Archive for: Customer adoption

This is the fifth and final post in our series on remittances and branchless banking.  You can read the first four posts here.  So far, we have highlighted the emerging success factors and challenges featured in our 2012 landscaping exercise.  Paolo Baltao from Globe’s GCASH shared with us the lessons learned over a period of eight years during which time he led one of the first services to link remittances to a mobile wallet.   Subsequently, Stefan Staschen explored the untapped opportunities in leveraging the large flows of remittances between Russia and Tajikistan by linking them to other financial products.  This week, we revisit the study conducted by CGAP and Dalberg Global Development Advisors, by focusing on the role of bigger players such as Western Union and BICS Homesend in consolidating existing corridors and accelerating further adoption. 

Since we started this series, new remittance data from several countries has been released by the World Bank. This newly available dataset reveals that officially recorded remittance flows to developing countries reached $372 billion in 2011, an increase of 12.1 percent over 2010. This is higher than our earlier estimate of $351 billion. While there is clearly some market potential there, so far we have seen that uptake for mobile enabled remittances services has been anaemic to say the least.

Source: CGAP & Dalberg Global Development Advisors

As our understanding of the factors that lead to customer adoption of branchless banking expands, there is a growing consensus that for international remittances services to reach a significant level of scale, they will require an existing mobile money ecosystem that allows for downstream transactions which give users access to a wider array of cost-effective services and products such as payments and access to savings.  This will provide not only value-added for consumers but also the much needed transaction revenue for providers.  It is evident that these recalibrated strategies will no longer place remittances as the core driver for adoption, but factor them in as one of the many financial services which can be provided to a customer once a branchless banking ecosystem has reached a certain level of maturity and depth.

One thing is certain: although some new innovative models have emerged, traditional remittance providers or MTOs like Western Union still have a huge advantage through the benefits they offer to partners. These include fast access to a broad range of sending countries as well as significant brand recognition and regulatory compliance, though often at the expense of their partner’s pricing power (an expense which could end up being passed on to consumers, ultimately reducing the demand for these types of services).   Nevertheless, Western Union has already launched mobile money transfer services in nine countries: Bangladesh, Burkina Faso, Canada, Kenya, Madagascar, Malaysia, the Philippines, Tanzania and the U.S, and in the last couple of months, has announced strategic alliances with MTN Uganda, Roshan in Afghanistan and Tigo in Paraguay.  This move will allow senders to remit funds directly into the recipient’s mobile wallets from any of Western Union’s agent locations around the world.  It is evident that MNOs remain optimistic about deploying international remittances through mobile money, yet they are increasingly aware that the full benefits will only be realized in the long-term.  As mobile money ecosystems become more mature in these markets, these flows could play a pivotal role in consolidating corridors and accelerating adoption.

Alternately, hub providers such as BICS Homesend are now making it possible to integrate mobile wallets or money transfer systems of two different providers. Besides facilitating services that are mobile centric from sender to receiver, HomeSend can provide access to other service providers, such as MTOs and banks which can offer technical solutions to streamline domestic interoperability between systems and competing regulatory frameworks. Given their structure, Homesend is a cheaper alternative to giants such as Western Union and can provide a more flexible partnership without having to cede too much control from the side of the operator or bank.  However, they don’t have the same instant global reach and given their lack of direct interface with mobile wallet users, they are completely reliant on their partners to market and push transactions which make the issue of consumer education even more critical.

Nevertheless, operators seem to remain optimistic over the long-term opportunity to deploy international remittances through mobile money, and hope it will eventually contribute to the economic viability of their deployments through the added revenue opportunities for them and their agent networks.  It remains to be seen how these remittance flows are actually tied to specific financial products and services.  Only then will the real impact of mobile-enabled remittances on the unbanked be uncovered.

- Camilo Tellez

Pablo García Arabéhéty is an independent consultant who focuses on business model innovation in the mobile and environmental industries.  He has previously worked at the Organization of American States and the Innovation Lab at the Inter-American Development Bank.

Last December, Starbucks announced that during 2011 it processed 26 million transactions in the US through its mobile payment application. While this news was anecdotal for traditional financial service providers such as banks and credit card companies, it showed mobile network operators (MNOs) the speed with which they can be left out of the business. Their only income in this case was the data traffic generated to complete the transactions.  It is not news that the Average Revenue per User (ARPU) continues to decrease and mobile financial services are a great opportunity to reverse this trend. In mature markets such as Western Europe, the decline in ARPU has already led to a reduction of revenue. In Latin America the continued expansion of the subscriber base still enables revenue growth, but this trend will not last forever.

Source: Strategy Analytics 2012

I recently met with Tom Elliot from Strategy Analytics, a Boston-based consulting firm to discuss these issues.  Tom stressed that nowadays it is hard to find an MNO that is not developing some kind of financial service, but that nonetheless the business model is still uncertain, and what works in certain contexts is hard to replicate successfully in other markets.  Strategy Analytics’ forecasts for 2016 (see charts) do not show many signs of innovation in the industry. Their outlook is rather an inertial one where the aggregate income of the industry will flatten or decrease according to the region. These figures are more or less within the consensus of the mobile industry consulting world.  However, the promise of financial service provision is enticing for MNOs when properly implemented. M-Pesa, Safaricom’s mobile money service in Kenya, contributes 17% of total ARPU, which represents 53% of non-voice ARPU. While Kenya has its own particular market characteristics, we can use this as a best case indicator of the potential of mobile financial services. A 17% increase in ARPU in 2016 in the case of Western Europe, for example, would push income levels above those of 2007.[1]

The threat to this promise is the model à la Starbucks, where MNOs become dumb pipes. The model for obtaining significant revenues must be one in which the carriers are efficient players of the ecosystem, beyond the mere provision of connectivity to mobile phones.  Consequently, the construction of a model that avoids treating carriers as dumb pipes in the developing world requires important definitions of the core variables of the ecosystem. Depending on the definitions of these variables, very different business models can be shaped: from a scheduled savings product for house improvement targeting the unbanked, to the Starbucks model mentioned above. In each of these models, the players of the ecosystem have different roles: banks, MNOs, retailers, credit cards, etc.   In Latin America, at the time of shaping this ecosystem of mobile financial services, carriers have decided to split the risk and the investments by partnering with banks, credit card companies or both. The two most significant initiatives in the region are Wanda, a joint venture between Telefónica and Mastercard and Transfer, another JV between America Móvil and Citibank, which officially launched in Mexico this past month.

Source: Strategy Analytics 2012

The uncertain viability of the different business models explains much of the reasoning behind this decision. However, these partnerships have direct implications when defining the basic variables mentioned above, which need to be negotiated and agreed with the partners.  Banks for example, can be very good partners for cash management and identification of customers, but not so effective for other tasks. A report published this year by the World Bank, puts Latin American banks among the most expensive in the world. Expensive partners might be reluctant to embark in low margin/high volume business models. Experience shows that banks have yet to reach out with a value proposition to the 50% or 60% of unbanked households in Latin America.  On the other hand, credit card companies can be great allies for mobile payments and short-term loans, but their record in offering other financial products such as savings products is lean.

There is still little evidence in LAC to establish the conditions under which these associations can be functional to the carriers’ need to supplement their declining ARPU.  But already some points are clear. Carriers are those with the most to gain (and to lose) in this bet on mobile financial services. Their partners do not have as much at stake. Some results that would be catastrophic for MNOs, such as the Starbucks model, would leave their partners relatively well positioned.  In an industry with the current volumes exhibited in Latin America, there is ample space for a wide array of players to explore the business opportunity to provide mobile financial services for the base of the pyramid, which will hopefully result in a more tailored provision of services to those who most need it.

 

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[1] Strategy Analytics 2012

Photo Taken by Adam Jones

In a meeting last week with some colleagues from a branchless banking provider in Africa, we came across data that indicated that one particular provider (a competitor) was capturing a large portion of the payments market. The response around the table was clear, “Oh, that’s because this player is seen to be close to the people.”  The perception of this provider’s role in the market had given it a significant edge.

We can all think of specific examples of how perception influences behavior in our own markets. Some banks are seen to focus just on the corporate segment, while others are thought to reach further down market. Some MNOs are perceived to target their services to the upper class, while others appear to be geared more toward the “average consumer.” But how does a company, or in this case – a new player in the financial services market – change the way it is perceived among a new customer segment it is trying to reach with new products and services?

This is a tricky question because as behavioral economics tells us, people often think and act irrationally. And while perceptions are usually based on some level of reality, they can also be completely inaccurate. I read Blink by Malcolm Gladwell a few months ago, and one of the many examples in the book of the power of perception showed that just by changing the label on a can of soda, people’s perception of the quality of the drink changed even though the product inside stayed exactly the same. Add to this the fact that perceptions tend to be very personal, and we’ve got quite a mess on our hands.

For example, I remember hearing in one African country that having an expat as the CEO of a local company was a good thing because the population knew that s/he wouldn’t be dragged into the ethnic politics that often swayed the way businesses were run. This distance was perceived to be a good thing by some. On the other hand, other people in the same market thought that a company with a local CEO showed that the company was committed to the country and to its people. This closeness was perceived to be a good thing by others.  How is one to win?

This is frustratingly complex, and yet it is incredibly important to figure out. Why? Because perception is very closely linked to trust, and trust is fundamental for any sustained behavior change in the way people manage their money, and therefore for any branchless banking service to succeed. In some recent data that we gathered in Ghana, mobile money was perceived by the non-user to be more costly than the alternatives. Yet the reality is that mobile money is cheaper, if not the cheapest, way to move money in Ghana, especially at low values. On the other hand, users of mobile money understand that one of its greatest values is not just the convenience, but the price.  And users also have an accurate perception of the way mobile financial services can solve concrete financial pain points in their lives.

And herein lies the key – inaccurate perceptions only begin to change as customers are exposed to the accurate reality through repeated interactions. Get someone to use mobile money a few times, and they will soon see that it is cheaper than what they’ve been using. Their perception on cost will eventually change.  Guarantee (through platform reliability, agent liquidity, etc.) that the first few user experiences are positive and then other negative perceptions about trust and security will begin to disappear as well. For providers, it is critical to first understand the customer perceptions that may be holding their businesses back and then to tackle them head on.

This is the fourth post in a series on remittances. The previous blog in this series discussed the scale of the remittance flows between Russia and Tajikistan and the huge potential for linking them with other financial products. Stefan Staschen works regularly as a consultant for CGAP’s Government and Policy Team and is an Associate with Bankable Frontier Associates. 

You can probably understand our excitement when CGAP learned about the initiative of two banks to leverage the large remittance flows between Russia and Tajikistan. Agroinvestbank in Tajikistan offers three such linkage products in cooperation with Russlavbank in Russia, which operates the CONTACT money transfer system.

The following three products are offered:

1. A “Road Loan” where migrants (before they leave Tajikistan) can receive loans up to US$1,000 mainly to cover travel expenses for their trip to Russia. The migrant, once in Russia, uses the CONTACT system to make repayments from Russia at a preferential commission rate (i.e. a lower rate than charged for remittances). In April 2011, Agroinvestbank had 6,000 road loans in its portfolio with an outstanding loan balance of US$3.2 million. (This is the only product which is also offered by a number of other banks.)
2. “Hamvatan” (meaning “compatriot”) is a basic deposit account offered by Agroinvestbank, which can be opened remotely at Russlavbank branches in Russia and can be replenished through the CONTACT system. Only the migrant can withdraw money from this account (and only once he has returned to Tajikistan). So in a way it’s a savings account in Tajikistan replenished by a remittance from Russia. As of mid-2011, only 38 accounts had been opened with an aggregate balance of US$30,000. Most clients close their account once they return to Tajikistan as they would rather deposit the money in an account earning a higher interest rate.
3. “Family Card” is a current account with two debit cards – one for the migrant and one for his family. The migrant worker opens the account in Tajikistan before he travels and he can replenish it from Russia through the CONTACT system at a preferential commission rate. Unlike the Hamvatan account, family members can withdraw money in Tajikistan even before the migrant returns home. (No data on number and volume of accounts was available for this, but I assume the banks would have touted the success if there was anything to tout.)

What are the reasons for the low take-up of these products, even though the potential seems huge, and what can be done to make them more attractive? The following are a few indications, although more detailed research would be required to provide definite answers to these question Read the rest of this page »

CGAP and Dalberg Global Development Advisors recently conducted a landscaping study of international remittances through mobile money. Download the report to read details of the industry landscape in 2012, emerging success factors, challenges and innovations as well as seven case studies. This blog post is the first in a five part series examining international remittances and branchless banking. Andria Thomas is Project Manager at Dalberg.

Since remittances to developing countries were estimated at about $351 billion for 2011, capturing even a small share of this market could be a transformational opportunity for mobile money providers – right?

Perhaps, but it’s not as easy as one might think. Building on our landscaping study of international remittances through branchless banking conducted at the end of 2010, we set out to analyze the growing industry of international remittances through mobile money as it continues to evolve today. We paid particular attention to offerings that allow a customer to receive funds from abroad directly into a mobile wallet which can be converted to cash at a large agent network. We wanted to understand whether international remittances are helping build the mobile money business. Can international remittances be a tool to improve the value proposition for agents? Are they a hook for attracting new customers or driving more transactions?  And, fundamentally, do they provide a more efficient path to build the mobile money ecosystem?

In the past 18 months, the total number of deployments with a cash-out option via a mobile wallet increased from 8 to 17. Some innovative approaches are emerging, such as KlickEx’s leveraging of foreign exchange trading to lower transaction costs and BICS HomeSend’s interoperability across players within a corridor.

Still, we found a number of reasons to be skeptical of the short-term value of international remittances to mobile money deployments. Some key lessons which emerged from the study include:

1. It’s not a chicken-and-egg problem; a functioning mobile money ecosystem needs to precede success in international remittances. First movers in international remittances anticipated that this product would drive mobile money usage. However, establishing a functioning agent network and providing complementary “downstream” transactions such as bill payments and domestic transfers are now seen as necessary precursors to success in international remittances.
2. Even success stories such as M-PESA have not made significant traction with international remittances. Safaricom and Vodacom recently rolled out M-PESA-tied international remittances in Kenya and Tanzania respectively, but early usage has been “miniscule.” Attracting users – even those who are already comfortable with a mobile wallet – still requires a heavy marketing and education push on both the sending and receiving ends. In the list of business priorities, the investment in this area is not seen as the best resource allocation.  Read the rest of this page »

CGAP, Grameen Foundation and MTN Uganda are introducing Grameen Foundation’s AppLab Money Incubator, a new initiative that develops mobile financial products for the poor. In this blog post, Project Manager Olga Morawczynski and Operations and Strategy Manager Lisa Kienzle introduce AppLab Money and explain how customer insights will be transformed into viable products offered by MTN Uganda. This is the final post in a series about product innovation in branchless banking.

Courtesy of AppLab

If we want to move the mobile financial services sector beyond payments and create products that reach every level of society, we have to be creative. The industry requires product innovation that focuses on customer desires, use patterns, and needs, and then translates these findings into viable products. In Uganda, Grameen Foundation’s AppLab is partnering with MTN and CGAP to do this by launching a product incubator: AppLab Money.

At AppLab Money, we will dedicate 100% of our time and resources to researching, prototyping and testing innovative products in line with AppLab’s approach to sustainable product development. Our agreement with MTN Uganda enables us to sit in MTN’s office, test on its network, analyze the company’s data and swap ideas with its staff. If we find that there is demand for a product that is commercially viable for MTN, we will work to scale it in Uganda.

The key to innovation is a strong research process, and AppLab Money uses several complementary research methods to understand the financial lives of the poor. Data mining and surveys help us make generalizations about the needs and habits of potential customers. Financial diaries and ethnographic methods allow us to determine why such habits exist. What follows is one example of an interesting insight that emerged on a recent field visit that could be translated into a product that poor customers could find exciting: on our trip, we noticed that everyone loves gambling.

Read the rest of this page »

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 »

Chris Bold spent two years on secondment from DFID to CGAP where he worked on G2P-related issues, among other things. He has since returned to DFID where he is an Adviser on Private Sector Development in Fragile Countries. This is the second blog in a series on G2P and financial inclusion, based on CGAP’s new Focus Note Social Cash Transfers and Financial Inclusion: Evidence from Four Countries. Read the first post here.

Our recently released Focus Note on Social Cash Transfers and Financial Inclusion looks at the evidence from four large and well established programs in Brazil, Colombia, Mexico and South Africa to attempt to answer three broad questions that are relevant to different stakeholder groups:

1. For governments: Is building inclusive financial services into social cash transfer programs affordable for the social programs?
2. For recipients: Will poor recipients use financial services if these are offered to them?
3. For providers: Can financial institutions offer financially inclusive services to G2P payment recipients on a profitable basis?

In the first post, Sarah Rotman looked at the costs to government. Today, I am going to expand on what we found about the recipient experience of receiving payments electronically and into “mainstream financial accounts”. David Porteous will look next at whether there is a business case for providers to offer financial services to social cash transfer recipients.

Last week, Sarah explained our characterization of payment approach into three categories: (i) physical cash, (ii) limited purpose instrument and (iii) mainstream financial accounts. We set the bar quite high for what we deemed to be fully “financially inclusive” – to earn the title of a mainstream financial account it must allow a recipient to store funds indefinitely, access them through the mainstream financial infrastructure (think ATMs and POS devices) and deposit additional funds. Some schemes only enable some of these features and while we recognize the steps that they are taking toward being fully financially inclusive we label these accounts “limited purpose”.

The data show a very clear trend over the past few years away from recipients receiving their payments in physical cash and toward electronic payments. Three of the four countries also showed increases in the number of customers receiving their transfers into a mainstream financial account with South Africa leading the way by paying 59% of transfers paid into mainstream accounts.

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.

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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.

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