Archive for: Financial Literacy

Jonathan Donner is a researcher in the Technology for Emerging Markets Group at Microsoft Research India in Bangalore, which is collaborating on research around customer adoption with CGAP. Jonathan’s primary research interests concern the economic and social implications of the spread of mobile telephony in the developing world.

Jonathan sends us this note about the forthcoming “Mobile banking and economic development: Linking adoption, impact, and use,” co-authored with London School of Economics and Political Science doctoral candidate Camilo Tellez.

We share many people’s enthusiasm about the potential of m-banking and m-payments to benefit communities not traditionally reached by banks. However, since m-banking is such a new phenomenon in the developing world, there are still relatively few studies exploring this potential.

In the paper, Camilo and I take a step back to look at the current state of three approaches to researching m-banking and m-payments. We find that while there are a growing number of academic studies focused on the drivers and barriers to adoption, there are only a few studies focused on impact (CGAP’s studies notwithstanding), and even fewer studies of how m-banking and m-payments technologies are used in daily life.

We argue that the adoption, impact and ‘use’ approaches need not be separate, as they often are, but can rather can be mutually reinforcing. For example, the things an ethnographic study might reveal about whether people view their m-banking account as a ‘wallet’ or a ‘post office’ should help other researchers design better (and very different) surveys to assess why an ‘adoption’ of the technology has occurred, or what impact the technology is having on households.

Of course, this adoption/impact/use distinction is not unique to m-banking, but instead is a fixture of the interdisciplinary field of ICTD (Information Technology and Development) more generally. So, we also detail how some big themes from ICTD are resurfacing in the current discussions about m-banking.

Finally, we use some illustrative data from fieldwork Camilo carried out with small enterprise owners in Bangalore. We explored what place SMS messages might have in the mediation of the informal credit relationships they have with customers. Would they “bill” or “remind” a customer about an outstanding unpaid balance using the SMS channel? 19 of the 20 interviewees expressed varying degrees of unease with the notion of an SMS used in this way. Mostly, we think, because of the ongoing need to maintain the relationship through carefully-managed face to face interactions. We cast these interviews as examples of a study of context and daily use which can inform the design and assessment of m-banking systems.

The paper will appear in December as part of a special issue 18(4) of the Asian Journal of Communication, called “New Perspectives on Development Communication: Emerging Technologies, Shifting Paradigms”, guest edited by Mark Levy (Professor, Michigan State University).

This is an excerpt from a recent CGAP paper, The Early Experience with Branchless Banking. The paper synthesizes the observations and research of the CGAP Technology Program. Gautam Ivatury and Ignacio Mas wrote the paper, with substantial input from the entire program team. This blog series will cover seven observations, four uncertainties and four predictions for branchless banking - what we call mobile banking and other technology-enabled banking solutions.
MFI loan officers who visit customers periodically, as well as tellers and representatives at bank branches, are likely to provide greater personal service than branchless banking at an agent or through a mobile phone. The informal financial service providers that many poor people use are also largely founded on human interaction and personal or community relationships.

In a survey CGAP conducted in South Africa, roughly half of those surveyed said they preferred to deal face-to-face with a person rather than with an electronic device, even if the device is quicker. Interestingly, the responses were similar between WIZZIT customers and people who have a mobile phone but do not use it to conduct transactions.

Despite being satisfied with the mobile banking service, users still missed the human touch. Customer research conducted in South Africa pointed at a likely reason for this: having to deal with machine interfaces undermines people’s sense of control over the process. Indeed, a larger proportion of WIZZIT customers than nonmobile-enabled bank customers felt that they had insufficient control over their finances. Similarly, in one anecdote from South Africa, customers using ATMs for the first time checked their balances so frequently that they lost their entire balances to ATM fees.

The same research in South Africa also highlights the need to improve customer awareness of branchless banking and to educate customers about how it works and what it costs. Not understanding the technology is the single most frequent reason given for WIZZIT customers who have stopped using the service. Nonusers thought the cost of the service was on average 14 times more expensive than it really is.

These results demonstrate the importance of marketing and of balancing technology with human interfaces, both to improve awareness and understanding, as well as to improve perceptions of the service. Achieving this through a branchless model will be a challenge.

Much has been written about how innovations go from being extraordinary and untested to becoming commonplace (Everett Rogers, Diffusion of Innovations, 2003). How can we apply the thinking that “innovation diffusion” research has come up with to mobile banking?

First, let’s identify what the innovations are in mobile banking. For someone who has a mobile phone, but doesn’t have any bank account, I would see three:

• a new concept of value – electronic, not cash or in kind
• a new financial provider – not manual exchange or through hawala or through bus driver or friends/family, but unknown / untrusted organization or some bank
• a new use of device – use existing device for new purpose (idea that phone can be used for finance is a new idea)

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• Operators, banks should cooperate on mobile payments
• GrameenPhone Plans For Money Transfer Business In Bangladesh
  
• Will mobile phones extend banking to all four corners of the world?
• Regulating Transformational Branchless Banking
  

It is nothing new that access to credit to small businesses and low-income individuals is limited in many developing countries. One of the many reasons, besides lack of collateral, informal economic activity, and physical distance to credit providers, is the lack of a formal credit history in a local credit bureau.

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FMO’s UPsides magazine this month has a whole set of stories that look at how branchless banking (such as mobile banking) and remittances can help fight poverty. Two CGAP partners, G-Xchange Inc. (Philippines) and XacBank (Mongolia) are featured in this issue:

We are dead set on proving a hypothesis: good return to our shareholders can go together with reaching the poor.
-Riza Maniego-Eala, President of G-Xchange, Inc.

Our market research shows that 50% are keen to have mobile banking services made available through local grocery stores, post offices and gas stations. But getting the service out is proving to be a challenge.
-Ganhuyag Chuluun Hutagt, CEO, XacBank

Download the pdf here.

Financial literacy - the level of understanding that customers have when it comes to services - is significant. Danielle Hopkins is with Microfinance Opportunities, a Washington-based group that focuses on financial literacy and other issues facing microfinance. Here are her thoughts.
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The Hindu has a great interview with NCR’s P. P. Manjunath Rao, who leads that company’s sales efforts for India. Recently the Indian subsidiary of NCR tripled its production of ATMs to nearly 900 units a day - and with just 28 ATMs per million people (compared to 200 ATMs per million in Mexico, for example) it would seem that there’s room to run for ATM providers. Rao tells the Hindu:

Using thumbprint and voice guidance in ATMs reduces literacy requirements to a considerable extent. Thus, establishing the identity of a rural depositor through biometrics makes it possible for illiterate or barely literate people to become part of the banking user community.

A simplified menu on ATMs coupled with possible audio guidance in local language enables easy use for rural masses. So far, bank ATMs are dependent on PIN (personal identification number) verification. The fingerprint authentication method is non-PIN based, and this requires enhancements to the standard switch environment. Though identification can be via face, voice, retina or iris, fingerprinting has the advantage of being a familiar concept worldwide.

Though exciting, widespread deployment will be a challenge. How to handle cash - what about banking agents? What is required for customer adoption? With lower levels of functional literacy, what about financial literacy? These are questions we at CGAP are working on with our research collaboration with Microsoft Research India, as well as our project partners.

CGAP and Microsoft Research India (MSRI) are collaborating on joint research to better understand the needs of people who have low levels of literacy when it comes to technology. In plain English, this means we all want to know how to design something that would be of use to an illiterate person.

In addition to the focal research on User Interface design, the MSRI-CGAP collaboration will also involve joint explorations in understanding the social and economic context and impact of mobile-banking on poor households.

What we learn will be shared with everyone. Aishwarya Ratan is with MSRI and joined us in Washington at our conference this week to talk about the work envisioned and some of the things MSR has already learned in India. Here are her thoughts.

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That was fun. What did we learn? 

We reaffirmed that small, including micro, enterprises have proven themselves to be reliable and sustainable ways to help people out of poverty and that, in that context, we have abundant proof that microfinance is a workable idea.

MFIs, although having reached increasingly impressive numbers of people, must nonetheless recognize that more than two-thirds of the inhabitants of developing countries remain to be touched by the MFI mission of bringing the advantages of banking to the unbanked and under-banked.

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