When it comes to financial inclusion, perhaps nothing generates more excitement than mobile money. To know why, look no further than MPESA: six years after its launch, the Kenyan money transfer platform is used by two-thirds of the country’s adult population, and around 25 percent of Kenya’s gross national product flows through it.
Due to that success, many now view mobile payment systems as potential platforms for a vast array of financial products that go far beyond the simple “Send Money Home” proposition that launched MPESA. And as expectations have risen, so have challenges, including issues related to cost, complexity, management, regulation, and even human behavior.
What’s the best way to deliver on the promise of mobile money to bring financial inclusion to the BoP? To address that question, the Center for Effective Global Action hosted “Mobile Money: Technology to Transform Transactions” – a conference sponsored by the Bill & Melinda Gates Foundation and taking place on September 20 and 21. Here are a few takeaways from Day 1.
In his opening comments, Jake Kendall of the Gates Foundation summed up mobile money’s promise: “In financial inclusion, digitizing current modes of transacting changes the game.”
But he sounded a note of caution: Problems like regulation and business model issues won’t be solved by technology. Many technologies seem to have potential in one context, but don’t work so well after being imported to another. And though innovation can address these problems, how can you foster it most effectively?
One way is by bringing together “dense networks” of people who come at the problems from different angles, bringing different technologies and different ideas to bear. But when working at the BoP, Kendall said, it’s important to avoid the tendency to drift off into solving easier problems - focusing on wealthier people, or those in certain communities, or those with smartphones or more advanced technologies. He laid out the following end goal: billions of people accessing financial services through the phones they already own.
Ignacio Mas followed with the most talked-about presentation of the day: a keynote speech that laid down the markers for the day’s discussion (several of which you can read in his recent NextBillion post). “The main mistake we can make as mobile money providers is to think that it’s about the mobile phone,” he said. “It’s not. Just like banking is not about the debit card - it’s about all the places the card can be used.”
He described some of the issues mobile money platforms face as they grow, including fragmented, partial payment systems, and the need to interface between legacy system and the new digital system. To overcome these issues, he said, we need to remind ourselves of the “pain points” of cash (the reasons people want a new system):
Cash is hard to move over large distances
It’s unsafe to travel with a lot of cash
Large amounts of cash are unsafe and inconvenient in cash
Cash is not easy to trace – so you can’t convert your history of making cash payments into proof of your credit worthiness
Mobile money is more useful if more people are using the platform, he said, but it can’t scale easily because people aren’t using it to store money. “The embarrassing fact of mobile money is that the first thing people do when receiving a transaction is to withdraw it immediately and in full,” he said. There is no storage and no connection to budgeting – people still don’t think of it as regular money.
Cash is still the planning medium, the thinking medium, and the thing that makes people feel connected to their money. “We need to start with making people look at their mobile phone and see it as their money,” he said. “If we don’t digitize storage, we won’t scale payments.”
For Sitoyo Lopokoiyit, head of Department, MPESA Strategy at Safaricom, the founding “send money home” value proposition of the platform is largely in the rear view mirror.
“We’re leveraging the platform itself to deliver different products to different market segments,” Lopokoiyit said. “As more people use MPESA as a savings platform, more customers are looking for discipline support, products that encourage savings. It has forced us to basically change our whole marketing campaign: now we say ‘Remove your money from your mattress and put it in a safer place, and earn interest.’”
Dave Algoso, director of Programs for Reboot, and many other company leaders in attendance, observed how the dynamics around customer (and business) expectations are quickly evolving.
“We’re starting to shift the conversation away from mobile money as a service, to mobile money as a platform for other services. And that’s how this conversation should shift. There are all kinds of financial innovations that can happen through the platform of mobile money, where others take on the risk of integrating in that way,” Algoso said.
Indeed, the value of a multi-purpose platform goes beyond having access to liquidity for most of HaitiPay’s customers, said company Chairman Georges Andy Rene.
“They really want to keep their money in very specific accounts for schools, insurance, and other types of purchases,” Rene said. “We’re trying to provide people with a way to keep their money and interact with local merchants – creating a series of regional, community-based networks that revolve around small ecosystems of local service providers, businesses and end-users.”
In India, meanwhile, the government is largely driving the financial inclusion landscape. That dynamic, says Jatinder Handoo, senior manger at FINO PayTech, is both good and “not so good because it has a psychological effect. Most banks still view financial inclusion as a compliance objective, rather than a business objective, However banks are starting to look at this market as a business case, with the right channel partners like FINO PayTech Ltd.
“FINO focuses on financial capability building. Typically, our customers are the first in their family to have a relationship with any formal financial institution,” he said. “They do savings through informal channel, and the financial education comes in when we try to get them to do it through banks. It exposes people to different financial options - beyond savings accounts, to things like health insurance, in the mainstream banking system.”
Shivani Siroya, CEO and founder of Inventure, highlighted the problem of financial identities that are largely isolated from a broader credit system. The company is building simple mobile money management products through voice, SMS, web and Android, to help customers create their own financial identities, which they then can provide to financial institutions or credit agencies.
“People know what they’re doing with their money. The problem is, we don’t know what they’re doing,” Siroya said. “Our life would be a lot easier in terms of developing financial identification and credit scores if national IDs were available. You can give everyone a credit score, but if it’s not tied to a recognized system, it doesn’t go anywhere. There’s a huge role for government if they recognize what technology companies are providing in the sector.”