to money or necessitate splitting of transactions and thus incurring higher transaction fees and customer time[1] These inconveniences and supplementary costs undermine user trust (who will allocate less money to the system and conduct fewer transactions) and non-users (who may avoid DFS for fear of not being able to access their money when they need it).

Moreover, every transaction denied for want of float, reduces commission income for the agent in an operating environment where they already struggle to make adequate profits (see Agent Viability Remains a Problem below).

Insight: Trust continues to be eroded. Providers with reliable platforms and reliable liquidity management systems will carry the day.

Approaches to Liquidity Management Are Evolving

Providers are beginning to use creative approaches to respond to liquidity management challenges, including:

–         Dedicated rebalancing counters at banks to provide agents faster service;

–         Liquidity “runners” to deliver liquidity in the form of both cash and e-float;

–         Credit lines/overdraft facilities for float;

–         The use of analytical tools to predict demand; and

–         Providing in-depth liquidity management training to Master Agents.

Insight: We still need more solutions for liquidity management, especially to get cash to rural areas. Advanced data analytics, the “uberisation” of agents and creating better digital ecosystems to keep money digital can all help.

Agent Viability Remains a Problem

Profits from the DFS agency business are modest, between US$143 and US$190 per month, (adjusted for cost of living differences). The highest agent profits were reported in two markets plagued by illicit OTC transactions, frequently performed by agents for an unofficial, unauthorised fee. Unauthorised fees or overcharging is common, enabled by lack of transparency (many agents do not display approved or current pricing schedules for their services). As a result, customers are unsure of service fees and often convinced that they are being over-charged, undermining trust and reducing service uptake and usage.

Unauthorised fees, of course, create real additional costs for customers but are increasingly accepted as part of the fee-for-service – particularly where agents are conducting OTC transactions and thus reducing the risk of sending money to the wrong number. Given some of the losses that can result from sending money to the wrong number, perhaps we should not be surprised that people are willing to pay a premium to protect themselves against this risk.

However, this clearly a suboptimal solution for both consumers (who confine themselves to agent-assisted transactions, limiting the opportunities for cross selling additional products and services), or the provider (which becomes dependent on agents and thus limits profitability) in the long run. Safaricom has sought to address this with the Hakikisha system that enables M-PESA customers to stop erroneous transactions within a window of 25 seconds and allows up to five such instances per day

Insight: DFS agency remains a low-profit business, a reality that may be driving unauthorised charges. Agency therefore is generally better as an add-on (non-dedicated) business, especially outside urban areas at the head of remittance corridors.

Agent Training and Monitoring Associated with Better Performance

Providers tend to delegate induction training to Master Agents and third parties – only a minority of agents report being trained directly by the provider. Likewise, too many agents are being left to their own devices and never receive monitoring or support visits. This is likely to suppress their profitability. As a recent Harvard Business School research demonstrated, the presence of tariff sheets increase demand by over 12%, while agents’ ability to answer a difficult question about mobile money policy increases demand by over 10%.

We have seen some evidence that training is associated with improved compliance and increased profitability. This association is clear in Bangladesh, Senegal and Uganda, but much less pronounced in other countries surveyed under ANA programme.

Insight: Training may be associated with better compliance, transaction volumes and profitability of agents, yet providers continue to outsource this function.

Robbery and Fraud are Increasing

Agents are struggling in the face of rapidly growing problems with robbery and fraud. This is a challenge that needs concerted and coordinated efforts to resolve. Providers and agents are beginning to address this problem, but more can be done. In our expert group meeting, providers, software platform vendors and consultants recommended a three-pronged approach: 1. training of agents; 2. the monitoring of fraud trends and proactively informing agents; and 3. collaborative fraud monitoring and reporting frameworks. A recent in-depth analysis of options to address the growing scourge in Uganda highlighted five different fronts on which fraud can be tackled.

Insight: Insecurity and fraudulent activities are growing – this could increase agent churn and to further undermine trust in digital financial services.

The ANA surveys have given us deep insights into the behaviour and evolution of agents across 11 countries. Many of the issues and challenges are now well-known, and the surveys quantify them in ways that have not been previously done. As a result of these surveys and the associated training, many providers have taken important steps to improve the quality of their agent networks, but much remains to be done. Agent networks remain the most costly and complex part of any DFS deployment, and successful providers are invariably those that get this crucial piece of their business right.

MicroSave’s Agent Network Accelerator programme has conducted research on agent networks in 11 countries – Kenya, Tanzania, Uganda, Nigeria, India, Indonesia, Bangladesh, Pakistan, Zambia, Senegal and Benin.

The surveys deliver cutting edge knowledge and data designed to help leading providers overcome the cost and complexity of building sustainable cash-in/cash-out (CICO) networks. We produce country and provider reports,

The data and reports power The Helix training curricula.

Managed by MicroSave, the ANA surveys have been funded by the Bill & Melinda Gates Foundation, UNCDF, Karandaaz and FSD-Uganda.

[1] However, it is important to remember that service downtime and illiquidity also occur with, and are tolerated by customers of, ATM-based systems.

Three Areas DFS Providers Prioritise to Enhance Agent Networks

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Since its launch in 2013, The Helix Institute has offered evidence-based insights, practical training and technical assistance on agent networks to DFS providers across Africa and Asia. We asked providers to tell us what steps they have taken to improve their agent networks after engaging with The Helix. This blog sums up their actions, classified into three broad areas: 1) enhancing network size, distribution and make-up; 2) boosting service reliability, and 3) ensuring network sustainability.

1. Network size, distribution and make-up

To deliver on DFS deployment objectives, providers must get the right agents in the right places to serve their customers. The Helix trainings facilitate learning that helps providers review and refine their approaches to achieving the scale, reach and characteristics of the network best suited to support their deployment objectives.

  • Overhaul Agent Network Strategy: Eleven providers have overhauled their agent network strategies following The Helix training and exposure to peers from other markets. To respond to growing demands of managing and scaling agent networks, some opted to outsource the agent network management, while others adopted master agent models. Providers were inspired to let go of exclusivity clauses and guidelines on mandatory agent spacing (within a specific radius of each other), which has improved agent accessibility and increased transaction volume.
  • Strategic Agent Selection: Many DFS providers struggle with agent dormancy, which often stems from poorly targeted agent recruitment. Consultations with The Helix have driven 14 providers to refine their agent selection criteria to ensure their agents will actively transact. For example, providers have enhanced their geographic targeting to ensure agents are recruited from strategic locations and/or raised minimum start-up capital requirements to boost agent liquidity. Others through evaluating agent performance determined which agents do not add value to the network. In some countries, providers are now deactivating non-performing agents in an effort to streamline their networks. This is remarkable since in the past providers were reluctant to reduce agent numbers, viewed as a manifestation of scale.
  • Mandatory Agent Training: Research by The Helix has shown that trained agents perform better than their untrained counterparts. Our courses further emphasise topics essential for agent training. At least 14 providers reviewed their agent on-boarding approach: those who previously had no training structures have set up training departments to handle agent training needs; others have formalised agent training curricula and created training of trainer manuals. Providers came up with creative ways to identify gaps (e.g. by tallying agent call centre issues) and ensured curriculum included those issues. For example, several providers launched modules on fraud to increase agent awareness of the potential sources, prevention and mitigation measures. Some providers have encouraged agents to use social media as a platform for sharing their experiences and tips.

2. Service reliability

The success of digital financial services relies on how available, accessible and reliable they are to their customers. Without a reliable distribution channel, providers are unlikely to see high take-up and usage, regardless of the merits of their product design. A reliable service ensures customers are able to access DFS wherever and whenever they need it.

  • Enhance Liquidity Management: On the whole, float management is among the biggest hurdles in agent operations. Most financial providers in Africa have delegated the responsibility of managing float to agents. However, agent illiquidity undermines customer trust in the service and poses a threat to provider reputation. The Helix training and experience sharing between African and South Asian providers has led 23 providers to step up efforts to assist their agents with liquidity management. Some have engaged liquidity runners to deliver e-float or cash to agents, while others started facilitating access to lines of credit to boost agent’s working capital. In addition, some providers have opted to situate rebalancing points closer to the agent outlets and streamline rebalancing processes to enable real time float deposits at partner bank.
  • Minimise Network Downtime: Connectivity in most developing countries has proved a major hurdle in the deployment of agent networks. Some providers have therefore chosen to locate their agents only in areas where there are masts to ensure that agents can carry out transactions and reduce inactivity. Other providers have initiated system upgrades based on recommendations from peers.
  • Regular Agent Monitoring: Agent monitoring boosts agent loyalty. It builds a relationship between the agent and the provider, enhancing the business partnership. Exposure to best practices during The Helix training sessions have encouraged providers to introduce defined agent monitoring structures. These include outsourcing to 3rd parties and automation of agent monitoring processes to enhance effectiveness and cut cost. Additionally, some providers have formalised fraud and risk mitigation measures in regions with high incidence of fraud.

3. Network sustainability

Agent networks represent a large proportion of providers’ investment in digital finance deployments. Both agent commissions and management costs add up to significant sums expected to be covered by transaction fees. Balancing service affordability and agent remuneration is an art, elusive to many. The Helix-facilitated training and networking has inspired providers to target sustainability from three key directions:

  • Attractive Agent Business Terms: Whether agents see their business as lucrative affects how much effort they invest in growing the business. As such, agents condition providers’ DFS business growth. Following The Helix training, 13 providers were compelled to review the value proposition for agents to make it more attractive. Some have boosted commissions; others introduced performance bonuses or commissions for customer education and registration. Providers also sought to entice agents with non-monetary benefits like agent portals that facilitate business management or opportunities to address their fellow agents and share best practices for high performing agents. In over-the-counter (OTC) markets, where competitive commissions decide which service is accessed, The Helix spurred provider collaboration to standardise commissions and halt commission wars.
  • Revamp Customer Value Proposition: The utility of DFS to customers determines whether they use the service and the corresponding agent network. This is a function of the range of products provider offers and how well they meet customer needs. Twenty providers have gone back to revamp their customer value proposition as a result of The Helix trainings. Some redefined the product portfolio by introducing new use cases, multi-language functionality and repositioning the whole digital offering (e.g. shifting focus to merchant payments). Others dropped transaction fees and introduced airtime bonuses to reward usage. Another group returned to square one, undertaking market research and extensive customer consultations to tailor products to client needs.
  • Diversify Marketing and Communication Activities: The Helix curriculum sensitises providers to the importance of thoughtful and deliberate marketing activities. Thirteen providers have shifted emphasis from impersonal above-the-line campaigns to targeted below-the-line activities. Some providers in African markets have replicated creative approaches by peers, taking advantage of existing channels such as ‘town criers’ and market days to implement their marketing and communication activities. Many are now using community activation days to encourage customers to visit an agent. Providers are increasingly recognising the agent’s potential and role in communicating and educating the customer. This is being done in conjunction with activities that build trust in the agent network such as locating agents within the banking halls.

Recently, The Helix Institute convened DFS industry experts on regulatory, strategic and operational issues to reimagine agent network management for the future. This blog along with this summary of our learnings from years of interactions with agents and providers set the stage for their exchanges. Subsequent blogs present ideas on how to reinvent liquidity management, Interoperability – A Regulatory Perspective, Progress and Challenges with KYC and Digital ID emerging from the workshop.

Data in this blog is based on survey responses from about half of the MNO (36), Bank (46), 3rd party (13), Microfinance institution (8) senior managers from 33 countries who attended our training courses to share experiences, exchange ideas and draw inspiration from guest speakers and site visits with generous support from Bill & Melinda Gates Foundation.

 

Why is digital credit such a huge opportunity and challenge

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Digital Credit is one of the fastest moving segments in financial product innovation. Today, digital credit provides quick funding for businesses and is capable of being an important source of revenue for DFS providers.

Setting Digital Credit Right – Is it Time For a Major Re-think?

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MicroSave’s Graham Wright expertly highlighted a worrying trend in an article on digital credit published in January 2017. His article highlights the fact that negative listing is shutting out millions of users from accessing microlending services. This, in turn, has affected financial inclusion. Mr Wright estimates that around 2.7 million people in Kenya – around 10% of the entire adult population – have been unduly denied service. Often, as in the case of 400,000 of those folks, financial exclusion is the penalty for defaulting on loans of less than $2!

More worrisome is the fact that these consumers, who may not have fully understood the terms and conditions, then frequently return to the grey and black markets. While costs and risks abound in these markets, positive borrowing behaviour fails to be digitally captured. Such shadowy and usurious forms of exclusion are precisely what microfinance was invented to combat in the first place. This is a major regression for inclusion, as digital disruption should be all about education and democratisation.

Rethinking Financial Services

Smartphone adoption is dramatically changing this landscape. While feature phones utilising USSD undoubtedly remain a core channel for reaching the base of the pyramid, that dynamic is shifting rapidly. In its place are emerging entirely new modes of communication, consumption and connectivity, enabled through newer and smarter devices.

These Internet-enabled, data-creating devices now connect 3.2 billion unique worldwide users. These users include not only loved ones around the corner or across a border but also an array of providers, old and new, who are ready to deliver the next wave of financial services. Among these providers are banks, microfinance institutions, microinsurance providers, e-commerce enablers, you name it. By 2020, the GSMA predicts smartphone penetration to surpass 5.7 billion subscribers.

 

Worldwide, mobile operators are assessing paths and gearing up to realise their potential as major enablers of the next generation of financial services. Some operators will embrace their evolution and innovate into major players in digital financial services, others will remain marred in the status quo of declining ARPU and loyalty. The providers who fail to adapt adequately would end up losing out to more innovative competitors and OTT challengers.

The biggest victors, however, will undoubtedly be the 2.5 billion unbanked folks, cheering on as device prices plummet and 3G/4G networks multiply.

Smartphone-driven Financial Services – a Marathon, Not a Sprint

In 2016, Mozilla released a fascinating, highly-recommended report called Stepping Into Digital Life. The in-depth research project spanned 12 months and tracked first-time smartphone users in Kenya. “Adoption is socially motivated,” the report concludes. “Owning and operating a smartphone can thereby elevate their status in society, and the resulting sense of pride plays an important role in adoption and learning.”

However, the report cited a couple of critical insights:

  1. Without the right skills, smartphones can exacerbate adoption challenges, instead of alleviating them.
  2. First-time smartphone users have little understanding of their role as consumers.

On its own, therefore, technology is insufficient to improve financial inclusion without concurrently solving for its entrenched legacy impediments: access, ability, and need. Financial technical literacy is a process enabled, but not resolved, by smartphones. Without engaged and educated consumers, the offerings of service providers as well as the lives of consumers will continue to be marred by risk.

Identity is the Core of Inclusion

The core of inclusion – and the inverse of risk – is identity. Who is the applicant and what is their financial history? How can they improve their standing and gain increased access? Well, problematically, 3/5th of the world’s unbanked people lack a legally-recognised form of identification. Moreover, in most countries, credit bureaus cover less than a quarter of the local population.

I recently joined a Women’s World Banking roundtable in New York City, where I came to know some startling facts. Women make up a disproportionately large share of the unbanked. For example, while 46% of men in developing countries have a bank account, only 37% of women in these countries have access to banking. The gap is even larger among those in poverty. Women who live below $2 a day are 28% less likely than men to have a bank account.

So, how do you assess an applicant without a footprint? And how do you level that playing field across gender, geography, class and access?

Meeting Users Where They Are Today

Currently, 77% of the world consumes mobile services on a prepaid basis. This implies that every year, mobile network operators process a trillion dollars’ worth prepaid top-ups – $.30 or $.40 here, $1.50 there. These top-ups are of low value, used in huge volumes, and are exceptionally inconvenient for everyone.

Because these customers predominantly transact in cash, lacking access to credit, they must travel in-person to a top-up shop to add balance to their phones. The distance is sometimes a few blocks, and often a bus ride away. Imagine doing this every week or every day, regardless of how otherwise busy or cash-strapped you may be. Imagine having to decide between topping-up your phone and buying diapers.

Prepaid Top-ups are the Formal Financial Transactions of Unbanked Consumers 

At Juvo, we are rethinking digital financial services. We partner with mobile operators to provide intuitive tools to consumers in emerging markets, enabling them to create, capture and benefit from their own positive financial behaviour. Rather than focus on extending as many loans as possible, we are taking a responsible, deliberate and personalised approach to building up users’ identities to mitigate risk for all parties involved.

We believe in rewarding users for these micro-transactions, generating the building blocks for upstream financial service access. Our products offer prepaid users an engaging and frictionless journey, from anonymous SIM card to robust financial identity. The products are based on the simple, frequent and standard behaviour of borrowing and paying back digital airtime credit extensions. We leverage prepaid subscriber data to allow anyone, regardless of the quality or fidelity of their financial identity, to obtain for a digital no-fee, interest-free product loan, delivered straight to their phone within seconds. As users borrow and pay back these loans, they advance from beginner to bronze and up to diamond status. This paves the path to build up an identity and unlock innovative digital financial products.

For carriers, our solution has proven to lift Average Revenue Per User (ARPU) by 10-15%, drive loyalty, and reduce churn by 50-90%. It simultaneously adds convenience, access and identity to the financial lives of our users. All this adoption and engagement, filtered by our data scientists, results in a greenfield database of millions of well-defined and segmented prepaid mobile consumers.

The Path to Upstream Services

Every mobile operator has been repeatedly told that they are optimally situated to deliver the next wave of financial services, given their distribution networks, communication channels, massive user bases and strong brands, However – and operators are acutely aware of this – the path to mobile money success is riddled numerous obstacles. They include high cost, severe risk, burdensome or ambiguous regulations, massive account dormancy rates and, ultimately, failure.

Juvo mitigates these challenges by offering an alternate path. We reduce the risk and cost of providing financial services by generating engaged users and rewarding that engagement. We then segment our users with game mechanics and data science. This deliberate and sequential approach enables us to offer personalised, timely and targeted financial services from only the most innovative FSPs to the right users.

We partner with international FSPs, such as Mastercard and MoneyGram, alongside local providers of microinsurance, microfinance, digital credit, savings products, energy solutions, handset financing, among others, to create channel-specific products hand-tailored to our users. We emphasise on personalised offers, consumer education, and sustainable financial habits. We understand that forcing the adoption of a feature-bloated, one-size-fits-all app at an entire population demands massive behavioural change and education, as is the case with most Mobile Money Operators. Most often, this approach simply does not work. Here at Juvo, we, therefore, are banking on a personalised future of finance.

Juvo is a San Francisco-based fintech company that was founded with an overarching mission: to walk billions of people worldwide who are creditworthy, yet financially excluded, up a pathway to financial inclusion, starting with their mobile phone. Juvo’s proprietary Identity Scoring technology uses data science, machine learning, and game mechanics to create financial identities for anonymous prepaid mobile subscribers across the globe, providing ongoing access to otherwise unattainable financial services. The company has recently closed its Series B round, raising $40 million in funding led by NEA and Wing Venture Capital.