[From Mobile MoneyAsia blog, 21 May 2013] 

Here is a collection of concrete ideas I’ve put forth in the past to make mobile money more useful for customers. Sadly, I have yet to see any taken up, even as a pilot. Since this is a virgin blog for me, I thought I’d recycle these ideas here.

1. Allow money transfers over time to oneself

Don’t just help people move money once they have it: help them put together the money they need to make a payment. Invite customers who receive e-float to directly assign this money to some purchase(s) or payment(s) they need to make in the future, thereby preventing the money from being withdrawn today. Mobile money has broken the distance barrier in payments, and it should be extended to help people manage payments across time as well. That’s what money management is all about. This can be done simply by adding one optional question on the standard send money menu (transaction value date), and letting people send money to themselves: Me2Me. (Watch a short video on the full idea).

2. Receipts website

Customers want to be able to show a printed receipt if there are any questions around a bill paid or a business transaction settled with mobile money. This can easily be provided through a dedicated website service: enter your phone number and the unique transaction ID from the transaction confirmation SMS, and the website generates a printable bill for you. The possibility of getting a receipt at a cybercafe will offer peace of mind for business uses of mobile money.

3. Business account numbers with automatic error detection

A common form of fraud is for people to buy something with mobile money, and immediately reneging on the transaction by claiming that the money was sent in error to the wrong number. This can be eliminated by making all transactions irreversible, but that seems harsh because people do make errors from time to time. A better solution is to let business users of mobile money get a business account number distinct from their mobile phone number, which would incorporate a single check-sum digit. (Checksum digit is the result of a fixed mathematical operation on the rest of the digits in the account number, such that if a digit is mis-typed the new checksum digit does not match the one appended to the account number.) This allows automatic detection of erroneous account numbers.

4. Optional description field on all money transfers

Another common complaint of business users of mobile money is that they cannot identify who they got the money from (e.g. if the sender has used a relative’s phone instead of their usual one) or which order or invoice it is meant for (if it’s a repeat customer). This can be addressed easily by providing an optional reference field on all money transfers, so that the sender/buyer can enter any appropriate information agreed to with the seller to identify the payment.

5. Lending through peer vouching

Microcredit has shown us that lenders don’t need to know much about their borrowers as long as the borrowers know a lot about each other, and there is an incentive mechanism for people to screen and monitor each other. Mobile money customers who want credit could get other customers to vouch for them, with the weight attached by the lender to each person being based on their vouching track-record. Given some positive incentives for good vouchers and enough time for the system to learn, certain customers would naturally self-select themselves as de-facto loan agents in their town.

6. Community-level incentives to promote savings

Peer pressure has been a core tool to instill borrower discipline, but has seldom been used to promote savings discipline. One idea might be for a mobile money provider that is expanding into a new village to agree on a community-level reward once total e-money balances reach a certain level. The reward would be agreed to with the town elders (e.g. paint for the school), who could then be expected to play a role in promoting savings and the mobile money system behind it around town. Total community savings could be displayed on a thermometer at prominent place, for all to see, prompting people to want to save so as not to fall behind everyone else.

7. Simplified phone menu structure

Mobile money menus are getting long, as mobile money providers seek to promote more diverse reasons for doing essentially the same thing: sending money to someone else (to another mobile phone, to pay a bill, to buy airtime, to buy physical goods at a store, to get cash, to park money in a bank account, etc.) For basic users, this menu clutter may be causing substantial confusion and hindering adoption of new uses which reside in as yet unexplored parts of the menu. It may be better to consolidate all these uses into one menu item –send money—and let the system detect which application the customer wants to do based on what destination number he/she types in (a phone number, a biller code, an agent number, etc.) In this way the provider can still market many and diverse use cases, but need only educate customers on one standard send money process.

8. Depositing money without requiring IDs

Once you are registered as a mobile money customer, the phone and PIN should be the only things you need to do any transaction. Except that you are usually asked to show an ID to make a deposit: the regulator wants to be able to trace who the money came from, and the mobile money provider wants to ensure that you are depositing it into your own account and not bypassing P2P charges by depositing it into someone else’s. A solution to all this is to make customers request a deposit from their mobile phone at the agent and authenticate with their PIN – essentially turning the deposit into a pull transaction.

9. Withdraw through a friend

One common reason why people share PINs is so that you can ask a friend going into town to pick up some cash from your account on your behalf. It’s an entirely legitimate use case, an especially common one in the early phases of a mobile money deployment when agents are thin on the ground. But PIN sharing of course compromises your entire account. Instead of badgering customers for it, why not design an appropriate solution for it: create a withdrawal request against a one-time password which you can then share with your friend. Your friend can run away with the requested withdrawn amount, but no more. This would work much like when one sends money to an unregistered customer.

10. Focus on the basics

OK, this last one may sound like a cop out, but we need to recognize that features alone cannot drive demand. In the end, there are some basics that need to be gotten right if anything else is to work: marketing concrete use cases rather than general capabilities; driving a consistent customer experience at the agent; not skimping on agent commissions; maintaining system uptime; not growing agent numbers wildly ahead of transaction numbers, because that will kill the business case for most agents.  And, despite all I’ve said above, guard against productitis: product proliferation that aims to satisfy ever-finer needs of excessively narrow customer segments.

 [From Center forFinancial Inclusion blog, with P Mukherjee, 8 May 2013] 

We recently completed extensive field work on people’s money management practices in India and Bangladesh, funded by The Bill & Melinda Gates Foundation. Our ostensible purpose was to develop simplified metaphors that express vividly how people think about money. You can judge for yourself how close we came to that by viewing (here) 10 different outputs. While our intent was to simplify, we ended up evolving a more nuanced view of how poor people think about money management (see here for a fuller treatment).

We echo Collins and Zollmann’s observation from their research in Kenya that poor people’s financial talk tends to relate much more to short term income security than to longer term goals or risks. Their main concern is that they want to have enough recurrent income to meet routine expenses. We unpack this into three interlinked concepts which, while by no means new, deserve more attention.

Shaping income to increase income security

Unlike organized sector employees, the mass market lives on a diet of irregular and often unpredictable income flows. From this, some larger routine expenses like school fees need to be met and emergencies need to be dealt with. Stuart Rutherford has placed lumping of money – the accumulation of balances into useful lump sums – as the key financial mechanism people use. What is interesting is that so often people use those lumps to buy a cow (or a rickshaw, or some merchandise for trading), whose main attribute is that it produces small daily income rather than being a good store of value. So they go from collecting a meager stream of small daily cash flows, to building a lump sum, and from there to creating more small daily cash flows. What pushes them on this cycle of sacrificing, lumping, and regenerating daily income – which we call income shaping – is the desire to change not only the size but also the timing and predictability of cash inflows. They see that as the key to providing for daily expenses, and building the routine of setting money aside regularly to build further useful lumps.

Income shaping is people’s preferred mechanism to achieve consumption smoothing: by building a regular income profile.

Routinizing goals and habit formation

Beyond shaping regular income, the other key financial concern of households is to establish an appropriate pattern of routine expenses. Setting a spending routine builds spending restraint through sheer force of habit (e.g. meat once a week, night out with friends once a fortnight). On the other hand, overly ambitious spending routines may set aspirations that are hard to achieve, and hence can increase the sense of privation and anxiety. This is not only about consumables: Larger, longer-term goals are more likely to be achieved if they fit within an assumable spending routine than if they have to be provided for on an exceptional basis.

One way to routinize a goal is to buy the item on credit. Once a TV is bought on credit, for instance, the TV goal is satisfied, and it is substituted with a clear the debt routine goal. Another example of routinizing a goal is investing in a daughter’s education (a routine expense), as this then reduces the amount of dowry that will be required (a large one-off investment) to secure the goal of a good marriage. Money will need to be set aside weekly or monthly to pay the TV installments or to pay for the daughter’s education, but there won’t be a need to fret about building and protecting a pool of assets.

Informally employed people without a fixed salary cannot live by hard and fast spending rules; instead they try to live by routines. Routines create automaticity in spending decisions; they define needs, as distinct from wants.

Fuzzy goals, proxied by instruments

The amount of regular household income limits how many goals can be routinized. There is still an opportunity to achieve other goals by saving on more sporadic or unreliable components of income. We found that people who are building up savings typically have a surprisingly loose idea of what they might use them for. Stated spending goals tend to relate either to concrete, smaller-ticket, recurrent expenses (food rations, school fees, etc.), or much longer term, aspirational, and largely unquantified status markers (the eventual wedding for a young child, land, house, etc.). It is relatively unusual to hear people say that they are working specifically towards a TV, a sewing machine, a latrine, or a bicycle.

In fact when you ask people what they are saving up for they are more likely to respond with what we’d call instruments (jewelry, goats) than with actual spending goals. These instruments act as a proxy for a loose collection of potential uses for the money – which we call a fuzzy goal. They will lock in a purpose in their minds only when something becomes urgent (rather than important: the child’s marriage is coming up!) or when the lump becomes large enough to start dreaming up what to do with it (to avoid temptation, allocate it!). This may be a psychological defense mechanism: why think up a goal, until it is reasonably within grasp?

So the picture that emerges is one where money management is focused on bringing regularity and routine to small inflows and outflows, rather than planning for large future goals. We often go to the field with our own baggage, expecting people to have clearly defined medium-term goals. They often don’t. In fact, do you?

 [From MMU blog, 2 May 2013, by Philip Levin] 

We received some great comments from readers in response to the recent MMU Spotlight on direct deposits. Among them, was a suggestion not included in the publication – addressing direct deposits through a system solution rather than the policy solutions of monitoring and disciplining offenders. Ignacio Mas explains:

Mobile money operators should want to see agents as enablers rather than enforcers, as allies in the fight against fraud rather than as accessories to petty fraudsters, as respected VIP customers rather than as subordinate entities. Of course, there will always be a supervisory function over agents, but that should be limited as much as possible to branding and liquidity issues which are fundamental to the health of the service, and to ensuring proper KYC.

Let me offer a system, rather than policy, solution to the direct deposit problem. It does introduce more complexity in the customer experience, but in the end mobile money is primarily about systematizing processes as much as possible.

The solution is to require customers to initiate deposit transactions at the agent, just like they do for withdrawals. Instead of treating a deposit transaction as an agent push, treat it in effect as a customer pull. It would be analogous to the deposit slip banks ask us to fill and sign at a branch, only you’d do it electronically from your mobile phone.

So: if a customer wants to do a deposit at an authorized agent location, he/she selects the (new!) deposit function on the mobile money menu in my phone, and is asked to fill in the agent number, the amount and my PIN. Here the PIN is only for customer authentication, not transaction authorization, since the electronic money offsetting the cash handed over by the customer is coming out of the agent’s account. The agent still needs to authorize the transaction with his/her own PIN.

The transaction could then be completed in one of two ways. One way is to implement a real pull transaction procedure: after the customer requests a deposit, the system automatically initiates a transaction session onto the agent’s phone showing the details of the requested transaction and prompting the agent to confirm it by entering his/her PIN.

Alternatively, upon requesting a deposit (which he/she might do while still in line waiting to be served), the customer receives a one-time code on the phone (valid perhaps for 5 minutes). The customer then shows or reads out the code to the agent across the counter, and then the agent sends money to that code rather than to the customer’s phone number.

In this fashion, depositors would be identified electronically: no direct deposits, full depositor KYC. Customers no longer need to show their ID to an agent, once they have registered.

This procedure would have three further advantages. It speeds up the process for agents, who no longer need to check IDs and ask for, type and confirm transaction details. It minimizes the scope for agent error, since the transaction details are entered by customers. It’s not only about shifting responsibility: it is easier to deal with money sent in error to the wrong agent number than to a wrong customer phone number. Finally, it allows the deposit function to feature in the mobile money menu alongside withdrawals and all the rest. Depositing is now the invisible function of mobile money, and that surely must confuse new customers.

Would Ignacio’s system solution work in practice? Or would the usability trade-offs – including customer confusion about the process and increased technical failure rates from adding one more system transaction – be too great to justify the reduction in direct deposits? Luckily, we do have an example from the field. CEO of WING, Anthony Perkins, describes a positive experience in implementing a similar system in Cambodia:

WING still tackles [the direct deposit] problem by insisting on two prerequisites: 1. The customer present their WING ATM card for all agent transactions, including cash in, 2. The customer has to enter their PIN to confirm the transaction. The combination of these, plus the two crucial steps also mentioned of identifying transgression and enforcing strict disciplinary action has made this much harder for direct deposits to occur.

Regarding the question on how much hassle this process is, the answer is simply no hassle at all. Both agent and customer are used to the reverse process for cash-out and this one additional step of including the customer PIN on cash-in also gives the customer the chance to review the entire transaction before committing.

I won’t lie that some unscrupulous agents have indeed stolen customer PINs and transacted thereafter, but these are easily identified through system logs; agent accounts involved, usually still holding balance to service other customers, can be suspended and complete recovery to the customer possible.

The key to success of mobile money, not just this issue, is almost entirely the integrity of the agent network, not the technology or process. Strict discipline of agents from launch is crucial to build trust – the foundation of any financial system. WING has zero tolerance for fraud, even for one cent; agents are terminated immediately and put on a blacklist never to return; one dishonest agent’s loss is an honest agent’s gain. As a mobile money service becomes well known, you’ll have new agents falling over themselves to join, culling bad ones is not an issue.

Our system is not perfect by any means and can still be played if a customer gives their card to a friend/relative along with their PIN.

Thanks Anthony and Ignacio for raising this alternative. If anyone has experience (positive or negative) implementing a similar system solution for direct deposits, please let us know in the comments.

 [From Mobile MoneyAsia blog, 27 April 2013] 

Disruptive innovation typically occurs when market outsiders conceive of a service with a radically simplified user experience, offer it at a much lower total cost, and –crucially— incorporate an order-of-magnitude improvement in one key dimension that really matters to the mass market. It’s a good enough service, with a wow factor. Meanwhile, established players engage in a proliferation of features and pricing plans that only appeal to larger, more sophisticated users, who happen to be the customers they listen to more closely. As Clayton Christensen emphasizes in The Innovator’s Dilemma and subsequent writings, the disruptive service is often so basic that established players don’t even see it as competition, giving it plenty of room to grow – until it’s too late.

This plot fits perfectly with the development of mobile money, and especially Safaricom’s M-PESA service in Kenya. Mobile money reduces banking services to a bare-bones store of value and means of payment function, and blows away banks in terms of sheer retail footprint.

It is natural and entirely desirable for mobile money players, once established, to seek to improve and broaden their offering, adding features that appeal to their better customers. This comes at the cost of higher product complexity and, eventually, a more expensive service for ordinary users. They become incumbents, opening the possibility of history repeating itself.

On the complexity point, take a look at the M-PESA menu. You can now send money to a phone number (P2P), pay bills (send money to a corporate), buy airtime (where Safaricom itself is the biller), buy goods (pay a store bill on the spot rather than at the end of the month), withdraw cash (pay a store in return for taking cash rather than goods), and send money to your own bank account (M-Shwari or M-KESHO). The only difference between these is who you are sending money to and why. They are use cases around a basic money transfer capability.

Mobile phone user interfaces have tended to productize the use cases: the menu directly exposes a variety of things you can do, such as the above list. It reminds people of what they can do each time they look at the service phone menu, and advertisements for use cases can incorporate a call-to-action linked to a specific item on the menu.

On the other hand, a user interface built around a product logic has the drawback of appearing to customers like each of these use cases is something new and different, needing to be explored and understood separately. Menus first get long, then nested, eventually burying the lesser known use cases. Service categories and names seem increasingly arbitrary and confusing in customers’ minds. Menus need to be updated frequently to fit new services in, disrupting customers’ sense of familiarity with the service. All this can constitute a barrier to customer experimentation: many people will stick to what they know (largely, P2P) and ignore the rest.

An alternative is for the phone menu to expose the basic functions rather than the use cases of the service. Let’s call them send money, get money and view balance. Undersend money, to identify the recipient you could enter indistinctly a phone number, a biller or merchant code, an agent code, a bank account number – or you can access a menu of pre-defined destinations (your own bank account number, frequent billers, buying airtime from the operator, etc.) In all cases you are then asked to enter the value of the transaction, and an optional description for the transaction. How the latter is precisely worded might differ based on who you are sending money to: it might say ‘your purpose’ for basic P2P, cash withdrawal, or  transfer to your own bank account; ‘your account number’ for bill payment; ‘for which phone’ for airtime purchase; etc. Having captured these three standards bits of information, the user interface then displays the full intended transaction, including the applicable charge (since different amounts and use cases might incur different charges), and asks the customer to confirm it by typing in his or her PIN.

With this approach, the phone menu remains simple, short and stable. Two steps in the menu protocol are skipped (selecting the service, and confirming the transaction which we have combined with entering the PIN), making transactions faster. Because there is only one send money option and all transaction types work the same way, customers feel they have to learn the mechanics of sending money only once. Different use cases can still be advertised, but they would be promoted as one more reason to send money rather a new service that needs to be discovered and understood separately.

Similarly, the get money function would offer a standard way of getting electronic money from various sources, and could conceivably incorporate a loan feature (i.e. get money from the provider, as with M-Shwari), pulling money from your own bank account, and possibly requesting a cash deposit from the agent (which would achieve electronic rather than offline authentication of the depositor, thereby eliminating the risk of P2P bypass and improving KYC compliance).

When you want to promote many diverse use cases, should you differentiate them into products through the user interface (like an á la carte menu in a restaurant) at the risk of creating overly long menus, or should you consolidate them into a minimum set of distinct functionalities (like in a Swiss army knife) at the risk of not expressing the use cases explicitly? The question is ultimately an empirical one: which one will stimulate more usage? I am not sure what the right answer is, but I do think it’s worth asking. I don’t get the sense that this has been given due attention either by operators (who are merely replicating established formulas) or researchers.

The user interface logic needs to be looked at with a long-term perspective, since mobile money use cases and functionalities can be expected to grow quite substantially, and legacy practices will become more and more of a burden with time and success. (Do you remember when your operating system fit in a floppy disk?) Mobile money operators need to give serious thought to how to future-proof their user interface strategy.

 [From The Guardian,Global Development Professionals Network, with David Porteous, 24 April 2013] 

In the past two decades, the world's information grid has expanded massively. Digital signals are all around us. In developed markets, many of these digital exchanges involve electronic payments, but most people in developing countries are still stuck moving paper. Financial transactions lie at the heart of doing commerce, selling goods and services, managing a business, and taking care of one's family. Making these transactions safer, cheaper, and more convenient should be on the development agenda of every developing country. Yet building a digital payments fabric linking all citizens and businesses in a country is rarely a development priority, in part because the benefits are intangible and diverse.

To put a spotlight on the importance of effective retail payments, the first step is laying out a vision: we subscribe to the term inclusive cash-lite. Inclusive cash-lite is not necessarily a cashless world, but a world where cash is increasingly relegated to the 'edge' of the electronic grid, and used predominantly within local communities for small, face-to-face payments. In a cash-lite world, physical and digital money compete, each finding its own niche applications, with a gradual diminution in the role of physical cash over time. The logical transition toward a cash-lite world starts with people transporting less cash, then storing less cash, and finally using less (or no) cash in daily payments and transactions.

Benefits of a cash-lite world

Closing the digital payments divide between developed and developing countries and between rich and poor people may well become a cornerstone of the 21st century approach to economic growth and poverty reduction. Freedom from physical cash helps business innovation, increases people's control over their lives, and can support governments' efforts to fight crime and corruption by letting people and businesses transact more safely and cheaply across a much broader geography and across payment platforms.

Access to electronic payments can be a driver for business innovation. Bundling electronic payments information and software creates opportunities for businesses to streamline and automate processes relating to procurement, dispatch, inventory management, and payment collections. Being able to centrally initiate and control all payments electronically substantially reduces barriers to entrepreneurship by reducing the risk of fraud and theft to which entrepreneurs are exposed through interactions with employees, agents, and customers alike. Entrepreneurs might also have greater access to credit through credit scoring based on transactional histories.

Access to digital money can also increase people's control over their financial lives. The ability to make electronic payments instantly and conveniently may lead to more efficient risk sharing among family members and social networks. It opens up a range of formal financial services they can use for investment or risk management purposes. Electronic payments also bring a much higher level of privacy over financial matters, which may increase a household's incentives to accumulate more savings (with less social pressure to share it) and may help women to gain a greater degree of financial security and independence from the men that control their households.

Finally, the spread of digital money can also bolster the effectiveness of government and the rule of law by helping fight crime and corruption. The prevalence of cash is as much a problem for law enforcement as it is for financial inclusion: criminals can operate much more easily in a cash-based economy. Digitising transactions and making cash suspect is a good way of increasing costs for criminal operations as well as increasing the chances of their detection. And since government is generally the largest micropayer (of salaries, pensions, and social welfare payments, for example) and collector (taxes) in each country, it stands to gain substantially from a cheap, transparent electronic payment platform with adequate traceability of payments.

The way forward

Achieving an inclusive cash-lite world may take time, but it need not take forever. By clarifying the objective and by creating a roadmap to get there, we can ease the concerns associated with departing from cash and smooth the path forward. When financial sector policy makers show clarity of vision and purpose in this area, inertia and the clutter of vested interests can be overcome.

Moving from cash to digital money has been an inexorable if slow trend in developed countries, but it has been hampered in developing countries by the lack of penetration of banking institutions, by regulatory rigidities, and by the paucity and high cost of communications networks. An estimated 70% of the population in developing countries is untouched by the formal financial system. In many regions of the developing world, the gap in access to finance is starker than the gap in access to primary health, education, and clean water.

With the spread of mobile networks, we can now address these issues and transform the financial opportunities faced by businesses and households in developing countries. The commercial success of Safaricom's M-Pesa mobile payment service in Kenya, which penetrated into the majority of the adult population in just three to four years, has shown that there is pent-up demand for convenient electronic payments even among the poor. Yet the state of electronic payment systems in most developing countries is akin to the state of the electrical grid a century ago: fragmented, reaching only the wealthier third or so of society, and unreliable.

To harness the power of the grid in developing countries where typical balances and transactions are very small, we will need to think differently about payment regulation and business models. Despite the many obvious advantages of digital money, it has to be at least as good as cash in two key areas: convenience and trust. A sufficiently broad base of electronic devices is needed for people to operate and access information about their accounts, quickly and conveniently. Marketing must be fair and not misleading. People must feel fairly treated and have their privacy respected by the financial institutions that manage their accounts. And the regulatory and supervisory frameworks over financial institutions and their electronic platforms must give people confidence that their money is safe and their claims to it will be honored.

Most people who are new to such a system will want to maintain a foot in each payment world: the physical cash world they have learned to live with and the digital cash world that opens new opportunities to them. It will take time for people to become familiar with and entirely trusting of the new payment grid. Bridges will need to be built to create backward compatibility between these two monetary worlds, in the shape of a network of cash merchants willing and able to accept cash for electronic value and vice versa for a reasonable commission.

Building an inclusive cash-lite system requires both scale (to maximise network effects and minimise unit costs) and granularity (offering convenient services to/in every community). While the full vision may take a long time to realise, it will be important to get sufficient traction with customers early on to sustain the investments in marketing and technology roll-out required to achieve both scale and granularity. A range of players — banks, telecom companies, distributors, and regulators — will have to work together to create an interoperable digital payments grid.

This inclusive cash-lite vision is now within the grasp of many countries for the first time. When the history of development in the 21st century is written, it is likely to feature prominently those countries that have made the transition and gone cash-lite.

 [From FinancialAccess Initiative blog, 5 April 2013] 

If there’s a growth industry in financial inclusion, it’s in data and measurement. And if there’s something experts are increasingly agreeing on, it’s that it is illusory to try to define financial inclusion in any precise, universal way. John Gitau says he’s confused, and so am I. Bu then, how can you measure financial inclusion?

Forgive me if you think I’m splitting hairs, but while you might not be able to measure financial inclusion itself, you can still measure things that indicate either actual, or the potential for, progress. Such indicators are what we should be after, but let’s not confuse them with actual measurement of financial inclusion.

There are two broad types of indicators which can be applied to fuzzy concepts like our cherished financial inclusion, and let me illustrate each with an example of an equally fuzzy concept from outside our field.

The first set of indicators relate to more concrete things that enable the desired, fuzzier outcome. Think of it as pieces of the jigsaw that we know are important even though we never get to see the full image of the puzzle. We can call these antecedent indicators.

If we want to know how to measure the state of democracy in the world, for example, we would start by listing the specific set of ideas that we expect would form part of democratic governance. Just looking at which countries run regular elections would be seriously misleading: we’d also want to know whether there’s freedom of the press so that people have a chance of making informed decisions; how easy it is to register to vote, as that ensures representativeness; how parties and campaigns are financed; how transparently do votes actually translate into who holds power; the levels of government at which there is democratic election; the list goes on. And then there’s of course another pile of important considerations of democratic interplay during the time between elections, like mechanisms to protect minority rights or how to handle recalls.

These would all be fine indicators, but each only tells part of the story and it is doubtful that all of them together could ever tell the full story of the state of democracy. The bottom line is: if you simplify the measurement then you need to nuance the interpretation, and you can’t let the data speak entirely for itself.

In the field of (formal) financial inclusion, we might deem that having an account at a bank, being able to understand some basic financial literacy concepts, and being on a convenient interoperable payment platform are essential requirements for meaningful inclusion. But it would be a tremendous stretch to argue this backwards. Having an account, knowing how to compute compound interest and having an option to pay electronically does not make you automatically (formally) included in any real sense.

The second set of indicators focuses not on what are the minimum conditions for there to be the desired (fuzzy) outcome but what concretely happens in a state where the desired fuzzy outcome is fulfilled. We can call these impact indicators.

Take the notion of gender equality. Can anyone claim to be able to measure what percent of women are equal in any particular country? No, but we can look at pay differentials between men and women and infer something about equality in the workplace. We can count how many women are battered by their husbands and infer something about equality in the home. More equality should lead to less/no pay differential and less domestic violence. But there’s an assumption of causality there, and we have better be sure that the causality is strong before assuming that the concrete indicators tell us anything about the fuzzy outcome we are trying to measure.

In the field of financial inclusion, the impact indicator logic would have to be something like the following. Because people are financially included, they can enjoy smoother consumption, and hence experience more stable caloric intake and their children miss fewer school days. Because people are financially included, they can mitigate risks better, and hence they have more stable incomes and fewer serious diseases. The problem is of course that caloric intake, school attendance, income volatility and health have so many drivers that it is hard in any given situation to disentangle how much of that was due to financial inclusion. One could in principle establish the causality through appropriately designed randomized control trials (RCTs), but that would have to be tested against so many different locations, population segments, personal circumstances, quality and scale of services, etc., as to make the basic causality proposition unprovable, in my humble opinion.

So we have seen that, if we cannot measure the concept of financial inclusion itself, we can only measure factors that are known to be causing financial inclusion, or impacts that are caused by financial inclusion. These can be thought of as giving rise to leading and lagging indicators. Unfortunately, unlike with the other examples I have cited, what these causal factors are at either side of financial inclusion are almost as fuzzy as the notion of financial inclusion itself.

As David Porteous argues, the lack of a standard definition of financial inclusion can be both a strength and a weakness. But the lack of clarity about what are reasonable causal indicators is a lot more troubling.

None of this is an argument to stop trying, but we do need to be cautious about what conclusions we draw from all the data. It also helps me understand (or maybe rationalize) why I feel like I get so little out of so many financial inclusion surveys that get conducted annually across the globe.

 

 [From IMTFI blog, 27 March 2013] 

Understanding customers’ purchase decisions is the core of the marketing challenge. We know it’s about segmenting in order to get more granular customer insights, identifying customers’ alternatives in order to put a given product in a wider context, evaluating the needs and the benefits as well as the barriers to adoption. But all too often the analysis becomes mechanical, customer and product market lines are drawn rather arbitrarily, and it is all expressed in a cool technocratic language that customers themselves wouldn’t recognize.

In Finding the Right Job for Your Product, Clayton Christensen and his colleagues offer a very crisp approach to keeping the customer at the center of the analysis. Think of it as customers finding that they need to get a job done, and seeking which products or services to hire to do the job. It may appear to be a mere switching of words: "job to be done" rather than customer "needs" or "benefits;" "hiring products" rather than "buying." But consider some of the implications of the job-to-be-done mindset.

First, buying decisions are most often driven much more by the particularities of situations rather than by intrinsic customer characteristics. To use the milkshake example in the article referred to above, the job fulfilled by a milkshake sold at 8am on a Monday morning to bored commuters is not the same as that of a milkshake sold at 5pm on Saturday afternoon to the same person with kids in tow. It is more useful to segment by the circumstances of the situation (e.g. time of day, day of week) rather than by assumed customer socio-demographic factors.

Second, the range of alternatives that customers might consider for the job can be much broader than is usually recognized. To use another Christensen example, we should want children to "hire" school in order to help them feel a little bit successful every day. Indeed, teachers’ battle daily for their pupils’ attention and motivation; win that, and education follows. Looked at in this way, going to school competes with the local soccer club or even belonging to a gang.

Third, purchasing decisions are driven in part by the capacity of the product or service tofulfill the functional needs felt by the customer, but also by the emotional elements surrounding the decision, such as fear, decision fatigue, pride, or the desire to fit in. Christensen explains how IKEA is organized to do a particular job very well: “We need to furnish this apartment today!” What a powerful synthesis of functional and emotional needs. Injecting drama and emotion is much easier if we are cognizant of the situation, and not just of the nature of the characters involved.

Logical as all this is, applying the "job to be done" framework to finance may not be so straight-forward. Financial considerations seem to touch every aspect of living the desire for your children to lead a better life than you had, to minimize life’s daily hassles and humiliations, to feel like you are keeping up and fulfilling your obligations to kin and kith, to reduce the feeling of present or future dependency. And financial considerations stretch over time: Unlike the milkshake, they don’t appear in our lives momentarily. Breaking up the customer experience into situations may therefore seem artificial.

Still, the key situations may be those "moments of determination" when people decide to set money aside or borrow in order to try to beat what the future has in store for them. Through these determinations people gain a greater sense of control over events, whether of the daily, occasional or life-cycle kind, and need not be accompanied with any concrete expression of goals. These determination moments are hard to identify but an indirect way to access them might be to interview people at the moment when they are acting on the benefits of that determination, such as when they are at the shop to buy a new pair of shoes. It is then possible to work backwards to what got them there: how they developedthat determination, what were the circumstances leading up to it, what jobs they felt they needed to get done, what they "hired" to get it done. That involves recall and we know the hazards of memory, but it is hard to make sense of people’s financial practices without putting things on some sort of timeline.

Much of both quantitative and qualitative client research is focused on classifying people (their income, education, prior financial history) and their living environment (their location, culture, available financial services). We may need to put more emphasis on a third element: classifying the situations in which they find themselves when they make financial decisions.

 [From SavingsRevolution blog, 27 March 2013] 

Are you an avid book reader and haven’t got a Kindle? You may want to try it. Digital consumption of books has improved my enjoyment of reading in three ways. Peace of mind: I know I can download a book anywhere I happen to be, I no longer have to worry about running out of books (I travel a lot). Readability: I can standardize the size of the font, I can adjust the text displayed on the reading device itself rather than having to adjust the focal point of my eyes by wearing a passive device on my nose (I’m pushing on 50). Multi-tasking: when I come across a word whose meaning I don’t precisely know, I can highlight it and its definition pops up (like most people, my curiosity is often overridden by laziness).

Against this, resisters proclaim that they’ll never give up the sense of smell and touch of their beloved books. They may not, but their children most certainly will. Literature itself has no smell and touch, we only project the sensory attributes based on our personal past experiences. Are you missing the horsy smell in your parking garage?

Notice that few if any of the benefits that I’ve mentioned so far –ubiquitous availability, vision aids, dictionary look-ups— would normally be considered essential features of packaged literature. Yet they are important because in our minds we consider the whole experience around consuming literature. And if there’s one thing that the digital world does well, it’s creating much broader customer experiences around basic acts – like shopping or reading.

In the physical world usefulness is about the product, usability is mainly about the packaging, and convenience is largely about the (sales and service) channel. In the digital world, these notions of usefulness, usability and convenience become blurred. In which category would you put the peace of mind, font-size control and multi-tasking benefits I spoke of above? That’s what makes the Kindle so powerful: it’s just so… integrated.

You consider me a technofile? What’s remarkable about the Kindle is how retrograde it is. As Gabriel Zaid points out in So Many Books, e-books are a return to the scroll as a linear textual format rather than the more flexible codex format consisting of discrete pages. And with that we lose the ability to easily browse the book, to make sense of it more comprehensively. Reading an e-book is now experientially more akin to watching a movie on DVD: we can only alter the normal temporal sequence in clumsy spurts.

And just like it’s hard to browse within e-books, it becomes more difficult to affix them in our memories.  You can’t mark up bits or write notes on the margin, which we often do more to enhance our mental retention than for future reference. E-books leave no idle cues in our lives to remind us about them (unless you make it a habit to actively search your hard disk). I even find myself not remembering the title of the book I am currently reading on my Kindle, because when I start it opens straight to page one and subsequently it opens to the page where I last left off. You may never get to see the book’s cover. This is a clear area for product improvement.

I suppose that this loss of browsing versatility and reading memories is precisely what people mean when they express attachment to the tactile experience of reading books. Until solutions for these side effects aren’t found, I fully expect physical books to continue to exist alongside e-books. Old technologies will survive as long as there are entrenched use cases that the new technology model cannot support. For some kinds of books (books you want to study attentively, picture books, maybe poetry), the ability to browse is essential.

What does all this tell us about the opportunity from digital financial services in developing countries? The unique opportunity from going digital is in creating better customer experiences with enough hooks into your mental models and habits and minimizing your daily frustrations. It need not be at all about conceiving of superior products, such as a never-thought-of before savings account. In the same way as e-books are more akin to ancient scrolls than the codices that came afterwards, digital financial services may actually be much more limited in what they offer than conventional financial services (think M-PESA here). We cannot judge mass-market financial services by some abstract notion of need or usefulness; what matters is how readily people can incorporate them into their daily life. (See in this context Susan Johnson’s analysis of how M-PESA connected with people’s informal money practices in Kenya.)

In addition, like physical books, cash has certain crucial characteristics which are very hard to replicate digitally. The fact that cash enjoys universal acceptance, no questions asked, while e-money depends on the availability of acceptance devices. The anonymity of cash versus the traceability of e-money. The fact that notes are fixed-denomination instruments, while e-money entails exposing the full balance of your account. Each of these benefits of physical cash translates into irreplaceable use cases. So I for one firmly believe that physical cash will co-exist with digital money for a long time, if not forever. Which is why my interest is in finding ways to make physical and digital money interwork better, rather than in replacing cash.

 [From CGAP blog, 19 March 2013, with Agathamarie John; see original post to view graphs] 

The Financial Sector Deepening Trust of Tanzania (FSDT) undertook a census of cash outlets in the country, and we previewed the results on the physical distribution of outlets in a previous post. Here we delve deeper into the situation of M-PESA agents, exploring how busy they are and how exclusively they are tied to an operator. As you read this, please keep in mind that transaction at agents are self-reported on a recall basis by the agents themselves, and are unverified by the mobile operators.

Almost two-thirds of M-PESA agents are exclusive

Figure 1 shows the split of agents by the number of mobile money systems they serve.  All of them serve M-PESA by definition, since the census only included M-PESA agents. The figure shows that 62% of M-PESA agents are exclusively dedicated to M-PESA, 29% serve one other mobile money system (Tigo Cash, Airtel Money or Ezy Pesa) in addition to M-PESA, and 9% serve three or four mobile money systems.

Agents near a bank branch or ATM (and hence presumably in busier, more densely populated areas) are only marginally more likely to be non-exclusive. (67% of agents within one kilometer of a bank branch – as the crow flies— are exclusive, against 70% for all agents.)

Half the agents do more than 30 transactions per day

All mobile money agents included in the census perform at least 3 transactions per month, as that was taken as a basic threshold of agent activity. However, transaction volumes vary widely. Some may not be considered as reliable cash points by the public, whether because they don’t wish to trade in cash often or because they run out of liquidity on a regular basis.

Figure 2 shows the distribution of agents by the average number of transactions they report on a daily basis. (Here we only consider deposits and withdrawals combined for all the mobile money systems served by each agent.) Most agents do significant business: 93% of agents do more than 10 transactions per day, 71% do more than 20, and 51% do more than 30. At the high trading end, 27% do more than 50 transactions per day, and 13% do more than 75.

This means that well over half the agents are probably operating profitably as mobile money agents. Using a notional average agent commission of 10¢ per transaction, 30 transactions per day (which, as we have seen, at least half the agents do) translates to $3 daily margin contribution to the store, enough to pay a qualified clerk’s daily wage in many instances.

Non-exclusive agents and agents further from banking outlets tend to do more transactions

Next we explored the relationship between agent activity levels and factors such as agent location and exclusivity. Figure 3 shows the distribution of agents by transaction bracket. The solid blue line is equivalent to the line in Figure 2, but without accumulation of values across transaction brackets.

The pattern is broadly similar for the agent sub-categories shown in Figure 3. However, the dotted green line shows that agents that only service M-PESA are in fact more likely to fall in the lower 10-20 transaction bands. In contrast, the broken red line shows that agents that are more than 5 kilometers away (as the crow flies) from a bank branch or ATM are more likely to fall in the higher 30-50 transaction band.

Conclusions

One of the main challenges in building mobile money systems is to balance two competing business imperatives: on the one, hand to sign up as many agents as possible to deliver ubiquity and convenience to the customer, and on the other to control agent growth to maintain a healthy, profitable channel.

In the past, Vodacom Tanzania has opted for faster agent growth, probably in order to cement a first-mover channel advantage over its mobile money competitors. The growth of the agent channel to almost 17,000 (according to the survey conducted in mid-2012) has put pressure on agent economics. But we can see from this analysis that at half the agents are conducting at least 30 transactions per day, which should translate into a daily revenue contribution of somewhere in the order of $3 per day, which might be considered a minimum profitability hurdle. These numbers should be taken as a very rough indication: it must be remembered, though, that this data is self-reported by agents on a free recall basis, and are not externally validated.

At the same time, Vodacom’s first-mover development of an agent network exposed it to cherry-picking by its competitors. In a country where no operator is big enough to force exclusive agency contracts, later entrants into the market were able to run faster by signing up M-PESA agents as their own, thus reducing their own cost of agent selection and training. But the data in this census suggests that almost two-thirds of M-PESA agents remain exclusive to Vodacom in practice.

 [From World Bank PSD blog, 13 March 2013] 

It has become mainstream to think that digital technologies will have a significant role to play in addressing the financial inclusion challenge in developing countries. This may be so, but if all we in the financial inclusion community do is merely add the mobile phone (or the smart card) to our stock of dearly-held beliefs, we will accomplish little. Technology will not work additively; if technology-based models work it will be because they will have changed pretty much everything. I’m not saying that everything will change: I’m just saying that that should be the bet.

Let me illustrate by making two provocative claims.

1. We need to get over our productitis
Now that we have some agent banking and mobile money networks out there, it is clear that enhancing access alone will not solve the financial inclusion challenge. Availability does not automatically translate into usefulness, and the usefulness of electronic payments does not automatically translate into usefulness of other electronic financial services. Therefore, much of the expert talk now tends to center on product innovations – appropriate products, of course.

This is taking us down the path of fragmenting customer’s needs into finer slices, so that we can design tailored products for each need. Save for school fees this way, lump up your daily income like this, use this to borrow short-term, insure your cows that way.

But is this really the way people think and act? These needs are not so separable in people’s minds: they just want their drippy earnings to stretch over all the routine payments they need to make over the month, to find ways to improve their living conditions one small step at a time, to have options if someone in their family falls sick. Marketing such a specialist collection of services is an enormous challenge – one that we can see already in MFIs and mass-market banks whose long product lists - the solar loan product sits next to the school fees savings account, child savings account, home improvement loan, productive asset loan and the lowly current account (which is often the only account with any significant uptake and usage). Imagine this productitis in a branchless banking scenario where a plethora of lightly-trained or supervised agents are supposed to be doing the propositioning to customers. Scary, isn’t it.

What we need are service concepts which help people manage their financial lives the way they think about it. They need to give shape to their own customer experiences, and that means offerings conceived as tools rather than products. Tools that help them manage their payments in space and time (see example here), to build up a stronger case for credit (see example here), and to visualize their financial situation more intuitively (see research underway here). Not products that represent preconceptions on how one must save or borrow, but real solutions that allow people to realize their own financial thoughts.

Maintaining some ambiguity on the nature of individual products and instead focusing on the broader financial support that people need is consistent with what we know about informal financial services. Between friends and family, it’s often hard to distinguish what’s a gift, what’s an interest-free loan and what’s an investment – that depends on circumstances. Likewise, community-based finance groups are not a product but an experience – in the double sense of savings and credit being combined in more or less flexible ways, and adding a social dimension to finance. It is also consistent with what we know about digital services in general. The internet has undermined many products (music records, newspapers), but it has created even more powerful customer experiences (iPod/iTunes, Kindle/Amazon bookstore, Google reader) that hook customers ever more tightly.

2. It’ll take an engineer to crack the financial inclusion challenge
Well-intentioned bankers who want to cater to the poor feel they must do constant battle with their banks’ IT systems. When it comes to serving the base of the pyramid what stands in the way of a truly customer-centric culture within banks tends to be a rigid technology platform. With today’s banking platforms, it is hard to design the kind of flexible service offerings envisioned above, to push appropriately simple and secure mobile interfaces right into customer’s hands, to scale up transaction volumes massively.

No wonder many fear that an increased reliance on technology will lead to a distancing from the customer. It doesn’t need to be that way. The role of technology should be to help marketing and service development staff within banks to sift through customer data to find actionable insights, to figure out new ways to increase the quantity and quality of customer interactions, to rapidly test new service features.

In the future, banks will emerge that feel increasingly confident about addressing the opportunity to bank the poor, and my expectation is that they will probably be led by an engineer. A nerdy CEO who is able to implement a technology infrastructure that truly enables, rather than constrains, marketing and product development activities. Banking is an information-based service, just like music and news, so banks will have to look a lot more like Amazon and Google.

This will require a banking IT architecture with a core platform that handles a defined set of basic transaction types industrially – fast, scalably, safely and reliably. It will include a service management environment which translates these basic transaction types into customer experiences, either designed by the financial institution based on customer insights or defined by customers through their own usage. It will also incorporate good interfaces for third parties to propose additional value to the bank’s customers and to further broaden and entrench the usefulness of the bank’s own platform.

Are we prepared to change how we think about what banks do, how they interact with their customers, and how they are managed?