[From Center for Financial Inclusion blog, 11 April 2012]
The sheer magnitude of the financial inclusion gap –70 percent of households in developing countries are unbanked— calls for pretty radical solutions. As I exemplify in a new paper, we need to overcome an access barrier (last mile infrastructure), a relevance barrier (right-sized products and services) and a usability barrier (friendly and intuitive customer experience). What makes these problems particularly difficult is that they cannot be thought of separately or tackled sequentially.
Mobile money so far has demonstrated potential to break the access barrier, at least in East Africa. But most customers see little reason to use mobile money as much more than a substitute for cash. Mobile money is built on speed (real-time clearing) and liquidity (thousands of merchants where you can cash in and out). It is ready-cash (an immediately accessible mobile wallet), it is cash-to-go (P2P money transfers, billpay), it is pay now.
We need to turn mobile money into a more flexible tool that helps people not only carry out today’s transactions conveniently, but to plan for future ones as well. Mobile money can be expanded from PayNow to PayPlan – helping people ear-mark funds for and build up to the things they want to secure for tomorrow. The key is to balance people’s desire for flexibility and liquidity to meet unforeseen circumstances (illness, weather shocks), and their need to establish commitment and discipline to avoid getting distracted with less valuable daily purchases. Their need, in the first instance, is to plan for outlays: they have little income and many things they could do with it. Many people don´t see this as a financial problem, they see it a spending prioritization or discipline problem.
In “Making Mobile Money Daily Relevant”, I suggest how such a PayPlan service might work, as an extension of a mobile money scheme. It would allow people to set and contribute to spending goals. They could send money over time to others (delayed P2P transfers), or simply to themselves (Me2Me). With Me2Me, farmers could use this year’s crop bounty to reserve money for inputs for the next season and pay themselves a salary until the next crop comes in. Day laborers could build up to the amount they need for school fees, or create a cushion for other things that will improve the quality of their lives. Traders could plan new supply purchases and loan repayments.
Mobile money today is a prepay product, akin to a debit card. By giving providers a more meaningful window to client’s financial profiles, PayPlan ought to allow providers to extend advances to clients on the fly, adding credit card-like features as well.
Savings and credit services enable a shifting of expenditures in time. Therefore, savings and credit services are a logical extension of a payments service. And all this needs to be conceived as an experience, not just as a fixed set of products or receptacles for funds. Moreover, by putting planning tools at the core of the mobile money proposition, we will set the basis for continuous financial education through usage.