This post is written by Debbie Watkins, SBI’s Resident Advisor in Dhaka, Bangladesh.
Photo credit: Cengage Learning
We talked in the previous article about how pricing can encourage customer behavior to develop in a certain way – and that most people are able to spot a good deal (or a dummy) when they see one.
When we’re talking about mobile money, there are generally 3 price “events” – at cash-in, when one person transfers to another, and at cash-out. If you’re aiming to offer a true mobile wallet (a virtual “current account” as opposed to purely a money transfer service), I would argue for making person-to-person fees a very, very low, flat fee (something in the order of one US cent or its equivalent). Here’s a small scenario that explains this:
Nazmal is a security guard in Dhaka. He sends money home to his parents every month – a lump sum when he gets his salary. His parents spend the money on rent (a monthly payment); food (daily); school fees for their youngest child (weekly) and try to save a small amount in case of emergencies.
Nazmal deposits the amount he’s sending into his mobile wallet, and transfers it to his parents’ mobile wallet. They have a choice now of what to do with it, which will be driven by how the pricing you have established works best for them:
- They can withdraw the whole amount and keep it under the bed. They are more likely to do this if cash-out fees are structured on a flat or slab basis, as it works out cheaper for them to withdraw one larger amount than a number of smaller amounts.
- They can withdraw some now and some later, when they need it – this would be more expensive for them than option 1 with flat or slab pricing. If you have percentage pricing there’s no difference for them either way, except for the additional costs/time involved in visiting the cash-out agent more often.
- They can pay their expenses directly to the landlord/grocery store/school using the person-to-person feature on an ad-hoc basis, “save” the rest, and only withdraw cash when it’s necessary. Continue reading
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