Weak Bank Mitr networks (with a reported annual attrition rate of 25-35%) in India could severely undermine the PMJDY and the DBT plans of the Government of India. Many Bank Mitrs have stopped offering services because of low commissions for processing G2P payments. However, the government released an Office Memorandum on 16th January 2015 setting the DBT commission rate for rural areas at 1% – much below the costs of delivering the monies and could potentially derail the entire financial inclusion effort of Government of India.
Task Force on Aadhaar-Enabled Unified Payment Infrastructure estimated that a 3.14% DBT commission would be adequate. A new MicroSave costing exercise found that the cost for processing transactions through the agent network is at least 2.63% for each transaction– much higher in more remote rural areas. Prima facie cost to the government for paying DBT commissions appears high, however it could be offset by huge potential savings from reduced administrative costs and reduced payment leakages. A 2011 McKinsey & Company analysis of India’s government payment system, estimated it to be Rs. 1 lakh crore annually (US$22.4 billion).
If the Bank Mitr network needs to be made more sustainable and ensure quality services, an adequate commission rate (MicroSave estimates this to be a minimum of 3%) for the first few years of PMJDY should be considered which can be reduced as the programme scales.
When you buy a bottle of Coca-Cola, are you buying it from the store or from the Coca-Cola Company? Whose customer are you? In digital finance, the provider (usually a bank or telecom) designs and brands the service, but it is the agent that provides the ability to cash-in and cash-out (CICO), and earns 40-80% of the revenues from it.
So, whose customer is it? The strategic answer is that both parties are providing a service, and the customer can choose to buy a different provider’s service (e.g. Airtel Money vs. M-PESA), or the same provider’s service at a different location (e.g. walk to a different agent). Hence, both the provider and agent should have an interest in ensuring the customer is satisfied, and incentives should be aligned to achieve this.
While conducting CICO for a customer is similar to selling a bottle of Coca-Cola, registering a customer for digital finance is different. Most agents are used to conducting transactions, not actively selling a service. Agents interviewed for this research reported the perception that providers benefit from registering customers, not them. Hence, when conducting a registration they were serving the provider’s customer, not their own.
This helps explain the data from The Helix Institute below, showing not all agents are offering registration, especially in Tanzania and Uganda*. This is important because in most digital finance models registration has to happen before any transactions are done, and therefore any revenue is generated. The provider should design a support, training and incentive scheme to align the agent’s interests with theirs, but the first step is it to understand the agent’s underlying perceptions that drive their behaviour.
Registration is for Your Service not My Shop
Agents report only 30-40% of customers that they register, return to transact at least once a month (orange bars in the below graph). This means on average they are registering customers that are not going to give them a lot of subsequent business and may become clients of competing agents in the area.
Agents questioned why they should actively recruit customers since they have no guarantee that new customers will be loyal to them. An agent said, “The customer may get to know about services from me, but go to another agent. What will be my reward for my efforts to sell to such a customer?”
Some agents view new customers as “suspect”, and thus choose to avoid any potential losses they may incur in serving the new, possibly “fraudulent” customers. These agent views stem from either their own, or another agent’s experience with fraud. In digital finance, agents report only recognizing 20-50% of clients (blue bars in the above graph), meaning this is a very common situation. One agent explained:
“When a customer I do not know walks into my shop I am on full alert. Sometimes if he looks suspect to me, I do not serve him. I just say I do not have float.”
Many agents prefer to serve customers with whom they are familiar, even though they know this may limit their profits. In these cases they are much more likely to view the customer as belonging to the provider, and some agents seem to only provide service to strangers on a case by case basis. Given these situations, where agents are not necessarily perceiving strangers as customers, it is important for providers to focus on support, training and agent incentives to try and encourage the provision of service.
Agents are Passive, so Support Them
Customer acquisition is not a natural role most agents play. As one agent reported, “It is not my job to look for new customers; that is the work of Safaricom.” Thus the provider needs to make the customer aware of the product, and curious enough to go and start asking an agent about it. Generally, the agent will not start this conversation for the provider. This awareness and curiosity is built through highly visible and sophisticated above-the-line (ATL) marketing strategies common in the telecom industry, and must be done by all providers, or else agents will not feel supported.
Agents also compare their affiliated provider’s marketing efforts to competitors. Some Airtel money agents do not engage in active recruitment of customers because they perceive Airtel to be passive. An agent explained:
“Airtel should encourage more customers to join their network just like Safaricom does. Every day Safaricom is doing an advert in the dailies, and that is why they have many customers.So if Airtel is not as actively engaged as Safaricom and is struggling to get customer numbers, what about us agents?”
Providers need to do the requisite marketing to bring the customers into the agency, already on their way to wanting to register, and then incentivize and train the agents to close the sale and process the registration.
Agents need Motivation, so Train & Incentivize Them
MicroSave has consulted a lot of providers on designing their agent training curriculums. One of the major trends is that usually the training manuals are focused very much on compliance, and processes, and seldom do they have a sales component. It must be understood that agents need this type of training to understand how to pitch the value proposition with confidence, and tact.
The marketing and training support are crucial so that customers come in to the store, and agents know what to do when it happens, however, the agent also must be motivated to employ their training. Successful providers understand this and report paying over one U.S. dollar per customer acquired. Good incentive schemes make commissions payment contingent on the customer making at least one deposit so the provider can better ensure the customers interest in the service, and some incentive schemes also give the agent commission on some of the ensuing transactions the customer makes, to ensure the agent makes more than a one-time fee.
It would be interesting to further look at transaction commissions to investigate if agents could offer loyalty schemes (e.g. make five transactions with me this month and get the sixth free) to customers to encourage more ownership of them as well.
Conclusion
Theoretically customers are shared by agents and providers, but practically, the agents perception is different for different customers (ones they know vs. strangers) and the activity required (registration vs. CICO). Providers need to understand this to better support agents with marketing efforts, training, and aligned agent incentives, so that they feel more ownership over the customer relationship. This should help improve agent motivation to provide a consistently high quality of service to all customers.
*More data on service offerings is available from The Helix Institute country reports on Kenya, Tanzania, Uganda, and Bangladesh. Data in East Africa was collected in 2013, and Bangladesh data was collected in 2014.
How much does an agent need to earn to be satisfied, and stay motivated enough to provide a high quality of service to customers? Behavioral science teaches us that people anchor their appraisals of value to other numbers around them in the ecosystem. Marketing firms understand this concept well, often enticing us to perceive a product as affordable by placing it next to a similar higher priced product (e.g. different brands of wine) on a supermarket shelf. In this example, people anchor their judgment of what the product is worth relative to the high priced item, and subsequently judge the other of good value, hopefully then happily buying it.
However, people do not always anchor judgments of value to what is physically around them, sometimes the anchor comes from past or predicted future experiences. When a product in a store is discounted, people are more likely to purchase it as they anchor their perception of its value to what it used to cost them, even if that price was inflated to begin with!
With regards to agents, it is important to understand to what they are anchoring their revenue, as that is effectively what will determine their level of satisfaction with it. There are a number of obvious options, like the monthly wage of the person they employ to conduct the transactions, or the revenue they earn from another product they sell like Coca-Cola, and more research would be revealing as to what determines how these anchors are chosen.
What our research revealed is that these anchors can be quite dynamic, changing overtime as the business model for digital finance changes. This is very important to understand as the business model in digital finance always evolves as it scales and diversifies, and it is imperative to keep agents happy through this process so the quality of service remains high throughout these transitions. We interviewed 60 agents in Kenya and Uganda, and looked through data from The HelixInstitute of Digital Finance to identify some important events in the evolution of the business model that seems to affect which anchor value agents use to evaluate their satisfaction with the digital finance business.
Perceptions of Future Growth:
Interestingly, data from Helix Institute research in Bangladeshand Kenya, showed that while agents are earning relatively the same amount in monthly commissions US$170 vs US$175 (in PPP terms) respectively, in Kenya only 58% of agents predicted they would still be an agent in a year’s time, vs. 86% of agents in Bangladesh. When we include Tanzania and Uganda in the analysis and compare the percentage of agents predicting they will continue as an agent to the market penetration rates for mobile money in those respective countries, the results appear to show a very strong negative correlation.
This leads us to believe, as mobile money penetration in a country increases, there are less new customers to register, and the growth rate of the service starts tapering off. This would cause the median agent commissions to decrease, or at least increase at a decreasing rate (holding a handful of other variables constant), and lead to lower levels of willingness to continue, as agents are comparing their future earnings to those of the past. Therefore, in Kenya where market penetration is higher, we observe a smaller percentage of agents willing to continue as opposed to Bangladesh where the market is still ripe for growth and agents are much more dedicated to the business – even given they are earning relatively the same amounts.
Agent to Merchant Transition and Introduction of Master Agents:
In Kenya, Safaricom has reported recruiting over 32,000 active mobile money merchants (December 2014) to complement their existing network of cash-in, cash-out (CICO) agents, however they have had lesser success converting existing CICO agents to become merchants, than new business to serve as merchants. While there are certainly a number of reasons for this, one of the major ones M-PESA agents report is they were used to earning commissions on CICO and therefore they did not feel like having to pay a fee on merchant transactions was fair. In essence, they are anchoring the value of the merchant payments to their past commissions.
In Uganda, MTN recently introduced master agents after several years of operations. Whereas agents used to receive 100% of commissions, MTN agents reported they now need to give 10% of their commissions to the master agent. The agents are now faced with the problem of anchoring to the past commission level they earned. They now feel like they are not getting as good of a deal relative to how the system previously worked.
What Does This Mean For Providers?
When gauging the satisfaction levels of agents in your network, one needs to know much more than just how much agents are earning. The examples above show that it is also important to understand how it relates to what they were previously earning and how much they expect to earn in the future. Further, there are critical junctures and trends in the evolution of the business model, like the introduction of master agents, the building of a merchant network, and reducing future growth rates, which must be monitored carefully as they can easily cause agents to anchor to a value that makes them decrease their satisfaction with the commissions they earn.
Savings products and services have traditionally been designed assuming rationality and willingness of people to save and liquidate towards life-cycle goals. However, in real life, low-income mass market people continue to save in low (or often negative) interest bearing informal savings schemes, and do not commit, choose and/or continue medium or long term savings programmes designed by formal financial institutions. This Note analyses these trends through a behavioural economics lens and tracks the behavioural factors responsible for – preferences for informal savings; procrastination towards savings commitment; discontinuance of committed savings; and overwhelming preference for “fixed return” schemes. The Note suggests alternative strategies that can enhance commitment and usage of formal savings schemes, especially in low income mass market segment.
Migrant workers, are a unique client segment that interests financial service providers- specifically the digital financial service (DFS) providers. Though most of the DFS providers’ launch their DFS products and services with a remittance product, there is little understanding about what drives the remittance behaviour of migrant workers’ population. Furthermore, it has been difficult for DFS providers to nudge migrant workers to use a broader product suite they offer. This Note examines decision making context and behavioural aspects of the migrant workers. The Note concludes that DFS providers may use such insights while designing and promoting their money transfer products to ensure use of the entire product bouquet and compete with existing informal and semi-formal money transfer products and services.
Despite criticism over high interest rates, over-indebtedness and little to no impact on poverty alleviation, microcredit has reached impressive and continued growth worldwide. For long, behavioural economists opined that microcredit mechanisms work as behavioural levers on the same features that distinguish it from formal lending methodologies. This Note explores these behavioural explanations that govern design intricacies of microcredit and also the anomalies in the business model. Further, the Note explains how the intrinsic behavioural levers in the model synergises with the mental money management mechanisms of low income segment. Finally, it highlights necessity to use these fundamentals to re-define products, processes and methodologies to cater to the needs of low income people adequately.
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