This blog was co-written with Lynn Eisenhart, Senior Program Officer of the Bill & Melinda Gates Foundation.
Much has been written about the prevalence, causes and implications of over-the-counter (OTC) mobile money transactions in several markets, particularly in South Asia. Global financial inclusion stakeholders are understandably concerned since data suggests that OTC usage is continuing to expand, potentially limiting the prospects for the development of a digital financial ecosystem.
The Bill & Melinda Gates Foundation’s Financial Services for the Poor group and the GSMA have partnered on a research effort to understand OTC more deeply across geographies, putting forth a set of definitions and archetypes to help refine and advance our collective thinking on the issues and potential interventions. While initially focused on analyzing root causes of OTC in key affected markets, this effort ultimately seeks to help identify and test effective solutions for OTC migration with mobile money providers.
To start, it is worth revisiting what is classified as OTC. A transaction is considered OTC when it is conducted by an agent’s account on behalf of the customer. OTC can be offered formally, whereby the provider deliberately chooses to implement an OTC strategy for commercial and regulatory considerations—as was the case of Easypaisa in Pakistan and of Tigo Money in Paraguay during their early years of operation, prior to introducing hybrid services. OTC can also emerge informally and organically, despite deliberate commercial and regulatory attempts to limit OTC. For example, bKash in Bangladesh is currently struggling with informal OTC, as elegantly discussed by CGAP.
Direct deposits are a sub-set of informal OTC. A direct deposit refers to a money transfer that is conducted by cashing-in directly to the account of the recipient, circumventing the intended flow of a P2P transfer. Customers or agents may see an incentive to cheat the system, or simply prefer the fewer steps involved to transfer funds. This is the type of OTC many mobile money deployments around the globe have experienced. MicroSave has recently analysed this type of OTC in Uganda, highlighting its impact on the business case for mobile operators.
These distinctions matter because each type of OTC behaviour is associated with a different set of root causes and risk profiles, and will require very different strategies to achieve wallet adoption. These distinctions are also necessary to help us make sense of the data that is available on OTC usage, most of which has become available within the last couple of years.
The GSMA collects supply-side data onformal OTC usage as part of its annual Global Mobile Money Adoption Survey. Providers that offer a formal OTC service report the total number of unregistered customers transacting over-the-counter on their mobile money platforms. Informal OTC activity, on the other hand, is often difficult to capture with supply-side data. Providers must take extra steps to quantify informal OTC through back-office analysis on transaction data and mystery shopping to better understand how the service is being used. Agent surveys can also help to provide some indication of the extent of the issue.
On the demand side, InterMedia’s Financial Inclusion Insights (FII) surveys are shedding light on the gap between total mobile money usage and that which is done by registered customers.  This gap can serve as a proxy for all OTC (formal, informal, direct deposits), though it may also capture account sharing by friends, family and community members, as well as other market-specific nuances.
No individual set of data is perfect, but we can begin to piece together our insights with some level of consistency in how we define the various types of OTC. We believe it would help the global financial inclusion industry to start to untangle the OTC challenge across markets, tempering the alarm and getting closer to identifying prospective solution sets.
This blog is the first in a series on global OTC exploration, produced by the Bill & Melinda Gates Foundation and the GSMA.
 With funding from the Bill & Melinda Gates Foundation, InterMedia’s FII program is conducting research in Bangladesh, India, Indonesia, Pakistan, Kenya, Nigeria, Tanzania and Uganda.