Adopting an Omni-channel Strategy

Written by Trica Cuna Weaver

A UBL Omni pop-up in Pakistan

A UBL Omni pop-up in Pakistan

In 1995, an essay in the ABA Banking Journal argued that “the banking industry will suffer the same fate as the dinosaur within the next five years unless the brick and mortar branch banking system is cast off in favor of more nimble delivery alternatives.”[1] As we move forward into 2015, the delivery of banking services around the world is certainly different than it was twenty years ago. Back then, I remember being fascinated by drive-through bank tellers (a service commonly available at U.S. banks branches), sitting in the back seat of the family minivan, watching as canisters stuffed with checks zipped through tubes and back with deposit receipts. Fast forward to today, I now rarely issue or receive checks, and when I do, I snap a picture of it with my smartphone and it’s deposited to my bank account in a manner of seconds. From drive-through bank tellers to mobile banking, the customer banking experience has changed dramatically.

This significant shift to digital has characterized financial services not only in developed countries, but also (and in several cases, perhaps more so) in emerging markets. Branchless banking and digital financial services[2] are not new concepts in banking; in the late 1970s, for example, Citibank pioneered the roll-out of ATMs to reduce the operating costs of manual cash disbursement at branches. In the financial inclusion space, discourse on digital and mobile financial services has also moved beyond debates on relevance to discussions on tailored applications in sectors such as agriculture and clean energy. Globally, usage of digital channels has increased rapidly in recent years; a 2014 survey found that retail banking customers in 21 countries (in both developed and emerging markets) handled more than 70 percent of their banking interactions through mobile (smartphone, tablet), online, and ATM channels.[3]

Nevertheless, the pressure on banks to expand their delivery channels, as well as the products and services offered through these channels, has intensified due to the exponential rate of financial technology innovations offered by non-bank actors (such as mobile network operators and payment service providers), which increasingly compete in the traditional banking space. From Pakistan to Kyrgyzstan to China, Enclude’s microfinance and retail / commercial bank clients have invested substantially in online, mobile, and card-based channels to improve operating efficiency, more effectively mobilize deposits, expand customer outreach, and, in the case of China, rival Alibaba’s Alipay.

As banks push to “go digital or bust,” however, it is critical to keep the customer experience at the core of any growth strategy. This requires a true understanding of customer preferences – which may vary across customer segments such as industry, geography, gender – and how their banking experience may be enhanced through both digital and physical channels. The emphasis should not be on developing a siloed, electronic banking strategy, but rather, an integrated “omni-channel” strategy that provides customers with a seamless experience across their interactions with a bank teller, call center, online platform, mobile application, branchless banking agent, and/or ATM. According to Wells Fargo & Co., a leading bank and financial services holding company in the U.S., “high-intensity” customers, or those who frequently utilize multiple channels, are 1.7 times more profitable and own six more products on average than low-intensity customers.[4]

Alternative channels are also being utilized to acquire new customer segments. For example, in India, the central government has taken on the task of providing country-wide and universal access to financial services, starting with the opening of a bank account. Over a span of eight months, the program enrolled over 150 million registrants, including over 90 million from rural areas.[5] While similar government initiatives had faltered in the past, the recent success of Pradhan Mantri Jan -Dhan Yojana came in large part due to the mobilization of over 125,000 Bank Mitra (business correspondents) assisting in bank account enrollment camps and conducting transactions via phone and computer from their respective corner shops.[6],[7]

Particularly in the markets where Enclude works, physical channels, such as branches and call centers, will continue to play an important role in the delivery of banking services. Their role, however, must evolve to reflect the particular needs and preferences of customers. In Kenya, for example, Musoni, a microfinance institution (MFI), has taken advantage of the well-developed mobile money and mobile payments infrastructure and conducts all of its transactions (such as loan disbursements and repayments) entirely through mobile money accounts. Nevertheless, while Musoni’s operations are cashless, they are not branchless; Musoni does have a number of branches, recognizing the importance of channels that provide face-to-face interactions with clients. Since the branches are cashless, however, they are less costly for Musoni to operate, which also improves the MFI’s ability to open more branches in rural areas.[8]

In this context, branches are not doomed to the fate of dinosaurs. Nevertheless, banks must determine how their channels must evolve to be nimbler, less costly, and more integrated in order to expand customer access and outreach, and to enhance the customer banking experience.

[1] Fowler, Judge W, and John P. Hickey. “The Branch Is Dead! Long Live the Branch!” ABA Banking Journal 87.4 (1995).

[2] Digital financial services is defined here as financial services (such as credit, savings, investments, insurance, transfers, and payments) offered through digital instruments (such as debit, credit, and pre-paid cards and mobile wallets) and digital channels (such as ATM machines, point-of-sale terminals, mobile phones, tables, and computers)

[3] “Customer Loyalty in Retail Banking: Global Edition 2014.” Bain & Company, 18 Dec. 2014. Web. 4 Jan. 2015. <http://www.bain.com/publications/articles/customer-loyalty-in-retail-banking-2014-global.aspx&gt;.

[4] Huang, Daniel. “Mobile’s Rise Poses a Riddle for Banks.” The Wall Street Journal 18 Dec. 2014. Web. 5 Jan. 2015. <http://www.wsj.com/articles/mobiles-rise-poses-a-riddle-for-banks-1418945162&gt;

[5]Department of Financial Services. PMJDY website, Progress Report. <http://pmjdy.gov.in/ArchiveFile/2015/4/29.04.2015.pdf&gt;

[6] Narendra Modi’s personal website. “FM: Record Number of 11.50 Crore Bank Accounts Opened Under Pradhan Mantri Jan Dhan Yojana (PMJDY) as on 17th January 2015 against the original Target of 7.5 Crore by 26th January, 2015,” January 20, 2015.<http://www.narendramodi.in/fm-record-number-of-11-50-crore-bank-accounts-opened-under-pradhan-mantri-jan-dhan-yojana-pmjdy-as-on-17th-january-2015-against-the-original-target-of-7-5-crore-by-26th-january-2015&gt;

[7] Rama Lakshmi, “India pushes bank accounts  for the poor in bid to share benefits of economic growth,” October 18, 2014. The Washington Post. < http://www.washingtonpost.com/world/asia_pacific/india-pushes-bank-accounts-for-the-poor-in-bid-to-share-benefits-of-economic-growth/2014/10/17/62e153ff-e295-4dc7-80fa-addf9db498ef_story.html&gt;

[8] Pénicaud, Claire, and Arunjay Katakam. “State of the Industry 2013: Mobile Financial Services for the Unbanked.” <http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2014/02/SOTIR_2013.pdf&gt;.

Mobile Money in Uganda

Written by Paul Newall

Discussion between Khurram Sikander (KS) and Paul Newall (PN)

The recent ruling in Uganda to declare mobile money illegal has surprised many and caused quite a commotion in the digital financial services (DFS) space – and much conversation in the Enclude offices. I talked with Khurram Sikander, Enclude’s Global Group Lead for Digital Payments, to discuss some of the major topics and gain his insights on the matter.

PN: The recent ruling in Uganda has thrown into uncertainty one of Sub Saharan Africa’s most promising mobile money environments. What are your initial takeaways?

KS: I do not believe that the views shared by Member of Parliament Katunu and Justice Madrama are entirely correct. While the regulations in Uganda could be more clearly articulated and could include a more comprehensive set of guidelines, they do mandate that mobile money operators (referring to non-bank providers such as MNOs) partner with financial institutions to apply for a license. It is then the responsibility of the financial institution to carry out due diligence on the mobile money operator, including proof of financial position; and review of the operator’s business plan, risk management proposal, technology system, and AML/CFT measures. Once approval from the Bank of Uganda (BoU) is obtained, mobile money is treated as a financial institutions business regulated under the Financial Intelligence Authority.

PN: There does seem to be some recurring confusion with how the money is reconciled between the two parties in this relationship. This confusion has led the MP and Justice to consider MTN a financial institution. Can you expand upon that – once transferred, how is the money reconciled between the bank and the telco?

KS: The regulations clearly state that the mobile money operators have to hold, in an escrow account in their partner financial institution, the equivalent value of the mobile money / wallet they sell to their customers. The parties are expected to reconcile the balances of the escrow account and the mobile money accounts to ensure the net effect is always zero. Negligence in this area is where the fraud often takes place.

PN: This all seems like a misunderstanding of the regulations. Keeping in mind how successful Uganda’s mobile money market has been, why do you think the MP and Justice took it upon themselves to declare it illegal?

KS: It seems that there is a fundamental lack of clarity from those reviewing the regulations. In any case, I do not see the government suspending a $6 billion per year business (as of 2014) and a large source of tax income anytime soon, and in fact, the BoU has responded to the situation by issuing a statement confirming that mobile money is lawful and secure.

Global Findex 2014: does access to mobile money = financial inclusion?

Written by Paul Newall

Last week, the World Bank released their Global Findex for 2014, a self-described “bonanza of data on financial inclusion.”[1] The Findex report offers impressive scope and depth of information, and interestingly chronicles the progress of financial inclusion on a global scale. Upon its release, the World Bank pointed to several key findings, highlighting the progress of financial inclusion since their last report in 2011. These points include:

  • The number of people worldwide having an account grew by 700 million between 2011 and 2014. 62 percent of the world’s adult population has an account; up from 51 percent in 2011. Three years ago, 2.5 billion adults were unbanked. Today, 2 billion adults remain without an account. This represents a 20 percent decrease.
  • While just 1 percent of adults globally say they use a mobile money account and nothing else, in Sub-Saharan Africa, 12 percent of adults (64 million adults) have mobile money accounts (compared to just 2 percent worldwide); 45 percent of them have only a mobile money account.
  • 28 percent of adults —1.2 billion adults—in developing countries report they would use their savings in case of an emergency. Yet 56 percent of these adults do not save at a financial institution.

A new aspect of the 2014 Findex was the specific reporting on mobile money accounts, where there was impressive growth, as noted above. The increase in mobile money accounts has positively impacted account penetration around the world, according to Findex. However, as the below image shows, there is much more work to be done.

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A new aspect of the 2014 survey, Findex asked respondents about their use of specific mobile money services that are available in their country, such as M-Pesa, MTN Mobile Money, and Airtel Money. The survey defined a mobile money account as “services that can be used without an account at a financial institution” – those using a mobile money account linked to a financial institution are considered to have an account at a financial institution. In Sub-Saharan Africa, the survey found that about 12% of all adults reported having a mobile money account. Within that, about half reported only having a mobile money account. The details are provided in the below image.

However, this designation has brought up an interesting discussion in the Enclude office: Does ownership of a basic mobile money account mean that you’re ‘financially included’?2

An important designation when considering the above question, according to Enclude’s Global Lead on Digital Payments, Khurram Sikander, is the set-up of the mobile money ecosystem: “Is it bank-led, like India, or is it non-bank/third-party led, such as Kenya? While a mobile money account in a bank-led environment makes it easier for regulators to count it as an account in the formal financial system, the accounts or value in a non-bank led environment are hosted outside the formal financial system – even if they are backed in an escrow account at a bank. These clarifications are important as they fundamentally impact the mobile money account’s linkage to formal financial institutions.”

To be considered linked to formal financial services, customers need access to typical services: savings, credit, and insurance, among others. However, Mr. Sikander is highlighting the difference in product offerings from mobile money providers in the different environments. In markets where a customer is able to access some services on their mobile money account – money transfer, cash-in/cash-out, bill payments, using their m-wallet to top-up airtime, basic payments services – but are often precluded from more traditional financial products, such as savings and credit, it is hard to claim these accounts as part of the formal financial system.

On the other hand, products like M-Shwari, a savings product product offered by Safaricom’s M-Pesa and Commercial Bank of Africa to M-Pesa’s Mobile Money customers, can be considered access to the formal financial system. “According to the 2014 GSMA State of the Industry Report, there are approximately 28 million mobile money customers with access to insurance, savings, and credit products,” Mr. Sikander added, “that is maybe a better indicator of inclusion.”

From data compiled by GSMA in their 2014 report, we are able to assess the usage of mobile money products that are available globally. Of all the products used, 62.3% was use of m-wallet for airtime top-up, 25% was P2P transfer, and 8.9% was bill payment. In addition, by value, P2P transfers make up approximately 73% of the value passed through all mobile money products, followed by bill payment at 11.7%. While the numbers may have improved in the time since the analysis was conducted, the numbers still highlight the gaps between mobile money deployments and access to formal financial services.

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Enclude’s Managing Director for Capacity Solutions, Roland Person, believes that increased amounts in mobile wallets cannot be seen as mission accomplished: “We recognize financial inclusion as the linking of populations to formal financial services. Mobile money is a suitable channel to reach the un(der)served, but it presently does not offer all the characteristics of full inclusion. That can only be done with linking the person with formal financial institutions and them being able to access the products/services that most benefit their day-to-day lives.”

In the future, perhaps mobile money deployments will expand to offer more formal services, services that we often equate to being offered by banks. However, until they do, mobile money should be seen as a rail to reach the underserved, not an end goal in financial inclusion.

[1] NB: all data and quotes from the below blog are taken from the World Bank’s Global Findex 2014, unless stated otherwise.

What drives usage of branchless banking and mobile financial services? Three lessons from the field

Written by Vanina Vincensini

Digital financial services, or services which use electronic platforms to expand the reach of banking, have shown promise to contribute to financial inclusion in emerging markets. However, not all initiatives are met with the level of success seen as deployments like M-PESA in Kenya or bKash in Bangladesh. Finding customers who make usage of the service, and, in particular, regular usage of the service, is the goal of every provider in this business that relies on large transaction volumes to be sustainable. There are some barriers to usage that can and cannot be lifted by the providers. With our recent work in different regions of the world, we have learned a few key lessons which, despite being simple, are often overlooked by providers.

  1.  Addressing a customer need or solving a customer pain will yield greater usage

Easier said than done! Too often, we’ve seen providers replicate a model that they have seen elsewhere without conducting proper analysis of the local environment and customer behavior. Actually, the local environment is generally well known by the provider (e.g. what the regulator allows them to do or not), but what the customers do with their finances, or what they like and dislike about a current service, is not always studied in dept1h. One of the success factors of M-PESA was to listen to its customers during a pilot phase and really understand the behavior and value they saw with respect to the original service that was proposed to them, which led to recognize that there was a bigger opportunity with a virtual money transfer service than the original concept. Similarly, bKash in Bangladesh incorporated in-depth market and customer understanding throughout the product development cycle, before launch, post launch, and regularly since then, in order to always stay abreast of behavioral developments and attitudes towards the service amongst Bangladeshis. Thus, launching a “copy paste” money transfer service in a country where the population is not used to sending money to family members will likely not take up. Encouraging formal savings amongst a group that has never saved before will take time, awareness raising campaigns, and a good incentive for the customer to change behaviors. On the other hand, focusing on a habit, and improving the experience of comparable alternatives is often more successful than trying to create a new habit or a need. In essence, placing the customer at the center of the product development process is a winning strategy for our partners.

  1. Proper customer segmentation is key

Whether they are urban or rural, young or older, male or female, customers of digital financial services will have different attitudes and usage patterns of the service. Oftentimes, the customer segmentation considered by providers is limited to these basic demographic characteristics, while there are many more dimensions influencing the behavior of customers. After all, does separating customers amongst males and females create homogenous groups? Not necessarily. Segmenting customers in terms of behaviors and attitudes, as opposed to simply along demographic characteristics, can make a lot more sense to understand the different profiles of customers (super users, influencers, receivers, senders, etc.) and target them with offers that are meaningful to them. Looking at one dimension of the customer is rarely the best way to understand their behavior. In a recent project, our client asked whether gender was an important factor that would differentiate customers’ usage of the mobile money service. In fact, it is a common belief that women will be worse off than men with technology or financial services. When we concluded our analysis, we actually disproved this hypothesis by showing that there was not much difference in behavior and usage between men and women. Other elements characterizing customers can be much more important to explain their level of engagement with the service, in particular how they receive their main source of income (in cash or on a bank account), whether they are senders or receivers of money transfers, and whether they have their own business or not. Data mining of the customer database can yield precious information to better understand the drivers of usage and barriers to more frequent usage of the service.

  1. Trust in the channel plays an important role

Whether it is the agent, the ATM, or the mobile phone, the issue of trust is very important in driving usage of branchless banking and mobile financial services. It is common that banks are perceived by the banked and unbanked as trustworthy institutions where the money is safe. However, their agents, the mobile phone, and other means of electronic transaction are less favorably perceived. In Brazil, where banked and unbanked can make payments in cash at ATMs, customers who prefer to stand in line at the bank branch to perform the same transaction say they are afraid the machine will “eat” the bills and not confirm the transaction. Others mention they fear that the person in charge of counting the bills will not be as supervised as the teller is, and could easily steal a few bills. In Nigeria, customers prefer to transact at the bank even though they enroll in a mobile money program, because they feel it is safer than at the agent. The agent, or the shopkeeper who represents the bank, does not always offer the same privacy as a bank branch, for example. Therefore, providers should endeavor to build more trust and explain more clearly to their customers where the money goes after it is deposited at one of the available alternative channels.

Although there are many more lessons from the field that we could present here, these three lessons all have to do with the way in which the customer makes decisions to use a service or not. Providers should pay more attention to the different kinds of customers they are dealing with, and focus on customers’ habits and what can be improved compared to their current experience. Thus, understanding and listening to your customer is a central strategy to drive usage of branchless and mobile financial services up.  We’d be interested to read your experience with drivers of service usage in the comments to this blog post.

A ‘local’ answer to financial inclusion

Written by Santhosh Thiruthimana

A small ‘local area’ bank and a Business Correspondent (BC) company in India may be showing the way forward in using agent channels to provide savings services to low-income clients.

Around the world, policy makers are talking about financial inclusion and how, through connecting people to the formal banking system, it is a tool to end poPicverty. The G20, World Bank, and UN agencies are all working towards bringing access to finance to low-income populations. However, in our work, we often hear about the lack of a business case for the provision of low value savings, or other services by banks to low-income people – not only in India, but all over the world. Yet, our work has also shown that the path towards financial inclusion can be profitable for those willing to travel it.

Most mobile financial services (MFS)/ branchless banking (BB) service providers make profits on remittances and bill pay products that they facilitate, earning money per transaction. On the other hand, savings products are generally considered as a ‘push’ product, for which a lot of additional investments, in terms of financial education and below the line (BTL) marketing, is required to drive adoption. This has been proven through  many initiatives by banks and mobile network operators (MNOs) and other payments service providers.

However, KBS bank in India, a Local Area Bank that works only in two states of India, Andhra Pradesh and Karnataka, may be proving that with the right mix of agent channel, products, marketing, and customer service, savings products can be successfully delivered to low-income people, while also generating revenue for the bank as well as the payments service provider – in this case, Sub-K, a company that uses mobile technology and agent networks to provide branchless banking services to low-income people.

As can be seen from the chart below, KBS bank’s deposits grew from Rs. 140M ($2.3M) to Rs. 210M ($3.5 M) through the agent channel provided by Sub-K in 2013-2014. This is a huge growth of Rs. 70m ($1.2M) in savings for the bank, which is helping the bank to fund all its assets from its own funds, thereby lowering cost of funds and increasing its profitability. For any agent network or bank, generating Rs. 70m in deposits within a year is a substantial amount, but for a bank that is limited to very few districts and two states, and focusing only on low-income people, as the achievement is quite significant. It is interesting to note that the steady growth in outstanding savings portfolio is not a short term ‘bump’ due to focused marketing activities for a short period, but rather a steady and sustained growth that can be observed over a year-long period. For reference, the total deposits of KBS is at Rs. 1.46 billion. [1]

Untitled

How did KBS and Sub-K achieve this? Enclude assisted KBS to develop new savings products and expand BB channels through a project from 2009 to 2011 – channels that the bank have been nurturing and further developing after the close of the project. Since the bank has a core focus on providing services to low-income people, it developed savings products that match the cash flows of low-income people, allowing people to save on a daily, weekly, or monthly basis. The bank also made sure that people do not have to travel long distances and spend time to save at the bank by providing field agents (now Sub-k agents) where customers live and work.

To  enable this expansion, the bank had to invest heavily in technology and agent network development using own capital and a grant from Bill and Melinda Gates Foundation, managed by Enclude (formerly ShoreBank International). All those investments in technology, products and channels are generating dividends, in the form of profits and customer satisfaction, and the bank is now able to serve a larger population of low-income clients that are not served by other banks.

The key learning for Enclude and the Sub-K team was that it is possible to provide access to savings and other services profitably to low-income people, and that a DFS or BC company can make money in this business as well. To expand in new markets or customer segments the key ingredients for providers are a long term view, focus, risk appetite and patience.

[1] The bars indicate total amounts, in Lakhs of Rupees. One Lakh is 100,000 Rupees.