The Solidda group in Colombia originated as a prepaid airtime distribution network, which originally used scratch cards and then started using electronic vouchers. It has aggregated 60,000 retail outlets selling airtime under the MovilRed brand. In 2011, Solidda saw the opportunity to extend its service range by offering cash and electronic services for banks under the agency model, and set up a separate company called Tranza S.A.S. for this purpose. From the beginning it sought to become a multi-bank network, and refused to grant exclusivity to any bank. To read through the case study, please click here.
Blog
Aligning Customer and Agent Value Propositions to Drive Profits
This presentation was conducted during a workshop organised by GIZ in Mozambique for various digital finance (mobile network operator and bank) providers.
The presentation covers: how to define a customer value proposition and align it to you channel, why the ‘right’ agent selection is important, how to pitch the agent value proposition, how to align this during the evolution of the business model and finally how to communicate the value proposition along the customer journey.
MobiCash Bangladesh (Model 4: Build on GSM airtime distributors)
Digital finance was really catalysed in Bangladesh in 2011 when Dutch-Bangla Bank (DBBL) and bKash launched their services in May and July respectively. Since then, these providers have managed to grow at incredibly robust rates that have set them apart in a competitive field containing 28 licensed providers. The telecoms providers cannot obtain licenses for any digital financial services beyond rudimentary bill payments and ticketing services. However they do sell access to their channels (USSD, SMS etc.) over which many of these digital finance systems operate, and are still looking at ways they can play a greater role in the digital payments value chain. To read through the case study, please click here.
The Health & Profitability of Agent Networks in Tanzania
This presentation was conducted during the launch of our Tanzania Agent Network Accelerator report.
To read the report in full please click below:
Governance Practices among Microfinance Institutions in India
Governance has assumed increasing importance in the Indian microfinance sector over the last few years. With the growth in portfolio and outreach of MFIs, intense competition and stricter regulations, the governance practices of MFIs needed to adapt quickly. Strong governance not only contributes to robust growth of the institution but also avoids the possibility of mission drift. There is a need for prudent corporate governance structure to prevent MFIs from committing the same mistakes they made earlier, which led to a crisis-like situation in the Indian microfinance industry in 2010.
In the light of this context, SIDBI’s PSIG programme commissioned MicroSave to assess the “as-is” status of key corporate governance models followed by Indian MFIs, boards’ roles and responsibilities, executive management and oversight, level of involvement in policy development, corporate oversight and strategic planning process and so on.
The study was accomplished and the report was launched in a conference-cum-workshop on June 3, 2015. The conference was attended by industry stakeholders comprising microfinance practitioners, donors and investors, lenders, and industry experts. The conference presentation captures the summary of the report titled, “Governance Practices among MFIs in India” and provides a snapshot of the governance models adopted by MFIs in India.
The Powerful Agents & Fractured Markets of Pakistan
Pakistan is easily one of the top five leading digital finance markets in the world; yet also certainly one of the least understood. Anyone striving to learn about it must first understand how the Over-the-Counter (OTC) methodology adopted in Pakistan works, as it operates uniquely compared to other markets, especially those where it is unregulated. Its dominance in Pakistan has greatly influenced how the market has developed, and the recently released Agent Network Accelerator (ANA) Pakistan 2014 report provides great insight into how the methodology had led to a fractured market and powerful agents.
A Short History of DFS in Pakistan
The telecommunications market in Pakistan in 2009 was quite competitive with five providers each holding significant market shares. This was when Telenor Pakistan (in partnership with Tameer Microfinance Bank) launched the first digital financial service, Easypaisa. However, they did not want to limit the potential user base to the 22% of mobile phone subscribers that used Telenor SIM cards so they led with a methodology called Over-the-Counter (OTC) in which transactions are executed by the agent at the outlet, as opposed to over a mobile wallet platform by the customer. Therefore, agents are able to conduct transactions for everyone as opposed to being limited to those carrying the specific SIM card of the provider.
OTC Makes it Easy to Get Customers but Very Hard to Keep Them
The OTC method meant that Easypaisa did not have to invest in convincing individuals to register for a mobile wallet and instead could just register agents and promote the use of the service at agent locations. While this surely helped catalyse growth rates in transactions, it also left the door open for other providers to follow suit. In an OTC market, neither the amount of SIM cards a provider has in the market, nor the amount of customers they have registered for digital financial services yield significant competitive advantages. Therefore, while the methodology allows providers with smaller market shares in the voice/banking business to potentially scale transactions quickly, it also means that being the first mover in the market is not necessarily an advantage.
The first mover (if they do a good job) actually lowers the barriers to entry for its competitors by conducting initial agent training and also funding the initial marketing campaigns that make the population aware of what the service offers. Therefore subsequent movers in the market have a much easier task as they can simply register already trained agents to provide services to already aware customers with relatively less investment. They just have to ensure that the service they offer is similar to that already on offer so that it is easily understood.
The Fractured & Volatile Market
The aforementioned factors have lead the Pakistani market to become more fractured and volatile compared to the other leading digital finance markets studied by The Helix Institute—Uganda, Tanzania, Kenya and Bangladesh. The leading brand in Pakistan, Easypaisa has the lowest overall market presence compared to the market leaders in the other countries, meaning there a smaller magnitude of market dominance from a single provider.
Pakistan also has the most competitors in the market, with six providers that have five percent or greater market presence, whereas Bangladesh only had four when surveyed in 2014 and the East African markets all had three or less. This means that not only do market leaders have the smallest leads on their competitors in Pakistan, but they also have the most competitors to compete against.
Further, there is incredible volatility in the market share each provider controls in terms of transaction volumes and values, and in their individual market presence in terms of how many active agents they have offering their services in the market. Mobicash and Upaisa have managed to grow at incredibly robust rates, displacing providers that launched years before them because again the easy to adapt OTC method actually enables big telecoms to quickly convert their GSM retailers into digital finance agents..
Agents Decide which Service Provider a Customer Uses
The OTC methodology switches the location of the battlegrounds for market share from the customer (as seen in mobile wallet-based markets) to the agent. Again, this is because the service a customer uses is not determined by the SIM in their phone or the card in their pocket, but by which service provider the agent chooses to use to execute the transaction. The agent then has the power to tell a customer to use one provider over another for reasons like the customer’s preferred service provider is not working or is inferior for some reason. Therefore, instead of employing product innovation to win customers, Pakistan is subject to commission wars to win agents. Providers constantly have to manoeuvre each other to provide agents with enough commissions relative to competitors to have them consistently use their service as opposed to their competitors.
The Future
Over the years, as the competition has intensified, providers report investing higher percentages of revenues back into agent commissions, steadily decreasing their own margins and leaving them in the same position in the next month when they have to fight for an agent’s loyalty once again. It is the story of fractured markets and of powerful agents. However, in the beginning of 2015, the Pakistan Telecommunications Authority (PTA) asked all telecom providers to biometrically register all their SIM cards, and providers have been using this as an opportunity to also register customers for mobile-based wallets. While several million customers have been registered for wallets since the beginning of the year, the real challenge will be for providers to design products to deliver over this channel that will really interest customers.
