This post continues the conversation that we started here: Branding in Branchless Banking
If you find yourself in East Africa, India, the Philippines, Brazil, South Africa, and a host of developing countries around the world, you will be able to remit money over the mobile platform at a local retail agent’s shop. It will be a quick, one-time transaction and you will be in and out of the shop. If, on the other hand, you wanted to open up a savings account which is linked to your SIM card, that accrues interest, and through which you can make deposits and withdrawals at the same agent’s shop, then you might be faced with a more complex set-up. That mobile banking solutions continue to support remittance and payment services in the developing world is fairly recognizable in ICTD literature and practice. However, savings services are only gradually evolving on the mobile backbone. My research experience in Uganda and India was particularly focused on the provision (or lack thereof) of savings facilities on the mobile platform to unbanked customers. The fact that Uganda has a telecom-driven mobile banking model, and India has a bank-led mobile banking model bears implications for formal savings account support. This is primarily due to the position of the bank itself in the mobile banking structure, since the bank hosts the actual savings account. While it is generally agreed that stored value in a mobile banking account may well count towards a form of savings in an informal sense, the capacity to offer a long-term, structured money storage facility that offers interest as per the prevailing national interest rates, is a provision that typically only formally regulated banks can offer.
In a telecom-led model, savings facilities can be offered through a partnership with a bank, where the sharing of operations, payment instructions and branding may well displace the telecom’s position. Therefore in the telecom-driven mobile-banking model, such as the one that I studied in Uganda, the bank is outside of the existing mobile banking model. In Uganda specifically, the telecommunications company partnered with the bank to arrive at a hybrid framework that supported remittances and payments on the telecom-driven platform, but savings and transaction accounts on the bank’s backbone. In that sense, the financial processes were disconnected, although the hybrid mobile banking partnership was marketed as a cohesive unit to users. However, due to this inherent disconnect, users were frequently transacting with their mobile money wallets and their bank accounts in isolation, depending on the service they were using most.
What we discovered over time was that to successfully support savings services within a telecom-driven mobile banking infrastructure, it is inevitable that there will be an electronic link enabling the partnership with a formally regulated bank such that savings accounts can be supported on the mobile phone. An electronic link would allow users to cashlessly send money back and forth between them and their bank accounts using their mobile phones. This would ensure user engagement with both the mobile platform as well as the bank account. We did test a human-enabled electronic link during our study in Uganda, and found that people preferred an electronic link because it saved them both time and travel (Ghosh, 2012).
The bank-led mobile banking system in India ensures that the mobile banking entity works as a business correspondent for a bank. This means that the business correspondent is responsible for furnishing the electronic link over which financial transactions may occur. Moreover, the business correspondent also supplies the retain agent network who interface directly with the customers. The most prominent and transformational bank-led mobile money model in India is the State Bank of India and Eko partnership.
Indeed, the bank-led mobile money model may be better positioned to offer savings services to its users. Specifically, the bank-led mobile money model can offer formally regulated financial products without having to disturb the status-quo. In fact, the Eko-SBI partnership in India was forged initially to offer no-frills accounts to low-income, unbanked customers. Gradually, they evolved into a remittance provider as well, and currently Eko is driving SBI’s remittance product given its natural uptake and the minimal marketing investment required to sell it. It is important to note that since the bank-led branchless banking model in India was born out of the financial inclusion mandate, banks are compelled to ensure that their services are reaching unserved regions and unbanked populations.
In the bank-led model in India, the agents are the direct representatives of the banking correspondents, however they act as indirect affiliates of the bank as well by conducting transactions on behalf of the customers with their bank accounts. The bank’s branding is prominently displayed at the agents’ shops. In this way, the business correspondent and the banking institution is presented as a cohesive unit to consumers for the purpose of conducting branchless financial transactions. Moreover, customers are offered both remittance and savings services on the same technology platform that is furnished by the business correspondent. They have to interface with the same mobile money agent for conducting either or both types of transactions. But which financial service is more popular and why?
SAVINGS VS. REMITTANCE
In India, we observed an organizational shift in focus within the business correspondent company to concentrate on promoting remittance services rather than savings activity. The primary reason for this shift in focus is that remittance services are quick on the uptake amongst customers, without much marketing investment by the service provider. Remittance services, unlike savings services, are explicitly needs-driven. This means that if there is a gap in the market for moving money around, an efficient and inexpensive remittance service will rush in to fill that gap. Savings services on the other hand demonstrate a more implicit need within a lower-income population. This population may recognize the need to put small amounts of money away on a regular basis to accumulate money over long term and earn interest on it, but they require initiative, discipline and restraint to actually practice savings given their lower and irregular income streams. The mere availability of suitable savings instruments will hardly drive their uptake; indeed appropriate financial literacy programs must accompany the customer acquisition process.
Here itself, the marketing costs for promoting remittance versus savings services start becoming highly disproportionate. Moreover, remittances are one-time transactional services when compared to savings that require a sustained locking in of money. As discussed in a previous post, this makes remittances amenable to a quick test for confirming the service’s reliability. For users to lock their money away in a savings account however, they need to really trust the provider (either the bank or the business correspondent, or both). Unfortunately, savings services do not lend themselves well to being “tested” for their reliability without a sufficient risk to the consumer, something that they will be reluctant to take on unless, again, suitable financial literacy campaigns can convince them otherwise. Therefore, the customer acquisition process for savings accounts is expensive and demanding for the service provider. Furthermore, both in Uganda and India, the success of the savings product was measured by the number of accounts opened, and not by subsequent activity on these accounts. Therefore, providers invest resources to drive the acquisition of first-time customers, but seldom invest in financial awareness programs that may convert these diffident customers into actual savers. It is little wonder then, that there remain plenty of dormant accounts that see no financial activity since their inception. In India, specifically, the banks demand the uptake of savings accounts of their business correspondents as part of the national financial inclusion agenda. This “non-profit” agenda immediately signifies the challenges of selling savings accounts in a lower-income, unbanked population.
To conclude, it seems unlikely that offering savings services within the mobile banking infrastructure (either telecom-driven or bank-led) will be a profitable venture for the providers. Indeed, the challenges of driving savings amongst lower-income (and therefore, lower-transaction value) populations are the same as those faced by banks in offering these services at their physical branches. Branchless banking options may reduce the costs of the provision of savings support, but acquiring and maintaining customers will remain difficult without an intensive financial literacy initiative.
Ghosh, I. 2012. The Mobile Phone as a link to Formal Financial Services: Findings from Uganda. The Fifth International Conference on Information and Communication Technologies and Development (ICTD2012). Atlanta, Georgia USA.
Ghosh, I., and Bajpai, K. 2012. A Case Study on the Business Correspondent Model in India: Technology Service Providers as BCs. World IT Forum (ifip). New Delhi, India.
Jos, A., and Wright, G.A.N., Beyond Remittances: How to Expand Your Mobile Money Product Suite, MicroSve India Focus Note 113, 2011.
Lahiri, A., Bangari, S., and Mehta, S., Graduating SBI Tatkal Customer, MicroSave India Focus Note 79, 2011.