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Mobile money – What lurks behind all the numbers?

Posted on by MSC

The recently released 2013 GSMA Mobile Money Unit (MMU) State of the Industry report and the  State of Mobile Money Usage are filled with encouraging statistics and upbeat projections for the existing and new services the GSMA supports worldwide.

On paper, the state of the industry and usage are splendid: 219 mobile money services in 84 countries, with more in the works for 2014, with 203 million registered users (as of o6/13), compared with 108 million a year earlier. Approximately 61 million were “active”, (one transaction in three months), 37 million were “more active” (at least once in a month).

The Global System for Mobile communications, an open, digital cellular technology used for transmitting mobile voice and data services, also enjoys 80 percent world dominance (or “market share “ if you prefer). Adoption and usage figures, in particular, are interpreted differently from what MicroSave sees in daily fieldwork and CGAP (the World Bank’s Consultative Group to Assist the Poor) discovered in an extensive follow-up several years ago.

Even the GSMA acknowledges that only 13, or a very small 6 percent, of their MMU services, have reached “scale” with at least one million users. MicroSave’s a recent blog on mobile bill payments and sustainability and an earlier one, Mobile Money–Rosy vs Real, point up the many unresolved security, fraud, interoperability issues and basic user problems like a widespread inability to remember passwords that tend to be glossed over in the blockbuster reports.

The interesting part of this problem, however, is not the figures or forecasts—glowing or glum—regarding relative rates of adoption, but WHY. What are the reasons behind quick uptake and regular use versus general indifference to sending and receiving money by phone?

Here is a brief list that may prove helpful from our own experience:

–          Mobile operators often play the most important role. Others–including Cash In/Cash Out (CICO) agents, employers, government welfare payments—are also key to customers successfully adopting a mobile money service, but it begins with the network operator. Unlike the banks, operators want these customers and most are only too happy to add payment services to airtime top-up and more phone sales whenever the law allows.

–          Providing a rationale. MNOs can also do mass marketing. The most famous is of course Safaricom’s “Send Money Home” slogan which resulted in 18 million active M-PESA users, but Eco-Cash from EcoNet In Zimbabwe (“I pay with Eco-Cash because I don’t like being short-changed”), Telenor’s EasyPaisa in Pakistan (“Changes my

life through convenience”) Telesom’s ZAAD (“Transfer, Save, Buy”) have all managed to convey simple, compelling propositions to an initially less than eager public.

–          Those paid by phone, especially those paid via a full-frills bank account, are much more likely to continue paying by phone. If everyone reading this were still remunerated in cash, most of us would not pay bills online or use debit/credit cards for daily purchases. The real problem, as discussed by James Militzer and Ignacio Mas in a recent blog, is where the money begins.

  • For the non-salaried poor, it begins as wadded-up bills and coins. Which then require time, effort and, too often, a fee to convert to mobile money via a CICO agent.  Periodic withdrawals always involve fees and the same difficulties in reverse so, for most migrant and domestic workers, cash stays cash.
  • G2P and remittance beneficiaries may receive electronically, but the urge is overwhelming—and common sense would certainly encourage most recipients—to pull the money out when it arrives. Periodic withdrawals are too expensive and without easy access to ATM cards and machines, too inconvenient. (Please see MicroSave’s two recent blogs on the specific logistics of  G2P payments in India for more details.)

–          Tempting though it is to blame the agents for everything wrong in financial services for the poor, and critical though their role is in selling mobile payments to customers, there are other key links in the chain that also need strengthening—specifically merchants, institutions, individuals willing to receive non-cash payments.

  • No m-payees, no m-payment system. This is the tricky bit too many policymakers and planners gloss over. In the mid-1980s, no one—not even VISA and MasterCard—wanted to participate in online payments. And supermarkets emphatically didn’t want debit-card/PIN readers cluttering up the check-out counter and slowing traffic. Change is only easy and obvious in retrospect. (See below for why everyone ultimately came around. It wasn’t just because paychecks became virtual.)

–          Seeing is believing…sometimes. MicroSave recently observed a group of rural Indian women who, when offered the opportunity to repay their monthly microfinance loan by phone, all declined. With all the usual excuses. Their husbands had never heard of such a service. Nor had their far more tech-savvy children. Why would they trust something unknown no one else was using?

  • Live demos helped. Targeted marketing and advertising with trusted, recognizable logos helped even more. One person in the group trying and succeeding was perhaps the most effective, but adoption remains cautious.
  • Trust is hard to build and difficult to maintain. Introduce any extra fee, however small, during the transition from cash to mobile payments, or make PINs too hard to remember or recover, and no amount of marketing and hands-on help will bring your users back to the phone.

We also have a fundamental disconnect in transferring the idea of digital payments—be they by phone or point-of-sale cards—from industrialized Western economies to developing parts of the world where most people still don’t have bank accounts

In the West, the rationale was uncomfortable but simple: sales clerks, ticket sellers, cashiers, tellers, accounts payable & receivable departments are all too expensive; machines, even the ones that need 24/7 maintenance, are cheap and incur no extra cost when they break or become obsolete. Sold to customers as faster, more convenient, and always available, these never were and still aren’t the real reasons banks, mobile operators, utilities, and merchants tirelessly promote and improve electronic funds transfers, online banking, ticket machines, bar-code scanning, and all other, ever-expanding New Ways to Pay.

The real reasons change in places where human labor is as cheap if not cheaper, and often more reliable, than technology. Most banks and mobile operators, not to mention the m-payees (see above), need a stronger impetus than increased mobile use and financial inclusion to invest in the significant demands digital payments will impose. Fraud and authentication, already a ~$3.5 billion cost for U.S. mobile payments, will be argument enough for many to pause and reconsider.

We should do it anyway. Even though users don’t really want mobile payments yet. (They aren’t faster, more convenient, more available, and probably won’t be for a good long while.) Even though most mobile operators and others won’t enjoy much, if any, return on their investments for the same longish, discouraging time periods.

The GSMA MMU and Safaricom are, maybe, just this once, right to over-hype their successes. Mobile money and a mobile account are still a better, more secure alternative than cash. And until we come up with a more viable idea, they will only become more so.

Interoperability

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Speaking with us, Puneet Chopra, MSC’s Domain Leader- Digital Financial Services: Banks/Product Innovation, shares his views on business correspondent model in India and explains how interoperability of BC channels can enhance the confidence of stakeholders, such as the government, banks and BCNMs, in the system. Taking the conversation ahead, he observes the dichotomy of what is available to the mainstream consumers versus the poor and voices the pertinent question on everyone’s minds — Do the unbanked population really need interoperable services? Do they need services like their mainstream counterparts or peers?

Sighting MSC’s study findings, Puneet observes that there is a strong business case for banks and BCNMs in support of greater integration and interoperability, underlying usage of technology, better security that can be enabled through this channel and greater interoperability to benefit the end client.

Mor Committee report: Will DBT be the way to financial inclusion?

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The Nachiket Mor Committee on “Comprehensive Financial Services for Small Businesses and Low Income Households” made some concrete recommendations to enhance the spread and use of formal financial institutions. These recommendations include methods to transform the way government distributes social welfare funds. If the recommendations are accepted as they are, Direct Benefit Transfer (DBT) will go through a sea change. In this blog we assess the recommendations that impact “Direct Benefit Transfer”.

The most revolutionary, and therefore the most talked about, recommendation is the provision of a “Universal Electronic Bank Account” (UEBA), for each adult Indian using Aadhaar as e-KYC. This fulfils the most basic and critical condition of receiving direct benefit transfers: having a bank account. Significantly, the report recommends that these accounts are opened as soon as the Aadhaar identification number is issued, so that the time taken to open an account is reduced to almost nil.

The alternative method for opening an account, through the normal route of filling an application form, submission and verification of KYC documents etc., takes a long time, usually an average of 15 days … and in some cases the account is never opened at all.

Beneficiaries of different DBT schemes either do not have bank accounts; or if they have one, linking (or “seeding”) the Aadhaar number to these accounts is extremely challenging, because of discrepancies in the databases involved, and the low number of bank branches (because seeding can be done only in a bank branch). If the method of account opening proposed by the Mor Committee actually materialises, it will solve one of the bigger impediments that has contributed to uncertain and painfully slow progress of DBT – that of beneficiaries not having Aadhaar-seeded bank account. Apart from a handful of States where non-Aadhaar transfers are working well (for example Madhya Pradesh), for the majority of DBT schemes, Aadhaar seems to be the only reliable and feasible option. The recommendation for the UEBA takes care of both necessary conditions: a bank account that is also seeded to the beneficiary’s Aadhaar number.

The RBI has already allowed use of Aadhaar as e-KYC, but Indian banks have, to date at least and for understandable reasons, demonstrated a high level of inertia, and are taking too long to accept and respond to the new realities. It will take a few progressive banks to take initiative and provide the proof of concept, after which all banks will rush to follow.

While UEBA will address the necessary conditions – a bank account and seeding with Aadhaar – for DBT, where will beneficiaries withdraw the money?  The Mor Committee report discusses this issue as well and makes more recommendations to increase the number of access points in remote and rural locations. This can be done if the government increases commission paid to the banks for G2P payments to 3.14% of the amount transferred – thus making rural agents or customer service points (CSP) viable. This should take care of the viability issues for banks, aggregators and agents even in locations where the number and value of transactions is relatively low.

Another recommendation of the committee is to make the BCs interoperable. Under the current approach banks follow the “service area” approach to set-up business correspondent (BC) touch points. This means that each service area, is serviced by the area’s designated bank. Without interoperability, these touch points do not add lot of value to many clients who have accounts with a variety of banks – many or all of which do not have a BC touch point in their vicinity. If BCs are made interoperable, rural bank account holders will much better served and the business case for BCs and their CSPs will be greatly enhanced.

These recommendations potentially can transform the BC landscape by reducing the number of dormant CSPs, and also multiplying the number of access points available to beneficiaries irrespective of their parent bank and aggregator. The current state of CSP presence in India is not very encouraging as has been highlighted in a recent MicroSave India Focus Note “The Curious Case Of Missing Agents In Rural India”.  The study shows that only 4% villages could really be considered to have effective or usable CSP coverage.  In other places, CSPs were either dormant or were never appointed, and others simply do not exist at all. Until steps are taken to ensure viability of business proposition for banks, aggregators and agents, we can safely assume that neither Aadhaar-enabled benefit transfers nor financial inclusion will take off.

The Mor Committee’s report also makes a few other recommendations that have potential to change the BC landscape and provide much more room for banks to make business decisions. The recommendation to discontinue the requirement for bank branches to be within 15 km (urban) / 30km (rural) of their CSPs will help to make the case for banks to treat this as mainstream business and thus take a business decision on where to place their CSPs. It will be a welcome break from current target based approach. Another of committee’s recommendations, that banks can decide on charges for clients transacting at CSPs, also strengthens the business case for banks, BCs and their agents. There are locations in remote areas of hilly terrains where it may just not be feasible for banks to offer BC services at the same fee/commission as is in cities and towns in plains. If banks are free to decide charges, they will be more willing to open CSPs even in otherwise ‘unviable’ locations. And because all banks will be free to do this, competition should check exorbitant pricing.

Thus the Mor Committee’s report has addressed all the basic factors that are needed to make DBT successful and help achieve universal financial inclusion. The report challenges regulators to provide favourable conditions for fair and open competition, so that India has a larger number of viable players offering financial services. The regulator should recognise and respond to these new realities/possibilities. This is indeed new age, and new age banking provides us the opportunity to finally realise the dream of financial inclusion using DBT as an “anchor product” on top of which banks can offer a larger range of services.

Business as usual is not working and is unlikely to do so in the foreseeable future!!!

Introducing a catalogue of product functionalities and innovations in mobile money

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Much of the dialogue around mobile money is shifting from how to build a basic mobile money proposition (regulatory enablement, industry partnerships, cash merchant networks, technology choices) to how to transition to an e-payment ecosystem, whereby funds are born and used digitally. New product development in mobile money is central to this much-awaited transition.

The key battleground in the future will be to increase usage levels, and that means providing more customers reasons to do more things using their mobile. Despite the growing clutter in mobile money menus, customers remain very limited in what they do: according to the latest MMU State of the Industry report, 92.5% of mobile money transactions globally are either airtime purchases or basic person-to-person transfers. I suspect that dispensing with the mobile wallet and allowing for over-the-counter transactions (which may make good business sense in the short run but limits the opportunities for customer growth) has been the biggest innovation in the last few years.

But beyond the headline products: how diverse are the offerings of mobile money platforms across the world? How much product experimentation is going on? Is there a healthy supply of creative new product ideas?

In a new paper written in collaboration with my former Gates Foundation colleague Mireya Almazán who is now with the MMU, we have sought to shed light on these questions by creating a first-of-its-kind catalogue of mobile money functionalities and services. We include offerings that have been rolled out or are being piloted, as well as service concepts that have been proposed. We structure the paper based on the product typology depicted in the figure below. For each product class, we describe the range of implementation modalities in detail. We hope this report will be viewed as a comprehensive product definition reference guide by practitioners.

We found that while the range of product categories is still rather narrow, the specific ways in which services are defined and packaged does vary to a surprising extent across operators and markets, especially for payment services (peer-to-peer transfers, bill payment, merchant payments, transfers to/from linked bank accounts) and for linking mobile money accounts to regular bank accounts.

The paper did not get into the factors which may be hindering more far-reaching innovation, but let me posit some hypotheses here. First, many mobile money providers have inflexible platforms which are run by small teams on tiny budgets; for them, innovation is seen as more of a distraction than a solution to their business problems. Second, practically all mobile money providers run closed systems without adequate application programming interfaces; they are unwilling or unable to enlist partners to experiment for them. Third, unnecessary regulatory barriers to entry prevent smaller, nimbler, more innovation-minded players from mounting credible competing propositions. (I’m thinking here about the unjustified regulatory insistence that cash in/out presents agency problems, hence requiring a strong contractual binding of cash merchants to individual banks or mobile money providers, which precludes the spontaneous development of cash in/out networks serving all providers. Or the unjustified regulatory insistence that non-bank players shouldn’t promote savings services or pay out interest, even if they are 100% backed-up into fully regulated bank accounts.)

I believe that embracing innovation will be the only way to achieve scale by most players. And for any transactional business, scale is job #1.

Product Needs for Enterprises

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Despite the fact that MSMEs contribute significantly to the economy and employment, MSMEs are undersupplied with adequate, affordable, timely and market-led financial products. MSMEs play a vital role in developing economy, says MSC’s Assistant Director, Bhavana Srivastava. In this video, she outlines the financial needs of a typical MSME such as Credit, Savings, Transactional Banking Services and Business Development Services. And also voices the need for financial literacy and awareness programs for SMEs.
Bhavana concludes that a perceptible change in MSME banking can only happen when banks start viewing this segment as a viable business segment and include MSME banking in their core business strategy.

District readiness for G2P payments: Ready or not…Well, still mostly ‘not’ part – I

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G2P (Government to Person) payments have been common in India for a long time but questions are consistently raised as to whether the payments reach the intended beneficiary. In addition to this, the convenience, cost, efficiency, and certainty with which a beneficiary can avail, and then withdraw, the benefit payment also remain under scrutiny. As a result, with G2P payments such a key part of government strategy, there is a great deal of focus on ensuring timely, effective and convenient delivery to the intended beneficiary.

Electronic Direct Benefit Transfer (EBT) is one way to transfer funds electronically from the relevant department/treasury to individual beneficiaries’ bank accounts. EBT seeks to minimize leakages at the same time improving upon the time it takes to transfer funds. However successful implementation hinges on successful withdrawal, and for this, there has to be a network of available and accessible “Cash-In-Cash-Out” points servicing beneficiaries within their vicinity.

The core value adds are that:

It is indeed a win-win situation if achieved … but an implementation of DBT/EBT has thrown up more challenges than policymakers ever anticipated.

Typically there are a host of stakeholders involved in the entire process. These might differ depending on if it is Aadhaar based DBT or non-Aadhaar based one. But the diagram outlines the generic system.

It is evident from the above diagram that it is a multi-stakeholder process, and calls for a seamless coordination between a large number of players … and this is where the fundamental challenge lies.

At the front-line, beneficiaries must interact with:

  1. The district administration for scheme-related matters such as enrollment and updates in the beneficiary details, etc.
  2. Financial institutions and their cash-in cash-out (CICO) networks for account opening, linking or “seeding” of Aadhaar number (if Aadhaar authentication is used), checking account status, and financial transactions.

There is also back-end coordination and interaction between different stakeholders, but beneficiaries are not aware of these and there is no role they can directly play in them, so we do not discuss them here.

The Government of India announced more than 100 districts for Aadhaar based DBT roll out, and in addition, state governments have other such programmes in other districts. But there does not seem to be any clear basis for choosing the districts for rollout. This leads us to a very basic question: Could there be a tool that helps governments to decide which districts to choose for DBT roll out depending on districts’ readiness level? And, of course, this tool may also help us all to understand which areas need focus for successful roll out.

In the next blog in this series, we will discuss how MicroSave has responded to this challenge and developed “district readiness assessment” (DRA) tool, to assess the readiness of a district to deliver EBTs.