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 [ed. note: Regulation permitting!].

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.