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Customer service – More than just smiles

Posted on by MSC

With the renewed interest in client-centricity, it seems appropriate to recall the core role of customer service in serving the low-income market. In our research, MicroSave consistently sees “how I am treated by the staff (or agents) of the institution” in the top 3-4 drivers of customer choice of a service provider as well as uptake and use of financial services.

This is not surprising: there are five compelling reasons why excellent customer service must be a “prime directive” for any market-led financial institution:

  1. Good service keeps customers.
  2. Good service builds word-of-mouth business.
  3. Good service can help you overcome competitive disadvantages.
  4. Good service is easier than many parts of your business.
  5. Good service helps you work more efficiently.

But contrary to common perception, customer service is much more than teaching your front-line staff to smile. Customer service depends on a wide range of variables, including:

  • Culture of customer service – created and delivered by staff throughout the organization as a living value.
  • Product/service range – not only the core products and services offered but also the additional services (such as customer rewards and incentives).
  • Customer knowledge to anticipate and meet customers’ needs and expectations to retain and grow the customer base through customer relationship management.
  • Delivery systems need to be efficient, effective, responsive and reliable: mass services are typified by limited contact time and a product rather than service focus.
  • Service delivery environment in terms of the location of agents and branches, their opening hours, their physical layout and design, as well as the atmosphere – space, color, lighting, temperature, maintenance, etc. – in the outlets.
  • Technology is often integral to a product – for example, mobile wallets or mapped accounts, links to ATMs or card-based savings accounts and increasingly access to automatic, algorithm-based credit.
  • Employees’ role in customer care cannot be overstated – employee relationship management and staff incentive schemes can play a key role to optimize this key component of customer service.

Diagnosis to Drive Customer Service

There are always hundreds of steps that a financial institution could take to improve customer service, the challenge is to identify which steps it should take. As part of the on-going service improvement process, financial institutions should analyze the high impact, low-cost steps available in order to identify the “quick wins”. MicroSave’s approach to customer service involves using a variety of market research tools to examine the perceptions and priorities of the clients and staff, as well as a comprehensive diagnostic and analysis tool built around the “8Ps” of marketing: Product, Price, Place, Promotion, People, Process, Physical evidence and Position. The diagnostic tool is administered to senior management and frontline staff over a period of two days during which they assess the frequency and impact of occurrence of a series of customer service related issues within the “8Ps” framework … and analyze the optimal response to these.

Central to the truly effective customer service is knowledge of the customer and his/her needs and expectations. MicroSave’s market research toolkit provides a good basis for assessing these needs and several of the core tools in the toolkit have been modified to support customer service. Many financial institutions are implementing data warehouses to optimize the way they use the information they collect on their clients – this will allow them to predict customer needs, define service expectations, focus direct marketing efforts and begin to cross-sell a range of their products to their clients.

Process Optimisation

There is a growing recognition that some financial institutions have not paid adequate attention to optimizing the processes used to deliver their products and services to their clients. The basic procedure used to analyze and improve delivery processes is broadly:

  • Set and monitor performance targets for activities and processes.
  • Be alert for signs of stress such as lengthening queues, decreasing numbers of new customers, falling activity rates, longer working hours for staff, increasing customer complaints, increased agent churn, etc.
  • Look for lost-cost, quick wins such as minor adjustments to procedures to save processing time, re-refining job descriptions or adjustments to physical infrastructure.
  • Improve your sources of information by using client satisfaction surveys, customer exit surveys and serviced suggestion boxes or through internal/external evaluations.

Study existing processes, through process mapping or activity-based costing.

Process mapping involves the detailed analysis and recording of systems and procedures in the form of a flowchart to identify inefficient or redundant procedures and to optimize the risk/efficiency trade-offs.

Technology

With the growth of technology-based opportunities to enhance service standards and delivery processes, technology has to be an important part of any forward-thinking financial institution’s strategy. Financial institutions should therefore not only constantly examine options for technology-based solutions, but also subject them all to rigorous cost/benefit and risk analysis. Furthermore, in many countries – particularly in rural areas, infrastructure issues need careful assessment since unreliable electrical supplies, high levels of dust or problems with availability of spare parts or rapid-response maintenance capability can turn a technology-based dream into a nightmare.

That said, effective computerization can significantly increase the speed and efficiency of processing transactions and of generating financial reports and management information. By introducing Bidii, a card-based system to replace the old passbook, Kenya Post Office Savings Bank was able to reduce the cost of processing salary deposits by 58% and withdrawals by 36%. The saving in teller-client interface time also meant that KPOSB could double the number of clients it served without increasing the congestion in the banking halls.

Employee Relationship Management

To help employees meet and exceed the service expectations of customers, the financial institution should set customer service standards. Service standards are measures against which actual performance can be judged. Staff must understand what management wants them to do and how often they want them to do it, it is therefore essential to:

  • Spell out your institution’s service policy.
  • Establish measurable criteria and set standards.
  • Specify and prioritize actions you want employees to take in response to customers.
  • Recognize employees who exceed customer service standards.
  • Involve customers in providing feedback.

Customer service standards in financial service organizations typically involve a mixture of quantifiable factors and less quantifiable factors. Quantifiable factors might include speed/efficiency of service (although it is important to note issues of centralized vs. de-centralized decision making and how these affect speed/efficiency) and knowledge of products, systems and procedures etc. Less quantifiable factors include staff members’ professional appearance, friendliness, and attitude – ah those smiles!

Ultimately, however, performance must be assessed through customer satisfaction analysis involving both existing clients and exiting or past clients. This analysis is aimed at testing performance and identifying opportunities for innovation, and requires both qualitative and quantitative primary research using focus group discussions, mystery shopping and quantitative surveys such as ServQual questionnaires.

What Interventions Small and Marginal Farmers Need?

Posted on by MSC

Agriculture sector throughout the world is experiencing rapid technological advancements in its attempt to meet ever rising food requirement. Modern farming now requires use of sophisticated seeds, fertilizers, pesticides and mechanised instruments increasing the capital requirement in farming operations. As a result small hold farmers are often unable to upgrade their farming systems due to financial constraints unlike large scale farm owners. This widens the productivity gap between the small and large scale farm owners. In this video Sharad Bangari from MSCexplains the financial needs of the small hold farmers, limitations of small hold farmers in obtaining institutional credit and the interventions necessary to move them out of this productivity trap.

What Is driving agent churn in the mature East African markets?

Posted on by MSC

One of the most striking findings from TheHelix’s Agent Network Accelerator (ANA) surveys has been the high levels of agents that have been in business for less than one year. In Tanzania, only 18%, and in Uganda 21%, of all agents had been in business for two years or more.  In Kenya, 40% of agents had been in business for 2 years or more. In part, a large number of novice agents (in Uganda 52%, and in Tanzania 45%, of agents, have been in business for less than one year) may be ascribed to the rapid expansion of agent networks in these countries.

We know, for example, that in 2013 Kenya Safaricom tried to persuade M-PESA agents to hold more liquidity by increasing commission rates on higher value transactions. When this had little/ no impact on agents’ liquidity holdings, Safaricom returned to their original approach of saturating the market with agents. This allows customers seeking to conduct larger transactions to either go to the larger agents that hold bigger liquidity pools (for example those of PEP Intermedius) or split the transaction across several of the larger numbers of smaller, less liquid, agents. MicroSave’s qualitative research indicates that this is now essentially accepted market practice in Kenya. But rapid agent network growth is unlikely to be the full story.

In Uganda 78%, and in Tanzania 70%, of agents expected to be in the agency business in a year’s time. This implies a latent churn rate of 22-30%, which is somewhat alarming, given the requirements to locate, onboard and train new agents. (Although the ANA data suggests that most providers, with the notable exceptions of Safaricom and Equity Bank, still provide limited training, monitoring, and support services. This is sad, given that so many of agents’ operational problems, particularly round fraud management, could be mitigated by these basic maintenance activities).

But the projected churn figures in Uganda and Tanzania are positively reassuring compared to Kenya, where only 58% of agents said they thought they would be an agent in one year’s time.  So if agent churn is indeed so high, what might be driving it?

We began to unpack this in the blog Challenges to Agency Business – Evidence from Tanzania and Uganda. And, as can be seen from the graph, the findings in these two countries were reflected again in the most recent Agent Network Accelerator data from Kenya, where once again the risk of fraud and armed robbery topped the list; closely followed by the challenges of dealing with customer service when transactions go awry or the system is down.

But a growing number of agents in Kenya are also complaining that they are simply not making enough money from the business. We have seen that overall agents in Kenya make a median monthly profit of $70 – compared to $78 in Uganda and $95 in Tanzania. However, disaggregating this to look at the rural agents, we can see that Kenyan rural agents only make a median profit of $53, compared to $86 in Uganda and $95 in Tanzania.

Agents primarily ascribe this to, “Too many other agents competing for business” as well as (to a lesser extent) challenges around float management. Should we conclude that “saturating the market” has limitations and drawbacks as a strategy?

Mobile financial services: Is there room for the small, the independent, the different, the nichy, the innovative?

Posted on by MSC

We have seen in a number of countries how, when they work well, branchless banking and especially mobile money systems can reach millions of people. But beyond the headline numbers on customers reached, the record of such systems as a vehicle for financial inclusion is still mixed: we can hardly talk about a globally-proven solution.

Let me draw some stylized facts from the international experience:

Branchless banking systems have only tended to work at large scale. There does not appear to be an easy, gradual incremental path for providers wishing to deploy branchless banking solutions. There seems to be a chasm between the large numbers of institutions that have run sub-scale pilots and the much smaller set that have succeeded in establishing commercially sustainable branchless banking operations. As a result, there are very few examples of smaller entities –whether banks, mobile operators, microfinance institutions, or other third parties— successfully incorporating branchless banking solutions in a sustainable, impactful way.

The space is still dominated by mobile operators. Few banks in the world seem to have made sizable bets to develop agent networks, and most of those who have built agent networks have tended to see them as an add-on for specific services (e.g. utility bill or credit collections, social welfare payouts) or for specific segments (e.g. poor, rural people) rather than as an extension of their core business. Non-financial companies with a retail or distribution background have been reticent to jump into space. Therefore, space has been left largely to mobile operators, who have an easier time conceiving of a transactional, high-volume, low-touch approach.

Customers tend to use branchless banking systems relatively infrequently, and only for a limited range of applications. The median active user is likely to make a transaction only once or twice a month – typically a remote person-to-person or bill payment, and some mobile airtime purchases. It is not common to see branchless banking being a “stepping stone” or “gateway” into the use of a fuller range of financial services. In fact, where mobile money has flourished, it is far more common to see the opposite: fully-banked people adopting mobile money as “liquidity extension” to their banking service.

Branchless banking is not fundamentally reducing people´s reliance on cash. Most mobile money transactions start and end in cash. We may refer to it as a mobile or electronic transaction, but most customers would understand it as a cash-to-cash money transfer, akin to what Western Union has always done. The payment may be electronified, and as a result, the distance that cash needs to move is much reduced. But the underlying money is not electronified since the value is largely held in cash before and after the transaction. Branchless banking systems have generally failed to position the store-of-value function of customer accounts among the previously un- or under-banked, and the result is that the majority of accounts are actually or practically empty.

Branchless banking systems tend to exhibit relatively low levels of service innovation. Branchless banking –and in particular mobile money— systems are about exposing financial service platform functionalities directly to the customer by digital means. But this has not brought on the kind of constant innovation that has been the hallmark of internet business models. Of course, the need to work on basic phones has hampered the ability to innovate, but the fact remains that most branchless banking providers have brought on new services or optimized their user interfaces not more frequently than annually, if at all.

There are of course counterexamples to each point, but they are few. Zoona in Zambia is a small, independent organization growing a purely mobile-based money system incrementally by exploiting specific niche opportunities. The much larger bKash in Bangladesh operates largely as an independent entity, even though it is backed by BRAC Bank which is part of one of the most influential organizations in the country. Equity Bank in Kenya is making a big push into the mobile space with its acquisition of a mobile virtual network operator (MVNO) license.

The above factors are all inter-related, like distinct symptoms of a broader malaise. The pattern of starting and ending in cash most transactions in cash raises costs and presents a brutal business challenge of having to ensure sufficient density of liquid agents in each locality served. Higher transaction costs make the system less compelling for lower customer-value-adding transactions, such as savings or face-to-face merchant payments, which on the other hand, offer the highest potential pool of transactions. In the face of low usage levels per customer and the inherent network effects of payment businesses, the economics can only work for those able to aggregate the largest number of customers, and in particular mobile operators with a mass-market transactional business model. Other big players such as banks may not see a positive business case, or if they do, may fear that the new branchless banking activity may cannibalize their core business or be margin dilutive. As a result, few players in each market enter the business, and when they do they tend to underinvest in IT platforms, staffing and marketing spend. With such shoestring resources, they become easily overwhelmed by day-to-day operational issues and do not devote much attention to the service roadmap. With lack of effective competition, innovation falters.

Let´s not concede that branchless banking must push the unbanked into the arms of the larger banks and telcos in the country. Now that we have a good decade of experience with mobile financial services, it behooves us to look back on the trajectory and see what course-corrections can be made to spur more competition and innovation for the benefit of the world´s poor. This should start with regulation, which needs to shift from being merely enabling to being pro-competitive, as I argue in this paper.

Non-bank-bank partnerships: Break-ups, new dates on the cards?

Posted on by MSC

Until this month RBI maintained the view that only licensed commercial banks can offer cash-out services. As a result, a number of banks and non-banks formed partnerships. In fact, the RBI’s view hasn’t changed. The RBI has simply decided to regulate non-banks offering business correspondent services too, as differentiated, Payments Banks (PB).

Business correspondents (BC) were the first set of non-bank players allowed to partner banks in the pursuit of deepening financial services and furthering the cause of financial inclusion. The issuance of BC guidelines back in early 2006 spawned a host of experiments where BCs appointed by banks, collect deposits and provide specified services on behalf of banks. Eight years on, beyond enrollment statistics, the BC model hasn’t resulted in very meaningful outcomes. Sadder still, hardly any BCs have succeeded at scale.  In this context, scale refers to parameters such as:

a)     being a sustainable, profitable business model

b)     serving a significant percentage of transacting (active) accounts

c)      garnering savings deposits that are material to sponsor banks

d)     customer accounts with satisfactory average balances, and finally

e)     a modest percentage of customers to whom the bank could extend credit

The first large-scale attempt at cracking the non-bank vs bank impasse was through the joint venture between SBI-Airtel / Airtel-SBI (depending on which side of the fence you sit). At the time of its announcement, there was much hope and excitement. Unfortunately, that engagement soured, very uncannily imitating a Bollywood first family scion’s engagement breaking, just a few years before.

The other non-bank players (like ALW, Eko, Fino, Itz-Cash, Oxigen and Suvidha, to name a few) nurtured their unequal relationships trying to take financial inclusion and domestic remittances where only the post office had been before. Cajoled by the RBI (much like an elder asking children upset over a tiff to hold hands) the telcos stitched reluctant partnerships with banks. Airtel / ICICI Bank, HDFC / Vodafone, Airtel / Axis Bank, Axis Bank / Idea, ICICI Bank / Tata Teleservices entered into BC arrangements through 2011-12. Several of the larger players obtained Prepaid Payment Instruments (PPI) Issuer licenses. Even so, the bugbear of cash-outs did not go away. Until the issuance of the PB draft guidelines.

Telcos will still likely consider the PB guidelines only a small win. However, it would seem that should the telcos go ahead and obtain PB licenses, there appears to be no compelling reason for them to want to hold on to their banking relationships; particularly now that they are allowed to hold deposits, deploy surplus beyond CRR / SLR for income-generation and cash-out depositors. However, given that over a quarter of telco revenues comes from postpaid (read credit), telcos may have reason to feel that they’ve drawn the short straw, with the PB guidelines preventing them from offering credit. At 4% postpaid subscribers, the number of people to whom telcos offer credit is nearing 40 million.

Meanwhile, by towing the banking partner’s line and learning from them, several of the business correspondents have built good institutional capacity for financial products and services delivery. The value of this is frequently underestimated by telcos. If they can infuse the necessary capital requirements or become subsidiary Payment Banks (SBI has a significant shareholding in ALW, and ICICI Bank in FINO), they could potentially succeed.

Recently an RBI circular allowed NBFCs to become BCs. Microfinance institutions (MFIs) are NBFCs who already possess superior structural last mile capabilities than banks. MFIs are present in areas with thin formal financial service provider penetration and arguably have better, more mature processes to handle credit as well as complex financial products. They have a viable business model. Bandhan has even obtained one of the two new banking licenses RBI issued. Selling credit to the poor isn’t quite at the difficulty level of asking them for deposits (ice and Eskimos come to mind). However, having established trust through a couple of lending-repayment cycles must put MFIs in a better position to collect deposits. It seems to make a lot of sense for MFIs to bid to become business correspondents of banks. In the event of a fully interoperable environment, the MFI network of branches and roving agents (with superior training) could result in a very interesting product and transaction possibilities.

That leaves retail as the other interested potential participants. For big-box retail like the Future Group, Reliance Retail, even Shopper’s Stop, becoming a Payments Bank could bring very interesting cash management efficiencies as well as improve loyalty play. It might even become a great revenue stream as an ATM alternative, given that they handle so much cash. For the e-Commerce players, many of whom including, eBay (PayPal’s PaisaPay), Flipkart (PayZippy), Mobikwik, PayTM already have large customer bases and an existing wallet play, this could be just the ticket. They will need to weave cash-out partnerships to turn their shoppers into savers and who knows, electronic-money lovers in time.

The Indian Railways, which runs the largest e-Commerce portal by transactions in the country (IRCTC) doesn’t issue a wallet. It is anybody’s guess whether they might jump into the PB fray with their own wallet. There is some precedence of product innovation by IRCTC in the form of SBI-IRCTC-Visa credit cards.

Finally, banks aren’t just going to roll over and play dead while all the aforementioned participants replace them as the sole option for payments and savings. Having been pilloried for underachieving on so many financial inclusion and innovation counts, this is a great opportunity for them to prove their critics wrong. I wouldn’t write them off just yet.

The OTC trap – Impact on the business case for Uganda’s mobile network operators

Posted on by MSC

Mobile money providers in Uganda are well aware of the Over The Counter (OTC) trap and its implications, but their response to it will be the subject of another, later blog. This blog examines why OTC matters – enormously – to all stakeholders in digital financial services (DFS).

As highlighted by Pawan Bakshi, in “Beware the OTC Trap”, OTC can be used by providers to achieve scale at the beginning of the life cycle of their DFS agency roll-outs. However, the effects can be severely debilitating if the provider hits scale relying on a high proportion of OTC transactions.

In response to this discussion, I conducted a small survey in Wandegeya, a suburban market in Kampala, located within 5 km from the city center with nearly 120 mobile money agents. I asked 23 agents drawn across all the mobile network operators (MNOs) on their thoughts about OTC and found out some interesting results:

  1. 50-55% of cash-in transactions effected by agents are OTC – the amount is directly debited from the agent’s till and credited to the receiver’s wallet.
  2. The agents charge customers an extra, unofficial amount for OTC despite receiving a commission from the providers. This means that the agent is earning twice (from the customer and the MNO).
  3. The agents prefer OTC because of its added revenue to their business.
  4. The agents are aware that they are cheating the customer; I would also imagine most customers are also aware of the extra, unofficial fee, but still go ahead with the transaction.
  5. The agents admit that the practice of OTC is common across all of Uganda’s agent networks.

The Uganda agent network accelerator (ANA) survey, conducted in mid-2013, highlighted that on average an agent in Uganda makes 30 transactions daily (this could now have increased with the passage of time and further maturation of the market). Today Uganda has an approximate total of 45,000 active (on a 30-day basis) agents. This means that we have approximately 1.35 million transactions each day at mobile money agents, using the findings from the national survey.

From the 23 agents transaction records (gathered from agent transaction books), they register close to 52% as cash in a transaction (so approximately 700,000 transactions daily countrywide) and 50% of these cash in transactions are OTC (350,000 transactions daily countrywide).

The median cash in the transaction in Uganda lies between UgSh60,000 – 125,000 (US$23-49), for which the provider pays the agent UgSh440 ($0.17). Providers pay these commissions even though, of course, they derive no revenue from most of the transactions, in the hope that the cash in will generate revenue from person to person (P2P) transactions made by the customer. However, OTC allows a customer to make a direct deposit to another (who in most cases immediately withdraws it) and thus the provider only makes income on the cash withdrawal and foregoes the P2P. Yet it is the P2P where the providers make most of their profit since the costs of effecting the P2P are negligible, whereas much of the commission charged for withdrawals are paid to the agents providing the service. See Ignacio Mas’ outstanding Pricing of Mobile Money for a discussion on this.

The charge for P2P transfers for these median transfers of UgSh60,000 – 125,000 (US$23-49)is UgSh4,400 (US$1.72), and with the direct debit nature of OTC into the receiver’s account, this is not realized by the provider. This forms a very significant opportunity cost for the provider.

To assess approximately how big a loss the providers are incurring by permitting OTC, I looked at the 100 transactions from the 23 agents I interviewed and found the mean direct cost to the provider from payment of commission for cash-in to the agent of US$0.16; and the mean opportunity cost of loss revenue from P2P transfer of US$1.57. Multiplying this by the 350,000 OTC transactions each day gives a daily loss (direct and opportunity cost) of US$605,500; which converts to over US$221 million per annum.

So what is the impact of OTC on the growth rate of mobile money in Uganda? According to the 2013 Uganda communications commission (UCC) report, the use of mobile money is doubling each year but is this the true potential growth rate? Uganda is estimated to have 17 million mobile phone subscribers, yet there are only 5.2 million active (on a 30-day basis) mobile money users. This is despite the fact that over 9 million users are already registered with at least one provider for mobile money.

So how is OTC stifling active subscriber growth in Uganda’s DFS space?

1.       Customers do not need to register for DFS: The customer enters into a comfort zone where he can send money without necessarily registering or activating his SIM card with any MNO for mobile money. Incidentally, OTC is also prevalent for cash outs too, as long as the customer has the withdrawal codes from the wallet from which the money is to be taken, as in the case of one of the leading providers. Many such customers will not be easily convinced to subscribe their mobile numbers to mobile money – particularly with the growing levels of fraud in Uganda.

2.      Agents have limited motivation to register customers and earn more from unregistered customers: Through OTC, agents are earning double revenue: from the provider (in cash-in transaction commissions) and from the customer (in unofficial fees). They prefer to have more customers conducting OTC transactions. Registering and converting customers into active mobile money users also takes time, and therefore less interesting for agents.

So what next for DFS providers in Uganda?

In Beware The OTC Trap: Is There A Way Out? Pawan argued that addressing the OTC trap requires a mindset paradigm shift. Providers need to conduct a deep dive analysis into and to develop an understanding of, the implications of OTC transactions especially for scaling both volume and value of transactions. This paradigm shift must start with the providers accepting that OTC can be greatly minimized (indeed, in Kenya, M-PESA has almost eliminated it as the ANA survey for Kenya shows). But the journey towards zero OTC environment starts with providers and requires collective action and effort. In Uganda, my discussions indicate that some MNOs some believe OTC transactions are impossible to eliminate, while others believe the elimination of OTC is possible.

Marketing and communication will be key to these efforts and must address all levels – the providers, agents, master agents and, above all, customers who need to know their rights and understand the benefits of carrying out their own transactions … as well as the fact that agents’ supplementary charges for OTC transactions are not sanctioned by the providers.

In Beware OTC Trap: Are Stakeholders Satisfied? we highlight that OTC is a double-edged sword that rarely, if ever, really meets the ultimate needs of any of the stakeholders involved.

Customers are paying additional fees and losing the opportunities and flexibility that self-initiated transactions offer them. Needless to say, agents have also burnt their fingers offering OTC transactions. It is considerably less risky for them to transact directly with a customer’s phone right in front of them.

For providers looking to limit the churn in their voice and data customers, need to enroll and activate these customers into mobile money irrespective of what stage of business life cycle mobile money is in.

Ultimately, the provider needs to ask if encouraging OTC is worth the inherent risks for short-term expediency. What is the revenue loss involved, especially if they reach scale? And how many subscribers do you forego by allowing agents to offer OTC services? And what is the reputation risk of agents charging at will for OTC transactions?