In the first two posts in this series, we introduced CGAP’s work on the importance of data analytics to tackle low customer activity and looked at what data tells us about getting customer activity right from the very beginning. In this third and final post, we’re going to take a look at one of the most fundamental types of data analysis: customer segmentation. The deck highlights several types of customer segmentation but in this post we’ll focus on two simple but effective types – customer demographics and super-users.

Customer segmentation is a powerful marketing tool which can be used to understand customers, design products and tailor advertising messages. It’s based on the premise that some customers will find a service extremely valuable while others couldn’t care less about it. Segmentation divides the market into groups of individual customers with similar needs or wants. It allows providers to focus scarce marketing resources and appeal to high-potential customers in ways that are likely to make them active. Using segmentation, providers can tailor product features or marketing messages to speak to the needs and interests of different groups.

We found that one of the most basic ways of segmenting customers – by demographics – is actually highly correlated with differences in activity rates. Many providers don’t capture a lot of customer information and are missing a valuable opportunity to understand and target customer demographic segments. Some demographics which have a significant impact on activity are:

• Gender – Female customers are 41% more likely to be active than males.
• Income – Customers in the lowest income bracket at one provider are 3 times as active as customers in the highest income bracket. Only one provider out of the four actually tracks income levels so we cannot make a generalized claim about income – but it certainly is valuable information for the provider in question.
• Occupation – Activity rates for some occupation segments like students and farmers are 3 times the overall average activity rate of the service.

Read the rest of this page »

Last week, CGAP released a study focused on using data to understand low customer activity. We worked with four branchless banking providers in three regions to look at data they already had to discover insights about low customer activity. In this post, we’ll see that one of the keys to high levels of customer activity is getting it right from the very beginning – ensuring that the registration agent and first customer transactions are both focused on long-term customer activity.

Can we even call them customers?

One of the first things we noticed as we looked at overall activity levels was that, aside from the high percent of inactive customers (92%), the majority of them – 59% – had never done a single transaction! Providers with high levels of customers who have never transacted need to get customers to actually understand and try the service in the first place. This is different than providers who have high levels of customers who had once been active but are now dormant. These services are not offering customers a value proposition that they are willing to pay for and need to investigate what aspects of the product or pricing customers are dissatisfied with. The providers we worked with were clearly struggling with the initial customer registration and trial process.

Awesome agents register active customers

Next, we saw that a customer’s activity level is often determined by who registered them. We looked at the top 20% of agents by number of registrations – all high-performing agents based on number of registrations and all receiving high registration commissions. However, when we segmented this group based on the activity rates of the customers they were registering, we saw a huge disparity. The activity rate of customers registered by the best agents (top 10%) in this group was over 40 times higher than those registered by the worst! The activity rate of the worst agents was close to 0 and they clearly were failing to help customers understand and try the service. For example, one agent signed up 1052 customers but not a single one did a transaction! These providers need to understand what makes the best agents so successful (great location, good customer education, etc.), re-train or get rid of the worst agents and – most importantly – change the incentive structure so that agents are rewarded for ongoing activity of clients they register rather than just the registration process.

Read the rest of this page »

For the last year CGAP has conducted quantitative research on the challenge of inactive customers. In culmination of this research, we are releasing a deck that helps providers understand and develop strategies to address low customer activity in their services.

Regular readers of this blog are familiar with the challenge of low customer activity and the negative impact this has on the business case. Last year, CGAP released a framework to map how a potential customer moves from awareness to ongoing activity and all the different dimensions of a business required to make this successful. As we worked with providers to understand this problem, it became clear that one of the first steps was to help providers analyze the gold mine of information they already have about their own customers. Understanding customers is a complex undertaking and will ultimately rely on a variety of tools such as focus groups and surveys. Yet the starting point should be a data-driven understanding of current customer trends and segments which then highlights areas to research further.

We worked with four providers in three regions to analyze customer registration, customer transaction and agent registration datasets. We conducted many different types of analysis – general activity trends, money transfer patterns and regression analyses to determine which factors are most correlated with high customer activity. The analysis revealed the untapped well of customer insights that providers have but most are not using.

This deck summarizes some of the most interesting findings on data analysis and customer activity across the providers. There are no magic bullets in the deck and, in fact, we found that data from providers in different markets was in some cases contradictory, highlighting that insights from one market are not automatically transferable to other markets. The deck does identify which types of data providers should be collecting, what types of analysis we found to be most useful in understanding activity levels and how providers can act on the data analysis with adjustments in service offerings or follow-on qualitative research.

Read the rest of this page »

This is the fourth post in a series about product innovation in branchless banking. In the last post we threw the focus on direct observation of consumers to source deep insights that lead to better products. We also released our detailed analysis. Today’s post describes a second key feature of the three Product Labs which will be established by CGAP’s bank, telco and other partners.

Let’s say you are a manager who has bought into developing products beyond the standard liquid wallet and P2P functionality ubiquitous in branchless banking. You want to innovate. But the procedures, biases, and requirements of your own company are holding you back.

If you are not careful, your good ideas will die a slow death of endless internal analysis or be outright rejected because “the data’s just not there”. As one manager told us about his company, “This place is run by accountants. If you don’t have the data, you go nowhere.” How can you meet existing business needs, and also move forward rapidly to approval?

This is the question confronting senior managers CGAP interviewed at more than a dozen firms that ranged from a success story in mobile money in East Africa to the largest bank in a major Latin American market, the world’s largest handset manufacturer, and a leading South African supermarket chain adding financial services to boost customer loyalty.

This isn’t just a problem for senior managers. It is also a challenge in our Product Labs initiative. Each Lab will be implanted in a bank, telco, or other firm capable of massively scaling newly designed products via branchless banking channels. Labs will need to work with the ways that firms already design products. But the Labs could also help firms improve on two counts.

Picking the best ideas to pursue. All the firms interviewed said they rarely suffered for a lack of ideas. But they do suffer from the inability to tell which are worth chasing. As a result, choices are made haphazardly or, sometimes, all ideas are pursued with equal vigor. Managers felt stretched in too many directions and concepts that time showed to be worthwhile often took longer to emerge for want of enough resources.  Nearly all our interviewees agreed that earlier testing of ideas would help. But in many firms access to transactional platforms and core banking systems was tightly guarded. Pilots were something you do later in the product development process, not earlier.

Read the rest of this page »

This is the third post in a five-part series about product innovation in branchless banking. Read the first and second posts. This post includes a detailed presentation of CGAP’s analysis of 23 firms from banking, microfinance, mobile, fast moving consumer goods, and Silicon Valley. It also describes the key features of three Product Labs which will be established by CGAP’s bank, telco and other partners.

Some managers just aren’t interested in innovation. They see being on the leading edge as being on the bleeding edge. “Let someone else fail and then I’ll copy the successes.” Quite reasonable, if you can afford to be second.

For those who cannot, where can they turn for help crafting breakthrough products and services? Standard market research tools and data mining often fail to deliver the kind of unique insights needed to identify new growth opportunities. Several new approaches are in pilot in the microfinance field: randomized controlled trials, financial diaries, behavioral economics. These have already expanded our foundational knowledge about the financial lives of the poor. But they’ll need adaptation to fit the rapid timeframes preferred by the private sector.

To find better tools we looked at 5 industries that overlap with branchless banking: either they sell financial services (traditional banking, the microfinance sector), have low-income consumers as a target segment (microfinance, fast moving consumer goods), or use electronic channels (the mobile industry, Silicon Valley). We looked at 23 firms in total. The powerpoint here includes further details.

The common connection across most success stories was observing consumers rather than asking them. In interviews or focus group discussions consumers aren’t always honest, don’t remember accurately, may believe one thing but actually do otherwise, or may simply be of several minds about a topic but only tell you one facet of their viewpoint. Observing their lives and behavior allows us to pierce the fog cloaking unstated opinions and deeply-felt needs. That’s the space where breakthrough products evolve from. We’ll give an example:

Read the rest of this page »

This is the second in a five-part series on product innovation in branchless banking. In the first we described how developing products beyond payments is one part of driving scale for providers, and ultimately boosting financial inclusion.

Henry Ford famously said, “If I’d asked people what they wanted, they would have said faster horses.”

There’s two ways to understand what he meant. One is customers don’t know what they want, so why bother asking. But for every Henry Ford or Steve Jobs (Who said “It’s not the customer’s job to know what they want.”) there are 1000 businesspeople who thought they knew the next brilliant product and are now staring at a cash flow statement soaked in red. Genius is in short supply.

The rest of us mere mortals must subscribe to a second interpretation: customers often can’t or won’t tell you what they want, so you must work to dig down to what they really need. To understand this requires knowledge about not only their current use of substitute products, but also their broader life context: their household situation, their aspirations, and their worries.

A prime example of this need for deeper customer understanding is the vastly different levels of success which very similar mobile money products have encountered across markets. M-PESA Kenya’s success has spurred providers across the globe to launch services with similar functionality: a liquid wallet with an emphasis on P2P transfers (“send money home”) and bill pay functionality. As we highlighted in the first post in this series, the “send money home” proposition has not yielded as much success outside Kenya where just 1 in 15 services launched since 2007 have accumulated more than 250,000 active users. This can be explained by differences between markets that have profound effects on how consumers perceive the value of otherwise similar services.

A truly valuable service would meet two criteria: they must fill both a deeply felt and a poorly met need (see figure): Read the rest of this page »

This is the first post in a five-part series about product innovation in branchless banking.

The promise of branchless banking is increased access to finance for the poor and new revenues for providers of all stripes. That’s not happening yet.

CGAP counted 22 branchless banking services with more than 1 million registered users; we also counted more than 70 others which have not reached that threshold (as of Q1 2011). That’s about a 1 in 4 “hit rate”. If we look at services which have launched since 2007 (i.e. since M-PESA got everyone excited) and acquired more than 250,000 active users (a better indicator of traction in the market than registrations), success rate drops to 1 in 15. Not so hot.

This might just be the growing pains of firms still figuring out how to operate in this new space at the intersect of several industries (mobile, banking). Some providers have fallen into regulatory ruts, some are finding it hard to build robust agent networks, while still others are struggling to make technology platforms stable (often wrestling with vendors who provided them in the first place). In short, there is a lot of worthwhile work going on laying the rails for branchless banking.

But all this supply-side effort seems to have crowded out the demand-side question of whether consumers actually want the products on offer. Why are we so certain that a liquid wallet with P2P and bill pay functionality is the “killer app”? Partially because people saw it succeed in Kenya (though nowhere else yet). Partially because most telcos don’t want to take the lead on more complex financial services, and they’ve convinced themselves they don’t have to. And partially because it seems the question is just not getting asked.

Despite this, the data seems to beg the question: With nearly 100 live branchless banking implementations worldwide but so few gaining traction with consumers, could the product be the problem?

Some higher income clients can be captured by convenience and the cool factor of easier money movement. But the mass market of low-income, unbanked consumers is different.  The microfinance sector has known for some time that these consumers have a range of financial service needs which are deeply felt but often poorly met (even by the microfinance industry itself). CGAP has called for more attention to consumer wants and deeper thinking about converting the inactive to active. There are certainly some innovative products out there. These include Mobile Venture Kenya’s adaptation to mobile phones of Stuart Rutherford’s P9 product, which blurs the lines between credit and savings. We’re also intrigued by the airtime-based life insurance with MicroEnsure and Tigo in Ghana.

Unfortunately we don’t see enough of this happening. There are three main reasons:

1. Firms are firing on all cylinders just to get a basic offering to market. It can be an all-consuming process. But why kill yourself pushing to launch without devoting adequate thinking to whether your offering will be attractive to clients?

2. Many managers struggle to source meaningful insights about consumers.  This is especially true for new products (where traditional focus groups or quick-hit surveys may not surface underlying needs) or for companies moving across sectors (either MNOs into financial services or banks extending their customer base to the bottom of the pyramid). Managers need better tools to understand consumers and convert insights into product ideas.

3. Existing product development processes often make launching new products a high-stakes game for the manager pushing it. New products often aren’t really tested until commercial launch, by which time it is costly to make changes. Many firms would benefit from a rapid prototyping process that puts product concepts to the test early and often in the hands of real consumers. Building out new products would be much less risky and expensive.

CGAP’s Technology and Business Model Innovation Program is partnering with at least 3 providers to launch Product Labs that demonstrate new ways of understanding clients, testing ideas and designing breakthrough products. This blog series will say more about what the Labs will look like, explain what we’ve learned about product innovation in other industries, and in the final post have a guest blogger announce the first Product Lab.

- Sarah Fathallah, Toru Mino, Mark Pickens

In this final post in the series “Five Business Case Insights on Mobile Money,” we explore how making mobile money “free” could lead to greater profits.

“Free” doesn’t mean no one pays.

CGAP wants the financially excluded to get access to mobile financial services. To suggest that MNOs make mobile money “free” may then come across as self-serving. On the contrary, making money in mobile money and making it “free” are compatible.

“Free” is a business model. In his book, Chris Anderson describes different “free” models including:  (1) direct cross subsidies where one product sold to the customer subsidizes another sold to the same customer; (2) the three-party or “two-sided” market where the service itself is free and a third-party such as an advertiser pays; and (3) freemium where most customers get the basic product for free but some customers pay more for premium features or as frequent or “power” users. Some people have compared freemium to airline pricing: everybody is going to the same place but some people pay more to do more while they travel  (see here, here and here for more on freemium among internet and Web 2.0 businesses).

How would “Free” work with mobile money?

Freemium makes most sense for network effect businesses. Offering a basic service for free drives scale and, as many use it, the value of the service to existing and new users goes up. While network effects are less important for domestic transfers, they matter for a wide variety of commercial and personal payments which MNOs ultimately want for mobile money but cannot capture easily in a direct way.

MNOs can follow a freemium model where they capture value from those customers who transact more or use premium services — including more commercial, institutional and bulk payment users — while allowing everyday small value transacting users, both commercial and personal, to transact for free below a certain daily limit.

Read the rest of this page »

This post is the second in the series on “Five Business Case Insights on Mobile Money.” In the first post, we shared with you a detailed presentation on the five insights. Here we explain further the first three insights.

How to think about the overall revenue potential?

(1) Mobile money contribution may be small compared to current Mobile Network Operator (MNO) total revenue but could be important for future revenue growth. We believe few operators will ever meet the high expectations they have for mobile money. 80% of respondents to our survey last year expected mobile money to comprise 10% of total MNO revenue within five years of launch.  10% is small but we don’t think it is something to sneeze at. For a number of mobile network operators, like MTN Ghana, 10% of overall revenue easily exceeds their current non-voice revenue from SMS and other services (see the presentation for similar data).

However, our view is that it is highly unlikely any mobile money implementation is on track to meet these expectations of overall revenues within a five year time frame. This is not an entirely gloomy picture. It is simply a matter of recalibrating expectations.

First, when it comes to the mobile money business generating positive cash flows, the expectation of mobile money managers could be met. For instance, GSMA MMU projects that MTN Uganda is on track to be cash flow positive within three years and some news reports recently suggest that they might be exceeding those original expectations.

Read the rest of this page »

Today, we share with you a presentation that describes in detail five ways mobile network operators (MNOs) can think about the mobile money business case. MNOs across the globe are investing millions to develop and market mobile money. Estimates claim at least 30 implementations in Africa where MNO-driven financial services are an important part of the financial inclusion landscape. Despite the bets being placed by MNOs, the business case remains uncertain in almost every implementation.

Last year we surveyed MNOs to assess their expectations of the business case. Since then we have done analysis of two implementations (with the help of Dalberg and a major mobile money service in Africa) and taken a few steps further to understand the relationship between the business case and market structure (with the help of Bankable Frontier Associates).

Our analysis resulted in the following five insights which are backed by data in the presentation and which we expand on in subsequent posts:

How to think about the overall revenue potential?

Read the rest of this page »