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Can Self-Service Channels Be The Next Frontier Of Financial Inclusion?

Posted on by MSC

Information and communications technology (ICT) infrastructure in India has made rapid strides in the last decade.  It has been estimated that a 10% increase in broadband connectivity leads to a 1.38% increase in the Gross Domestic Product (GDP)1. While urban India has witnessed an exponential growth in mobile and internet access, rural India is lagging behind. Recognising the need to enhance rural connectivity as a tool for socio-economic growth and better governance, the Government of India has approved setting up of a National Optical Fibre Network (NOFN) to connect 250,000 gram panchayats in the country using optical fibre.

Concurrently, over the last decade, there have been extensive efforts to improve access to good quality and convenient financial services. Starting in 2006, the Government of India and the Reserve Bank of India have taken many initiatives to drive financial inclusion in the country. The vision and the approach has been redefined and made significantly more intense through the Pradhan Mantri Jan Dhan Yojna (PMJDY) 2which led to over 159 million bank accounts being opened within a short span of eight months.

We believe there will be a convergence of financial inclusion, micro-payments, e-governance, Digital India initiatives and information based services. These programmes are laying a strong foundation to enable this convergence in the future.

Various technology-enabled models are currently being tested in order to efficiently deliver financial, e-governance and other information based services in rural India. However, to date, most initiatives like Common Service Centres (CSCs) and Customer Service Points (CSPs)have relied on a human interface for service delivery. As the rural populace becomes technology savvy (particularly with youth as early adopters and ambassadors) and with improving rural connectivity, self-service digital channels will become increasingly important.

Self-Service Digital Terminal – The Concept

We propose a concept wherein a smart self-service terminal can enable a range of relevant digital transactions for the residents. The objective will be to enable residents to use them for micro-payments, banking, e-governance and/or information based services. The self-service digital terminals can be deployed at large gram panchayat or market areas in a cluster of villages. The self-service channels should be designed using best practices and experiential learnings3. For example, a many rural residents would prefer to use ATMs (once familiar and comfortable with it) instead of, or in addition to, CSPs to avail services. Several financial services, such as cash withdrawal, balance enquiry and certain utility payments, can be considered for easy transition to self-service platforms. A human centred design and behavioural science-based approaches should consider aspects such as what should be the user interface?; what processes should be adopted?; what fall-back options should be available to residents, if the self-service systems were to fail, ? and how can the utility of the services for the rural end-users be maximised? (see Services offered below).

Blue print for the self-service digital terminals

Each self-service terminal should have the following basic components:

·Hardware: A touch screen LED/LCD terminal with internet connectivity, EMV card reader, Aadhaar biometric authentication mechanism, document scanner, audio device, document printer and a thermal receipt printer (similar to the one used in ATMs). Estimated total cost of the hardware will be around Rs.45,000–50,000 ($725-810). An additional Rs.9,000-10,000 ($145-160) is expected on annual maintenance. Given the rough usage and harsh environment these devices will be exposed to, their useful life is likely to be under 3 years.

Software: User friendly and multi-lingual user interface, interconnectivity with UIDAI and payments gateways, application programme interfaces (APIs) for access to e-governance portals, easy and convenient interface for content and information based services. We believe many IT service providers will be willing to develop this as a business model, once it is viewed as a national need and thus offers significant scale. Scale in-turn will also bring down unit cost of hardware and software.

Services offered

  • Micro-payments and banking – prepaid recharge, utility payments, cash withdrawal, fund transfer / remittances, bus and railway ticketing, account enquiries (balance, transaction statement), insurance and pension premium payments, and so on.
  • E-governance services – obtaining birth, caste, tribe, domicile, marriage and death certificates; Aadhaar enrolment; lodging complaints; Right to Information (RTI) requests, government/local body tax payments and so on.
  • Information based services – agriculture (best practices, weather and price information); health (symptoms, home remedies and video consultation with doctors); employment (vocational trainings, job opportunities, applying for jobs); legal (rights, entitlements, procedure to gain access to government services); matrimonial; astrology and financial education.

Micro-payments and banking – Accessing micro-payments and banking services through these terminals would require users to authenticate through card and PIN, or Aadhaarbiometrics. Banks have issued nearly 142 million RuPay cards under PMJDY and several account holders have linked their bank accounts to Aadhaar in order to receive government benefits. These terminals would enable those who have cards with PIN or Aadhaar to conduct micro-payments and banking. As and when users conduct transactions, a fixed minimal charge can be deducted directly from their bank account based on the service availed. The details of the charges can be displayed on the terminals, SMS alerts sent and transaction slips provided.

E-governance and information based services – E-governance and information based services can be provided on a pay-per use or subscription models. Payments for such services can be made on similar lines as in the case of micro-payments. Tie-ups with digital content service providers (e.g. Digital Green, SVARK) including web portals (e.g. CSCs, farmer.in, shaadi.com; monsterindia.com; astrosage.com) will be important to customise content and services for the needs of the rural population in particular geographies.

While the potential of such an approach for accelerating delivery of digital financial and non-financial services is immense, but the design, simplicity and friendliness of the user interface will be very key to its success. A combination of audio and visual media and tools can be used to develop user interfaces that can meet the needs and preferences of rural users.

In early stages of implementation, panchayat officials and local communities, especially tech savvy youngsters/students, will have to be trained and tasked to assist people in navigating the interface to use services. The trainers assisting in educating residents to use such portals can be provided a nominal stipend along with some form of certification from government institutions. This will not only motivate, but also add to the profile of these trainers and enable them for better jobs in a digital India. Over a period of time, this approach will have the potential to evolve into a truly functional self-service channel, empowering rural masses through delivery of appropriate, affordable and accessible digital content and services. More importantly, the viability of this channel can be made to depend less on bank funding, by exploring opportunities to fund it from government programmes for e-Governance and Digital India, where we expect convergence to take place.

Driven by rapidly falling handset prices and tariffs for data access through mobile, coupled with a large population of technology savvy and early adopting youth, smart phones have witnessed rapid penetration in India. New smart phone handset sales are expected to touch the 150 million unit mark in 2015 and India will become the second largest smart phone market. Considerable innovation is evident in mobile applications with an increasing focus on making their usage simple, easy and convenient for the mass market. These trends will further catalyse and accelerate convergence of digital services and adoption of self-service devices and terminals by low income people.

Overall, the recommended model has a good likelihood of self-sustainability, as convergence will enable economies of scale and scope at each transaction point. Technology substituting human interface (agents) will further aid sustainability, as people costs will continue to rise while technology costs will continue to fall and rapidly so, when economies of scale and scope can be leveraged.

[1] http://www.bbnl.nic.in/content/page/project.php

[2] http://timesofindia.indiatimes.com/business/india-business/Jan-Dhan-covers-99-7 households/articleshow/45960195.cms

[3] Several studies by MicroSave, CGAP and others highlight gaps in consumer aspirations/needs and user interface as well as technology solutions deployed available.

 

Responsible digital finance: Seven customer risks that need attention now

Posted on by MSC

This blog was originally posted on the CGAP Blog

Digital financial services are growing globally, with a variety of offerings (more than 250) now serving 300 million people in developing markets according to the GSMA. However, inactivity rates are staggeringly high, with as many as two-thirds of registered digital financial services users inactive, and the cross-sale of products beyond simple person-to-person transfers in many markets is limited.

CGAP’s latest Focus Note, Doing Digital Finance Right: The Case for Stronger Mitigation of Customer Risks, reveals new evidence on customers’ perceptions and experiences with risks, and the ways these risks harm their trust, uptake, and use of the services. Ugandan consumers, for example, report that risks resulting from network and service unreliability deter them from using mobile money. Lapsed users – those who have been inactive for at least 90 days – in Tanzania say that they limit their use of digital financial services to emergency situations because recourse options are poor, and they fear making a transaction error they cannot resolve.

The Focus Note reviews current evidence on customer risks, including nationally representative quantitative surveys from the Financial Inclusion Insights (FII) studies and the Agent Network Accelerator (ANA) studies conducted by InterMedia and The Helix Institute, respectively, and funded by the Bill & Melinda Gates Foundation. It also draws on findings from four consumer protection-focused country case studies commissioned by CGAP (Bangladesh, Colombia, Philippines, and Uganda), analysis of FII qualitative findings and other available research on customer risks in DFS.

The report identified seven key risk areas for customers of digital financial services:

1. Inability to transact due to network/service downtime

This is the most commonly-cited risk area, with 59% of Ugandan and 52% of Kenyan users reporting experiencing service downtime. It can lead to risky customer behaviors such as leaving cash with an agent to conduct a transaction later when the network is back up. It also presents challenges if customers need money urgently and cannot cash-out until the network resumes.

2. Insufficient agent liquidity

This is the second most common risk-related area, and commonly prevents customers from transacting and accessing their money. In addition, when an agent lacks liquidity, customers are often forced to make several, separate transactions and pay higher total fees as a result. The Agent Network Accelerator studies find that 14% of daily transactions in Tanzania and 10% in Uganda are denied because agents lack the liquidity to complete the transaction. This problem particularly plagues bulk payment recipients (such as G2P recipients). Because recipients often receive their transfers all on the same day and want to cash-out immediately, agents struggle to meet liquidity demands. The recipients are often among the poorest in a country, and the extra fees and the delay in receiving their benefits can be extremely problematic.

3. Complex and confusing user interfaces

This issue frequently causes user errors, such as sending money to a wrong number, which are difficult to resolve and often result in financial loss. Difficulties with the menu also cause many customers to seek assistance conducting transactions, requiring them to share private information (such as their PIN) with an agent, family member or friend. This practice exposes customers to potential fraud by the person providing help.

4. Inadequate provider recourse

Complaints and dispute resolution options are often unclear. Furthermore, time, money, and airtime are lost as customers travel to customer care centers or wait on hold for call center staff, who may or may not be able to solve the problem.

5. Non-transparency of fees and other terms

This prevents customers from fully understanding the details of services and leaves them vulnerable to agent misconduct and price fraud. For example, a study of 500 users in Nairobi, Kenya, showed that 35% of them linked to a particular bill pay service thought the service was free, despite audits of their accounts showing a fee deduction each time they used the service.

6. Fraud perpetrated on customers

Customers can experience fraud at the hands of provider employees, who may gain access to accounts and use the private information for dishonest purposes, or external fraudsters who use social engineering scams such as phony promotions to obtain money or information from unsuspecting customers. Customers also experience fraud perpetrated by agents, including charging unauthorized fees, forcing customers to split transactions, or accessing private customer information.

7. Inadequate privacy and protection of customers’ personal data

Disclosure of data handling practices is often weak, with details available only on a website to which few consumers have access and in “legalese” which is difficult to understand. In addition, most consumers are unable to assess the current and future risks of clicking on the “agree” box for data-related terms and conditions. Stolen or compromised data may be used for identity fraud or criminal purposes, or could harm a customer’s credit profile.

Fortunately, providers of digital financial services are focusing more attention on these issues, and are beginning to incorporate solutions into their business models. The analysis for the report identified five priority areas for provider action, which will be discussed in subsequent blogs in this series.

You can join us on June 29th for a half-day event in Washington, D.C. or online (live-streamed) that will explore the problems customers of the digital financial services face and emerging solutions that will boost trust, uptake, and usage, ultimately driving better value both for customers and service providers. Also read the press release on cgap.org.

A question of trust – Mitigating customer risk in digital financial services

Posted on by MSC

This paper synthesizes four studies examining customer experience in Bangladesh, Colombia, Philippines, and Uganda. It highlights that system downtime, agent illiquidity, agents charging unauthorized fees, the fear of sending money to the wrong number, and unresponsive customer care centers all eat into the credibility of digital finance offerings.

Setting Public Distribution System Right: The Case for ‘Direct Benefit Transfers’ – Part I

Posted on by MSC

India has made a determined effort to fulfil its ideal of a welfare state, not only in principle but also through economic planning. The welfare budget allocation of about Rs.2, 270 billion ($36 billion), which is about 40% of the total budget outlay for the country for the year 2015-16, reflects this fact. However, the proportion of this that actually reaches the intended beneficiaries is a matter of speculation. After the success of direct benefit transfer (DBT) for the liquefied petroleum gas subsidy, the government is contemplating the introduction of DBT for PDS as well. In these Notes, we will specifically talk about what ails the PDS, the various alternative methods for distribution being piloted and necessary steps required to run a successful PDS scheme.

UNCDF Go Rural Conference

Posted on by MSC

This presentation was conducted during the UNCDF Go Rural Conference in Kampala, Uganda. The session objective was to understand alternative methodologies for rural network expansion with respect to:

1) Changing the Paradigm on Value Propositions

2) NextGen Frontier Agents

3) Organic Liquidity Management