Blog

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

Posted on by MSC

“Ready money is Aladdin’s lamp”― Lord Byron

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. For instance, 90% of WING’s transactions in Cambodia, 70% of EasyPaisa’s transactions in Pakistan, and 50% of bKash’s transactions in Bangladesh are OTC based. Due to market dynamics, customer pull and trust deficiencies, OTC transactions have been preferred, as highlighted in MicroSave’s blog, Beware the OTP Trap. Some other publications have, in detail, explored the prevalence, causes, and implications of OTC transactions in other countries, such as Pakistan, Bangladesh, Kenya and Uganda. 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. So, let’s start by outlining OTC in India.

What is OTC in India?

A simplified definition of OTC which is more appropriate for the Indian context, is: “Any transaction that is conducted by the agent on behalf of the customer” or an “assisted transaction”. This definition also encompasses the following:

a. The customer is not required to have a mobile wallet or a Mobile Station International Subscriber Directory Number (MSISDN; in simple terms, owning a mobile phone number) to use the service.

b. The customer may not have any knowledge about a wallet being opened on their behalf (this case has been observed commonly).

c. The agent is the “only” actor who conducts the transaction, i.e., there is no self-use of a wallet by the customer (similar to other countries).

Given the current regulations in India, which allow cash-out through full KYC bank accounts only, even transactions that are made OTC at the origination stage, fall under the ambit of formal financial services at the destination.

While sending the funds, however, two distinct scenarios are possible. First, the agent may use his personal account (or that of an acquaintance) to send money, without informing the customer about the process. The entire transaction process is carried out by the agent, with the sender only providing the beneficiary’s account number. Second, the agent may open a wallet for the customer (even without their knowledge or understanding), and then use that wallet to transfer the funds. The sender thus receives confirmatory text messages when the transaction is initiated and when it is completed. He associates these messages as part of the provider’s service offering, unaware that these are associated with the wallet opened in his name.

Thus, in an Indian context, any transaction where the agent’s account (or agent’s associate account) is used to send money without informing the customer, may be classified as informal OTC. However, when a customer’s account is used to send money (even without his explicit knowledge or understanding), the transaction can be termed as a formal OTC transfer.

Outlining the transaction process

MicroSave conducted research to understand the experience of customers using OTC remittance services in India. By carrying out mystery shopping exercises, we are able to define a common process that is followed when a typical OTC remittance transaction takes place. This process has been illustrated in the figure below.

i. Opening customer’s wallet

The sender/remitter walks into the agent outlet with cash in hand with the purpose of remitting the money. Generally, the agent notes down the mobile number of the sender (in some cases, the agent uses his own mobile number, but because of caps put on the number of daily transactions from any one account, this is a rare occurrence). The sender’s mobile number is then used to open a wallet on the provider’s portal (an internet website used by agents to open wallets, and transact after signing in with their credentials). However, this is often done without the consent and knowledge of the customer. Consequently, the senders, who visit (different) agents associated with different providers, have multiple wallets opened using the same mobile number. This process of customer acquisition on behalf of payment service providers is leading to an overstatement of the number of unique users who are actually using DFS for remittances.

The sender, unaware that a wallet is opened, believes that the mobile number will be used to receive a confirmatory text message via Short Messaging Service (SMS) from the provider. The agent informs the sender that this text message will apprise him/her of the status of the transaction.

We observed that a very few agents, working for different providers, conducted transactions without the customer’s mobile number. In such cases, the agent used a mobile number belonging to someone else (or, in rare cases, their own), which is already registered. This number was never shared with the customer. In lieu of the confirmatory text message, the sender is provided with a printed or written receipt, with details of the transaction. However, these cases are very rare, as most customers using these channels own mobile phones or provide phone numbers belonging to their families or friends.

ii. Recording receiver’s details

Once the wallet is opened, the agent asks the sender for recipient’s details at the destination point. These details always include:

  • Complete name of receiver,
  • Name of the bank in which recipient holds an account, and
  • Bank account number of recipient.

There are several other fields that should be filled up (but are not mandatory) by the agent such as IFSC code, bank location, and relation between the receiver and sender, among others. However, in order to save time and for fear of losing customers, who may not have/remember such information, some agents randomly fill these details. As most transactions are initiated using Immediate Payment Service (IMPS) system (for reasons highlighted below), these incorrect details do not affect the success of transactions.

iii. Conducting the transaction

All Indian providers’ portals can use both IMPS and National Electronic Fund Transfer (NEFT) to conduct money transfer  services. On some portals, agents can view the downtime status of IMPS. When IMPS is down, these agents use the NEFT service to remit funds.

However, IMPS is the preferred system, as the transactions occur on a near real-time basis. However, most agents believe that regional rural banks (RRBs) do not support IMPS and, hence, they prefer to use NEFT when transferring to RRB accounts.

iv. Receiving confirmation of the transaction

Once money has been transferred via the portal, a text message is received on the phone number provided by the sender. Some providers’ systems also send the agent a text message confirming the transaction. This communication generally happens on a near real-time basis. The sender uses this text message to inform the receiver about the transaction status. When a customer does not have a mobile number, he/she receives/asks for a printed or hand-written receipt from the agent as a proof of the transaction. Next, the sender communicates with the receiver to know the status of the transaction. The receiver then visits either the bank/agent branch or an automated teller machine (ATM), and confirms the transaction status to the receiver. In instances where the receiver does not receive the funds, the sender (at times, using the receipt) follows up with the agent.


Most agents provide a receipt to their customers when asked. The agents print these receipts themselves. These receipts typically do not mention the provider’s name. The receipt helps customers in two ways. First, it acts as a proof of the transaction for the customer. Second, in case the receiver notifies the sender of non-receipt of funds (if the transaction has failed or been delayed), the customer brings this receipt to the agent, who can then check the status of the transaction.

v. Withdrawal of funds by the recipient

The sender, after receiving the text message confirming the transaction, informs the receiver about the transaction status. Once the transaction is successful, the receiver then has three options to access the funds:

  • S/he can visit the bank branch in which the account is held and withdraw the funds;
  • S/he can visit an agent (Business Correspondent ― BC) outlet, to withdraw the funds; or
  • S/he can use a debit card to withdraw the funds from an ATM.

Of these different methods, ATM cards are increasingly preferred at the destination points of remittances. The major reason for this shift is the PMJDY scheme, which provides RuPay debit card to all account holders.

Even though there have been a slew of technological innovations to allow migrants to remit funds themselves, without reliance on a third party (such as an agent), their uptake has been very, very slow. OTC providers offer a fast, secure, and reliable service at a nominal cost to the customer. These three attributes are the most important needs of a typical migrant who wishes to remit funds home without the worry associated with a financial transaction.

Now that we have an understanding of how OTC works in India, in our next blog, we will present the findings from our mystery shopping and the experience of customers, by presenting an experience map for a typical OTC transaction.

Time for Action! Customer Service, Protection and Trust in Indian Digital Financial Services

Posted on by MSC

 

Gayatri Devi lives in Ghumka village in Chhattisgarh. She takes care of an extended family of eight. Her husband works in a cloth mill in Gujarat, and comes home once in 6 months. He sends money every month for household expenditures, some of which Gayatri deposits at the agent point in her village. Women are not allowed to go too far from their houses, so she has never seen a bank branch in her life. The nearest bank branch is 7 kilometres away from her village.With great excitement, Gayatri opened her bank account at the agent five months ago, but she still has not received a passbook, despite repeated follow-up with the agent. She wants to repair her house and needs a loan to do so. She asked the agent about the process to access a loan, but he had no information about options for credit. A month ago, the agent stopped working and his shop is now usually closed. Even when it opens, the agent says that there is some issue with the server. She has lost trust in the agent and is now back to saving money at home as the bank is too far away. She feels that she is stuck in the system, as, unless the agent starts working again, she cannot even withdraw her money for the much-needed house repairs. Social norms prevent her from travelling and complaining at the bank branch, or even to the agent, as this would attract criticism from other male villagers and her family may have to face the brunt of it. The only thing she can do now is to wait for her husband to return and take up the issue.

MicroSave’s research (funded by the Omidyar Network) into customer protection, risk and financial capability in India shows that Gayatri’s experience is not uncommon across India.

India is a country committed to achieving full financial inclusion. The recent policy-push under the PMJDY programme and India’s commitment to Better Than Cash Alliance shows this intent. However, because of its sheer size and geographic and ethnic diversity, providing access to quality financial services, especially at the base of the pyramid, remains a challenge.  MicroSave’s ANA India Survey report states that “India is a country with 1.2 billion people, 29 states, 100+ Agent Network Managers (ANMs), five major telecoms, 27 public sector banks, 23 private banks, and 100+ rural and cooperative banks participating in delivery of Digital Financial Services (DFS)”.

The Reserve Bank of India advised banks to open “no frills” account way back in 2005, and there have been a number of enabling (but sometimes conflicting) regulation and policy-pushes since then. However, the growth in active bank accounts has been slow and beset with a number of issues ― leading to account dormancy levels of 48%.

And the experience of DFS for both agents and the customers that they serve has been extremely mixed. There has been high churn amongst agents, who are often poorly trained, supported and remunerated; as a result, customers, who like the convenience of a local DFS outlet, are often unsure about its reliability. As with many deployments across the globe, it is basic hygiene factors, like system reliability and agent illiquidity that are primarily responsible for the lack of trust in DFS. These are seen to be both frequent and high-impact in nature … and ironically, at present, theft, robbery and fraud are viewed as both infrequent and low-impact. Our qualitative work suggests that these are low-impact because most customers have yet to experience them … this may well change over time as highlighted in Fraud in Mobile Financial Services.

MicroSave field research highlights two contradictory facts that further indicate the fragile nature of DFS in India. While 85% of the DFS customers said that they would recommend DFS to others, they mainly treat it as a back-up option.  While customers appreciated the accessibility and ease of use of DFS, they did not really trust it enough to use it regularly – see bar chart highlighting the use of DFS services.

The Indian context reflects a number of conditions highlighted in the MicroSave paper on fraud. The paper notes that weak processes, poor compliance monitoring, and poor customer awareness are key enablers of fraud. Our research shows that all of these are present in India. At present, there are not many reported risks or loss of funds; however, based on current conditions, these are likely to emerge as the system matures and grows

Furthermore, customers’ high trust in, and dependence on, agents for knowledge and conducting assisted transactions, coupled with their limited understanding of, and opportunities for, recourse may lead to a number of agent perpetrated frauds like:

  • Unauthorised access to customer’s transaction PIN
  • Imposition of unauthorised customer charges
  •  Split withdrawals (thus increasing commissions earned)
  •  Agents encouraging customers to leave money with them and then absconding (see box)

Customers’ blind trust in agents facilitate fraud – as one of the leading agent network managers (ANMs) in India found out. The ANM was facing some technical problems, as they were upgrading their system. This resulted in some of the transactions not being completed. An agent of the ANM used this as an opportunity. He told his customers that the service was down and collected their deposits, promising that the amount would be credited in their accounts once the system was up and running. He did this for five days, during which he collected nearly Rs. 500,000 ($7,353) and then fled with the money.

It is time that providers focus on addressing these customer service and protection issues – see Solving Customer Service Issues in Digital Finance – Can Do, Must Do. Doing so is essential to build trust in DFS and thus stimulate uptake and regular usage … and to prevent widespread fraud and loss for customers.

Connecting the Dots: Putting Risk, Customer Protection, and Financial Capability in Perspective

Posted on by MSC

Risk in Digital Financial Services (DFS) has the potential to derail the financial inclusion agenda. If not managed in time, it can reduce trust, resulting in a vicious cycle of poor uptake of products and services, poor profitability, and thus poor implementation. This paper presents the findings on three inter-related concepts – Risks, Customer Protection, and Financial Capability in DFS at both the customer and the agent level. The vulnerability context in which people operate directly influences the risk profile of the customers as well as the frontline agents. Most of the risks identified in this research were operational in nature and can be resolved relatively easily. However, their expression, in terms of service denials and potential manifestation of fraud, in an environment with limited financial capability and high level of trust of the agents, is potentially dangerous.

Behavioural Biases Affecting Buying Behaviour of Kerosene Consumers for Alternate Fuels

Posted on by MSC

The Government of India is considering replacing kerosene with Direct Benefit Transfers (DBTs)of cash into consumers’ bank accounts. Under the proposed DBT model, consumers will receive a lump sum credited in their bank account equivalent to the value of kerosene subsidy currently paid by the government. In addition to reducing leakages, the government expects that DBTs may encourage consumers to shift from kerosene to cleaner alternate fuels(AF), such as solar energy and electricity (or battery-operated lights), for both lighting and cooking. MicroSave conducted exploratory research to understand the ‘enabling factors’ that might induce consumers to buy and use alternate fuel(s) in the event of DBT. The research specifically looked at: “What will make kerosene consumers use DBTs to buy alternate fuel(s)?” This note explores the fuel(s) buying behaviour of different types of consumers, and what behavioural biases come into play when they buy fuel(s). The Government of India is considering replacing kerosene with Direct Benefit Transfers (DBTs)of cash into consumers’ bank accounts. Under the proposed DBT model, consumers will receive a lump sum credited in their bank account equivalent to the value of kerosene subsidy currently paid by the government. In addition to reducing leakages, the government expects that DBTs may encourage consumers to shift from kerosene to cleaner alternate fuels(AF), such as solar energy and electricity (or battery-operated lights), for both lighting and cooking. MicroSave conducted exploratory research to understand the ‘enabling factors’ that might induce consumers to buy and use alternate fuel(s) in the event of DBT. The research specifically looked at: “What will make kerosene consumers use DBTs to buy alternate fuel(s)?” This note explores the fuel(s) buying behaviour of different types of consumers, and what behavioural biases come into play when they buy fuel(s).

The Ebb and Flow of Customer-Centricity in Financial Inclusion Part 3 – What Happened and Where Are We Today?

Posted on by MSC

In the previous blog “The Ebb and Flow of Customer-Centricity in Financial Inclusion Part 2 – Beyond the Basics” we discussed the details of building a customer-centric, or market-led financial service provider – and the intricate jigsaw puzzle of skills, processes, incentives, planning and execution required to pull it off.

Results

So, did all of our action research partners become client-centric, market leaders?  Are clients in their countries receiving amazing customer service and great products? The truth is that some institutions are better at delivering client-centric products than others. As a result of the project our ten action research partners developed or refined 9 savings products and 11 loan products.  At the end of 2007, when the project closed and MicroSave transformed into a consulting company, 373,705 customers had loans from our action research partners; the outstanding balances on these loans were $300 million; 2.5m people had savings accounts an overall outstanding balance of $530 million.

Over the same period MicroSave trained more than 51 Certified Service Providers and over 1,000 staff in marketing, R&D, operations and risk management departments.  Many of these people remain in the industry (if not in the same jobs).  These people and institutions have a deep understanding of being “market-led” and we need to build on the talent and experience the industry already has.

We have all seen great research on what clients want and need and we’ve seen some really great innovations in being able to deliver simple products and to design great products that use behaviour and psychology to encourage client success. What we haven’t seen is many of these great designs reaching scale. The reality is that the difficult part of delivering great products that truly help clients meet their needs and goals is in the hard, less-glamourous work of system and organisational change.

Where are we today?

Some of our partners “stopped” being market-led when the MicroSave team, or the CEO or product champion left. Being a client-centric organisation is a supply side strategic choice – and it is an ongoing business practice. It requires constant attention, just like keeping up with IT, regulations, financial performance.

Being market-led or customer centric is not a project. It is not a BE class, nor a donor-funded HCD exercise, nor one department. It’s a continuous process of acting and reacting to the market, to the products your competitors are offering your clients, to the complaints and desires of your customers; and to your numbers.  It is all about using your data to measure not just your bottom line, but to understand client behaviour. It is about a commitment to constantly seek to understand your customers’ perceptions, needs and aspirations … as well as the elements of your services with which they struggle … and to respond to these by changing processes, marketing and communication, staff training and incentives … and sometimes products. It is also about understanding customers at the economic and social level, and not to study them through product lenses. In fact, when we redefined microcredit years ago, and came up with microfinance, we painted microfinance as the four core products (transactional, savings, credit and insurance).  In a way, we defined microfinance as a product approach, and took the focus away from the customer, the people we deemed as our target audience.

Recently Social Performance Management has begun to encompass many of the key essentials of a market-led and customer focused approach. SPM recognises that satisfied staff inspired by a clear, board and management-endorsed mission and strategy that is incentivised by remuneration systems rewarding a customer focus, are essential to achieve an effective social and financial bottom-line. Such a strategy must, of course, necessarily encompass appropriate products and delivery systems.

Given the recent renewed, and welcome, attention to client-centricity, complete with new acronyms (BE, HCD) and new tools (design thinking, financial diaries, GIS maps, big data, algorithms, rapid proto-typing), we thought we’d remind people that we as an industry are not starting from scratch! We’ve had experiences (good and bad) that we can build on to ensure that more and more financial institutions take a strategic rather than project approach and we really can serve the millions of people outside the financial mainstream.

We also want to remind ourselves that we have not yet arrived at the end of the journey, where customer centric financial service providers deliver great customer experience to customers who use the products and services.  We still have to solve a few more challenges.  How do you make the business case work?  How do you ensure that we use a granular understanding of the economic and social lives of our customers and translate that into financial services that they continuously want to use?  How do you empower customers to understand what you offer, to choose the right solution and to use it with confidence?  How do you build trust between customer and financial service provider? Our understanding is that the concept of customer centricity as a supply side strategy is the right path to solve these challenges. However, we need to go deeper in embedding customer centricity as a business model in financial service providers.  As mentioned, this means that we need to enter the worlds of organisational change, and the management of change. We need to learn from leading customer centric firms in other industries, and from trail blazers in the financial inclusion world. Indeed, the quest started by MicroSave and partners, many years ago, is far from complete.

This blog was first published at Center for Financial Inclusion

The Ebb and Flow of Customer-Centricity in Financial Inclusion Part 2 – Beyond the Basics

Posted on by MSC

In the first part of this blog, we saw how just understanding customer demand is not enough to deliver mass financial inclusion … or even a successful product. Supply-side factors are key…if rather more difficult that a quick market research exercise. Even after careful pilot-testing and a structure roll-out, it turned out that all that preparation and keen balancing of client-desires and institutional capacity to deliver sustainably…didn’t necessarily work! Where were the clients? Why weren’t they storming the doors and asking for these wonderfully designed products? Weren’t our loan officers as excited as the project team? Did the CEO’s endorsement and great speech at the annual meeting make loan officers ready to sell the new products?  Weren’t clients telling each other, and their cousins and friends?

No, they weren’t.

The supply side (staff) had not conveyed to the demand side (clients) that they had new products based on their feedback; they hadn’t convinced and trained staff, who were concerned that their jobs were about to get harder. Clients weren’t buying, and staff weren’t selling these new products. Once again, the action research partners attacked the issues and MicroSave worked alongside, frantically learning and documenting.

  • Product Marketing. We quickly discovered that any idea of “offer it and they will come” was optimistic. Product marketing and communication are essential in making the product and its functionality known.
  • Staff Incentives. Many FSPs did not offer staff incentives – or, rather, offered all staff the same incentives; or offered staff the “wrong” incentives.  Paying incentives for no arrears led to some pretty poor customer service.  Not paying incentives for savings, or for new products saw “orphan” products and a lack of attention to the customers’ full financial needs.
  • Human Resource Management. To implement an effective staff incentive system of course required a systematic and robust human resource management system within which to operate. And as our partners grew, this need was further exacerbated particularly when trying to deliver high quality customer experience.
  • Risk Management. New products bring change and new risks – at the operational and strategic level – so all a bit scary, particularly for organisations that have largely copied a tried and tested model as market-followers! New products bring not just process risks, but also regulatory and reputational risks, not to mention the obvious interest rate and credit risks. An approach to assessing and managing the risks involved in developing and introducing new products was also developed.
  • Customer Service. By this stage, MicroSave’s action research partners were very focused on being customer responsive … and clear that this involved rather more than teaching their front-line staff to smile at their clients. This led to demand for a customer service toolkit to analyse and improve on all aspects of customer service. Now, with the emphasis on using agents, this is as relevant at the agent level.
  • Corporate Brand and Identity. From sleeping dinosaurs to rampaging lions, our partners had many different brand positions in their markets. Recognising the power of brand to drive their business and attract the right customer segments, the action research partners also wanted a corporate brand and identity toolkit.
  • Strategic Marketing. The action research partners had realised that all these disparate strands required a completely different approach to running their businesses – one that put the client at the very centre of everything.

​Did this array of interventions yield the desired results? All will be revealed in “The Ebb and Flow of Customer-Centricity in Financial Inclusion Part 3 – What Happened and Where Are We Today?”

This blog was first published at Center for Financial Inclusion