The Implications of the Freedom 251 Smartphone

Written by Mark Nichols

The prototype of the Freedom 251, the ultra-budget smartphone that became available for pre-order in India in February, looks like a toy iPhone. Though it shares many characteristics of the popular device, Apple’s signature softly rounded corners, curved sides, and silver-ringed home button are rendered in white plastic. When switched on, even the app icon design recall the iPhone’s, displayed next to such pre-loaded apps as Facebook, WhatsApp and others linked to government initiatives for women, farmers, and fisherman. Above the screen, a smear of white correction fluid hides the logo of Adcom, a handset manufacturer that denies affiliation with the Freedom 251. An Indian flag, already starting to chip off of the white plastic casing, covers more Adcom branding on the device’s back.

Despite its questionable, derivative appearance, the device has received attention from media and potential customers alike: according to Ringing Bells, the company behind the Freedom 251, its website received 600,000 hits per second and 30,000 confirmed orders on the day of the launch before it crashed under the demand, and thousands showed up at the company’s office to buy the device in person (the Freedom 251 is only available for online pre-order). The cost: Rs. 251, or $3.67, the lowest price for an unsubsidized smartphone sold anywhere by a large margin.

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Applications provide smartphone users with many payment options

The Freedom 251 is the newest entrant in the budget smartphone arms race, which has recently seemed more like an all-out sprint with important consequences for mobile money services and players. As we discussed in our predictions for 2016 trends, smartphone penetration is growing quickly in key regions for mobile money, including sub-Saharan Africa. Of the world’s 7.4 billion mobile phone subscriptions, 46% are smartphones, and Ericsson predicts this figure will be 70% by 2021. Though smartphone penetration is lower in poorer countries than in rich ones, it is also growing much faster in regions like sub-Saharan Africa, helped in part by the availability of more affordable devices. MTN, Tecno, and Google already offer smartphones at or below $50.

In December, we talked about the implications of this shift on the blog:

An immediate consequence of the spread is improved user interfaces and integration with smartphone capabilities for existing mobile money services, but this shift cuts deeper. Third parties can develop apps built on the mobile money service, such as pesaDroid and m-ledger, money management applications built on M-PESA. With the service delinked from SIM cards, competitors using mobile and web-based interfaces, such as Facebook’s remittance/e-money services, can enter the market, and existing services can expand to a customer base beyond that of a specific [telcom operator].

The Freedom 251, for its part, may yet fail to fulfill its potential to provide smartphones for even the poorest of the poor. “It feels like a Rs. 3,000 smartphone,” writes one reporter, and he is not far off: the materials of the phone are estimated to cost Rs. 2,500. Ringing Bells says it plans to reduce the price through economies of scale, partnerships, and innovative marketing strategies, and aims to hold 30% of the Indian smartphone market by the end of this year. Some observers fear the Freedom 251 and its highly publicized launch may be a marketing ploy or even a scam. If the device and its price are real, they likely owe their existence to subsidies of some kind (the announcement seems to come in connection with the Make in India scheme, launched in 2014, which encourages domestic manufacturing, though Ringing Bells has denied government involvement or subsidies). Such subsidies would be effective in getting handsets into the hands of the poor, but fall short of the market-based ultra-budget smartphone we might hope for.

Yet even if it has a dirty secret, the Freedom 251 still represents the future of possibilities its name suggests. Two months ago, a $25 smartphone seemed too good to be true; in the year of the $4 smartphone, it seems too good not to be. There is also a chance the low price of the Freedom 251—why Rs. 251 when a viable handset three times that price would still be a step forward?—will end the race towards the ultra-budget smartphone, as customers and manufacturers alike grow weary of the fixation on price above quality. Last year, Mozilla backed down from its 2014 promise to develop a $25 model, choosing instead to focus on improving user experience. Datawind delivered on its Rs. 999 ($14.53) smartphone last year, but with a dip in quality severe enough to dampen much of the excitement over the price.

Retreat from the cost-fixated fervor could be welcome if an emphasis on innovative financing models took its place. Even in rich countries, a phone’s sticker price is often meaningless. I am unlikely to invest the listed price of $749 for a 64GB iPhone 6s, but I happily pay AT&T $35 a month. Pay-as-you-go financing for solar home systems, for example, already increase energy access in areas with poor rural infrastructure by allowing repayment to mirror customers’ cash flow. For some of the world’s poorest, even $3.67 is too expensive to buy outright.

And cost is not the only barrier to smartphone adoption. Feature phones will still retain a significant minority of the market share, even in rich countries: 40% of Orange’s customers in Western Europe and 40% of those in Eastern Europe use feature phones. Many purchase these simple phones with long battery lives for their children or as a second phone for prolonged stays away from charging stations. In poor countries where power supplies are scarce and those residing in rural areas may only be able to charge phones during trips to a city or by using a shared power source, smartphones’ shorter battery lives makes them impractical.

Whether Ringing Bells meets the high bar it has set for itself is in some ways secondary. Even if it fails to meet its June 30 deadline to deliver on its pre-orders, its effect on the market for low-cost smartphones may endure.


The challenges ahead for mobile financial services in Myanmar

Screen Shot 2016-01-13 at 1.00.08 PM

Written by Sachin Bansal

Myanmar has been receiving lot of attention recently. As a result of its increased openness with the global community, there have been many articles written on the country, its people, and many are looking at Myanmar to take great strides in the coming years. As a result of the increased dialogue with international players, there has been significant foreign investment in various sectors of the economy. The country is now moving towards a market-oriented economy, a change that is helping the government-driven economy to be more efficient and competitive. As an example of the increased competitiveness, entry of new players in the telecommunications space has brought down the cost of SIM cards from as high as $2,000o to $1.25 today, making it more accessible to the population. This fall in price has resulted in increased mobile penetration in Myanmar, 54.6% as of March 2015. The Ericsson Mobility Report of November 2015 states that 87 million new mobile subscribers were added globally in the Q3 2015, of which Myanmar contributed 5 million – ranked fourth globally of the fastest growing markets.

The Central Bank of Myanmar is eager to leverage this now omnipresent tool to expand financial services to the un(der)banked citizens of Myanmar. In July 2015, it issued draft Mobile Financial Services (MFS) regulations and the final regulation is expected soon. In spite of all the efforts being made by the government, central Bank, financial institutions and telecom companies, the journey to launch MFS will not be easy in Myanmar. There are several challenges facing uptake and usage:

Lack of trust in the banking system: 

There is a very high level of mistrust with the banking system in Myanmar and most people still do not have bank accounts. The lack of trust is so ingrained that several big institutions pay their staff in cash, as the employees are not willing to accept a bank transfer. This lack of trust in banks can mainly be attributed to the 2003 Myanmar banking crisis but there have also been several recent rumours of banks failing, leading to people withdrawing all their money from the banking system. The MFS players will have to work very hard to overcome this challenge to change people’s perception.

Low level of perceived risk for carrying cash:

People in Myanmar do not perceive carrying large amount of cash on their person as a huge risk, unlike in other countries. This lack of risk is evident in the country as you can see money changers sitting on the roadside of Yangon streets, with minimal security arrangements, counting large US Dollar bills out in the open. As the perceived risk of carrying cash is low, people may be unwilling to pay fees/charges to store their money in MFS wallets for just safety reasons.

Low pricing of existing formal channels of money transfer:

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Money Transfer Charges of Myanmar Post

Most successful MFS offerings have person-to-person money transfer (P2P) as their core product offering as it is cheaper than transferring money through a bank. In Myanmar, however, the money transfer service offered by many formal institutions has a very low transfer fee. The Myanmar Post Office, for instance, has an extensive presence throughout the country and offer money transfer service in 335 of their branches. The fee is lower compared to other countries at 0.05% to 0.5% of the amount remitted plus fees. Indian Post Office by comparison charges 5% on low-ticket money order service. Establishing a business case to compete with such low pricing is going to be a challenge for MFS players in the near future. However, there is limited geographical coverage of such formal services available to the citizens and customers may be willing to pay for convenient services if the price was appropriate.

Prevalence of Hundi system (informal remittance channel)

There are several informal channels , such as the Hundi system, that also offer money transfer services to citizens of Myanmar.  The Hundi system has been used and trusted for several decades. As per The Economist, people migrating outside the country perceive the traditional hundi system to be cheaper, quicker and safer than anything the banks can offer. The new MFS offering will have to beat the advantages offered by such informal systems.

To launch successful MFS operations in Myanmar, the providers will have to work on an innovative business model and develop customer-centric products that learn a lot from the informal offerings. Pricing will also play an important role as customers may be willing to pay for accessibility and convenience.


Where is the emerging markets’ Apple Pay?

Written by Khurram Sikander

The release of Apple’s virtual wallet, Apple Pay, has generated a lot of buzz in the FinTech industry. Payment innovations by Apple, as well as their competitors, are being built to integrate with the daily lives of millions of people who purchase goods and services through their platforms or devices.

Innovations such as Apple Pay are more easily deployed in ‘sophisticated’ markets because the systems and infrastructure are developed – customers have easier access to banking facilities, payment systems and channels, thus enabling innovation on the existing ACH and credit/debit card rails. These innovations are generally not focused on the structure itself, but rather the customer experience when interacting with financial institutions and retail merchants.

Storefronts on a street in Mexico

Storefronts in Mexico

In emerging markets, however, such infrastructure does not always exist. The challenge then is to first the build the structure in these markets – develop digital payment instruments to create access to the platforms, and change behaviors before broader financial services can be offered. So how do we encourage the same level of innovation and access to digital financial services in emerging markets?

Merchant payments may be one of the services that can help increase the customer base and volume and expand the infrastructure that makes investment in such innovations commercially viable.
Expanding the network of merchants in a market that accept mobile/ digital money would spur innovation by creating the incentives for private sector investment in digital payment / mobile wallet solutions.

Many initiatives have seen limited success, mainly because the majority of the services focus on airtime top-up, P2P, bill payments, G2P, and more recently advanced products such as savings, credit, and insurance. These transactions occur regularly but are low in frequency, therefore limiting the amount that can be generated through transaction fees. Additionally, due to customer ownership debates between banks and telcos, many mobile money deployments have resulted in fragmented structures, developed with closed loop networks and full service agents.

The cost of managing closed loop networks is high, and, coupled with the low transaction frequency of most current business models, does not motivate agents or sustain infrastructure investments. For the customer, the closed loop network complicates regular and sustained use of their mobile money account – lack of interoperability within networks, for example, often prohibits users from utilizing access points.

Digitizing payments for daily household purchases could address these barriers to innovation and scale because of the volume and velocity of these transactions. In most of the markets where Enclude works, annual household consumption of every day goods and services constitutes more than half of their spending budgets, almost all done as cash payments. The scale and frequency of these purchases provide a business case for further investments in this sector and a natural progression towards an integrated / interoperable ecosystem. Although some small to medium sized merchants may initially resist accepting digital / mobile money in order to avoid paying taxes, customer demand and push to use the technology will likely outweigh such concerns.

In addition to incentivizing innovation, digital merchant payments through the wallets would promote greater financial inclusion in emerging markets. The data generated by transactions allows providers to have a more detailed view of the customer and their spending habits. It would also generate valuable merchant sales data that can be analyzed – opening doors to cross-sell more advanced products with wallets such as savings, credit, and insurance products to customers and merchants based on usage patterns.

As the industry evolves, the merchant value chain of suppliers, distributors and wholesalers could be targeted by these providers. The digitization of this money flow, potentially from bank account to wallet and vice versa, could be the catalyst for the integrated ecosystem and we may see payment innovations like Apple Pay building off of mWallets and merchant rails in emerging markets very soon.

Get Involved: Mobiles for Social Change in Asia

According to recent estimates, there are over 2 million mobile apps available for download – a staggering one million for ms4dAndroid[1], 900,000 for iOS[2], 160,000 for Windows[3], and 120,000 for Blackberry[4]. In addition, 6 billion of the world’s 7 billion people have a mobile device[5]. These global statistics underscore the vast popularity of apps, the extensive reach of mobile devices, and, therefore, the huge potential to address social change by using mobile solutions.

Recognizing the development opportunities afforded by mobiles, USAID’s Regional Development Mission for Asia is hosting a Mobile Solutions Forum. This one-day event is co-organized by USAID’s mSTAR project, led by FHI 360 in partnership with Open Revolution, and will take place in Bangkok, Thailand on Monday, January 6, 2014. The Mobile Solutions Forum is open to local technology firms, implementing partners, USAID and other donors, mobile network operators, and anybody else who is developing or using mobile solutions to achieve development outcomes. Space is limited, though, so if you are interested in attending, please register today.

The Forum offers an exciting chance to get an overview of what is happening in the mobiles for development space in Southeast Asia, as well as meet and mingle with the wider community that is creating and utilizing these technologies. This event is strategically tied to USAID’s broader goal to utilize the potential of science, technology, innovation, and partnerships to catalyze development solutions to deliver impact more efficiently and at greater scale than traditional approaches.

Registration is now open for this exciting mobiles event! You may sign up to be a speaker, a promotional partner, or simply to attend. Find the draft agenda here.

Are you interested in this conference? Limited space is available, so register today! Unfortunately, we do not have the capacity to accept all applicants, so register soon to help secure your spot. Stay tuned for more details on the agenda and speakers here. See you in Bangkok!