MMU Spotlight on “direct deposits:” An expensive nuisance for mobile money operators

Direct deposits have become an expensive nuisance for mobile wallet operators by eating into revenue, weakening customer engagement, and stunting registration efforts.  One operator estimates up to 40% of P2P transfers take place through direct deposits rather than the intended means and, anecdotally, this figure is not unusual.

First, what is a direct deposit? Direct deposits are the circumvention of the intended flow of a P2P transfer. A direct deposit occurs when the customer initiating a P2P transfer hands the agent cash, but provides them with the mobile number of the recipient rather than their own. The agent deposits the funds directly into the recipient’s account, allowing the sender to avoid the P2P transfer fee and process.

In this MMU Spotlight publication, we discuss the root causes of direct deposits, the harm they create in mobile money programs, and steps operators can take to prevent them.  This will be of interest mobile money practitioners and those involved in managing mobile money agent networks.

Preventing direct deposits: A framework for action

Please follow this link to read the full publication.

Mobile money practitioners: Are there approaches to direct deposits not covered in this publication that you would recommend? Please do let us know at [email protected] or by commenting on this post.

Read the follow up to this post.

Join the Conversation (13 comments)

  • Samuel Brawerman says:

    Hello, thank a lot for this article.

    It is true that direct deposit is an important factor to consider. In some countries like in Uganda, where the market is in an advanced phase, direct deposits have become a commun practice which subscribers and agents don’t consider as a fraud. This is why we decided not to block it in Orange Money Uganda.

    Mobile money has gone from a Deposit-Transfer-Withdrawal scheme to a comprehensive eco-system with several different charged services to debit and credit you account. Therefore, even though direct deposit is a revenue loss, it can also be seen an increase of eMoney in the ecosystem which at one point will be charged (if prices and commission for all service are well designed) and an ease of transaction for the subscriber (e.g. a sender with no KYC ID might choose another option to send his money).

    The agent usually get a commission on registration, so unless he is very busy he should be happy to register a new customer. Moreover, some mobile money providers also give commissions to the agent who registered a subscriber based on the subscriber’s activity (in this case a P2P transfer). So the agent would be losing twice.

    I see this more of an AML/CFT issue for the central bank who can’t identify the sender. There is also a huge risk of fraud, not only to charge unofficial fees, but the agent can also decide to send the money to himself or a friend as the person in front of him doesn’t receive the SMS notification, he will only realize latter that the intended beneficiary has not received the transfer.

    For those who really want to block it, it is possible to identify direct deposit after it occurs, but with some mobile money platform it is now also possible to block a transaction if both phones are not in the same cell ID group.

    Regards,
    Sam.

  • Michael Joyce says:

    An excellent summary of a common problem. There are still a few other options not discussed.
    The first is to accept and monetise direct deposits! This is effectively what an over-the-counter remittance does. If your regulations allow over-the-counter transactions, you can set up a revenue model that is good enough for the provider and the agent and effectively cut down on direct deposits. In actual fact, many banks already do this. It’s not unusual for banks in the developing world to offer deposits free at your own branch, but charge a fee for deposits made at other branches – this not only reflects their cost structures, but also protects their remittance revenue.

    Another option is to change the menu structure. This won’t work for everyone, but at WING Cambodia we altered the transaction structure so a Cash-In transaction would require a PIN from the customer as well as the agent. This verified that the account owner was present for the cash-in transaction.

  • @Sam – thanks very much for you helpful perspectives from the ground in Uganda. You raise a number of good points here. Let me comment on a few:

    1) You point out that pricing and commission structure is important to making direct deposits more or less attractive. This is an excellent point. The higher the P2P transfer fee, relative to the withdrawal fee, the more customer benefit there is in doing a direct deposit.

    2) You also say that in some markets that it’s become common practice and is not considered as “fraud” by the ecosystem. This is a difficult issue for operators. On one hand, clamping down on direct deposits will likely hurt short-term transaction volume (and monthly targets). On the other hand, the problem will always be worse tomorrow than it is today. At some point, if they want to introduce serious wallet-based services, operators need to clamp down. When is the best time to take that pain?

    3) Great point on opportunities for agent fraud in direct deposits (agent sending the money to the wrong recipient on purpose). Would the non-registered sender have any recourse in this situation? That seems like a tricky situation.

    4) Blocking transactions not on the same cell ID group: We had heard from one operator that this approach created more trouble than it was worth (valid transactions not going through). Though if you have counterexamples and have seen this working well, we’d love to hear about them.

    Thanks again for the great comments.

    Phil

  • @Michael – your comments are always spot on. Thank you.

    Yes, the option of creating an official OTC channel was not considered in this publication. That is probably a full paper on its own! We are hearing more and more chatter about MNOs already running wallet services considering adding an OTC option. You are right that designing pricing structures to encourage migration from OTC to wallet in this “hybrid” structures is critical.

    On requiring PIN-verification for customers on deposits, what is your opinion of the usability vs. direct deposit prevention tradeoff? At Wing did you get the sense that the deposit PIN verification created hassle at the transaction point? Or was it generally smooth?

    Phil

  • This is a thought-provoking article — thanks.

    Mobile money is a new service and its business model designers must be nimble, and have excellent listening and watching skills. This article assumes both business model design perfection and permanence. “These darn customers are the problem, they aren’t behaving correctly and worse our very own agents are only too happy to ignore inconvenient rules.”

    As the above two commenters note, there are steps an MMO can take in these direct deposit situations to identify the real sender (satisfying regulators) and to develop new business models that generate revenue.

    There are a great many ways forward without using a stick to beat valued customers. A greater challenge is the agents. If they are not making money, they will become opportunistic. They’ll pick and choose which rules to follow; they’ll become “cafeteria agents”. Yes the MMOs should be looking over their agents shoulders, but they should also refine their models to give agencies the best opportunities to be profitable, given observed consumer use-patterns. (These steps do not all have to be incremental; the best favor many MMOs can do for themselves might be to fire the bottom 50% of their agents.)

  • @Phil/@Michael – thanks for linking me to the article.

    As Michael mentioned, WING still tackles this 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 ‘remote’ cash-ins 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.

    One last thought on identifying ‘remote’ cash in transactions; Unfortunately due to the poor national ID program/postal system in Cambodia, it is very hard to get an accurate report of potential ‘remote’ cash-in transactions. In other implementations it might be possible to cross check the agent/customer addresses to see frequent offenders where the distance between customer and agent is very large. In our case this usually ends up being a courtesy call to the customer to find out if they’ve moved as the National ID address (birth place) is almost invariably different to the current customer address – at least we get to update our customer records!

    -Anthony, WING

  • Michael Joyce says:

    Thanks for the great detail Anthony- always good to get a response from somebody who is dealing with those issues day-by-day. It’s also worth pointing out that as WING is a multi-operator model, it doesn’t have access to the cellphone location data that a telco does, making it harder to identify remote cash-ins. WING knows the address of agents, of course, and can use this to identify cash-in and cash-out transaction locations, but cannot directly use cell location data.

    As Phil points out in the article, if a provider uses location data and sees that a cash-in in location A is swiftly followed by a cash-out in location B, and location A and B are geographically too far apart to physically travel in that time, it is a direct deposit.

  • I think Sam’s first point is very valid – mobile money has gone from a deposit-transfer-withdrawal scheme to a comprehensive eco-system. A number of our MFS provider clients have intentionally chosen to make the P2P very, very low – thereby encouraging the use of e-cash instead of “real cash” for a range of different transactions.

    The net effect of this is lots of P2P and P2B transactions – attracting a small amount of revenue but a much lower cost of sale to the provider. We have done a whole range of “individual behaviour scenarios” which looked at the day-to-day financial transactions conducted by a range of different types of people, and produced a series of “what if” financial models using a combination of fees, commissions etc. and found that having very low P2P fees can actually work out more beneficial to the provider – especially once you start adding more linkages and creating other things that people can do with their e-cash.

    – Debbie Watkins, ShoreBank International

  • A workaround is to use a solution which confirms on the presence of the user/handet during the deposit. TagAttitude use a kind of NFC solution based on sound transfert (NSDT) wich garantees authentication and presence of the customer in front of the agent using a mPOS. Easy, secure and and smooth

  • @Debbie – thanks for your thoughts.

    Definitely a great point that pricing structure drives customer behavior and that reduces P2P flows encourages velocity in the system.

    It’s great to hear that you and other operators are seeing increased P2P volumes make up for revenue lost by cutting pricing.

    Thanks for the comment!

    Phil

  • @Antoine – yes, there are probably a couple “system” solutions to the problem, including NSDT (though I wonder if the direct deposit isuse is sufficiently significant to justify implementation of an entirely new transaction technology). We are going to post another system idea on the blog later this week.

    Thanks for the comment

  • As Debbie and Sam pointed out – I think the core issue lies in the approach of the over all approach to the development into an over all eco-system that moves beyond just transactions ….which generally tend to be the focus of MNO led initiatives (not really to blame them – the regulator does not allow them to do more !).
    Banks will/can always look at issues beyond transactional aspects as pointed out above. In Nepal, some of these issues have been “accidentally” addressed due to regulatory compliance issues!

  • In some African countries customers are not self confident to use the service and resort to P2P because of lack of customer education . It beats the convenience of the service from anywhere , anytime to give more time to the customer to do more chores instead waiting in a long que, long hours time that could be used in productive activities. Sometimes the telcos themselves encourage and afraid to penalize the agent as they may lose customers because competition is doing the same.
    The solution is for all telecos to sit down and agree on this, as this is good for the business as they all will make more money on commission.

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