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Beyond making payments: Managing payments

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There are two glaring facts the mobile money industry needs to face up to. First, digital accounts have very little value stored in them, and the practice everywhere is to withdraw any e-money received immediately and in full. This makes people not naturally inclined to pay electronically, except for remote payments for which people will take the trouble specifically to cash in. Second, there is surprisingly little systematic use of electronic payments by formal businesses, a space in which cash and especially checks prevail, even in Kenya. The predominant business use is in fact by informal traders, though no product development is aimed at them.

These two gaps work together to limit the electronification of merchant payments. While that’s the case, mobile money will not become part of customers’ everyday life, and many providers will struggle to reach sustainable scale.

The failure in the value proposition in both cases –for savers and for businesses— is that mobile money doesn’t offer manageability tools around the money balances that are kept and the payments that are made or received. As a saver, it does not make me feel in control of my money, because it doesn’t let me separate my money out into various pots and play mental discipline games around them (jam jarring). As a business, mobile money does not make it easy for me to keep accounts, reconcile receipts with invoices, and match against things like inventory and sales leads.

We got to this situation because there is indeed very little manageability (beyond doing the actual transaction) that one can offer on simple mobile phones. But now, subject to some caveats, we can foresee the day in the not too distant future when people at the base of the pyramid, and especially traders and entrepreneurs, will all have smartphones. Moreover, by designing compelling user experiences, financial services could become an important driver to accelerate smartphone penetration in developing countries.

It is time to start thinking about a new generation of more intuitive mobile money services on touchscreen smartphones – a mobile money app. With this app, mobile money providers can offer a full upgrade path to heavier mobile money users who like the convenience of payments on the fly, but want much more interaction, structure and information around their money matters.

At the personal use level, this banking app should let people express much more visually and cogently the heuristic games they play in their own minds every time they face a money decision. In other words, it should be conceived more like a game than an internet banking site.

At the business use level, it’s about helping (formal and informal) businesses manage the information around transactions, not just helping them pay/receive money. To adopt mobile money as a way of doing business, enterprises need to make sure that payments can be tracked, reconciliations can be made, frauds can be avoided, and payments can be linked to other business processes (e.g. such as order, inventory and fleet management).

The manageability of payments on the business side will not be achieved at the handset level alone. The challenge needs to be solved by developers and integrators working on behalf of business clients. For that, they will need a set of flexible application programming interfaces (APIs) which allow them to integrate the payment flows from the mobile money system with the enterprises’ own accounting, resource and workflow management systems.

Taking mobile money to the next level has got to be about solving the savings and business use challenges. To crack that, it is time that we start experimenting with smartphone apps, supported by appropriate network-level APIs. There needs to be much more bundling of software services with payments. Only then can we really think about mobile money being not only more inclusive but also more relevant daily – and hence more impactful.

Agent Network Accelerator Survey – Uganda Country Report 2013

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Our exclusive Agent Network Accelerator research reports (found under publications) are part of our global Agent Network Accelerator (ANA) Research Programme. ANA, a collaboration between MicroSave and the Bill & Melinda Gates Foundation, is the largest research project on agent networks in the world. The Uganda Country Report is based on a national representative sample of over 2,000 mobile money agent surveys carried out in 2013. The report paints a picture of the stage of maturity of the market there, focusing on the operational factors of success, and residual challenges the country still faces. To read through the report, please click here.

A Government to Person (G2P) payment delivery agent in India: At heart and in practice

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This blog highlights the tasks of a CSP and the stages involved to make G2P payment delivery to the last mile – right from their (CSP) recruitment to final payment. It also suggests a few improvements recommended by CSPs.

Aalia begum and Aasia begum have been working as Customer Service Providers (CSPs) for the past three years, disbursing Social Security Pension (SSP) and Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) payments in Khammam district.

They work as a team 10 days a month to make these payments and are paid around Rs. 1,000 ($16.39) which they share to meet some small household needs. While this remuneration is startlingly low, it is not untypical for rural CSP – see MicroSave Policy Brief #6 “Assessing Agent Profitability: MicroSave’s Agent Journal Studies”.

Recruitment:

ALW (A Little World)[1], the agent network manager, or “business correspondent”, was looking for SHG members as CSPs, and so both Aalia and Aasia applied to be a CSP after seeing a newspaper advertisement and consulting with their families. ALW invited all applicants to undertake a written test and selected two CSPs per village (to allow them to work in tandem and share the work).

After selection, the CSP team were trained on the enrolment and disbursement related processes. They were also trained to make payments using mobile phones and to use the biometric scan device to capture beneficiaries’ biometrics and to authenticate payments.

The merit- based selection process espoused was valuable for both ALW and the villagers, as CSPs were able to work effectively after their training. The fact that the training was (a) delivered and (b) effective is a tribute to ALW – many BC network managers in India still give little/no training and support – see MicroSave Policy Brief # 2 “The State of Business Correspondence: Agent Networks in India”.

Enrolment and disbursement:

The CSP team worked with the local council “Panchayat” officials to create awareness about the service and to choose an enrolment location. Typically, the CSPs are given the mandate to perform enrolment and disbursements but no specific place to work. Aalia and Aasia choose the Gram Panchayat (GP) office as the best place to work.

Dindora (public announcements) were made in the village t0 inform the beneficiaries about the date, time and location of enrolment. Enrolment activity was carried out intermittently over 8 months and around 70-80 beneficiaries were enrolled in a day. It usually takes 10-15 minutes to enroll one beneficiary. CSPs clocked more than 12 hours on a few days during enrolments.

After completion of the enrolment activity, the CSP team was mandated to disburse SSP and MGNREGS payments, which were earlier made by the Village Authority (VA) and Post Office (PO) respectively.

The CSP team adopted a broadly similar approach to disbursing payments as they had used for enrolment. Public announcements were ordered for payments disbursal and GP office was used as the disbursement location. Beneficiaries visited GP office to collect their payments. For elderly and handicapped people who could not make it to GP office, the CSP team traveled to their homes to authenticate and make payments.

Liquidity management:

The CSP team managed the cash liquidity during disbursement. They receive funds from ALW’s Mandal Coordinator (MC) one day before the actual disbursement. At the end of each disbursement day, the CSPs inform the MC about the payment status and the balance of cash they hold and then continue disbursement the following day. The process continues until the entire MGNREGS payments are disbursed. In contrast, SSP payments are only made for the five days, beginning from the first disbursement day – typically at the beginning of the month.

The CSP team hands over any undisbursed cash to MC at the end of each disbursement cycle.

Improvements and way forward:

The introduction of biometric authenticated transfer payments through the BC agent model has helped both the Government (to target the ‘right’ beneficiaries) and beneficiaries (to receive their full entitlement without deduction by middlemen).[2]

CSPs have become an integral part of the ecosystem to reach the last mile. They represent the stakeholders on ground and a touch point for the beneficiaries. However, in the current set up, CSPs feel are overstretched and under compensated. Aalia and Aasia highlight a few possibilities for areas improvement:

First – they are overburdened as they are asked to undertake a large number of activities in a limited window of time. The disbursement period lasts for only 10 days each month. SSP payments are disbursed the first 5-6 days; while the timing of MGNREGS payments varies each month. During these 10 days, the CSPs work for over 10 hours and perform over a hundred transactions[3] per day.

Second – they are not provided with much assistance from the bank or ALW. G2P agents are not provided with any work location, marketing collateral or signage to represent the BC agent deployment. This leaves the CSPs to promote the disbursement activity themselves. In most cases, they do get help from the local Panchayat officials but feel that the bank and ALW should play a larger, more supportive role.

Third – they are not adequately compensated for all their efforts. Several CSPs including, Aalia and Aasia, are paid very little (Rs.500 or $8.20 each for 10 days’ work) considering the services they required to offer – see MicroSave Policy Brief # 9 “Behind the Big Numbers: Improving the Reach and Quality of Agent Networks in India”. That said, what keeps them in the job is not the financial earnings but the connection to the outside world. They enjoy the interactions with Government officials and ALW staff, and the recognition from fellow villagers for being a CSP.

Fourth – they are tasked to manage several operational and process-related risks/delays. It remains CSP’s responsibility to complete disbursements within the stipulated time. During this, issues arise such as failed biometric authentication[4] and other technological glitches that cause delays. They need improved operational support to tackle these issues.

Fifth – they are not provided with adequate training or opportunities to offer other services. The current system is only used to make disbursements. Neither the CSP nor the beneficiary views this as a banking channel. Increased business opportunities in the form of savings or insurance (and possibly eventually even credit) backed by improved training could aid CSPs to augment the services they offer, and thus increase opportunities to earn income. – see MicroSave Briefing Note 65 “Successful Banking Correspondents Need a Compelling Product Mix” and Briefing Note 97 “How to Make Optimum Use of Agent Networks (1/2)”.

[1] ALW is a Business Correspondent deployment that uses mobile-based technology through which CSPs use mobiles to transact and biometric scan device to capture biometrics and to authenticate payments.

MFIs and Digital Financial Services: What Route Should MFIs Take?

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There is probably a value proposition for both MFIs and Digital Financial Service Providers to partner with each other to facilitate the delivery of financial products and services. There are several ways in which these partnerships can work. In this video, MSC’s DFS expert, Denny George, examines some of these partnership modes from MFIs’ perspective.

Why m-wallets won’t work… yet!

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As you might expect, India has more competing mobile network operators (12) than any other country and is only slightly behind China for subscribers (~894 million). It is widely acknowledged as the fast growing mobile market in the world.

India is also acknowledged as one of the most problematic anywhere for financial inclusion, particularly in the ~600,000 rural villages which have only ~33,500 commercial and regional rural banks—or one bank branch per 14,000  customers. The Reserve Bank of India (RBI) data confirms that more than 145 million families, close to half the population, have no access to formal banking services.

The solution seems obvious. The mobile operators, especially the top three (Airtel, Reliance, and Vodafone, each with a healthy respective market share of over 20% ), should provide mobile wallets and banking to the more than half billion who have no account, or only frustrating and limited access to local bank branches.

In addition to enabling more and better savings, credit, electronic money transfers, and payments, mobile wallets can also help operators reduce customer churn rate (every network’s worst fear in a highly competitive market), plus the new m-wallet/banking marketing campaigns for these low-income targets can boost overall financial capability. (Please see MicroSave’s recent blog on Rethinking financial education  and a note on Marketing Lessons).

Everyone benefits. But nothing is simple, and in India, really nothing is simple.

The first problem, no surprise, is regulatory red tape and long delays. “Open” mobile wallets—i.e. not sponsored directly by a bank—all need to be linked to a bank account anyway. (For more on India’s bank-led financial inclusion model, and the unhappy symbiosis between banks and telecoms in general, please see MicroSave’s recent blog, Why is the Chicken Afraid to Cross the Road? )

And bank accounts don’t happen for wallets without a comprehensive authentication–Know Your Customer (KYC)–process. Most bank branches have figured out ways to streamline KYC for a normal or no-frills account to one or two days. Mobile operators can have your new phone ready to use in less than 24 hours. In highly competitive markets, the process is even faster. But wallets are a new and uncertain hybrid that no one fully trusts yet—and authentication turnaround time of up to two weeks does nothing to help inspire greater confidence.

MicroSave’s on-site observations for a leading mobile operator indicate preliminary paperwork is probably the first and worst hurdle to clear. Prospective wallet customers do not fill out or have help filling out their application forms in a bank branch under the watchful eye of a teller. Forms are completed in the busy local shops of bank agents. Many applicants are illiterate and, as one researcher explains, “The agent instructs them to either sign or put thumb impressions in the requisite places of the account opening form. And then rest of the form is filled in either by the agent, other staff, or super agent [regional network manager]—or, in several cases, by no one.”

BCs receive commissions on the number of new accounts they activate, not on the number of mistakes and incomplete answers they catch on the forms. So the banks return the forms as invalid, the forms wait around in the agents’ shops for the prospective wallet customers to return, and the KYC process begins anew. (Or the invalid forms get lost somewhere en route and/or BCs have no way of tracking down the applicant.) Two-week turnaround time begins to make more sense.

Another complication are the various cross-platform audits and hierarchies which include agents à super agents (BC network managers) à bank managers à mobile network managers…and then back down the chain to the prospective customer. Rural India is not renowned for instant and highly efficient delivery systems, but the impressive surge in internal remittances in many regions has increased everyone’s expectations and demands for speedier processing and problem resolution.

Possible solutions include:

  • Better agent training for these applications
  • Incentives for precision and correct fulfillment, in addition to the new-account catalysts
  • Closer monitoring by their managers for accuracy and completion
  • Daily electronic updates for the MNO wallet sponsors on their applications’ progress or lack thereof (on the premise that the operators care a lot more than the banks whether these wallets actually materialize or not)

Ultimately new ideas like mobile wallets work because they fulfill a need. The need is clearly there for many in India—with and without access to banking services—but any new idea involving money has to work perfectly and inspire full trust before anyone will adopt it. Mobile wallets have more to address than simply increased marketing and advertising to succeed with the many customers who need what they are selling.

Water and Sanitation Loan Products for MFIs

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This video explores the new area of WatSan financing as a potential segment for MFIs. MSC’s Senior Analyst, TVS Ravi, highlights the demand for improved water and sanitation across the world and what role microfinance can play in improving access to water and sanitation. The major issues which MFIs have to keep in mind before entering WatSan financing are also mentioned.