Many of the world’s poorest live without access to basic banking services such as savings, insurance, payment services, and basic credit. Those in the developed world often take these services for granted without realizing their contributions to secure, productive livelihoods. Savings allow us to decrease our risk in handling cash and insurance allows us to protect against economic shocks; payment services help us save time that can be spent in more productive ways and basic credit allows us to use current assets to capitalize on future opportunities.
Half the global population, however, lives without such services, or at least without such services as enjoyed by the majority of the developed world. The percentage of households that are financially excluded increases to 80 percent when looking at Africa. Traditionally unattractive to commercial banks, low-income populations are forced to seek out service providers in alternative, unregulated markets, often at great financial burden and opportunity cost to themselves. It is not uncommon for loan sharks to charge up to 60 percent interest on a short-term loan; or for a person to take valuable time away from work, travel far distances, and wait in long lines just to pay a basic utility bill. Lack of access to primary financial instruments contributes to the marginalization of those already most vulnerable and exacerbates the cycle of poverty.
Though financial inclusion is gaining momentum in policy circles — taken in sum and especially in the developing world — government attention to the topic varies widely. There is great opportunity to do better, and innovative groups worldwide are eschewing traditional bureaucratic channels to fast-track financial inclusion through alternative means.
Enter the mobile phone. Ubiquitous — over 5 billion subscriptions to date — and largely affordable, many have touted the little communications device that could as the antidote to financial discrimination. And not without reason: in 2007, Safaricom launched M-PESA, mobile banking’s first large-scale success story. A digital way to send cash and make payments, the service today boasts 12 million users — a growing number of whom use it for savings as well — and is well-integrated into Kenyan society. M-PESA’s success has inspired others to try and replicate its model elsewhere — GSMA’s mobile money deployment tracker counts 96 live mobile money deployments, and 91 planned (as of November 5, 2010) — and mobile microinsurance is gaining traction.
Why was M-PESA so successful? Because it offered a faster, more effective way of meeting people’s needs. A more effective way, that is, in the country of Kenya in the year 2007. So why is it that three years on, in discussions on mobile money opportunities in countries the world over, many still herald M-PESA as the innovative model to aspire to?
Those that advocate this miss the point. Those that try to do this even more so. In the drive to replicate proven models, we often forget to ask if comparable problems and contexts — indeed, the preconditions for a solution’s success — even exist in the new environment. (Hint: By and large, they don’t.) The ‘me-too’ approach to innovation is why mobile banking has seen many pilots but few scalable models for success. A recent GSMA survey of five mobile money deployments globally found that only one had a healthy active user rate (60 percent) while the rest fell under 30 percent, with one coming in at 10 percent.
I’m not the first to bemoan mobile banking’s lack of innovation. Mark Pickens and Sarah Rotman at CGAP, Bill Maurer at the Institute for Money, Technology and Financial Inclusion, Olga Morawczynski at Grameen Foundation, among others, all have put it more eloquently than I. They have asked for greater creativity in the design of mobile financial services. I agree, and I believe the process begins with a deeper understanding of both the environments we are working in and the people we are serving. This understanding is often realized through design research, a practice that, in this space, seems more conspicuous in its absence. Operators and service providers generally overlook this step, citing the fact that they’re from the market in question or that they’ve already done market research as justification. What they don’t realize is that existing knowledge can actually work against them — content with their assumed understanding of the environment and the users (“I know what this market needs”), operators miss out on opportunities for true, constructive innovation.
Let’s get something straight: what the unbanked want is not To Be Banked; they don’t strive ‘to be financially included’. For all the supposed benefits of these systems, the poor do get them, just through other, indigenous means that were developed in line with their own values. People made do long before Innovation Arrived. Did they create optimal solutions? No, but they developed solutions that were good enough and that then became trusted. And we must first understand these homegrown solutions and the role that they play in users’ lives before we can begin to offer them ‘better’.
Take the concept of security, which mobile banking provides in the form of digital savings. Objectively, mobile accounts are more secure than carrying around large sums of cash. But security isn’t always objectively measured and assessed; security is a state of mind.
Drawing on a recent mobile banking field study in Afghanistan, I ask you to consider the experience of the average Afghan day labourer. He lives in a one-room mud-hut home on the outskirts of Kabul with three generations of his family. Being illiterate severely limits the types of work he can do. On the days that he is able to find work, he earns Afs 180 (USD 4) which he then promptly takes to the market to buy food for his family. Whatever he doesn’t spend, he gives to his wife to put in their emergency fund, a small tin hidden in a clothes-pile at home. The tin is currently, and usually, empty. He has heard of the banks that have come to his country in recent years and sees their giant, gated structures springing up all over town, though is unsure of their function. For him, what is more secure?
Option 1: Walking into a gleaming building where he is unable to read the signage around him; handing his cash to a person who takes it ‘for safekeeping’ and assures him that the money is now accessible through the device he shares with three friends; and then walking out of the building with just a phone, minus the wad of cash he had when he walked in.
Leaving aside for a minute the practicality of such a system for him, what is the impact of that psychological sense of lost?
Option 2: A cotton undershirt with a zippered pocket, widely available in the bazaars of Kabul for a mere Afs 20 (USD 0.44). The fact that the labourer can, at all times, physically touch and immediately acccess his money — it just feels right. Compare this to a mobile banking experience for the newly initiated. If his money were to disappear — and, as the recent Kabul Bank scare proved, this is of popular concern — he might not know until it was too late. He has a constant, niggling suspicion that it might, so he dials in to check on his money three times a day. What is the toll on him? Cognitive surety can’t be undervalued.
So let’s move away from ‘innovative’ and ‘revolutionary’, and towards a sincere commitment to understanding those we are working for. From their perspective — whether end-users, agents, or any number of stakeholders along the chain — innovation is not a selling point. Cold, hard innovation doesn’t do anything. Value in Afghanistan, a country of constant flux, derives from tradition, from longevity, from a service provider that has proven they are able and willing to stick around and weather the storms with their users. And especially in matters of money, people don’t want the shiny and slick. They want the systems that have served their fathers, their grandfathers, and their fathers before them.
According to CGAP, 170 million people globally receive regular payments from their governments — whether social support or salaries and pensions — yet less than a quarter of these land in a traditional bank account. There is thus great potential in G2P (government-to-person) transfers to help lead the financially marginalized into formal financial structures.
And the opportunity is not lost on forward-thinking governments and organizations, who are using electronic delivery to improve social and emergency services, with mixed success. Among the pioneers are the governments of South Africa, Brazil, Russia, and Mexico, and organizations such as Concern Worldwide and the World Food Programme, all who have experimented with electronic benefit cards or mobile money platforms. Digital solutions have been used to dispense emergency funds for families affected by post-election violence in Kenya, for food vouchers for Iraqi refugees, and for cash-for-work programs in post-disaster reconstruction in the Philippines. Done right, these new models can decrease the risks, costs, and logistical challenges — both for governments and beneficiaries — associated with cash delivery.
Through social transfer payments, there is immense opportunity to rethink how we frame and design for financial inclusion. But before plunging into technical analyses, regulatory powwows, and grand marketing visions, let’s make sure we’ve mastered the basics: user understanding. Only by correctly diagnosing user needs can we then conceptualize products and services that meet those needs, in ways that are more effective than the status quo and just as (if not more) comfortable for the user. Because habit is as formidable an opponent as any.
And, lest we forget, mobile banking systems rely on self-motivated, human networks to function; thus, ‘users’ in this context refer to all that effect the system, all throughout the system. Mobile money agents, government forces, and other implementation stakeholders cannot be afterthoughts — all are critical in passing the benefits of mobile finance down the chain. To ensure these benefits reach their intended beneficiaries, we must design for ancillary users, for their needs and ambitions, as well.
There is no one-size-fits-all in mobile banking; rather than mimicing past ‘innovation’, let’s develop bespoke solutions that respect the diversity of users, of cultures, and of markets.
Adapted from a recent talk at the G2P Payments Conference in Washington, DC.