Understanding Remittance Corridors: A Strategy for Driving Digital Financial Services Uptake

Written by Michael Adenuga

Understanding the nature and patterns of remittance flows between the banked and unbanked populations within a market can be critical to deciphering the challenges of digital financial services (DFS) uptake, especially in countries where branchless banking and mobile financial services (BB and MFS) are struggling to gain momentum. This is a particular imperative for providers in bank-led markets where senior executives of financial institutions (FIs) take quite a conservative stance toward funding BB and MFS initiatives, and where telecom operators are less supportive due to the fringe roles they are allowed to play within the BB and MFS ecosystem.

The general perception that uptake of DFS is most effective when driven from the banked to the unbanked customer segments, or from urban to rural areas, still holds water. For example, it is easier to sell mobile money to a banked customer on the premise that he/she may have an unbanked person within his network (relatives, employees, suppliers) with the need to receive money through mobile wallets. After all, most mobile money campaigns are built on remittance services such as person–to-person (P2P) transactions. While this tactic has been well-utilized by providers and in some cases overused, engaging more proactively with potential wallet customers at the receiving end of remittance flows can also yield efficiencies as well as additional market share.

E1ngaging customers at the receiving end of remittance flows is perhaps the most important factor in driving DFS transaction volume. Banked customers have at their disposal many channels which compete with their mobile wallet: electronic funds transfer (ETFs), debit/credit cards, mobile banking and internet banking, and even cheques.  However, for unbanked customers, the wallet is predominantly the only channel he/she has to make payments or transfer money.

Simply put, unbanked customers have more potential to drive wallet transactions through P2P, bill pay, and retail payments. For example in Kenya, in 2006, only 26.4% of adults in the country had access to formal financial services, but by 2013, the percentage of adults that are formally included had increased to 66.7%[1] – mainly driven by previously unbanked adults who are now financially-included via mobile wallets. Additionally, these newly included adults have contributed significantly to the $331M USD[2] mobile money industry which facilitated financial transactions to the tune of 37% of Kenya’s GDP in 2014. To put things in perspective, the revenue of the Kenyan mobile money industry is about 12%[3] of the country’s banking industry revenue. The message is clear: mobile money has become a key revenue driver and a critical source of competitive advantage.

The big question for providers is how to collect vital market intelligence that can aid the effective and efficient deployment of resources to build a competitive advantage in the market. Service Providers can benefit from critically dissecting remittance flow patterns and it is important to know that domestic remittances are not limited to urban-rural remittance flow patterns. Several other flow patterns co-exist, namely urban-urban, rural-urban and rural-rural. In addition, several factors often account for the nature of domestic remittances flow, including the level of economic growth in the country; the nature of geographical and population distribution; household income distribution among provinces; and regions and migration patterns. Providers must be able to understand how these flow patterns relate to the distribution of banked and unbanked populations and that useful insights can be derived from such relationships.

Recently, Enclude’s worked with one of West Africa’s leading DFS providers to understand the reasons for low activity rates among its customers and agents. A key finding of the project revealed that the provider gave more attention (in investment and management time) to agents in key urban locations (where the majority of the population is banked). Considerably less attention was given to agents in semi-urban and rural areas where the percentage of unbanked consumers is higher. Enclude also found that the majority of P2P transactions initiated from urban locations were sent to semi-urban and rural locations, and that poor service rendered in the rural locations greatly undermined customers’ confidence and trust in those locations, resulting in inactive accounts.  The negligence of the service provider to properly track its customer transaction (remittance) pattern resulted in management’s poor approach towards investment and management of its agent networks especially at the receiving end of customer’s remittance flow.

‘Big data’ approaches offer cost-effective insight and data on consumer behavior, and the mobile phone presents an interesting tool through which rich transaction data and other customer information can be collected. The data generated by mobile financial transactions can provide the basis for analyzing geographic concentration and distribution of consumers together with migration patterns, financial behaviors, remittance flows, consumption trends and so on. This information on domestic remittance flows can in turn aid the effective deployment of scarce resources for market development.

Within financial institutions, DFS departments compete for management resources with more lucrative departments like corporate & investment banking, institutional banking, and even small and medium scale enterprise (SME) banking. In order for DFS executives to get more management’s attention towards DFS, they should embrace a proactive but cost effective approach by leveraging intelligence from remittance corridors to inform their market strategy and resource allocation decisions. Examples of the type of information DFS executives can collect to understand remittance corridors include the following:

  1. Key Information on agents including type of agent, its location, and other formal financial services touch points around the agents
  2. Agent’s performance tracker which should collect performance indicators such as account opened, account activity rates, type of transactions conducted, failed transactions, and so on. The tool must also be able to conduct trend analysis on the performance indicators.
  3. Profiles of the sender and receiver of remittance transactions including information on other various channels used by the customer
  4. Information on reasons why the sender is transferring money and what the recipient of remittance utilize  collected funds for should be periodically collected through surveys and research2

This information should be stored and regularly updated in a central database where it can be easily retrieved by executives to identify customer-agent related issues, monitor and track transaction flow, understand demand for new products and services and inform the need for marketing and sales activities. Enclude’s Ecosystems Value Assessment (EVA) Tool is an example of such business intelligence tool that can collect and analyze critical information on remittance corridor for service providers.  Service providers must do more to understand remittance corridors used by their customers. It presents opportunities for service providers to learn more about their agents, customer and the overall market. This can help executives in making more informed decision in maximizing the little resources they have now.

Michael Adenuga (madenuga@encludesolutions.com) is a consultant, Digital Channels and Linkages at Enclude, you can also follow his twitter handle, @micolo123.

To learn more about EVA and our services contact Santhosh Thiruthimana, Practice Director – Channels and Linkages on sthiruthimana@encludesolutions.com or visit our website at www.encludesolutions.com

[1] Enabling Mobile Money Policies in Kenya Fostering a Digital Financial Revolution, GSMA 2015

[2] United States International Trade Commission; Enclude Analysis

[3]Eastern Africa Banking Sector, 2014 Ernst and Young; Enclude Analysis


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