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Beware the OTC trap: Are stakeholders satisfied?

Posted on by MSC

We presented in our earlier blog how over the counter (OTC) was growing in leaps and bounds due to various reasons. However, our interactions with various stakeholders indicate that not all are actually happy.

“We have found the process of shifting users from OTC transactions to EasyPaisa mobile wallets to be slow.” – Nadeem Hussain in “The “EasyPaisa” Journey from OTC to Wallets in Pakistan”

This is one of the many statements that we’ve encountered that indicate that the MNOs are not really satisfied and they want the customers to begin using wallets and self-initiated transactions! Mobile network operators (MNOs) are not “really” interested in the money business, but in the mobile money business. It’s therefore important to look at why MNOs want to offer mobile money services?

There are broadly two reasons for an MNO to start the mobile money business:

  • Firstly it believes that it can engage with its existing customer base and get a larger share of their wallet – as customers start spending on P2P and merchants, rather than just their spends on talk-time leading to higher revenue, “A closer look at Vodacom Tanzania shows that they made significant progress in 2013 and saw M-PESA’s contribution to the company’s total revenues increase from 12.6% in September 2012 to 18.7% in September 2013. Other operators such as Millicom (Tigo) and MTN have started to publish growth in revenues from mobile financial services as well.” – Arunjay Katakam in The State of Mobile Money Revenues – is there really any money in mobile money?
  • Secondly – reduction in churn. MNOs really care about customer “stickiness”, and the mobile money business helps them achieve this. They believe, and rightly so, higher mobile usage will reduce churn and increase their revenues. It’s no surprise that almost all MNOs spend significant dollars to rein in customer churn triggering a slew of activities through their “Usage & Retention” departments. The logic is that to retain a customer is cheaper than acquiring a new customer and customer profitability increases the longer he stays on the network. Customer initiated mobile money transactions can help them achieve the objective. “MTN Uganda’s MobileMoney witnessed that while the churn rate for regular customers was roughly 4.5% per month, the churn rate for active mobile money customer was no more than 0.2%” – Paul Leishman in MMU’s “Is There Really Any Money In Mobile Money”. This is a significant result, most MNOs would dream of achieving this, somehow.

“For MTN Uganda, these numbers are exciting. We found that indirect benefits unique to MNOs – including savings from airtime distribution, reduction in churn, and increased share of wallet for voice and SMS – combined to account for 48% of MobileMoney’s gross profit to date” – Paul Leishman in MMU’s “Is There Really Any Money In Mobile Money” – see chart.

The question, therefore is, will OTC ever be able to deliver these results? The answer is definitely not. Unless the customer sets up his own wallet and transacts himself, none of the benefits mentioned above are triggered. Without the wallet, there is no customer loyalty, scale or the additional revenues that we mentioned earlier. However, there is definitely a cost involved (in terms of marketing & communication) to get the customer to transact continuously and obviously the resulting returns are well deserved.

On the other hand, very few customers are actively thinking about how the mobile wallet could revolutionize their lives. The target segment is such that the regular above the line /below the line marketing methods are unlikely to be noticed by them (remember the customers who need this the most, often don’t have televisions or are literate enough / have access to a newspaper). So they don’t know how this budding revolution is going to change their lives and impact their future. What’s surprising is that often no one is telling them, especially since they hold the key to the success. Agents, who are the closest to the customer, are just too busy to educate the customer necessary to drive uptake and usage.

Everyone agrees that Mobile telephony products and Mobile financial services are both at different stages of evolution. Despite that most MNOs are not marketing the services according to the stage of evolution, most often than not they are just extending the Telecom brand/characteristics to Mobile financial services, where the intended customer just fails to identify himself with it. Furthermore, most MNOs are still unwilling to invest significant amounts in putting feet on the street to educate potential customers – not least of all because of the first mover disadvantage inherent in making a new market.

Besides marketing, there are three other critical success factors that need to be addressed: (1) managing the agent network; (2) having a relevant product offering; and (3) sustaining senior management commitment. Only these three working together will provide any Mobile Money deployment the air-cover that it needs to successfully penetrate its customer segment and reap the rightful benefits.

So we have established that the stakeholders are not completely happy with OTC because the benefits resulting from self-initiated transactions have not materialized and also may not unless the stakeholders think about what to do to reduce the popularity of OTC?

Watch out for this space as we share a few ideas on what may work!

Why mobile wallets might work for ASHA – And many others

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It is 6 A.M. on a cold winter morning in rural northern India and Sangeeta Devi, age 40, is already at work. She is an ASHA (Accredited Social Health Activists) worker in Patna, Bihar, one of India’s poorest states. Sangeeta’s responsibilities involve ensuring every child is vaccinated and every pregnant woman receives the medical care she needs. Often, against the will of the male head of household, she works long hours, extending well into the night, without an escort home (which can be dangerous in Patna), and she seldom gets paid on time. These all make a difficult job more so, but her real problem, the one she worries about most, is withdrawing small amounts of money from her bank.

A widespread dilemma

MicroSave is well aware of the cash-withdrawal and the underlying technology and business issues all rural bank branches and their clients must cope with—in India and in the many other developing areas around the world. Sangeeta’s situation is, unfortunately, one we see all too often in our fieldwork and report in our blogs and research papers.

Her bank branch is 12 km from where she lives, so she needs a day off work, up to Rs.820/$13 in missed opportunity costs, and ~Rs.60/$0.98 for the journey. Significant sums for her (she earns Rs.1,500 – 2,500 in a month but never receives it on time). Once she has finally arrived at her branch, the queues are long, the bank staff can be rude and unhelpful, and the IT servers and other links governing her withdrawals frequently fail. Too often, she returns home without funds.

So she does what any of us would do in similar circumstances: if and when her money is actually available for withdrawal, she takes it out in one lump sum. In her opinion, her small savings are better housed elsewhere, not at her bank. (MicroSave’s series on savings risks  in India provide extensive background and research on this topic.)

An Emerging Solution

The current favorite “solution” to all the above is a mobile wallet, an electronic account held on a mobile phone that can be used to store (or save) money and to make transfers or payments to participants in the same or partnering systems. These wallets can also offer promising business potential, even for low-income customers with even lower stored value in their accounts, from the bank’s point of view and from mobile operators’ as well. The recently released 2013 GSMA Mobile Money Unit (MMU) State of the Industry report and the  State of Mobile Money Usage are brimming with upbeat statistics and projections worldwide.

And, in the glossy poster and brochure, mobile wallets would seem to benefit the customer, too, at least in rural India, with a cash deposit, cash withdrawal, money transfer, bill payments, and ~4 percent interest on savings

But CICO (cash in/cash out) agents still perform poorly and impose hurdles in many districts for G2P withdrawals (and thus, by logical extension, far worse hurdles for personal, non-government withdrawals). Product Innovations on Mobile Money, a new paper by Ignacio Mas and Mireya Almazán, and Ignacio’s recent blog for MicroSave noted above, raise other issues to resolve, including:

  • Over 90 percent of all mobile money transactions globally are airtime top-up or P2P (person-to-person) transfers.
  • Many CICO agents encourage these faster, more lucrative over-the-counter transactions, rather than the much longer-term, customer-growth potential that mobile wallet business represents.
  • Mobile money providers, for their part, are often limited by tiny budgets and smaller staff numbers managing inflexible platforms on closed systems with poor programming and interfaces.  For many, innovation is more an expensive distraction than a solution to their business problems.
  • Regulatory constraints that bar smaller, less risk-averse alternatives to network- and bank-sponsored CICO agents, and the even stricter limitations on who can offer savings and award interest.

The regulatory situation may be improving, however, at least in India, the world’s third largest banking economy, thanks to the Reserve Bank of India’s decision in early 2013 to expand who can apply for an receive banking licenses. The benefits of financial inclusion include better agent networks, sponsored by applicants from insurance, household finance, technology services, and other industries.

India Post, the world’s largest postal service, has applied for a banking license. Their plan is to install 2,800 ATMs around the country for government disbursements and other payments by next year can only help mobile wallets and the cash-out problem. For the first 6-8 months, the ATMs will only serve Postal Savings Account holders, but thereafter, the intention is to link to all banking networks and potentially most mobile operators as well. In addition to this, India Post has announced to set up nearly 135,000 micro ATMs at post offices across India for saving account holders by September 2015. (A microATM is a handheld device which will remain present at post office level).

Sangeeta’s employer ASHA, managed by India’s Ministry of Health and Family Welfare, will have fewer difficulties digitally coordinating Sangeeta’s monthly payments to her mobile wallet than those outside the Indian government’s aggressively expanding G2P electronic funds transfer system.

Estimates vary from 8-10.5 million government employees (pensioners and part-time employees for programmes like ASHA make the figure hard to specify) and there are many others who will doubtless have to wait longer, but even a few million paid by phone are far more likely to keep paying by phone. And when that happens, mobile wallets will finally become what the brochures and glossy posters are promising.

Beware The OTC Trap

Posted on by MSC

At MicroSave we are often asked to advise mobile network operators (MNOs) and banks on their “go to market strategy” for digital financial services (DFS). A growing number of MNOs are thinking that pushing an over the counter (OTC) led strategy will be the most effective. They could be right … and wrong.

If one looks at the explicit customer needs, it’s clear that the largest, most obvious “pain points” are two types of transactions: remittances and bill payments. Remittances because a large percentage of people are migrants and need to send money home; and bill payments since, the billers will not provide credit and are likely to disrupt supplies if not paid on time. Therefore, it’s getting clearer by the day that remittances (and possibly bill payments) are emerging as the most common “anchor” products for mobile money deployments worldwide.  And, of course, in some markets G2P payments (benefit transfers, salary payments etc.) can also play this important role.

We are seeing that MNOs and banks are increasingly trying to go the OTC route in the developing world – look at Bangladesh, Pakistan, Ghana and India. The burning question is, why? There could possibly be several reasons, the needs of the MNOs, the needs of the banks, and the needs of the customers. 

Let’s first look at the needs of the MNOs. Mobile money business has three drivers: (1) scale; (2) throughput and (3) yield. Very few MNOs (out of 219 deployed so far) have witnessed a hockey stick growth with mobile money deployments (see MMUs deployment graph on the left from State of the Industry 2013 Mobile Financial Services for the Unbanked).

 

So the mobile money business is growing at rates much slower than expected by most MNOs, and the active base is far smaller than the total customer base. 

The second most important driver for their business is throughput. The fastest way to get higher throughput, given that customers are not yet transacting themselves, is to open up OTC for larger value transactions like remittances. Here the customer just walks in and hands over the cash, pays a fee (usually higher than a merchant subvention fee) and the cash finds its way to the receiver. Once you have the OTC agents at the right location, the value of the business just grows by leaps and bounds. This is quite evident from what happened in Pakistan, and Bangladesh. Early deployment of mobile money in Bangladesh has opened a lot of accounts but still experiences significant levels of OTC use. “Despite being a relative newcomer in the mobile financial services arena, Bangladesh, which entered the market in 2011, is already making its mark. There are about 13 million registered mobile banking accounts in Bangladesh as of January 2014 and nearly $900 million in transactions per month through about 150,000 agents (Bangladesh Bank).” – Pial Islam in – Transitions from OTC to Wallets: Evidence from Bangladesh

In Pakistan too, OTC has been the preferred deployment strategy. “The service of OTC remittances is the dominant activity for EasyPaisa as well as in Pakistan’s overall mobile phone banking services industry, which processed forty-one million transactions, worth $1.6 billion in the first quarter of 2013 (State Bank of Pakistan). Only 2.4 million customers have mobile phone wallets equipped with EasyPaisa accounts , though we have collected the unique names of another 5 million unique users who use EasyPaisa for OTC payments” – Nadeem Hussain in “The “EasyPaisa” Journey from OTC to Wallets in Pakistan”

Since the mobile wallet is not yet interoperable, OTC appears like the only way to get to the competition’s customers. This often misleads the senior management, somehow alluding that the business is getting better, at least on two parameters: throughout and yield! 

Alas! This is the beginning of the OTC Trap. The operations staff hopes against hope that somehow the customer will see value and move to self-initiated transactions himself. MNO sales staff also finds itself less pressured, as it just needs a better incentive structure for the agent to get him to push the transactions through their system – as opposed to that of their competition. The customer does not care which system the agent is using, as long as the money reaches and is on-time. He trusts the agent. Both targets met, quite easily!  

Banks also often promote OTC since that’s the way they’ve always done business. This simply means no change in behaviour for either the bank or the customer. The only thing is that the transaction has moved away from the bank branch to the agent location. Very often the OTC agent is quite close to the bank branch and actively attracts bank customers – the bank does not mind at all – it is “de-congesting” its branches, allowing higher value customers to access the branch. The current market pricing highlights that the banks want this business, as the pricing offered by the bank appointed OTC agents is already much lower than the 5% being charged by India Post. 

Price Comparisons, based on MicroSave field research (all prices in Rupees)

 Trx Amt. Yes Bank BOI – Shmart SBI Kiosk Banking
P2B P2B P2B
Rs. 2,000 30 30 40
Rs. 3,000 45 30 60
Rs. 5,000 75 30 100
Rs. 10,000 150 60 100

This has led to a very competitive environment in the metros – see Remittances: The Evolving Competitive Environment

For the customer, OTC has many advantages. First, the customer does not need to change his behaviour or learn a new, possibly intimidating, technology. The OTC transaction looks/feels much like a purchase of airtime top-up, with which people are familiar. Second, he still does not understand, why is a MNO pushing him to open an account especially when he lacks the understanding of how opening a mobile wallet can improve his life. The customer is often attracted to OTC as a result of a combination of factors:

  1. not having proper KYC documentation, 
  2. a lack of trust in the new methodology, 
  3. fear of technology, 
  4. the maze of forms and processes required to open a wallet, 
  5. the confusing multiplicity of products and charges, 
  6. perceived difficulty of usage, 
  7. poorly designed user interfaces and, most importantly, 
  8. the required change in his behaviour. 

Also, the mobile wallet entails extra steps, usually the agent is required to facilitate cash-in or transfer so why should a customer make the extra effort to do the transaction themselves?  

This just goes to say that all stakeholders (MNO, banks, agents, and customers) appear happy with OTC, but are they really?

We’ll cover that in the next blog, watch this space! 

Improving access to finance for women-owned businesses in India

Posted on by MSC

The facts are hard-hitting when the focus of financial institutions in the country is shifting towards MSME financing. There are several factors driving this scenario that are discussed in detail in this IFC study.

Agent Network Survey: Tanzania Country Report 2013

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The Tanzania Country Report is based on a national representative sample of over 2,000 mobile money agent surveys carried out in 2013 all over the country. The report paints 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 persistant challenges.

Key findings from the report:

– Agents are overwhelmingly profitable, with 49% earning at least $US 100 per month in profits, compared to only 40% in Uganda.

– Over 70% of Agencies are ‘new’ (having been in operation for a year or less) demonstrating aggressive growth in the market, however the small percentage of ‘old’ agencies suggests they have a short life-cycle.

– Rapid growth and the non-exclusivity of agents is putting pressure on agents’ liquidity, with 5 transactions a day being denied due to lack of float

– Competition is resulting in better support, with 79% of agents receiving training, but improvement are still needed in targeted areas.

To learn more, read the report in full. You may also be interested to read our summary blog highlighting the key findings from the report: Highlights from The Helix’s Agent Network Accelerator (ANA) Survey of Tanzania

Highlights from The Helix’s Agent Network Accelerator (ANA) Survey of Tanzania

Posted on by MSC

The Helix Institute of Digital Finance’s second Agent Network Accelerator (ANA) report based on a nationally representative survey of 2,052 agent networks in Tanzania, coupled with extensive qualitative interviews across the country, provides extraordinary insights into agent networks in Tanzania.

The survey includes all providers offering agent banking or mobile money services, taking special interest in the country’s three main providers: Vodacom, Airtel and Tigo.  These three providers absolutely dominate the market and continue to grow at quite robust rates, pioneering a unique model for developing agent networks which can be used as a paradigm for providers around the world. The data also shows where providers need to focus their energies in order to improve the quality of the agent networks in the country, which is imperative at this juncture when many providers are looking to stack more sophisticated services (like banking products) over them.

Uniquely Non-Exclusive Agents:

If an agent offers services for more than one provider, it is considered “non-exclusive” and in markets like Kenya, and Uganda where there is a clear market leader, the majority of agents are only able to serve the leading provider.  However, most markets do not have that dominance, and Tanzania is a better model for them.  In Tanzania, about half of all agents are non-exclusive, and in the capital of Dar es Salaam, it is 84%.  This means agents are able to conduct transactions for and earn commissions from multiple providers, leading to a very small number of agents being unprofitable (4%), and agents earning a healthy median profit of $US 95 per month.

It is however, noteworthy, that almost two thirds of agents in rural Tanzania are still exclusive. This is an artefact of Vodacom being the first to aggressively expand beyond urban areas, but now competitors are following suit and therefore we expect it to be increasingly non-exclusive in the future.

Agent Liquidity Shortages:

While the high levels of non-exclusivity of agents buttresses profits, it also causes liquidity shortages for the agents (agents are forced to manage separate liquidity pools for different providers since systems are not interoperable). This is compounded by agents who are not motivated to actively manage their liquidity, preferring to wait in their shops until customers make transactions which gives them the needed liquidity instead of traveling to a rebalance point.

This has many effects on the character of the agent network.  For providers, it means that it is hard for them to maintain agents where rebalance points are far away (rural areas). In the paper, Where’s The Cash? The Geography Of Cash Points In Tanzania, Ignacio Mas and Agathamarie John found that 83% of Vodacom agents are located within five kilometers of a bank branch. The Agent Network Accelerator (ANA) report highlights that 69% of agents take 15 minutes or less to reach their rebalance point, reinforcing the finding that agents are still tethered to rebalance points, and it is constraining the expansion of agent networks to rural areas.

Insufficient liquidity further damages the business model and reputation of agents where they are located.  The ANA report emphasizes that lack of liquidity at the agent level causes the loss of an median of five transactions per day (14% of median transactions per day), and of course will damage agents’ reputations as dependable and trustworthy service provider complicating the future ability to offer banking services through these networks.  Clearly there is a huge potential for providers to help improve liquidity management at agents – through the use of master agents (commonly called aggregators in Tanzania) and, in the longer term, interoperable systems that will eliminate the need to keep multiple liquidity pools. In the meantime agents are setting up informal arrangements with other agents and shopkeepers in their locality to try to mitigate the liquidity challenges.

The Future of Digital Finance in Tanzania

Tanzania has certainly crafted a unique and impressively successful ecosystem for mobile money.  It is much more developed than Uganda in terms of the quality of agent support, and the profitability of agents.  It is even leading Kenya by pioneering the non-exclusive agent network model.  However, the Agent Network Accelerator report shows that fraud is still plaguing its network, liquidity management issues are rife, and it is still having trouble with account opening for new customers.

Tanzania is full of potential, yet really still in its infancy with product development.  While agents in Tanzania mainly only provide cash in/out services for people’s mobile wallets, there is a lot of talk about deeper integration with banks to offer services like savings and loans, and there is already the beginnings of a merchant network being built where people can use mobile money to pay at retail outlets.  However, these frontier innovations will continually be stifled by some fundamental operational issues in the agent network that need to be addressed in order to support these and other more sophisticated services to be offered across the country.

To read our ‘Agent Network Accelerator Survey – Tanzania Country Report 2013‘ in full click here

To read our ‘Agent Network Accelerator Survey – Uganda Country Reporty 2013′ in full click here