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Beware the OTC trap: Is there a way out?

Posted on by MSC

We presented in our earlier blogs how over the counter (OTC) was growing in leaps and bounds due to various reasons but the key stakeholders were still not satisfied. The question we have been asked in various interactions is – is there a way out?

The clichéd statement appears true in this case – Getting in is easy, getting out very difficult! Whether it’s EasyPaisa in Pakistan or Tigo in Paraguay, the operators appear to be trying.

A key characteristic of OTC is that clients generally have no incentive to put their money in the mobile wallet. They just go to the agent, hand over the cash and the transaction gets done. This has a few fallouts, one the customer doesn’t keep any money in the wallet, all the transfers received are immediately withdrawn in full. As a result, no transactions can take place on an empty wallet.

If we trace the roots of such deployments, we see that the customers have actually witnessed several changes in the way they do financial transactions, one- it’s faster, two –it’s cheaper, three – it’s done at an agent nearby! So while the landscape has significantly changed, there has been negligible change in the behavior of the customer.

The quintessential question is – what will drive the customers to initiate the transactions themselves? In other words, change his behavior. In our view, there are several ways through which this could be attempted.

  • It is definitely important to know who these customers and their beneficiaries are why they have been doing assisted transactions till now and what are their needs (both stated and unstated). This could be easily provided the agent device captures this information. If it does not then put this in place this could be the first step towards moving from OTC to self-initiated transactions. This should then be supplemented with qualitative research to gain a deep understanding of and insights into why customers and beneficiaries are using OTC, as well as what might cause them to open and use a wallet.
  • One of the key change triggers is consumer marketing and education. The customer will need to know that it is possible for him to make transactions for himself and that it is not rocket science. The right kind of graphics and messaging is important to induce a trial. The protagonist has to be someone the customer can identify with – an uneducated person, or a middle-aged person seeing the agent doing the transaction and then attempting himself and saying, “It’s so easy, even I can do it!”. In addition to this, there has to be a clear message on why is it better than OTC – which of course will be built on the basis of the insights from the qualitative market research. This has economic fallout – the agents may be up in arms since we will be taking their customers away, but they will need to be explained that the cash-in commission would still be theirs. And to sweeten the pill, the cash-in agent could, initially, get a little bit more if the customer does a transaction himself after cash-in. That way he will help change in behavior as he thinks that his commissions are protected.
  • It’s also important to get funds into the wallet easily. If the customers were to get their salaries or benefit payments directly into the wallet, then there all chances that the customer would not visit the agent to withdraw cash and then hand it back to him to remit to some! This would naturally aid the change in behavior for the customer.
  • Technology led processes could be triggered to identify and deal with such transactions. Safaricom, for example, built logic in their platform to study patterns as customers actually asked the agents to deposit directly in someone else’s account. They focused on looking at the originating and terminating mobile numbers/locations. This allowed them to identify which transactions were being made OTC. On the basis of this information they were able to identify the location of the cash-in agent and the cash-out agent; and if there was no intervening P2P transaction before a cash-out is done, that would be classified as a direct deposit and the cash-in agent would be surcharged for that transaction. The operator would also use BTS’s (Base Transceiver Station) to validate their conclusions. An agent conducting a cash-in transaction in point A that leads to a cash-out transaction in B within a very short time, for example, would be considered to have made a direct deposit, and his commissions would be clawed back and warning letter issued.
  • The cash-in process could be tinkered with to make cash-in a bit more engaging for the customer. Warid Telecom created a two-step process for cash-in, making it a bit more involved for the customer and more secure. The transaction had two components. The cash-in was initiated by the agent, but the customer needed to complete it. This ensured that the customer could not deposit the cash in someone else’s account. Also, it solved for problems arising due to making deposits in the wrong accounts. Making cash-in complicated could also be done by the agent asking for and verifying the ID and the mobile number of the person depositing cash.
  • A more potent tool could be incentivizing self-initiated transactions. The customer could get benefits by way of getting some extra talk-time, some music downloads, some free internet-time. These offers could be for telecom products and will be easier to bundle since the telecoms usually “produce” them hence the perceived costs could be much higher than actual costs. These could be accompanied by lucky draws, lotteries, etc. where a much bigger prize, say a Motorbike, or television could be given away to a select few. The output will be much greater than the associated costs.
  • Introducing some exclusive payment products that are just not available with the agent version of that application could be another tool. For example, bill payments, for which the payer needs a receipt to confirm that they have paid, could be made self-initiated as the biller would issue an electronic receipt only to the payer. Making such payments OTC leaves no trail or scope for a personalized receipt. Or if the mobile money product offers the “best telecom deals” on self-usage. If the customer got “full talk time” on even small value recharges, then the customer is most likely to try and cash-in the benefits. This will trigger self-usage and overtime get him to try other products as well. This could initially result in the “Can you do this for me?” syndrome but over time this is likely to become self-initiated.
  • Another way of looking at this could be charging a differential pricing for services, by making transactions much cheaper if they are self-initiated rather than assisted by an agent. This may lead to the agent getting several customer accounts opened in the name of his family members but “adding a beneficiary” functionality (where the customer can only send to a pre-added beneficiary) could make it work. This will dis-incentivize the agent but incentivize the customer.
  • An alternate way of exploring this could be to ensure that the cash stays in the wallet for a longer time. For that, it may be a good idea to charge much higher for cash-out. So the customer could actually put the cash in the wallet and then start transferring the cash for remittances or payments. Cash-out pricing could be a deterrent and cash stays on the network. But for this to work there should be large enough network of merchants where the customer could ideally spend without hesitation – in most countries, this is some way into the future.
  • The agent could also be bound by velocity rules, which allow him to do only a certain number/value of transactions per day, a post which his wallet will not be able to initiate any transactions. Along with this, the operator will need to keep a tab on the number of agents in a specific location. It’s possible that the agent will seek other SIM/accounts to keep doing these transactions. But at some stage, they will have to decline a few customers. This method could leave the customers in angst since they will be denied service and may not augur well for the brand.
  • If nothing else works, there may be a need for change in regulation that will restrict the agents from doing certain types of transactions! For example, remittances could only be self-initiated while the agent could do train bookings or other payments for the customer.

Clearly, there are several alternatives which could be tried. The above list is in no way exhaustive, there could be several other innovations that could be tried. But the fact remains that there is a need to start trying these to reduce the popularity of OTC.

As for the question we asked in the beginning, there definitely appears to be a way out, but it will need a will of steel and management commitment to implement it. Change in behavior is not easy and needs to be pursued continuously before any significant results are visible.

Expanding access to finance for small businesses in India: A critique of the Mor Committee’s approach part 2. Why are the banks not financing small businesses?

Posted on by MSC

The previous blog in this series highlighted the context of the Mor Committee’s recommendations and the significant gap between the supply of and demand for credit for small businesses. This blog looks at the role of the banks, development finance institutions and nonbank financial institutions (NBFCs) to examine why they have been so backward in coming forward to meet this gap.

Why have banks not made successful inroads into small businesses financing?

So why is there a yawning gap in finance for MSMEs when India has good banking presence across the country? Is the finance gap a result of banks’ limited experience of, and interface with, MSMEs? Or is it on account of MSMEs rather ‘informal’ financial profile? Or do MSMEs simply not present an adequately interesting business case for banks.

The Mor Committee report has aptly pointed out the reasons for the large institutional finance gap to small business, which can be summarised as a case of “too much for too little”.

The reasons for such dismal access to finance by small businesses are ingrained in the very business and financial nature of the enterprises. On the demand side, small businesses have limited managerial capabilities and financial management skills, lack appropriate documents and require small ticket size loans. On the supply side, banks lack credit information about the client segment, perceive small businesses to be risky, and see financing to small enterprises as a low revenue activity with high costs of customer acquisition and servicing.

The latter two are the key reasons for banks shying away from financing small businesses. For a bank to assess the credit viability of a loan it is imperative to have access to credit information and the repayment pattern of the client. However, in the case of micro and small enterprises, such information available is limited. Also, banks still do not have customized and suitably crafted credit appraisal mechanisms to appraise the debt needs of micro and small enterprises.

In terms of the cost of customer acquisition and servicing, with relatively smaller ticket sizes, it is not profitable for banks to source the customer through direct sales channels. Considering the costs, banks are willing to serve walk-in customers (which are limited in numbers) rather than acquiring customers through a sales representative/agent. Establishing and managing a direct customer-sourcing channel is an added cost as compared to the thin revenues and perceived risks in micro and small enterprise finance.

The Role of Development Finance Institutions and Non-Bank Financial Institutions in Expanding Access to Finance for Small Businesses

Another important point on which the Committee has expressed its opinion is related to the role of development finance institutions (DFIs) such as SIDBI and NABARD. The Committee aptly redefines the role of DFIs as market-making entities focused only on risk-based credit enhancement schemes. The Committee recognizes the fact that the DFIs with their limited capacities in terms of funds and branch coverage (SIDBI has a network of 85 branches with MSME portfolio of circa US$ 9 billion) need to leverage their infrastructure to have a greater multiplier effect on the sector. A number of adequately funded credit risk enhancement schemes on similar lines to the Credit Guarantee Trust Scheme for Micro and Small Enterprises (CGTMSE) are the need of the hour. CGTMSE with a corpus of US$ 0.66 billion has accounted for cumulative disbursements of US$ 6.7 billion through 135 member financial institutions. However, there is significant scope to further expand the guarantee scheme, since the current coverage of CGTMSE accounts for 7-10 percent of the small business lending portfolio of banks based on 2011 data from the RBI.

The Committee also acknowledges the need to maintain the principle of neutrality in the selection of participating institutions in credit risk enhancement schemes that should be in line with nature of activity instead of a type of institutional setup. MicroSave has long advocated the inclusion of NBFCs and MFIs under such schemes. One has to bear in mind that 77 percent of the total finance gap in the India MSME space is in the micro-enterprise segment. While small and medium enterprises have access to cluster financing programmes, microenterprises, which are often dispersed, lack such access. Thus, NBFCs/MFIs can effectively serve this rather dispersed segment of microenterprises. As of 2012, the share of NBFCs/MFIs share in the institutional supply of debt finance is at a meager 8 percent of the total flow. MicroSave’s clients (NBFCs/MFIs) in this space have shown their intent and revealed process efficiencies to deliver appropriate credit products to small businesses.

The success story of Utkarsh, an NBFC-MFI in North India is a testimony of the opportunities that abound in the micro-enterprise lending space. Utkarsh started its micro-enterprise lending initiative in 2012 with objectives of:

  • Addressing the credit needs of micro-enterprises which were not being served adequately either by MFIs or by commercial banks;
  • Diversifying its existing portfolio beyond group lending operations; and
  • Providing a bridge credit product to Utkarsh’s graduating JLG clients.

Utkarsh, with technical assistance from MicroSave, did a comprehensive market research study of the target segment and conceptualized a credit product with ticket sizes ranging from US$ 1,000 – 5,000. While the product suited the needs of the target segment, one thing that Utkarsh had to be mindful of was the flexibility it could offer to the segment on the collateral front. In order to make its product more flexible, Utkarsh introduced hypothecation option in addition to the more traditional option of property mortgage. The results of the initiative have been encouraging, with cumulative disbursements in excess of US$ 1 million within a span of 9 months. Also, Utkarsh was able to raise additional investments riding on the success of its micro-enterprise lending programme.

Another NBFC-MFI, Kshetriya Gramin Financial Services (KGFS), has an ecosystem approach that is built on more holistic principles of financial services.  The three fundamental principles that define the KGFS approach are:

  • Focussed geographic commitment – each KGFS institution and branch is responsible for a specific area;
  • Client wealth management approach – customized set of financial services based on careful assessment of the financial needs of the household; and
  • Access to a broad range of products – credit, savings, insurance, and payments.

The enterprise loan is just one of the products in a bouquet of around 15 financial products that KGFS offer through its branch-based model. However, what KGFS has been able to showcase is its success in offering products as complex as mutual funds customized to the needs of the target segment.

The KGFS model reaffirms the belief in taking a much broader view of financial services. The model also seems to be in agreement with the Mor Committee’s recommendations on high-quality, affordable and suitable credit along with basic payments and savings, and risk and investment products.

The example of both KGFS and Utkarsh highlight the innovation DNA in NBFC-MFIs, and how it is backed by the agility to execute the ideas. Given the right policy environment and incentives, such institutions can thrive and catalyze the MSME lending space.  However, lending to small businesses is a very different business as compared to group-based lending and presents challenges that need to be appreciated by MFIs/NBFCs in India.

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

Posted on by MSC

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.