Want tips on mobile money product design? Here are two from a motorcycle and a jerry can in Uganda

by Mark Pickens : Tuesday, May 31, 2011

How much would you like to pay to save? Zero, most likely. In fact, you probably hate the fees your bank charges for the privilege of holding your funds and disbursing when you ask for them.

So why was it so easy to find people paying huge negative effective interest rates on a recent trip to Uganda?

One man  – let’s call him Richard – used an ingenious method to save for a new motorcycle.  Whenever he had a bit of extra cash he wrapped it in heavy plastic, waterproofed it with industrial-grade resin, and dropped it into the petrol tank of his current motorcycle. After a year when he thought he had enough to buy a bigger, better vehicle, he had the petrol tank removed and cut open with an acetylene torch to recover the currency. The motorcycle cost USD 750. He paid USD 110 to have the petrol tank cut and buy a new one to make his old motorcycle re-sellable. That equates to negative 14.66% annual interest on his savings.

Why would he do this? Same reason a woman — let’s call her Jennifer – dropped coins into her jerry can of cooking oil. She wants to save money to buy some clothes for her children at Christmas (at which time she cut open the jerry can to get to the money).

For both Richard and Jennifer, the requirement to destroy something they owned created an effective barrier against temptation. For the poor, the most salient feature about their incomes, after the low level, is its variability. They may live on an average of USD 2 per day, but rarely see exactly that much. Some days they earn USD 10, other days nothing. But expenses for food are constant, and emergencies arise no matter how much they earned that day. The temptation to raid savings is continual and almost irresistible. Unless big barriers are erected.

Can we productize these insights to improve branchless banking services? The wallet in most mobile money is rarely marketed as a product in its own right. Most providers have styled the wallet as nothing more than a temporary holding zone for money before you send it, or the landing spot when you receive some. Wallets are designed with zero features except liquidity: if you pay the requisite fee, you can deposit or withdraw money whenever you like.

What if this liquid wallet had a twin: a store of value that was explicitly illiquid? What if Richard or Jennifer could name the point in time when they wanted their money? What if they could not touch it until reaching their goal? There might be an emergency safety valve to get at the funds, but from looking at the savings instruments that Richard and Jennifer devised, consumers might very well want the barriers to be very high indeed.

Moreover, consumers might be happy to pay for the service. Perhaps not the effective 15% which Richard paid, but 2% to 3%. That’s the same average price many people are paying already on an average mobile money transfer. P2P helps consumers alleviate the pain point of moving money over distance. Is it so crazy to think poor people might pay for a service which helps them effectively move money over time, allowing them to move current income forward to the future to finance much-desired purchases? Maybe not so crazy if we understand that a better motorcycle helps Richard earn more as a motorcycle taxi, or if we could see the smiles of Jennifer’s children when they open Christmas presents.

For those of us working to design better financial services for the poor, it may pay to spend some more time understanding their lives.

- Mark Pickens

 

TAGS: Africa, Customer adoption, Savings, Uganda

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20 Comments RSS 2.0

  1. May 31st, 2011 at 6:54 am, Sadya Siddiqui ()

    Both Richard & Jennifer sought to save in instruments that were within their physical reach which made their savings secure & accessible for them in their own way. The twin could be an incentive to save instead of a barrier to spend. The barrier such as charges, in a way penalize the saver, when it should be motivating him/her.

  • May 31st, 2011 at 11:32 am, Joseph ()

    Great piece on design of financial products for the poor.

  • May 31st, 2011 at 3:30 pm, Kevin Donovan ()

    Have you seen Thaler and Sunstein’s book, Nudge? Deals nicely with this type of thinking.

  • May 31st, 2011 at 5:24 pm, Jake ()

    Hi Mark,
    Interesting post. I think your examples are nice illustrations of what people will do/pay in order to constrain their own spending and sock away value for a later date.

    It will be interesting to see how mobile money will evolve to meet client needs, whether they be needs to constrain spending or other needs. Mobile moeny players may try to develop commitment and other more tailored product features themselves. I would think that mobile money providers will eventually begin to see their role as a platform provider, linking insitutions offering these kinds of services to clients in a way that benefits both sides. As our recent paper documents, this may already be happening in Kenya.
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1830704

    Thanks again for the post,
    Jake

  • June 1st, 2011 at 6:23 am, adnan masood ()

    Thanks for an excellent insight into the workings of the poor. The banking industry needs to become much more innovative in the design of savings accounts which have traditionally been very bland and non-creative.

  • June 1st, 2011 at 2:48 pm, Mark ()

    Thanks, everyone, for the first crop of comments.

    Kevin, I definitely thought of “Nudge” after talking to these clients in Uganda. Sadya, definitely worth looking at incentives vs. penalties. For mobile network operators, airtime has an effective marginal cost close to zero. I wonder about matching client deposits with a % of airtime?

    Jake, your comment points at something quite important: branchless banking providers don’t have to go it alone with product design. Nonbanks can partner with banks better positioned to offer deposit or credit products, for instance. But we find that often other players which might have more regulatory permission to offer other products can also be missing insights about what low-income consumers want.

    There is definitely work to be done generating insights about consumers and converting those into innovative products to test.

  • June 1st, 2011 at 7:24 pm, Alex Mumo Muia ()

    A nice illustration though let me point out some few observations.

    A nice platform, aggressive agent acquisition and a successful go-to-market strategy are the key things to ensure the successful launch of any mobile financial inclusion project.

    Mobile money transfer and mobile banking are two different things.
    Mobile money transfer has evolved into mobile financial services, but many people don’t distinguish between MMT/MFS and mobile banking.
    The amount of money/time wasted in funding the development of new platforms, if channelled to funding existing mobile money schemes we could have made very big strides in bringing the under-banked population closer to accessing financial services.

    Rollout technology is very critical if the target market is to reach and win the less banked population. Surely telling my grandmother to download a java applet on her phone so as to enable her receive menu which will make her receive the $3 I sent to her…

    Other key things to consider are how friendly the regulation is.

    So next time before one jumps onto that plane to Dubai/New York/Miami or Amsterdam for a mobile money conference, one should stop and think who really is our target customer?…

    Perhaps one should wear mud boots and venture into Kibera slums in Kenya/ Koko village in Delta state in Nigeria and witness how a simple and easy to use STK based platform can change millions of people lives…

  • June 1st, 2011 at 7:26 pm, Rombo ()

    Mark, I like the way you have articulated the notion of moving money over time relative to moving money over distance. Good challenge you raise.

    Sadya, my first thought when I read this was that they were already intrinsically motivated to save so the answer would be a reasonably priced, sustainable instrument that enables them do so.

    What I mean is that the future reward for these particular folk seems clearly defined, and what they want, most of all, appears to be that the barrier that stands between the press of immediate needs and that future goal. Which suggests to me that what they need most is a trustworthy accountability partner in working towards a goal that they are already very determined to achieve.

    My two cents.

  • June 2nd, 2011 at 10:56 am, Ali Ndiwalana ()

    I have read of references to some historical research on credit card usage that suggests people might more easily spend virtual money compared to cash. One worry then could be that as mobile money payments proliferate, would their nature erode one of the things we are striving for i.e. create and nurture a saving culture? I guess this post provides more evidence about an urgent to think of novel incentives/penalties to encourage saving in this new climate.

  • June 2nd, 2011 at 12:53 pm, Mark ()

    I agree with Alex that there are certain “must haves” in any mobile money service: your platform must be stable on the back end and usable on the front, agents must be aggressively recruited, money must be spent on marketing, obviously regulations must be complied with.

    A sizable portion of mobile money plays which have not achieved volume are guilty of poor execution on one or several of these fronts.

    But, how do we explain those implementations that do get the prerequisites right, and still don’t see big uptake from consumers?

    Increasingly I suspect there is weakness in the product. Put differently, basic P2P and liquid wallet is not proving interesting enough to a sufficiently large slice of consumers. This is my leading candidate for why 78 out of the 104 branchless banking services live in the world today have fewer than 1 mil registered users (not active, just registered).

    To attract enough consumers, providers might need to appeal to several segments by offering 2 or 3 initial products. This might include the basic P2P/liquid wallet, but also a saving product, or other that market analysis shows demand for. Should this be surprising? It would be just on more thing about M-PESA’s success that’s peculiar to Kenya and needs to be adapted to make mobile money work in other markets.

  • June 2nd, 2011 at 1:30 pm, Joseph ()

    Like Rombo, I also like the distinction made in the piece between client needs for moving money over distance (money transfer) vs. moving money over time (savings, credit). Very useful.

  • June 4th, 2011 at 6:56 am, Sadya Siddiqui ()

    Mark,
    The weakness may not necessarily be in the product design. It maybe in the communicating & demonstrating its relevance to its end-user. The primary reason we see end-users registering but not using their BB accounts is because they don’t see it as a substitute/replacement to their current saving habits or instruments.

  • June 4th, 2011 at 9:00 am, Gerry ()

    Makes for interesting reading….this goes to show the appetite for saving that is out there! The potential is therefore great, and having overcome the initial hurdle of an e-wallet, it’s not far fetched to think that an easier, flexible savings mechanism can be designed to harness the desire to save.

  • June 5th, 2011 at 10:23 pm, Christian Vogt ()

    Mark, a very interesting blog post! Two thoughts:

    (1) A second reason for the cumbersome saving methods of Richard and Jennifer, besides creating a barrier against temptation, might be safety: Money kept at home obviously is at higher risk to theft than money kept in a bank account. But if you don’t have a bank account, your best option is to find innovative ways of hiding your money. This is what Richard and Jennifer did. Clearly, a mobile-phone-based savings account would provide the safety that Richard and Jennifer may be looking for.

    (2) You propose a mobile-phone-based savings account that would discourage withdrawals in the same way as Richard’s and Jennifer’s savings methods did. The implementation of such an account might, in fact, be straightforward: Enable convenient deposits via a mobile phone, but require a visit to a bank branch in order to make a withdrawal. This solution would make it reasonably difficult to withdraw money, while still allowing emergency withdrawals.

  • June 7th, 2011 at 8:28 am, Mark ()

    Sadya, Your comment is marketing might explain low uptake. I definitely think marketing plays a role, but if a product can’t sell itself to the client, will it ever really go viral like M-PESA did? I’m more inclined to think branchless banking isn’t pushing the right products, rather than the problem being in the adverts.

  • June 7th, 2011 at 8:30 am, Mark ()

    Christian: you are absolutely right that safety is a desired feature that Jennifer and Richard sought in their choice of saving instruments. Safety with illiquidity = higher odds of accomplishing their medium-term saving goals.

  • June 9th, 2011 at 4:46 am, John Ngahu ()

    Mark, this is a very interesting piece. To add to this dimension of things, it would be interesting to assess how much money is borrowed by this income group from loan shacks (sp)and at what interest rates (usually obscene). The desire to finance critical projects whether for productive on consumption purposes seems to override the burden of repayments. However, due to the absence of affordable lending sources, borrowers break their backs to refund the last penny. Indeed understanding their lives is the pillar of micro finance.

  • June 14th, 2011 at 1:52 am, Jonathan Petrides ()

    Mark,

    A brilliant illustration of the lengths our customers will goto when seeking ways to store value over time. It’s just so hard to combat not only the personal temptations to spend on non-essentials (what savers in western world are used to taking-on) but also a much greater challenge of the daily essential food and emergency needs of those family, neighbours and others around you. Tucking small amounts away in a private and personal account that not even your fellow chama members know about, and that permits you to set the term is a must to ever achieve meaningful sums.

    An important challenge with making a scalable mMoney product out of this though is that not everyone is so ambitiously determined to save… and if you lock someones cash in a petrol tank with $100 cost to release it while they do not have the same individual belief and engagement in long-term saving… let’s just say… it can get messy!

    Thanks for the anecdotes!

  • June 22nd, 2011 at 1:02 pm, sherry ()

    Many times a family member (let’s call him/her X) hide money from other members, including the earner, to save for future. X thinks it is better other members do not know of the existence of such a savings. In that case, X is intrinsically motivated to save. All X needs is a financial product that is well-known, cheapest, safest and most accessible (only to him/her).

  • October 27th, 2011 at 12:06 pm, Sarah Fathallah » What can we learn from selling soap? ()

    [...] Direct consumer observation is one pillar on which CGAP’s partners will operate the Product Labs. In practical terms, this means every lab will include a systematic period of consumer observation. Labs will have their own field team skilled in using one or more of the emerging tools and instruments we’ve seen or we will bring in an external team with a track record in this kind of rapid needs-finding. We won’t be relying primarily or even very much on surveys or focus groups. It may look much more like our insights earlier this year showing how a motorcycle in Uganda can help us design better saving products. [...]

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