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Consumer Risks and Rewards Amid Increased Competition in Kenya

Posted on by MSC

Change is upon us.  After eight years of market dominance Safaricom’s M-PESA seems to have finally met a potential contender, the banks.  Data from The Helix Institute of Digital Finance shows that between 2013 and 2014 banks in Kenya (in particular Equity Bank) have aggressively grown their agent networks, and now account for 15% of the agent market share, up from 5% in 2013.  In addition to increased touch points, banks have introduced a greater diversity of sophisticated offerings to the market, such as savings and credit. Both product development and the growth of the agent network are moving in the right direction to provide customers with more options, in a more competitive market.

Whilst celebrating this transmutation, we must also remain mindful of the risks these developments pose to customers, and how to mitigate them in order to drive trust and activity on the network.  In CGAP’s recent publication ‘Doing Digital Finance Right: The Case for Stronger Mitigation of Consumer Risks’, seven key customer risk areas were identified. This blog will draw on three of these risks: (1) Inability to transact due to network and service downtime; (2) Insufficient agent liquidity or float impacting ability to transact; and (3) Poor customer recourse at the agent level. I also encourage you to read the three blogs preceding mine, which outline and delve deeper into the seven risks and potential solutions.

Inability to transact due to network/service downtime

Although service downtime has markedly improved in Kenya, with agents facing a median of two downtimes per month compared to nine in 2013, users still complain of system and network downtime preventing them from completing transactions, and posing significant risks as a result.

Over the years, platform migration has been a key area of investment for providers as they try to overcome restrictions on growth due to limited functionality and capacity.   Following the trend, earlier in the year Safaricom upgraded to a second generation (‘G-2’) platform, now hosted and managed in Kenya and with the ability to handle up to 900 transactions per second.

For now, banks have a comparatively low number of transactions flowing through their systems.  However, as activity increases they must remain cognizant of how much traffic their platforms can handle, how they communicate downtimes in advance to agents, and how they work with telcos to ensure advanced warning about mobile network downtimes. Our Kenya ANA data reported that only 17% of bank agents, compared to 85% of telco agents, receive prior warning of downtime.

Insufficient agent liquidity or float impacting ability to transact

In 2013 and 2014, Kenyan agents ranked ‘lack of resources to buy enough float’ as their second biggest barrier to increasing daily transactions. This is mirrored in Intermedia’s demand side data, in which 55% of Kenyan users interviewed said they ‘had problems with an agent lacking sufficient e-float and sufficient cash to complete transactions’.

Extending credit to agents is often cited as a quick win in terms of alleviating liquidity issues, but it may be more complex than we may think.  During interviews carried out with 40 agents in Kenya, some interesting insights into liquidity management emerged. It appears that some agents falsely report being out of float in order to reserve it for their loyal customers, or opt not to rebalance due to either indecisiveness as to how much to invest, or fear of being robbed or defrauded.

To add to these enduring challenges, in July last year Safaricom removed its exclusivity clause opening up their network to rival providers. Although this has a positive impact in terms of an added revenue source for agents, non-exclusivity forces them to manage multiple pools of liquidity simultaneously, and therefore can further complicate the process of rebalancing.  This is especially applicable for banks whose agents are increasingly non-exclusive (74% in 2014), compared to their mobile network operator (MNO) counterparts (12%), and carry out higher value transactions (median value of $US33 per day, compared to $US22 for banks).

Poor customer recourse at the agent level

Given the negative experience customers often encounter with customer care offices and call centres, it is no surprise that they often look to agents to resolve their issues.  But are agents able or willing to provide adequate service in return?

Although an impressive 89% of Kenyan agents report receiving initial training, only 29% are subsequently retrained and, therefore, may be unaware or unsure of new products and processes. Beyond training, their experience with customer call centres appears to be as dire as their customer’s.

“The biggest barrier [for agents] to expanding their business is really the fear of calling customer care when anything goes wrong, which is interesting because we would expect this to happen in countries […] where institutional setups are not yet operating optimally.” Kimathi Githachuri, Head of The Helix Institute of Digital Finance during the CGAP “Doing Digital Finance Right” event on June 29, 2015

When asked to rank the major barriers to expanding their mobile money business, agents in Kenya rated ‘dealing with customer service’ second, ahead of threat of armed robbery.

Source: ‘Agent Network Accelerator Survey – Kenya Country Report 2014’

In terms of willingness, regular agents are used to selling fast-moving consumer goods (FMCG) such as cigarettes and Coca Cola, which are quick, easy transactions. They are not accustomed to spending time helping customers deal with service problems they encounter.  Through sophisticated analysis of our agent data, we see direct correlations between good customer service and increased business, with the agent’s ability to answer a difficult question about a mobile money policy increasing their transaction volume by over 10%.

Banks are bringing in a greater diversity of services, beyond the popular cash-in/cash-out and bill payment products championed by MNO providers.  As service offerings become more varied and complex it will become increasingly important for providers (especially banks) to identify sophisticated segments of agents that can explain these offerings and help customers deal with problems that arise.

Conclusion

Although an exciting and much needed development, the rapid growth of bank agents in Kenya comes with both its risks and rewards. Not only must banks ensure that their systems and processes develop at the same speed with which the market matures, but also that competition on the ground remains healthy. Ensuring customers are supported and protected every step of the way is a prerequisite to increased uptake and usage, and is particularly true for new and more complex products. Data from The Helix Institute of Digital Finance and MicroSave’s “A Question of Trust” study, along with CGAP’s landmark Focus Note  highlight the damage these risks are doing to consumers’ trust in, and thus use of, digital finance.  Those providers wishing to sprint ahead and drive healthy margins from their digital ecosystem, will need to respond accordingly.

Over the Counter (OTC) Transactions: In Whose Interest? Part 2

Posted on by MSC

In this the second of three videos they discuss: 1. How can we better track the customers behind OTC transactions to address KYC/AML concerns? 2. How can we improve customer protection for OTC customers? and 3. What are the drawbacks of an OTC model for DFS providers?

PAHAL – from “Discard” to Cherished Success

Posted on by MSC

India is a social welfare state. Rs. 2,700 billion (US$43 billion) have been allocated for subsidies in FY 2015-16. The enormous scale and the sheer number of people involved in the logistics of ferrying food grains, cooking gas and a host of other commodities across the country leads to “leakages”.To achieve the dual objectives of: i) limiting subsidy outlay through de-duplication; and ii) achieving efficiency in payment transfers, the Government of India announced its ambitious “Direct Benefit Transfer” programme on 1st January 2013. The current government decided to re-launch the programme with slight changes. DBTL in its modified form, called the “Modified DBTL (MDBTL)” – more popularly known as PAHAL, was launched on 15th November 2014. Given MicroSave’s experience in direct benefit transfers, it was a natural outcome that MicroSave was the partner of the Ministry of Petroleum and Natural Gas (M0PNG) as the latter re-launched and rolled-out MDBTL. Basis huge success of PAHAL, the government has a template that it is eager to replicate. We hope, and expect to see the successful roll out of DBT for other G2P programmes.

Agent Network Accelerator Survey: Tanzania Country Report 2015

Posted on by MSC

The first wave of Tanzania’s Country Report was based on a national representative sample of over 2,000 mobile money agent surveys and was carried out in 2013 all over the country. The report painted a picture of a dynamic and competitive mobile money market in Tanzania with profitable agents, focusing on the country’s operational factors of success and persistent challenges.

2 years later, Tanzania’s market has become increasingly competitive, as Tigo and Airtel are catching up with the market leader Vodacom, in terms of market presence. Tanzania is witnessing a steady, progressive evolution of the market with increased self-initiated customer transactions. While this has led to a decrease in transactions at the agent level, it represents an opportunity for providers to design products to enhance the trend. More agents are non-exclusive and non-dedicated compared to 2013, which is necessary and desirable. Providers will want to maintain agent profitability and ensure that agent network growth does not outpace customer growth.

To learn more, download and report the report in full.

Thoughts on DFS in “Europe Minus Infrastructure” – DRC!

Posted on by MSC

“Europe minus infrastructure”? This was the term that James Mwangi, CEO of Equity Group, used in an Equity Group briefing when describing and explaining Equity Banks’ move into DRC by purchasing ProCredit Bank Congo.

I have been thinking about which country might be the following some of the leading digital financial services (DFS) countries like Tanzania, Uganda, Zimbabwe, or Somalia, to offer transactions via nation-wide agent networks and thus provide financial services to hitherto unbanked populations.  For me, it is the Democratic Republic of Congo (DRC). In the DRC it is a matter of survival for many financial institutions. In a country 80 times bigger than Belgium, with 35 people per sq km, you either go for DFS, or you can leave the playing field all together.

With a population of around 67million and the country covering an area as large as Europe, the DRC clearly requires a DFS model. The population is growing at quickly and will probably reach 100 million in 2025. And only 4% of the Congolese population currently has access to financial services – from no less than 20 banks. Competition is harsh between these financial institutions, and the one discovering a real comparative advantage (DFS could be one) will be the one to win. At the same time, the country’s GDP is growing at 9% annually (as much as one can trust these numbers). Mobile network coverage is estimated to reach 50 to 60% of the population already and the country had around 22million subscribers by Q1 2014.

Evidently there are also big challenges. Infrastructure is definitely one and might even be the biggest: only 5% of roads are paved, many branches depend on generators, etc. Many banks have used the infrastructure-excuse to explain not developing a branch network – particularly in the east of the country. The infrastructure challenge also comprises the missing payment system: inter-bank reconciliation and compensation is still performed manually every evening at the Central Bank. In addition, DRC ranks as 154 on the Transparency International Corruption Index out of 175 countries. Not an easy nut to crack!

The challenges continue when looking at the client profile: A bank will have to deliver financial services to people speaking 4 languages and with a literacy rate of 61.2% (2008-2012, UNICEF).  Furthermore, providers will probably struggle to replicate the usual anchor products/value propositions from other markets. National money transfer companies, such as Amis Fideles, already offer affordable prices and, in the short run at least, people might not switch to mobile transfers. The utility companies, (i.e. electricity and water), are fairly badly managed and the MIS (often excel!) cannot interface with any bill payment platform. (At least when we tried to offer bill payments as ProCredit this was considered to be a utopic idea). The unreliable GSM network described in the GSMA on the DRC report is clearly also a major risk for a DFS market – as it will directly influence both feasibility and customer trust.

However, the different actors are clearly getting their ducks in a row:

–   In December 2011, the central bank has released a new regulatory framework on electronic money allowing non-bank e-money issuers to offer financial services. A few months later, four mobile operators received licenses and three launched their operations.

–  The Central Bank has granted a waiver for agent network development to FINCA DRC and is learning from that experience. The banking agent regulation was promised to be launched soon.

–   FINCA DRC is already very successfully developing a rapidly growing agent network.

–  Procredit Bank Congo has launched their “L’AR Phone” service with which one can transfer between accounts at Procredit Bank.

–  TMB Bank launched a mobile banking service called “Pepele mobile” which is compatible with all kinds of phones (i.e. IVR, SMS, app) and also supports cash-in and cash-out transactions.

–  Other commercial banks are already preparing to also get a license to launch agent networks.

–  Already 700,000 state employees are being paid by bank transfer.  There have been numerous issues around these payments, and when I was still in DRC, the Ministry refused to pay people via transfers since the people doing the cash handouts would lose their job (no kidding!) and since electronic transfers would shed light on around 30% of government officials receiving salaries without actually having a job with a Ministry. But these issues seem to have been resolved – progress!

Having spent 3 years in Kinshasa with Procredit Bank Congo, I clearly see that the country offers some of the ingredients for rapid progress towards DFS in the near future. As the GSMA report on the DRC points out, mobile banking might have more success in the DRC than the usual bill payment or national transfer strategies. And hopefully with the arrival of Equity Bank, financial service providers will have to wake up under the pressure of competition. Furthermore, Equity Bank comes with a wealth of experience, not only with difficult markets (including Southern Sudan), but also in developing a strong banking agent channel with today 14,000 active agents (30-day basis). In DRC, Equity will benefit from its existing partnership with Airtel, the largest MNO in DRC (market share: 28.4%). In addition, Helios Investment Partners, a shareholder of Equity holds a participation in the MNO towers in the DRC.

So there are great opportunities – and many, many challenges! However let’s look back in a year’s time and hopefully we will be able to see a real acceleration of DFS uptake and many more people will be banked. For those interested in more information on mobile banking and mobile money in the DRC, please have a look at the GSMA report “Enabling mobile money policies in the Democratic Republic of Congo“.

Source: GSMA

Building MIS Capacity for Social Performance Reporting

Posted on by Parul Tandon

Alalay sa Kaunlaran, Inc. (ASKI), a Philippine microfinance institution (MFI) and staunch advocate of Social Performance Management, embarked on a project ‘Towards SPM Excellence’ with Opportunity International Australia and MicroSave to strengthen its capacity to use social performance information in decision making and thereby intensify its accountability to the mission. In 2014, ASKI received technical assistance and embarked on translating its mission and social goals into social objectives with a set of SP indicators and targets.

This Briefing Note describes the processes that ASKI followed to determine MIS requirements and the initial steps that were taken in 2014 to improve the MIS so that Social Performance reporting was brought into balance with Financial Performance reporting. This BN describes the way in which ASKI arrived at which indicators to track, the frequency of reporting and the co-ordination / role which the departments played so as to report using a Social Performance Dashboard.