The lurking challenge of branchless banking: Activating the inactive customer

by Claudia McKay : Tuesday, January 25, 2011

high-cost-inactiveIn the past year, several high-profile branchless banking deployments have publicized the fact that they’ve reached more than one million users. Yet what is never publicized in press releases or speeches is the very low number of active users in most deployments. In a recent CGAP survey, 64% of mobile money managers indicated that less than 30% of their registered users are active, and active rates of less than 10% are not uncommon.

This is a problem for several reasons. First and foremost, since it costs money to acquire customers, low activity rates greatly drive up the cost of acquiring each active customer. The figure here shows the acquisition cost per active customer based on a $5 customer acquisition cost. This covers the commission bonus to agents, fulfilling back-office KYC requirements and a starter kit for customers available with some services.  If a deployment has a healthy 50% activity rate, the acquisition cost is a reasonable $10 per active customer. However, if the activity rate drops to 10%, the cost per active customer increases dramatically to $50. Some deployments have activity rates as low as 1% – and they are paying $500 for every active customer, an investment that may never be recouped.

Since the issue at hand is low customer usage, it’s easy to simply think of this as a problem related to customer perception of the service’s value for money, leading to tweaks in pricing or higher investment in marketing and financial education.

These items may very well need to be changed in a particular deployment, but we think the answer is more complex than that. As customers move through the process of first becoming aware of a service, then signing up and transacting for the first time and finally becoming a regular user, there are six levers which impact their experience. These levers are product features (including pricing), marketing, the agent network, customer service, the user experience and the system/network.  CGAP has developed a framework to map the process for active customers of moving from awareness to ongoing activity.

Although some of these levers may seem more important than others, if any one lever fails during one of the critical parts of the process, the customer is unlikely to progress to active usage. For example, if there is a network outage while the customer is trying his first remote transaction and it fails, there is a good chance that he may never try again. This means the issue of activating inactive customers should not be thought of as a stand-alone customer issue – it is highly integrated with business operations, the agent network and other areas. It also means that there isn’t a single ‘magic bullet’ that can fix this problem worldwide. Each deployment struggling with this issue will need to do a diagnostic of their own service to understand where the weak links are for their customers as they progress from awareness to ongoing usage.

What do you think? CGAP intends to examine this issue in more detail in the coming months and we’d love to hear if you’re struggling with this issue and what you’re doing to overcome it.

- Claudia McKay

TAGS: Customer adoption, Customer Value, Mobile Banking, Research

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9 Comments RSS 2.0

  1. January 25th, 2011 at 6:54 am, Tweets that mention The lurking challenge of branchless banking: Activating the inactive customer -- Topsy.com ()

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  • January 25th, 2011 at 12:50 pm, jiten patel ()

    Your preliminary finding sheds light on why this important subject matter needs further examination and research.

    Your blog sheds light on a subject that most MFIs do not scrutinize as closely as they ought to. Appreciate the timeliness of this blog.

    It clearly highlights the fact that MFIs need to take steps to better understand their customers needs before they contemplate jumping on the branchless banking train, and once they do they then need to follow the CGAP Framework to map the flow of customers across this process.

  • January 26th, 2011 at 2:53 am, Kaiser ()

    This is actually the situation, and after getting customers the other challenge is to keep these customers active. The telecom industry is also facing the churn rate from MNP services and better rates from competitors so the acquiring costs goes down the drain. But on the other hand, good financial services will keep the customer base intact.

    Good article.

    Kaiser

  • January 28th, 2011 at 4:48 am, Infosys Press Team ()

    The recent CGAP survey announces some interesting statistics on customer user rates with regards to branchless banking. Less than 30 per cent of registered users are active and if the activity rate per user drops to 10 per cent, the acquisition cost per customer rises to $50, and to $500 if the activity drops to one per cent. Most service providers count on a user being 50 per cent active, so the acquisition cost per customer is $10 and the bank remains profitable. It’s also believed there are six reasons for a customer to stop using the service – product features and pricing, marketing, the agent network, customer service, the user experience and the system/ network.

    Technology has been the catalyst for internet and mobile banking, and it has enabled banks to reduce its costs by being able to streamline administrative processes, reduce branch footfall and the number of outlets required, and reduce the volume of postal direct mail. However, these statistics reveal that banks have a long way to go, before they can convince users to let go of the security blanket of the branch bank.

    To increase customer usage and ensure activity, branchless banks still need to engage with the customer and deliver the same level of service that customers enjoy with branch-based banking. This entails educating the customer and assuring them of security levels across the network as well as network availability. If the customer has a bad experience, be it they experience a network outage during a transaction, the bank needs to contact the customer and assure them of the reliability of the network. Branchless banks must offer the same products and services at the same price as branch banks, or otherwise alternative channels of banking will seem like an inferior choice, not a preferable option and customers will switch off and switch over to a branch. It is also essential for banks to listen and learn from social media interaction to deliver the customer an experience they would want and not what the bank would like to offer. By talking to customers in an environment that they are comfortable in – online – banks will be able to have honest conversations.

    Adopting these simple tactics will help branchless banks to manage and maintain their customer usage levels. Not achieving an uptake in mobile banking would be a waste, especially as it would be a ‘channel of choice’ for the younger generation, who are tomorrow’s future. Or is it simply, that people prefer to talk to people, rather than technology?
    ______

    Comment from Hemant Lamba, Banking and Capital Markets Practice, Infosys, and posted by Infosys Press Team

  • February 8th, 2011 at 1:37 pm, Jean Succar ()

    I really like the active customer framework. I remmeber that for money transfer it was the same thing when the product is just launching, it is critical that the agent location possesses funds, otherwise the customer experience was sour and customer did not come back (70% of the time)

  • February 17th, 2011 at 10:44 am, Peter Goldstein ()

    question for you: what is your definition of an ‘active’ customer?

  • February 22nd, 2011 at 10:29 am, Claudia ()

    Good question Peter. For the purposes of the survey mentioned above, we took whatever definition the service provider used. The strictest definition was one transaction in the past 30 days while the loosest was one transaction in the past 6 months. I’d say the average was somewhere in the middle with one transaction in the past 90 days. As CGAP delves into this topic further we’ll look into this definition in more detail and perhaps propose a standard one so that we are measuring apples to apples.

  • May 12th, 2011 at 4:08 pm, Marketing Branchless Banking – Mobile | How to Business ()

    [...] branchless banking implementations have struggled with low customer uptake and high levels of inactivity. Inadequate investment in marketing, especially advertising, has come under the spotlight as a key [...]

  • November 6th, 2011 at 6:13 am, Adnan NAYAB ()

    It is definitely a pain point for every progressing or struggling BB initiative. I would certainly agree with the importance of the 6 decisive levers as penned in this blog, however ideally there is no way one can a perfect balance of all these levers. With a varying degree of business models, market dynamism ala skepticism, competition & technological superiority all these levels shall continue to exert their impact & influence. Being a practicing BB professional & while managing a large scale AGENT NETWORK of UBL OMNI from Pakistan. I would say following 2 approaches can be deployed from Customer Service & ANM standpoint.

    1. While activating a customer account, a call center agent (CS) can walk through a customer with basic account features in a perceptible and easy language. They can try out 1 or 2 basic complementary transaction which can give hands on experience & confidence to the customer.

    2. Similarly at agent’s location, if regulations are enabling enough.. A customer may be allowed to carry out a set of transactions (debit or credit) and this time the agent itself aid the customer for inculcating tips & knowledge to use their accounts while sitting in their homes or offices.

    Of course the remaining levers need to be constantly upgraded & improvised for a lasting impact on the user as well as the usage.

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