Better Than Cash?: Reflections on “The Journey Toward Cash Lite” from a Practitioner

This post is written by Jesse Fripp, SBI Vice President.

In October 2012, at a gala event in New York City, the Better Than Cash Alliance was officially launched. With a stated objective to “make the transition from cash to digital payments to achieve the shared goals of empowering people and growing emerging economies,” BTCA represents an important step forward in developing a unified industry voice for the effective deployment of new disruptive technologies. A major emphasis of the initiative is on expanding the universe of government and donor to person cash transfer programs (government to person, or G2P) as a means to enhance efficiencies, increase transparency, and ensure security and minimization of “leakage” through the use of new delivery channel technologies. While the emphasis of the BTCA’s efforts are on policy-makers and the macroeconomic advantages of a “cash lite” society, a big question still remains: is cash lite really “better than cash” for consumers?

In “The Journey Toward Cash Lite” a white paper developed by Bankable Frontier Associates for BTCA, the authors helpfully break down both the opportunity and challenge of achieving a cash lite economy for multiple groups of economic actors – government, donors, businesses, and individuals. However, there are two key areas of the conversation that merit more focused consideration – namely, the assumption that increased use of e-payments equates to financial sector “deepening” and the pivotal place assigned to the issue of “trust” as the major barrier to consumer uptake at scale. Continue reading

Are we cooking what the customer wants to eat?

This post is written by Nimrah Karim, SBI Associate Consultant based in Karachi, Pakistan.

Last week, a few SBI staff members visited Hala, a small town of 160,000 situated in the heart of Sindh, Pakistan. Our car weaved through narrow passages to reach the neighborhood of one of our focus group participants. We observed donkey carts navigating puddles, a herd of cows causing a traffic jam for rickshaws and pedestrians alike, and within alleyways, rows of small stores with male shopkeepers either tending to customers or chatting casually amongst themselves. As we traversed Hala’s winding backstreets—thriving with simple trade and services activities common to small, peri-urban towns —I reflected on the purpose of our visit. We were on our way to conduct focus group discussions (FGDs) with groups of women, to understand whether local recipients of one of the largest government cash transfer programs in the world could benefit from financial services offered by way of alternative distribution channels.

The FGD participants were beneficiaries of a grant of US $12 per month, disbursed by the Benazir Income Support Program (BISP) to adult female members in Pakistan’s poorest households. BISP has used various implementing parties to deliver payments to beneficiaries. A majority of transfers have been disbursed via money order, dropped off by postmen to beneficiary households. BISP has also piloted alternative delivery mechanisms, including disbursement of funds through magnetic-stripe enabled smart cards, mobile phones, and branchless banking agents. To date, BISP has allocated cash transfers to 3.2 million families, with an aim to increase outreach by two-fold by the end of 2012.

Our research seeks to uncover whether there is a compelling value proposition to convert these one-way distribution flows into a financially inclusive account. The account in question would offer customers the ability to save and store funds safely and also afford them transactional capability—such as options for paying bills, making person-to-person fund transfers, and eventually, paying for merchandise and services through their account. A body of research on pioneering programs in Mexico, South Africa, India, and Brazil suggests that G2P payment recipients use financial services if available to them. In theory, it sounds perfect: G2P programs successfully reach millions of the poor and financially excluded through various channels. Why not go a step further and use these platforms to reach this very segment with financial services? Continue reading

Technology is only as good as the people who use it

This post is written by Veena Krishnamoorthy, an SBI Project Manager in India.

The last couple of years have seen a greater focus on reaching the underserved through the use of technology.  Alternate Delivery Channels (ADC) are considered a solution that will bring in efficiencies, bring scale and increase outreach at a relatively lower operational costs.  What we forget that ADC is nothing but a delivery mechanism!

When we talk about banking, we all know and realize that following systems, policies and procedures is extremely critical for success of banking.  While introducing a new delivery channel, such as mobile phones to provide access to savings or payment platforms, it is important that we do not forget to follow these basic rules.  It is important to bring in better control mechanisms to monitor and control the image of the bank.  The neighborhood kirana store (local retailer), which is where the banking agent is based, will become the new face of the bank.

For instance, during field visit of a partner bank branch, we were with an agent who was responsible for collecting savings.  The customer had a requirement of Rs. 200 that he wanted to withdraw from his savings account.  The field agent gave him the money without the customer signing a withdrawal slip.  The field agent was trying to keep his customer happy.  He did not realize the implications of that simple transaction and the impact on banking.  If the bank had given sufficient training and also ensured that the agent understood the implication of each transaction, then this would not have happened.

Let us not assume that the agents know what banking is or what the bank’s policies and procedures are.   This is where it is extremely critical to have a well documented policies and procedures manual for an ADC platform, a guideline and a rule book or a Bible, which can be used as reference by field staff as well as an agent.  Technology will help only if there are well trained and knowledgeable agents.  It is also important to ensure that a fraud and risk mitigation strategy and control mechanisms are in place well so that the agent does not have to worry about risks and issues.  This helps in building the agent’s confidence when he is sure that if he follows the guidelines, he will be able to serve his clientele better and thus increase his credibility.

To successfully bank beyond branches, there is a need to have well documented polices and guidelines, and a well trained agent network.  Like Warren Buffet said, “It takes 20 years to build a reputation and 5 minutes to ruin it.”

The Psychology of Pricing

This post is written by Debbie Watkins, SBI’s Resident Advisor in Dhaka, Bangladesh

A customer’s propensity to acquire or use a product is in part driven by pricing – combined with convenience, trust and accessibility. ADC implementations around the world have experimented with a number of different pricing options, which (hopefully!) have been calculated using a combination of different factors, including pricing of competitive products in their market, relative convenience and accessibility over the formal or informal channels people are using right now.

The important part of this sentence is “are using right now.” If you remember back in my second article, “Adding constituent value,” I stated that it must be remembered that whatever you’re offering is not “new” to them; it’s an alternative to what they’re using already, and you have to improve on that. I also mentioned that low-income people are pretty savvy when it comes to determining the true value of something, and if your pricing doesn’t cut it, they’ll just vote with their feet.

Pricing can also motivate people to behave in different ways. Here are a few possible scenarios to consider:

-          Flat pricing encourages fewer, larger transactions. This can result in liquidity problems for agents if they are dealing with infrequent but significant deposits or withdrawals. It also may mean the client is keeping the money in cash under the mattress until they have a lump sum to send, and the sender is then withdrawing the whole amount in one go and keeping it under THEIR mattress. Continue reading

The Future of Microfinance in the New Era of Technology-Enabled Alternative Delivery Channels

SBI led a workshop at the annual SEEP conference in Washington, DC earlier this month titled “The Future of Microfinance in the New Era of Technology-Enabled Alternative Delivery Channels.”

The workshop addressed the changing realities of how microfinance institutions must consider and approach their “market,” especially with the development of technology-enabled alternative delivery channels (ADCs).  The workshop outlined the latest developments in ADCs and sought to come to an understanding of the future possibilities for MFIs.  The speakers, which included Jesse Fripp, Vice President at ShoreBank International, Jim Hokans, Director at Bankable Frontier Associates, Ryan Favley, Manager of ADC Strategy at ShoreBank International, and Syed Mohsin Ahmed, CEO of Pakistan Microfinance Network, addressed the issues around regulation and the enabling environment related to MFIs, discussed the changing market and both the challenges with technology, commercial models, and new product dynamics based on existing experiences with branchless banking.

The workshop also included a discussion with participants on current trends, considerations, and future prospects for the MFI industry in the context of ADCs.  The speakers cautioned MFIs to take time and fully understand the industry, whether the MFI would be able to sustainably benefit from ADCs, and whether it was in line with their strategy.  Technology-enabled ADCs are a promising and exciting prospect for MFIs, given the right conditions for both the institution and the market in which they operate.

Implementing ADC projects: What does it take?

Photo credit: Owens BPO

This post is written by Shital Shah, SBI Associate Consultant.

Making sure a mobile money venture is able to weather Death Valley and come out successfully while reaching clients and finding financial sustainability requires strategy, an understanding of the local context, and technical know-how.

SBI’s Alternative Delivery Channels (ADC) team works across regions and focuses on implementing innovative and sustainable projects with financial institutions and technology companies.  Across the ADC projects, SBI’s team of experts focus on any, or all, of the following components, which are really the main ingredients to any mobile banking venture:

  • Strategic guidance, including financial modeling and business planning – by working with the executive management, experts are able to provide business insights and strategic guidance on issues such as regulations and partnerships
  • Agent network management – experts that were involved in building up agent networks elsewhere in the world help figure out the nuts and bolts of channel management, from recruitment, selection, training, to management
  • Cash/float management – managing liquidity with the agents is a critical factor in making the business work, and needs the right policies and procedures
  • Technology – although technology is just one tool within the overall business, it does need to be well integrated and well functioning; the proper guidance can help secure core banking systems, integrate platforms, and meet business requirements successfully
  • Customer uptake – insights through market research, appropriate product development, pricing structures, and effective marketing are all some factors in creating rapid customer uptake Continue reading

Pricing alternate delivery channel transactions: Are we picking up the wrong end of the stick? (Part 1)

This post is written by Sanjay Behuria, Independent Strategy Coach and Consultant.

A cost and willingness to pay report by Microsave says that 70% of financially excluded potential clients are willing to pay for banking services. Will this lead to higher, lower or rational pricing for the end consumer? We will all remember that when similar surveys were published about microfinance clients’ willingness and ability to pay for credit, some companies went overboard, leading to the drowning of the whole sector. While survey results are well intended, it is often in danger of resulting in unintended consequences. They need to be analyzed in light of existing perceptions, whether well or ill placed. The real result of the survey will be when intervention is instituted on the basis of the first survey report with a control group and experiment group, and then new results are derived from a new survey of the same hypothesis with both groups. The control group will have no additional inputs from the first survey while the experimental group goes through a financial literacy exercise that explains the 5 W’s of financial charges through alternative delivery channels (ADCs). Choice by education – not assumption!

Photo credit: Leadpile

The most oft quoted reason for charging transaction related prices through ADCs is that those who derive benefits from the service must pay for it. Fair argument – but are they the only ones who must pay for the service, do they know why and what they are paying for (adequate disclosure), has there been enough research on the client’s desire to pay when they know the cost of transaction versus on assumption of cost of transaction that is supply led? Is the information flow about the transaction fees equitably balanced between user and supplier of services? Are the costs properly apportioned? What details are available in terms of the cost of acquisition of float from financially excluded areas through agent network and through branch network? Do clients pay for services if they have accounts in a loss making branch, if not, why should they be charged for the fees of the agent? It seems to me that good old banking and intermediation principles are sacrificed in calculating the cost of transactions for the financially excluded to keep them excluded – or if they don’t specifically pay to get included.

What is financial intermediation? When a financial institution (FI) collects deposits to lend, it is called financial intermediation. Such FIs are regulated under prudential regulation norms by the Central Bank of the country to ensure the safety of the depositor’s funds.  The spread between the aggregate cost of deposits and aggregate cost of loans is the revenue of the FI, which pays for its cost of operations and leaves a desired profit for the shareholders – as remuneration for equity and risk. That being so, when can a FI charge additional fees for a transaction? I would surmise, that any transaction or a part of the process of the transaction that does not result in financial intermediation is chargeable, because that is outside the mandate of the FI and is undertaken to benefit the client outside of that mandate. It is like a hospital that does not do pathology tests. They can have it done outside and charge the client or ask the client to get it outside and pay for it outside. Continue reading

Lessons learned from ADC implementations

This post is written by Debbie Watkins, SBI Resident Adviser for the bKash project in Bangladesh. This is part of her ongoing series on “The Goal.”

As discussed in my first article, many implementations of ADC worldwide have failed to deliver. As a lot of these have been launched by commercial businesses rather than NGOs or foundations, they have been somewhat reticent to share their mistakes with others – which is a shame, as no one is perfect and if new projects could learn from what has gone before it would only be of benefit to the people we’re trying to serve.

Lessons Learned by Mike Licht, via Flickr

However, a few on-the-ground contacts in various locations have been willing to share some of the real-world “lessons learned,” a selection of which are illustrated below.

Selling to the wrong people: A lot of time, effort and money was spent promoting a money transfer service to garment factories with the aim of recruiting their workers – who send money home on a regular basis. In the country concerned, though, the decision maker in the family was not the young, typically female worker but the father at the receiving end – who also dictated the money transfer channel she should use. No one spent any time talking to him!

Relying on securing partnerships that don’t benefit the partner: MFI field staff were identified by this company as “the perfect customer sign-up resource” – however, the pitch to the MFIs was centred around paying the field staff a commission for each signup. The MFIs rejected this as it would distract their paid staff from their paid role, and the company instead suggested that the MFI would be paid the commission instead – which would result in more work for the field staff and no ongoing benefit for the MFI after the initial commission. The offer was declined, with the exception of one MFI – who subsequently made a trading loss that year for the first time in its history and decided to suspend the arrangement. Continue reading

Procurement dos and don’ts for core banking systems

This post is written by Malith Gunasekara, SBI Lead IT Advisor. 

One of the main pillars in implementing an alternative delivery channels project is the backend core banking system (CBS), which provides the necessary “rails” to support front end systems such as branchless banking, ATM systems, Internet banking and other delivery channels, as well as integration to other business and operational specific software such as treasury management, leasing, anti money laundering, credit scoring, data warehousing and mining to name a few.

Photo credit: Office of the US Trade Representative

Without a stable, time-tested, scalable and secured CBS that complies with international technical standards, implementation of ADC will pose challenges and risks that may result in failure.  Procurement of the base, the CBS is vital and is mission critical for any financial institution as it has the ability to “make or break” that institution.

The current statistics show that most financial institutions have changed their financial software or CBS more than once in 7-10 years. The reasons are many but most end up with unsatisfactory results due to the process and methodology adopted during the procurement process.

The first step in the procurement process is to review the FI’s business plan. In the absence of a plan, the management should define their business objectives for the next 3-5 years – and it is best to define these at a workshop where all participants have an opportunity to contribute. Most procurement processes have been carried out without agreement or identification of business objectives, which resulted in IT systems not meeting user requirements and being obsolete. These are costly mistakes amounting to millions of dollars, when all costs are included. Continue reading

The Goal: Getting inside the customer’s head

This post is written by Debbie Watkins, SBI Resident Adviser for the bKash project in Bangladesh.

Humans have a propensity to label people, ideas or things based on our initial opinions of them. Ori and Ron Brafman, the authors of “Sway – the irresistible pull of irrational behaviour” term this the “diagnosis bias,” and it includes our inability to reconsider those initial value judgments once we’ve made them. Once a person is given a label (and even indirectly, a diagnosis), it’s hard for people to see other people in a way that isn’t biased by that label.

Here are some labels to think about: “Low income”. “Disadvantaged”. “Unbanked”. Typical biased diagnoses include “stupid” (a real conversation I have had with someone I worked with in the past was centred around their view that “if poor people were clever, they wouldn’t be poor, would they?”). The truth of course is generally entirely different – although often lacking in formal education, the “street savviness” of your typical ADC prospective client, and especially their ability to work out whether a new offering is a good deal for them, is pretty high…

Photo credit: Shadowbend Studios

The only way to be sure that your planned ADC offering will be embraced by the people you’re planning to offer it to is to get inside their heads. You need to understand their hopes (so you can help them be realised), their fears (in order to quell them) and their challenges (in order to overcome them). Once you have an offering that can meet these three basic needs (and you’re able to articulate it – but more of that another time), you know you have a value proposition.

The only way to get inside their heads is to get out there and talk to them. As we all know, you need to talk to a lot of people, and to ask them very neutral and non-leading questions, and then to see the patterns of what they’re saying. The big problem with this is – being neutral. You WANT this to succeed. You WANT people to want your great idea. (And you perhaps WANT them, just a little bit, to not be smart enough to decide that your offering has no distinct advantages over the informal/illegal channel they’re currently using).  And because you want this, you (often inadvertently) structure or phrase the questions you’re asking in a leading way, making it almost a selling exercise. It’s easy to make people give you almost any answer you want, if you ask it in a certain way. So the first part of “meeting the customer need” is to be true to yourself.

Next in this series:  Getting research data that speaks to you