This is a guest post from Dan Radcliffe, Financial Services for the Poor program at the Bill & Melinda Gates Foundation and Peter Goldstein, InterMedia. 

In a recent blog post, Peter used demand-side data from the recent 5,000 household Financial Inclusion Tracker Survey of Pakistan [1] to demonstrate that mobile money penetration is only scratching the surface of this market’s huge potential, given widespread mobile coverage and a largely unbanked population.

Here, we focus on the FITS survey’s finding that 87% of mobile money transactions in Pakistan are conducted over-the-counter (OTC) rather than through an account.  An OTC transaction is like a Western Union wire transfer where the customer simply hands over cash to an agent who facilitates the transaction on the customer’s behalf, in this case using the mobile network.

Why does OTC preference matter? These customers have no accounts and thus no means to store, access, or accumulate funds. OTC is a “pure play” payments tool which offers no vehicle to deliver savings, insurance, or the other enhanced financial products that you and I enjoy, and that could benefit Pakistanis in need of better ways manage and leverage their cash resources.

Why is OTC so prevalent? The FITS data points to several barriers to account adoption:

• The hassle of opening an account: According to Pakistan’s know-your-customer (KYC) rules, opening a new account requires an agent to take a photo of the applicant and her ID card and send this information to bank officials, who then verify it against a database. To meet this requirement, mobile money providers must equip each agent with a ~$150 camera-enabled phone – a costly task when multiplied by tens of thousands of mobile money agents. As a result, only a small fraction of mobile money agents in Pakistan are equipped to register accounts. OTC transactions only require the customer to present her ID card and hand her money to an agent.

• Basic payment needs are perceived as being met by OTC. Fifty-nine percent of OTC users said they didn’t register for an account because they didn’t see the need to open one. Why go through the extra steps when my payment needs are already met by simply handing my cash to an agent?

• Closed loops. Twelve percent of OTC users said they didn’t register for an account because nobody in their social network was a registered user. This is in part due to the closed loop nature of some mobile account networks in Pakistan. Whereas OTC services are available to all customers regardless of their mobile provider, most mobile accounts are restricted to customers of a particular mobile operator.

• Lack of awareness of mobile money. Among households that have no mobile money user (either OTC or account-based), only 60% even know mobile money exists. 

How can mobile account adoption and usage be increased? Below are four suggestions:

• Providers should urgently increase the number of agents who are able to open new accounts. As long as registration points are limited to a small fraction of agents, account uptake will remain limited.

• Providers should significantly expand awareness campaigns promoting the functional benefits of the mobile account. Pakistan’s mobile money awareness rate is well below those of fast-growing markets, like Kenya and Tanzania.

• Providers should remove account registration fees. Combined with the onerous registration process, these fees are a big psychological barrier to opening accounts.

• The National Database and Registration Authority (NADRA) and the State Bank of Pakistan (SBP) should take action to streamline the account registration process. NADRA, for example, could lower the US $0.30-$0.50 fee charged to verify customers’ biometric information. SBP could eliminate redundant elements in its KYC policy, such as the two-photo requirement. And in practice, banks could verify the customer’s ID information digitally using the customer’s ID number and the NADRA database (rather taking a photo of the full ID card).