Jenny Hoffman, RiskFrontier Consultants, attended the June MMU Working Group in Barcelona. She has summarized below some key themes from the sessions. Her report is a good reflection of the tone and organization of the Mobile Money for the Unbanked Working group.
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Session 1: Who is the market? What is the value proposition?
The meeting began where, ideally, all businesses should begin: with an exercise in understanding consumer needs and potential offerings. The MMU team presented some profiles of residents from a township called Langa near Cape Town. These included a tavern owner, a barber and a witch doctor. We were asked to study their behaviour and consider how mobile money might be of value in their lives. Suggested offerings from the working group included store of value, transfers, payments to suppliers and even building up a credit history and access to funeral insurance.
Session 2: What are the problems? Challenges identified by the Working Group
An African operator spoke about the unexpectedly heavy need that they found for training due to the high turnover of staff at their agents and the lack of understanding of customers despite the fact that their initial target market were the relatively well off. This all took up a lot of resources. Indeed they found that 99% of their problems were agent related. A Middle Eastern operator also described the competition from the informal systems and the difficulties of conveying a value proposition to the market against using the Hawala system or trusted agents carrying cash.
Other challenges included managing both the physical security at agents when they start to carry high levels of cash, technical security of the system and processes which meet the requirements of a new financial business, finding and keeping the right people to ensure an excellent deployment and ongoing support for the system and agent liquidity management. There was also some debate about the extent of the regulatory challenges. These range from the lack of identity documents in certain countries which makes compliance with the Anti Money Laundering laws impossible, to setting up a mobile money business when the central bank and regulator refuse to talk to a non bank at all.
Session 3: The legal environment
Marina Solin reviewed the regulatory strategy and the work that MMU had already done to commission articles and interact with regulators and MNOs. She noted that the annual report contains thought pieces on interoperability and whether the mobile money business creates money and therefore potentially impacts on inflation.
Most recently, MMU had provided input into the World Bank process of proposing appropriate regulatory standards for mobile payments and two of the authors of the original paper presented their thoughts to the working group, noting the views they had received from the industry. Their original paper had concluded that many of the mobile money businesses were already adequately managing the AML and KYC risks through their normal activities to manage business risk. They were now focusing on finding out more about how MNOs assessed their risks and the best ways of doing KYC for a mobile money business.
They emphasised that while it was of course necessary for all countries to follow the FATF standards, they felt that these were in fact sufficiently flexible so that they should not impede doing business or present a barrier to financial inclusion. The problem usually lay in how these standards had been interpreted by the local regulator who did not always take note of the recommendation that customer identification should be risk based and appropriate. Therefore they concluded that there did not need to be new standards but rather guidance on how to apply the existing standards to new technologies.
Session 4: Market Analysis
Paul Leishman (MMU) and Caroline Pulver (FSD Kenya) reported on two recent market surveys from the Philippines and Kenya respectively. There were some interesting insights from the Philippines on the correlation between use of mobile money and use of core mobile phone offerings. Someone who used mobile money was more likely to use that operator’s SIM as their primary SIM and they were likely to increase the number of times they loaded airtime. The surveys also showed the importance of word of mouth and face to face marketing and training through the agents in the adoption of the new service. Access to a savings product was seen to be the next big need. In Kenya it was interesting to note the level of users of M-PESA who were already banked (70%) and also the high level of satisfaction with this service (around 98%). The introduction of the M-PESA service had changed behaviour, demonstrated by the greater number of Kenyans who received remittances from 16.5% in 2006 to more than 50% in 2009.
The problem areas were around the liquidity management of the agents (70% of respondents had experienced an occasion when an agent was unable to pay out) or sending money to the wrong person due to user error when typing the number (4.3%).
Session 5: Business leaders who have been there
JoJo Malolos from Smart Philippines (and Rizza Maniego-Eala from G-Exchange) spoke about their experiences as two of the longest running mobile money businesses in the world. They were asked about the critical success factors for driving consumer adoption and also what they would do differently if they were starting again now. Their responses reinforced the need for mobile money players to focus on the market, as both leaders spoke about the importance of understanding the needs of different market segments and that a financial product is not the same as a mobile phone product.
Mobile money transfer was introduced by Smart as a value added service to different market segments, some of whom preferred to transact using the phone and others using a MasterCard. Smart have used collaboration with banks and with MasterCard (whose marketing campaigns have been beneficial) but they also have put in their own point of sale devices into some merchants in order to be able to maximise merchant discounts. Education of customers is seen to be less of a problem in the Philippines than in many other developing countries as levels of literacy are high and the use of the SMS is virtually ubiquitous.
Session 6: Hypotheses to be tested
Ignacio Mas from the Gates foundation (which funds the MMU Programme), described the three hypotheses that needed to be tested.
1. That mobile money for the unbanked is commercially viable – at scale and not dependent on subsidies
2. That the business can be profitably driven by meeting the payments needs of the unbanked
3. That the cost of every transaction should be covered by revenue – that every transaction should be profitable
He presented a view that ‘cash is the competitor’ and therefore the areas where mobile money has a competitive advantage are where:
• It is hard to make remote payments
• It is hard to keep small cash balances
• It is unsafe to travel with cash
Mobile money will provide proximity which lowers transaction costs for the customer, and immediacy which gives options for the customer to manage their money and ubiquity.
Conclusions
The working group in Barcelona produced a lot of open discussion between existing practitioners and those looking to test the waters. There was a good balance of internal experiences and input from external experts. I think all the participants came away feeling that they had both contributed and learnt from the session and that the MMU team was really making progress in helping them to identify and meet the challenges of this business.
The key message I took away was that if you get the service offering right for your market, more or less everything else will flow from there.