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Introduction of Microinsurance into Mobile Banking’s Product Suite

Banner for Telenor's mobile banking product

Photo Credit: CGAP

As written in this blog before, there has been continued innovation in the mobile banking sector in developing countries this year. But, as surmised by CGAP, there is a greater need to find a balance of products that meet the specific needs of those who traditionally have not had access to formal financial services. While mobile payments, transfers, credit and savings have all expanded using the branchless banking model, there has been a lack of products that provide insurance via mobile phones. That is not to say that microinsurance has not been available in the past. But its availability came from the social sector side, instead of the private side. But there has been a shift as the business case becomes more valuable to both insurers and mobile network providers alike.

Just over a year ago, Swiss Re, re-insurance company, stated that the market size for microinsurance for those making under $4 a day in developing countries totals $40 billion. For businesses, that is a tough opportunity to miss. But simply because the market is there does not make it a profitable opportunity. Many of the targeted customers live in rural regions and have never purchased insurance. With a lack of access and knowledge, the case for profitability would need to include a large upfront investment. But technology and innovation can help to fill in those access and knowledge gaps. According to a recent report by Accenture entitled “Succeeding at microinsurance through differentiation, innovation and partnership,” technology offers real-time connectivity, flexibility and scalability which will help insurance companies to reach new customers in emerging markets. With an estimation of 2.3 billion people who are low-income and need to protect their income and assets, Accenture argues that insurance companies need to view these potential customers as “tomorrow’s premium prospects.” A clear example of this is the millions of individuals who have rose out of poverty through the economic prosperity in China and India over the last decade. By providing products that fit the needs of low-income customers, companies can build brand loyalty and reputation in these regions and reap the benefits as their customers improve their economic state.

As stated in the report, the need to leverage technology in order to reach the customers will be key to creating the short and long term business cases. By permitting customers to purchase and/or manage their accounts via mobile phone, this allows for the business structure to be profitable in the short-term. At least that would have to be the rational thinking as MNO (mobile network operators) are partnering with banks and insurance providers to offer a suite of financial service products (including microinsurance) to their customers.

Two Recent Examples

As a part of a larger suite of products, Airtel Ghana has partnered with uniBank Ghana Limited and Star Microinsurance to provide insurance free-of-charge to Airtel’s subscribers using their mobile money product. As long as the customer maintains an average minimum balance of GHC 5 (roughly $2.84) at the end of every month, they, along with their direct family, will be covered by insurance. Airtel Ghana sees the partnership and new products leading to an improved return on assets, an increase in the customer base and the creation of a one-stop shop for uniBank clients. But one of the challenges will customers registration as an individual must have a valid photo ID and complete an application along with having an Airtel SIM card.

In Pakistan, the MNO Telenor also will be releasing a free microinsurance product through Easypaisa, a branchless banking services company. Easypaisa was created in 2009 by Telenor Pakistan and their Tameer Micro Finance Bank. The free life insurance will be provided through Easypaisa and in partnership with Adamjee Life Insurance Company Limited (also located in Pakistan).

As you can see, mobile technology and the focus of creating value-added service by MNOs has increased the access to microinsurance in developing nations. Even in Kenya, insurance associations are pushing their members to utilize mobile phones in order to reach clients in new and untapped markets. In the push to increase access to financial services, the business cases for microinsurance are being shaped around mobile technology. And amazingly enough the insurance is being provided for free.

April 3, 2012/by actualize

Mobile Money Interoperability: A Solution or Just Expensive?

Photo Credit: Szymon Slupik

In a report released in February, GSMA examined the value generated to both consumers and mobile operators by developing interoperable mobile money systems. Entitled “The case for interoperability: Assessing the value that the interconnection of mobile money services would create for customers and operators” and co-authored by Neil Davidson and Paul Leishman, it was released through the Mobile Money for the Unbanked unit of GSMA.

The report focused on the idea that increasing the interoperability between mobile network operators (MNO) would be better for customers as it would allow greater ability to send money from a phone on one network to a phone on another network. With the understanding that a network’s value to a consumer depends on how many other people they can connect to, there is an obvious benefit to operators creating interoperability between each other. But the article finds that developing interoperability will not create the necessary value to customers in order for MNOs to profit off the investment. The authors came to this conclusion by examining it from both the consumer side and the producer side.

Value to Consumers

By researching the competitiveness of mobile money services, the authors found that there were only three markets in the world that could be labeled as competitive. Although 25 countries have multiple operators providing mobile money services, only three had adoption rates from multiple MNOs that would dictate a need for interoperability. They next turned their attention to discovering the specific problem that interoperability would solve. In viewing the habits of consumers in markets with mobile money, the research showed that they had figured out a workaround to transferring money between mobile networks. Since there is a low cost to purchase a SIM card from another MNO, consumers can “multi-SIM.” This means that depending on which operator the receiver is using, the sender can switch their SIM card in order to send the transfer. With the advent of dual-SIM phones (two ports for SIM cards), multi-SIMing is made easy with no need to switch out the cards manually. In Uganda, a survey from June 2010 showed that 43% of mobile money users multi-SIM. Along with the hardware workaround already available, the mobile operators have allowed unregistered accounts to send and receive money. Registered customers have the ability to send money to unregistered customers. Since all that is needed in order to collect the transfer is a secret code, an unregistered user can give the code to an agent and withdraw the cash. This is called an off-net transfer. The opposite transaction can occur as well as with an unregistered user sending a transfer to a registered customer. This is called an over-the-counter (OTC) transfer. While this does not completely kill the consumer value to interoperability, customers have already discovered and are using workarounds at no further cost to them or the mobile operators.

Value to MNOs

The author’s argument for why MNOs would invest into developing interoperable systems is a simple one – because it will create greater revenue. Mobile money is provided as a value-added service to create greater loyalty in the customer base as well as having them increase the amount of money they spend. But creating a system that works with other mobile operators is not free – nor cheap. The investments would include human resources and infrastructure. But the main question is how would this investment make more money, if at all? Value-added services are used for two reasons – keeping existing customers and enticing new customers. And one or both will have to pay for this service. But since it has already been shown that current customers are already willing to use a workaround to transfer between separate mobile providers, it is not clear that interconnecting systems will create greater loyalty or attract new customers.

Along with the unclear pain from customers about the need for interoperability, the authors made the argument that the investment in it could take away from other investments that could increase loyalty or simply pass the cost of directly onto customers. Unless a clear business reason is discovered, it seems like interoperability will not occur in the near future. But that does not mean it will never occur; just that it is too early for it now.

March 13, 2012/by actualize

Mobile Money, Originally posted on the GBI Portal

IFC’s Report on Mobile Money: A Framework to Analyze a Country’s Readiness for Mobile Money

Photo Credit: Bancore Mobile Financial Services

On February, as a part of the ICT Learning Days at the World Bank, Sonja Oestmann, the Director of Consulting and Partner of Intelecon, presented the findings from a report commissioned by the International Finance Corporation (IFC) about mobile money. Entitled “Mobile Money Study 2011,” the reports focused on the mobile money markets in four countries – Nigeria, Thailand, Sri Lanka, and Brazil.

The IFC has committed to further expanding financial inclusion by 2013 and see the potential in mobile money to help reach this goal. But while it has been successful in some countries, it has yet to take off in others. By focusing on vastly different countries in terms of region, socio-economic conditions, and financial infrastructure, the focus of the report was to show the different ways in which mobile money can be used as well as the business models that make them sustainable. It also used Kenya and Japan as examples of countries in which mobile money has succeeded.

Framework

The report included a framework to assess the sustainable viability of mobile money in a country as well as the most appropriate business model to utilize. This includes the partnership strategy, the necessary regulation environment, and the development tracks of mobile money products and services. By creating a structure of the market research that must be conducted, the report is aimed at providing this knowledge to regulators, mobile network operators, commercial banks, microfinance institutions, telecommunications manufacturers, and all others interested in expanding mobile money opportunities.

User Demand

The report also examined where the user demand of mobile money is based on the major money flows within each country. Based on these flows, the report listed the following as potential areas of demand:

Government-to-person (G2P) payments
P2P transfers
Payroll payments from small companies in the informal sector
Public transport payments
Bill payments to major utilities (e.g., electricity and water), postpaid mobile accounts, fixed phone subscribers, pay TV (cable and/or satellite)
Retail payments
Business-to-business (B2B) payments
Credit and microfinance
International remittances
Savings

Survey Findings

Surveys were conducted in order to further understand how and why individuals were using (or not using) mobile money in the four countries. One of the more interesting findings from the survey is the ability of marketing to increase the adoption of mobile money. Individuals using the service became aware of it directly from either the bank or the MNO. But the nonusers heard about the service indirectly from mass media. The conclusion in the report is that increasing adoption could be done more effectively through direct marketing with a personal touch. Another interesting finding is the state of the formal financial services effect on the perceived value of mobile money. In countries where the financial services sector is less extensive, mobile money is seen has a cheaper and faster alternative. But in countries with a strong financial services sector, cost and speed were not as important. Its perceived value was seen as an increased convenience.

Conclusions of Studies

The main conclusion from the report was that the value proposition for mobile money depends on the existing financial service infrastructure. When financial services are unavailable to a larger population, there is a higher demand for fast and cheap money transactions. But as the services improve, partnerships between banks and MNOs increase in significance. At the same time, the demand for mobile banking decreases as other e-payment services become competitors. In countries with an established and advance financial services sector, the demand for new services is based on performing at higher speeds, with greater frequency, and increased convenience.

March 6, 2012/by actualize

Agriculture, Mobile, Originally posted on the GBI Portal

Free money transfers in Kenya

The following is a guest post we’re pleased to share by the GSMA’S Mobile Money for the Unbanked (MMU) programme, which seeks to accelerate the availability of mobile money services to the unbanked and those living on less than US$2 per day.

Outdoor advertising for free mobile money sending service in Kenya

One of my first posts for this blog explored how mobile operators could exploit the network effects that characterize mobile moneyservices by “subsidizing” early adopters—that is, by rewarding those who sign up and use a service early with deep discounts or bonuses to make up for the fact that there aren’t many other people on the network to transact with. It’s a classic pricing strategy in networked markets.

Recently, Airtel in Kenya launched a new promotion offering Airtel Money (formerly known as Zain Zap) customers free money transfers to both registered and unregistered customers. Although slated to run only for a short time, this promotion is a clear illustration of an attempt to subsidize participation in a network that has far fewer users than its competitor M-PESA, the most famous and well-established mobile money service in the world.

Such a move is risky, but not crazy. Ignacio Mas has pointed out that the online payments service PayPal lost $23 for every customer they signed up during their first 9 months of operation because they paid large sign-up bonuses and chose not to charge fees that were large enough to cover their variable costs. PayPal racked up millions of dollars of losses that way, but in the process it built a user base that it was later able to monetize: PayPal went on to a successful IPO and now has over 100 million active users around the globe.

For this tactic to work, a networked business must be willing to sustain losses up until the point that it has built a network large enough—which is to say, valuable enough—that users and potential users are willing to pay to use it.

We’ll see if this gambit pays off in Kenya.

Subsidizing early adopters is just one of the tactics that networked businesses can employ to exploit network effects. Previously, I’ve written about how network effects apply to mobile payments and their implications for target market selection and marketing communications.

September 9, 2011/by actualize

Agriculture, Mobile, Originally posted on the GBI Portal

Embrace mMoney, cautiously

Photo: Institute for Money, Technology, and Financial Inclusion

We all use money everyday. Cash, checks, credit, debit… mobile? Outside of the U.S. people are making payments on their mobile phones daily. What you wouldn’t guess is how ingenious they are at inventing new ways of using money. What do the innovative uses of money mean for banks, regulators, and nations? Does mobile money restructure the role of money in society altogether?

Bill Maurer, from University of California-Irvine’s Institute for Money, Technology, and Financial Inclusion, spoke at a USAID sponsored Microlinks event yesterday, July 25, 2011. I attended the event and was intrigued by Maurer’s anthropological approach to mobile money, a subject dominated by economists. Maurer emphasized the cultural complexities of money in all its forms, and then spoke especially about mobile money.

To summarize, Maurer first explained that money is perceived differently in different cultures of the world. In Nigeria, family members engage in money spraying, tossing money at brides during the wedding dance. In East Asia, mothers send their children on long trips with money inside of small hand sown pockets, believing that the money will protect them, and that they can use it to get settled once they arrive.

Photo: Institute for Money, Technology, and Financial Inclusion

The various uses of mobile money are equally diverse. For one, those who make mobile money transfers using SMS technology skip traditional banks altogether, as their telecommunication service providers act also as banks. Second, what about people who own multiple mobile phones or SIM cards in order to maintain different accounts? Some hide certain accounts from others; others separate the accounts for organization. Third, there are some cross-border money transfers. Often, if the service provider is the same, then the transfer may be made. Fourth, there is a possibility of mobile money remittances, as Ericsson launched two weeks ago? Still others trade their money from one currency to another to another, eventually “getting to the dollar,” and ensuring the value of their money. All of these actions change relationships between banks, individuals, government regulators, and telecommunication service providers.

Photo: Institute for Money, Technology, and Financial Inclusion

In a way, the elimination of banks from money transfers makes it appear that transfers should be a “public good,” freely and widely available. The policy implications for regulators, then, are immense. Who can take a cut of transaction costs? What rules should be in place about currency transfers? How are regulatory agencies from different nations going to communicate with each other? These questions, with a host of others, set the stage for mobile money’s impact on the global economy.

Though I was thoroughly engaged by Maurer’s presentation, I could not help but wonder what the policy implications were. When Maurer responded to one attendee request for a summary of the lessons learned about mobile money, he originally responded, “I have shied away from the lessons learned because I am open as to what they may be.” Thankfully, though, he followed up this response with three key regulatory innovations that he recommended for policymakers: proportionate due diligence, non-bank e-money issuance, and non-bank deposit taking.

USAID and other international organizations, then, should be careful in their rollout of mobile money projects. Though over 80% of the world has access to a mobile phone, the impacts of mobile money programs are far-reaching—they affect the financial, political, and social sectors, either for the better or the worse. If nothing else, the anthropological research by Maurer shows the complexities of mobile money. Before a list of best practices and lessons learned can be compiled, policymakers should tread carefully, but they should still step forward. As evidence and data is gathered through experiments, best practices can be ascertained. Once best practices are identified, then USAID and other aid organizations should scale mobile-based development projects.

July 27, 2011/by actualize

Agriculture, Mobile, Originally posted on the GBI Portal

Mobile payments in the Philippines: Future Opportunities for Growth

The following is a guest post we’re pleased to share by Salah Goss and Clara Veniard from the FSP program at the Bill & Melinda Gates Foundation

Access CEED Store We often hear that M-PESA was able to scale quickly because it targeted an unmet need: urban to rural remittances. Safaricom based the initial launch of the M-PESA service on the ‘send money home’ proposition because a large proportion of split families in Kenya needed a way to send money to relatives in rural areas but had few ideal options to do so.

In many markets, however, such a clear unmet need does not exist.

The Philippines is a prime example of this. Even though mobile money providers have been in the market for over ten years, they have struggled to gain market share in the face of well known and well established payment providers. Knowledge and usage of mobile money services are low with less than 4% of users of all payment service providers reporting usage of mobile money services and awareness of four mobile money products ranging between 28% and 46%, even though more than 70% of users have access to a cell phone

Our study focuses on the demand side of domestic payment services: bill payments and money transfers

In 2010, the Bill & Melinda Gates Foundation launched a study with Bankable Frontier Associates to understand the demand for domestic payment services in the Philippines and to identify potential opportunities and unmet needs for mobile money providers to target. The study found the Philippines is an active and mature payment market, with a myriad of payment providers, including payment centers, banks and pawn shops to choose from. Only 28% of respondents reporting they make no payments and most Filipinos are aware of and using multiple service providers.

In our study, we focused on three primary types of domestic remote transactions mobile money has the potential to target: bill payment, money transfers, and loan payments. Bill payments are most common and are used by 55% of the population. They are followed by transfers (used by 33% of the population), and loan payments (used by 16% of the population). We did not explore access to financial services, although 29% of respondents claim to be saving at home or in banks, or other potential drivers of mobile money that have had success in other countries, such as public transportation and online purchases.

In this paper we use the results from the study to explore five alternative and almost equally used channels for bill payments or money transfers. Pawnshops are the preferred channel for money transfers, with 29% of Filipinos citing the leading pawnshops (M Lhuillier and LBC) as the main payment service provider in the last twelve months. Payment centers are used to pay bills by 21% of Filipinos while bank transfers are the prefer method for 17% of Filipinos for both money transfers and bill payment. Informal transfer options are the primary method for money transfers and bill payment for 15% of Filipinos. Alternatively, 13% of Filipinos pay their bills directly or are direct payers.

Existing payment channels are good but far from perfect

In order for mobile money to take off in competitive markets like the Philippines, providers will not only need to identify a high potential target opportunity, but also ensure their ability to effectively serve the market’s needs relative to the competition. We have identified user pain points in the following areas when paying a bill or conducting a money transfer: speed of delivery, trust and reliability, price, and customer service. Consumers in the Philippines have access to a number of channels that may provide either speed, trust or good customer service but none of them is ideal, leaving room for a service that gives customers more of what they value.

For bill payments, customers can pay in a bank or payment center. Both options have their short comings: although banks are trusted (especially with large amounts), they suffer from long queues, unfriendly and limited staff. Payment centers are cheap and closer to home than a biller’s office, but also suffer from long queues and delays to credit customer payments at the biller. In addition, neither banks nor payment centers are widely accessible, especially in rural areas. In fact, 32% of users reported they would be willing to pay PhP 50 (US$1.50) for bill payment services that do not require them to leave their home.

For money transfers, customers have the option of using banks,” big brand” money transfer services, pawnshops or informal channels. Pawnshops are the most popular given their ubiquity, trusted brand and speed (if picked up at the pawnshop) but the most popular pawnshops, M Lhuillier and Cebuana, are not completely customer friendly. M Lhuillier has long queues, strict verification and unsafe locations and Cebuana has high fees. The larger transfer companies like Western Union and LBC have high attrition rates due to high fees and other problems. LBC, for example, offers door-to-door service, but it can be slow and their customers complain that their neighbors know when money is delivered. Consumers also complain about the stigma of entering pawnshops. Banks offer security, privacy and trust for larger transfers, but are not always accessible.

Although alternative channels are not perfect, mobile payment providers find it difficult to convince consumers to try a mobile payment service as evidenced by low usage figures (4%) compared to other payment options. According to our study, users of one type of payment providers tend to be sticky. Our survey conducted among users of payment services found that fewer than 10% of one-time users have stopped using a service. They also tend to think their payment service is the best, providing high scores on trust, convenience, speed, security, fees and customer service. Users say they would utilize a new payment service in addition to their current service, rather than in lieu of it.

Some segments are still not served by formal providers

Mobile payment providers also have an opportunity to target market segments not served by formal providers such as personal direct payers and users of informal service providers.

33% of the population still pays for their bills and loans directly at the biller’s office, and do not use other intermediaries such as banks or payment centers. The vast majority of personal direct payers (75%) indicate that they trust only themselves to deliver payments, although 57% agreed that paying bills would be easier to do via a third party. Perhaps by tackling the issue of trust, mobile money operators can convince these potential customers, who tend to be male, to try their services for the convenience they can offer.

Users of informal service providers may also be a potential market niche. 25% of all users use informal service providers on a regular basis for smaller, regular transactions. These users tend to be rural and poor women who generally make bill and loan payments intra-island. In fact, these users in rural areas rarely pay bills or loans through formal service providers, and when they do, they use the leading pawnshop. Although informal options are low cost, they suffer from delays, the sender has no automated confirmation of when the money arrives, funds can be stolen, and unanticipated costs may arise (such as tips or paying for food or petrol of the deliverer). Similar to a country that does not have many formal payment options, such as Kenya pre-MPESA, providing an alternative to the existing options can meet a need that resonate strongly.

Lower value transfers are an untapped opportunity

Mobile payment providers may also have an opportunity to facilitate lower value transfers between family and friends that occur informally and that higher cost channels (including pawnshops) cannot profitably serve. Our study found that 52% of Filipinos receive money from friends and family (either as a loan or a remittance) in the event that they need to make a purchase or pay a bill but do not have enough money. The rest seek money from alternative sources: 15% will do something to earn the money themselves, 12% will wait for their salary and 10% will go to an ATM to withdraw cash. Filipinos also regularly send or receive money, for emergencies, daily household expenses, education, bill payment, or business expenses. Sweeping these low value transactions through mobile money services would mean a significant increase in their volume of transactions as well as customers. In addition, 33% of all users said if they could make cross payments between mobile money schemes, then they might find this persuasive enough to try them.

Next steps for mobile money providers

During the last ten years, mobile money providers in the Philippines have struggled to gain traction in the market. They compete against an active payment market with numerous strong alternative channels for bill payments and money transfers. However, these alternatives are far from ideal, according to customers themselves, and niches exist in the payments market that have not been targeted.

Mobile money providers have an opportunity to attract customers away from existing payment options, persuade customers to use their services in addition to their current payment provider or to target segments that are not currently served by formal payment providers, such as personal direct payers and users of informal service providers. In addition, they may have an opportunity to capture lower value transfers.. The challenge faced by mobile money will be to encourage customers to try their service and to convince them through early trials of the superior value of the service. The extent to which they will succeed in doing so will depend on the investment mobile operators are willing to make in strategic marketing, getting their fee structures right and creative partnerships with banks and others that may add value to the customer experience.

You can download the full report from the BFA website.

July 21, 2011/by actualize

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