[From CGAP blog, 19 June 2013]
I feel like in the last couple of years I have been moving away from the mobile money mainstream, which continues to insist on exuberant optimism in the face of scant results on the ground. I believe in the inevitability of mobile money, but I don’t believe we’re getting there very fast. I am disheartened by the effort and money I see going into projects which to me feel ill-omened from the start. I often joke I seem to have a reverse Midas touch: deployments seem successful until I go there and take a look for myself. They do say that a pessimist is just an optimist with inside information.
So I was very receptive when I saw Susie Lonie ask bluntly in a recent blog post: if everyone wants mobile money, why is it doing so badly? Having rolled up her sleeves to help conceive and launch M-PESA in Kenya and elsewhere, I can only assume she is by nature more of an optimist than I am and she certainly has a lot more inside information, so I take her current pessimism very seriously. I agree entirely with her answers: that most mobile money replicators have not invested enough in the basics of the business, and that the main issue preventing them from doing so is organizational culture.
Supply side: A problem of corporate DNA
Once Mung-Ki Woo, then at Orange and now at MasterCard, explained to me the poor fit of mobile money in a telco’s decision portfolio in an interesting way. Telcos run on two fundamental innovation cycles: a decade-long one linked to massive new network investments (1G, 2G, 3G, etc.), and a quarterly one linked to small service extensions or value adds (a new game linked to the latest James Bond movie release, a collection of cool apps) around the latest first-in-their-market handset launch. Mobile money doesn’t fit these well-worn decisioning models: it’s nowhere near substantial enough to get the attention and treatment of a core network investment, yet it’s too expensive and has too long a payback to look compelling when viewed against other value added services. Moreover, shortening handset cycles leads mobile operators to treat service innovation as primarily a brand-building exercise: it’s more about the launch than necessarily about subsequent usage or even revenues. But mobile money is a volume business which requires high and sustained usage to feed itself. It doesn’t fit.
As regards bankers, mobile money and branchless banking more generally feel like a direct challenge to the basic precepts they have been brought up on: that they need to jealously guard the customer experience by only serving clients at tightly-managed own touchpoints; that they need to build deeper relationships with their clients and eschew transactional models; that they need to be selecting and nurturing higher-value customers rather than serving an undifferentiated mass; that retail payments and money transfers are boring commodities; and that technology is something the bank, rather than the customer, should deal with.
All of these are valid points, and it is true that a poorly conceived branchless banking system can lead them astray. Embracing indirect and self-serve channels while avoiding these pitfalls does require a major redesign of pretty much every aspect of a bank. But banks in underbanked countries will remain reluctant to do so while shareholders are content with current profitability levels, competition is limited to certain niches at the higher end of the market, and regulators do not remove obsolete restrictions that needlessly raise the cost of banking.
Demand side: why don’t people keep value electronically
But my doubts don’t all lie on the supply side. Susie’s premise, that “customers want mobile money,” is hard to test where mobile money is failing to take root, because you cannot expect people to “want” something that they haven’t had a chance to try.
What does trouble me is one behavior I see over and over again even where mobile or electronic banking is most successful: when money transfers into their account, most people withdraw it immediately and in full. Since the money was already electronic, why not keep it in the account for safekeeping or in anticipation of future payments? I worry about this because if mobile money doesn’t convince people as a store of value, it will never become a preferred means of payment.
The standard view is that this is primarily due to lack of acceptance at local shops: why keep money electronic if you can’t use it to pay for stuff? I have a different view: I think it’s primarily because electronic money does not offer the sense of budgeting and control that people want to feel over their money. Dave Birch has observed that people used to like checks because they could keep written records of their expenses: “They weren't really cheque users, they were cheque stub users.” Nice one, Dave. Similarly, we should strive to make the mobile device a money or expense management tool, not merely a payment instrument.
As long as electronic money does not connect with how people administer their money (such as by enabling mental labeling and “jam jarring”), it will continue to be soundly rejected as a primary mechanism for holding value by the majority of people. And if people are in possession of cash rather than electronic money, stores will continue to be reluctant to accept electronic money. But get people to want to hold electronic money, and see how quickly stores will fall into line. Yes, we need electronic acceptance at stores, but don’t expect much payment volume while most people’s electronic accounts are empty. People will continue to make daily payments in the form in which they keep their money.
So yes, Susie is probably right, everyone wants mobile money, but so far really only to make remote payments or to avoid queuing up to pay a bill at the utility office. I am not content with that as a vision, and I am not at all sure that generates enough volume of business to sustain a mobile money ecosystem in many countries beyond Kenya. Part of the failure to replicate mobile money is a failure to tap into large enough pools of existing transactions. Mobile money should be used daily, as a store of value and as a means of payment – these are literally the two sides of the coin.