Mobile money is (and will continue to be) a priority for every stakeholder in the mobile payments space. The service isn’t mere hype; it has, without a doubt, more or less met its agenda of banking the unbanked. With a few hits and misses on the way, of course. But what’s next? Has the service reached the end of its tether or do the various players in the ecosystem have some other trick up their sleeves? Speaking strictly for myself, I am rooting for the latter.
And why not? Consider this-in the early days, mobile money was merely a convenient and easy medium to send money within the country and top-up airtime. So, while the purpose of banking the unbanked was being slowly but steadily met, it wasn’t quite enough. Simply put, customers were financially included, yet financially underserved. The idea (at that time, at least) wasn’t to position the service as the panacea for all of a customer’s (mobile-based) financial needs. The idea was to introduce a service that would help stem informal (not to mention risky) methods of money transfer.
Of course, that was then. Over time, the service polished all its rough edges and evolved into a more sophisticated offering. Most importantly, its scope increased significantly. Today, components such as insurance, credit and savings-centric services are all a part of the package.
Now, these are what I term as “second generation services.” Naturally, then, stakeholders ought to focus upon these services-in my opinion at least. And why not? The ecosystem is certainly ripe for disruption! Consider this-the banking infrastructure in several developing countries comprises of banks focusing their business around urban centres. As a result, rural customers are chronically unbanked or under-banked. Also, banks have imposed stringent know-your-customer (KYC) norms for opening new accounts, which typically include multiple documents. These requirements naturally create a barrier to mass adoption. Potential users are also put off by high maintenance charges, low rates of interest and minimum balance requirements. Last, but not the least, is the “trust deficit” in the banking segment. In developing countries, customers’ perception of banks leaves a lot to be desired, which goes a long way in explaining their faith in traditional savings group.
Thus step in these services. Mobile money has, without a doubt, succeeded where formal channels of micro saving mobilization have failed because it has worked around the limitations of these channels innovatively. For example, a new mobile money account can now be created with “zero documentation” by tying it with the user’s mobile money service. Moreover, unlike opening a new bank account, where one has to be physically present at the bank’s premises, a mobile savings account can be opened at any location, via USSD, an application or an interactive voice response system. Similarly, the customer obtains added incentive, with the elimination of maintenance charges and a minimum account threshold level. Mobile money at its best, really!
Meet the Next Generation Mobile Money Services
A relatively new kid on the financial services block, the insurance, credit and savings segment has, nonetheless, emerged as a vital cog in the mobile payments wheel. Let’s start with insurance-for the financially underserved, life health and accident insurance. Just a brief aside-as per GSMA, in 2016, there were 106 live mobile-enabled insurance services available in 31 emerging markets, up from 41 live services in 14 markets in 2011. By June 2016, 52.7 million policies had been issued, with seven services issuing more than one million policies each. The top three product offerings in 2016 were life insurance, combined life and health insurance, and health or hospital insurance. Clearly, this service has caught on, and how!
Orange Money, Mali: The Sini Tonon and Tin Nogoya Services
Mali has a maternal mortality rate of 587 per 100,000 live births, one of the highest in the world. In order to make pregnancy and delivery safer Orange Money in Mali partnered with the Population Service International (PSI) NGO and NSIA, an insurance company. The idea was to launch a linked savings and insurance product targeted at pregnant women. As per GSMA, Sini Tonon is encouraging customers to save. 55 per cent of women did not save before using Sini Tonon. Overall, 24 per cent of Orange Money users in Mali are saving and using Sini Tonon regularly, while 4 per cent are insured by Tin Nogoya.
Next up, mobile money has also provided millions of the financially underserved access to credit services. Borrowing money, generating a transaction-based history, applying for loans, assessing a customer’s eligibility for a loan, credit ratings, and paying back loans, is obviously a part of the bouquet. There is a catch, though. Unbanked customers who do not have any prior history of banking transactions will obviously have a hard time obtaining a loan, given the absence of credit history. Mobile money providers are addressing this challenge with innovative solutions that determine one’s loan eligibility and the amount one can borrow. Factors such as the customer’s “age” on the network, usage of airtime, data, mobile money, et all, are the decision makers in this context.
Now, in 2016, there were 52 live mobile money-enabled credit services, up from seven services in 2011. Permit me to cite an example from Sub-Saharan Africa at this juncture (after all, what would a piece on mobile financial services be without one?) Notably, The Commercial Bank of Africa disbursed 40 billion shillings in loans in Kenya in 2015 through M-Shwari, with a non-performing loan ratio of two per cent (compared to 4.3 per cent globally and 5.4 per cent for Sub-Saharan Africa). A similar product, M-Pawa, was introduced in Tanzania in 2014. As of May 2016, M-Pawa had 4.8 million accounts, with 39 billion shillings disbursed to entrepreneurs, comprising chiefly of women or youth.
Airtel Money Tanzania: Airtel Timiza
Airtel Tanzania, in partnership with Jumo, provides short-term micro-loans to Airtel Money customers through the Airtel Timiza service. Timiza allows Airtel Money customers to borrow loans between TZS 500 and TZS 500,000 through their mobile phones, without requiring any document or opening any savings account. The loan gets instantly credited into customers Airtel Money account. Airtel Timiza is used by two million Airtel Money customers to manage emergency financial situations and daily requirements as well.
Last but certainly not the least, let’s talk savings. Now, how this works is that a dedicated savings account is linked to a mobile money account. This permits customers to expand tools for managing and storing funds and gaining direct access to licensed deposit-taking institutions. In 2016, there were 26 dedicated savings services in 16 countries. In fact, data from GSMA suggests that customers view dedicated savings accounts enabled by mobile money as a trustworthy channel to save funds. So much so that the average balance of active accounts also increased by more than one third, to $16.18 by the end of June 2015.
So far so good? Well, not quite. I hate to put a spanner in the works but there are a few things to take into consideration before one jumps onto this bandwagon. First off, a concerted effort by every player in the ecosystem-from operators and credit rating agencies to government bodies is vital. A multitude of efforts will go a long way, provided, of course, that they all have the same goal in mind!
Secondly, customers-read women- ought to be educated about how these services can positively impact their lives. And move away from traditional, home-spun methods of saving. Here’s why-it is a well-documented fact that a significant gender gap exists in the mobile internet and money spaces. Sample this-in India, as per the GSMA, 28 per cent women own handsets, compared to 43 per cent men. To make matters worse, 114 million more men than women own handsets. This represents more than half the total global gap of around 200 million between men and women who possess phones! Understandably, then, operators around the world have launched savings-centric initiatives, aiming at promoting usage by this previously untapped segment. While a significant amount of activity has taken place in this context, there still remain several cracks in the woodwork.
EcoCash, Zimbabwe: EcoCash Savings Club
The EcoCash Savings Club provides a more inclusive, secure, transparent and convenient way for people to pool funds using their mobile wallet. It digitizes traditional local savings and is aimed at people who, until now, have been performing group savings informally without access to the formal banking channels. This is because they are not recognized as financially eligible by mainstream banks. The service is targeted at the self-employed, informal sector entrepreneurs, street vendors and social investor women’s groups. Women constitute 60 per cent of the customer base.
This is just the tip of the iceberg. Mobile money still has many miles to go. Nonetheless, let’s agree to agree that its journey has been eventful so far. Yet, it is safe to state that the best is still to come. Stay tuned.
By Srinivas Nidugondi, Senior Vice President & Head, Mobile Financial Solutions, Mahindra Comviva