Posts Tagged ‘business model’

Detailed breakdown of Uber’s business model in Kenya puts spotlight on weaknesses

Latiff Cherono has just published an indepth analysis of what exactly it takes for an Uber driver in Nairobi to cover the cost of doing business. Here’s a snippet,

In this post, I try to understand the root cause of the disconnect between how the customer (who defines the value), Uber (the service that controls the experience) and the driver (the one who provides the service).

He accompanies his analysis with a detailed breakdown of costs and revenues, such as the table below, and others in his post.

new-picture-2And concludes:

The incentive for any person who starts a business is to maximize their profits. As such, we should expect that Uber drivers will approach their business in the same vein. However, the data provide by Uber to the driver is limited and prevents them from making informed decisions about generating revenue. For example, drivers do not know the estimate distance of a new trip when they accept it via the app. They are also penalized for not accepting rides (even if that trip may not make financial sense to the driver). All this is by design as Uber wants to maintain a steady supply of “online” vehicles on their network. One may argue that Uber is not being transparent enough with its independent contractors.

My thoughts:

Nairobi, Kenya isn’t the only ‘developing’ country context where Uber is creating unhappy drivers (and customers, one assumes) due to the design of their system. While most of the first world challenges to the company have come from the perspective of the formal economy and its regulations and laws regarding revenue, tax, employment status et al, the same cannot hold for the entirely different operating environment where the informal sector holds sway. And taxi driving is one such service.

Kampala, Uganda has it’s own challenges for Uber, including:

  • Uber drivers are reportedly leaving the service, switching off the Uber apps or not picking calls from corporate clients and those paying with a credit card. For the first four months after its launch, Uber was offering drivers incentives that saw them earn between Ush200,000 ($57.1) and Ush350,000 ($100) a week.
  • With increasing competition, drivers say that Uber’s incentive structure has been changing. In the first four months, Uber drivers were getting Ush15,000 (about $4) per hour, but this has since been scaled down to Ush10,000 ($2.9) and to Ush4,000 ($1.1) in incentives.

There is so much to be unpacked here, including the entire section on Uber’s own perception of how the market works, upto and including how to introduce time limited incentives, that I’ll follow up on it subsequently.

In this post, I wanted to highlight Latiff’s analysis and hard work pulling together the operating costs data, even as I leave you with this snippet from the article:

Uber’s commission in Nariobi was reduced from 25 to 20 per cent following protests by drivers in August, accusing the taxi hailing service of working them like slaves.

As I wrote earlier in the year, Uber could have done so much more in these markets, particularly on the path to formalization. Instead, they’re continuing on their journey as yet another smartphone app making life even easier while squandering the potential for real world change for the less privileged members of our societies.

 

 

Uber’s app lowers barriers to formalization for unorganized taxi industry in Kenya

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Nairobi Taxi stand, Kenya. February 2016 (photo: Niti Bhan)

This interesting article in the Kenyan news made me think about the role that an app like Uber could play in markets where there’s a high proportion of informal & unregulated business activity.

As with much technological advancement, resistance comes with change. Mpesa and the internet were once thought to be passing fads and have later changed industries. Uber’s disruptive strategy strayed from the normal operations in the local taxi industry. However, its benefits cannot be slighted. The app organizes the industry while creating a registry of taxi operators complete with their personal details and revenue earnings.

[…]

Deal with the local taxi organization or the app. Under the current laissez-faire model, the taxi associations are unregulated with the government unable to protect the consumers. Uber has stepped in to shape an unstructured industry into a formal operation.

What’s really interesting here is that same elements of the sharing economy that disrupt the more structured, formal markets in the industrialized world, are those that could provide structure and organization to the chaos of the cash based, informal sector in the developing world.

In effect, the gap between teh formal and the informal required something that could provide flexible, negotiable business models and organization structures in order to bridge effectively. Prepaid business models are one that work for the informal sector’s cash flows but they don’t provide any facility for an industry to organize – here, taking the necessary elements of flexiblity, negotiability, and reciprocity one step further into an app, the Uber solution offers information neatly captured and accessible at your fingertips.

Is the pay per use business model changing household purchasing dynamics?

DSC08309The process of writing the previous post on India’s energy efficient cook-stove development efforts made me pause and reconsider my assumptions. Here’s the snippet that struck me in the article.

Philips took its India stove to more mature markets in Africa, where a raft of foreign-funded stove projects had familiarised customers with the product.

This seemed to explain why, when M-Kopa, the pay as you use solar system startup in Kenya, expanded their product line, the most popular first choice for low income consumers were improved cook-stoves.

Energy-saving stoves have been the highest seller to date, while smartphones are also proving popular.

Given the recent hand-wringing over the toilets vs phones stats, I would have expected smart phones to have been more popular than stoves. The fact that they aren’t implies to me that something more is going on than is apparent on the surface. I don’t think its as simple as “sensitization” efforts by NGOs, since the aspiration is still LPG not an improved stove.

You’ll note the assumption made in the pullquote from the Indian cook-stove article:

Women’s time and health were not valued; any family with Rs 1,000 to spare would first buy a mobile phone.

So, the question raised is whether M-Kopa changed this household dynamic, in a market where women’s domestic roles are similar to India’s?

During my exploratory user research study on household energy consumption behaviour for ToughStuff, a now defunct manufacturer of small solar products aimed at the exact same market segment in Kenya, I discovered that one of the barriers to the purchase of the product was the question of “Who would pay for it?”

The phone is a personal asset, purchased by the individual saving bits and bobs from their earnings, over time. Solar power or a cook-stove, is an asset shared by the entire household. Could it be that M-Kopa’s business model, predicated as it is on daily micro-payments to keep the lights running, has changed the dynamics of household purchase (rather than women’s roles)?

Its possible that whoever had the extra 50 shillings in their M-Pesa account sent it to M-Kopa for the day’s payment, and people took turns rather than the burden of purchase falling entirely on one income earner’s shoulders.

And now that more products have been made available for sale through this micro-payment method, it has opened up the opportunity for the purchase of more shared consumer durables, like cook-stoves, rather than individual items of use, like smartphones.

Given the implications of these snippets of insight from M-Kopa, and their importance to both women’s empowerment and the dynamics of domestic finance, I wish that the company would do more to release information, or offer their data for indepth analysis.

The business model of drinking water in urban Ghana

In Accra, Ghana, packaging potable water into single serve sachets for the mass market (the prepaid economy) is a business model that has evolved extremely rapidly in response to customer demand and purchasing power.

Bottled mineral water for the elite trickled down in quantity and form until the man on the street can buy a glassful for pennies. From the article The cost of pure water:

“I think we’ve seen almost an entire product life cycle in just a decade,” Stoler said. “Initially it was more of the autocrats drinking sachets. Very quickly, within a few years, it seems to have shifted to lower income and the poorest of the poor… You don’t go to a conference or symposium and get served sachet water.”

Stoler believes the “warp-speed evolution” of the industry has quickly made the product better and cleaner. Due to the enormous demand, bigger producers like Voltic have stepped in and are using the same water they put in bottles, sold to the rich, in the sachets sold to the lower and middle classes. And with lots of competition in most areas, and billions of bags being consumed each year, the customer base is quickly becoming more discerning about what they buy.

“This is one of those weirder examples of almost pure capitalism,” Stoler said. “You have this gap in supply, so the private sector steps in and fills the demand. Customers start to understand that there’s differentiation in product quality. Better quality producers rise to the top, the market incentives produce better quality products, and without tons of over-regulation, the market has ended up with a pretty good product.”

His work shows that the intelligent Ghanaian customer base has helped evolve the experimental, and perhaps unhealthy, product that Osei sampled into a cleaner one. In a recent study focusing on two poorer neighbourhoods of Accra, Old Fadama and Old Tulaku, Stoler found no faecal contamination in any sachet sample.

Reading the article further, you’ll note that this service is typical of the way the informal sector quickly senses an opportunity to be satisfied.

@Prepaid Africa Connecting Dots – October 2015

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October was a busy month for us – The African Development Bank hosted their first Innovation Weekend in Abidjan from the 9th to the 11th of October. Our contribution was thinking about the problems we face as the starting point for new venture design.

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Emerging Futures Lab’s Niti Bhan, collating everyone’s problem statements. Abidjan, 9th October 2015

Savvy young people from across Francophone West Africa gathered to conceptualize startups over the course of the weekend, culminating in grand prizes and the opportunity to grow into viable businesses. Much excitement.

The startups; PayFree, a multiplex platform for payments; La Ruche, a marketplace for artisans to sell their wares; Coliba, a mobile platform for managing urban waste; and BioPRO, an intervention seeking to help rural people get access to energy and electricity will each receive an AfDB fellowship with Ampion to accelerate these projects to become viable companies.

 

Continuing with the Francophone flavour, our next big news is introducing our Beninese collaboration – Ms. Yacine Bio-Tchane, who has been blogging in French on the emerging consumer markets in the region. Emerging Futures Lab now has a Francophone West African footprint.

Portrait robot du nouveau consommateur africain
La ruée vers la Côte d’Ivoire des marques internationales
Les taxi-motos, potentiels livreurs en Afrique de l’Ouest
Où se trouvent les plus grands consommateurs en Afrique?

 

 

tumblr_nwsbz0ytDw1qghc1jo1_500Finally, Senegal hit the headlines with the launch of indigenous wine from the shade of the baobabs.

 

 

 

ColdhubsNigerian innovators have become a hot trend – Coldhubs is an outdoor solar powered fridge, developed by Nnaemeka Ikegwuonu as a sustainable solution for minimizing post harvest losses faced by farmers. Meanwhile, a team of students from Nnamdi Azikwe University (UNIZIK), Awka, have built a made-in-Nigeria mini bus, which they say is the first of its kind.

tumblr_nx7cu51yEp1qghc1jo1_500And finally, from the Nigerian diaspora, Dr. Samuel Achilefu, has won the prestigious St. Louis Award for 2014 for creating cancer-visualizing glasses.

 

 

And to round up this exciting month, we cover the just concluded India  Africa Forum Summit, held in New Delhi 26th to 28th October.

16BYAThe hype

India-Africa summit is meant to strengthen trade ties
India is trying to match China’s engagement in the continent
China is accused of exploiting Africa’s natural resources

Reality check

India isn’t really doing any better than China
It exports 67% consumer goods, 2% raw materials
Imports are mostly raw materials – salt, ores, oil, metals

First world trends: Financial inclusion, the unbanked, and the prepaid business model

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The Economist explains just how expensive banking can be for the lower income population, even in the United States. Financial inclusion for the unbanked and underbanked must include cost/benefit analysis based on the limitations of income streams of those whom they hope to serve. The cost of ownership is often overlooked in current day literature, which tends to focus on access to formal financial services, whether digital or otherwise. As the data clearly shows, value for money is a critical part of access, and a deciding factor in the choice to remain unbanked.

Life is expensive for America’s poor, with financial services the primary culprit, something that also afflicts migrants sending money home (see article). Mr Martin at least has a bank account. Some 8% of American households—and nearly one in three whose income is less than $15,000 a year—do not (see chart). More than half of this group say banking is too expensive for them. Many cannot maintain the minimum balance necessary to avoid monthly fees; for others, the risk of being walloped with unexpected fees looms too large.

Increasing popularity of prepaid business models

The GSMA expects the North American prepaid market to grow to 31% by 2020 and its hovering around 29% at this time. This is just over double the proportion of prepaid vs postpaid subscribers in the past 5 years.

In fact, US telcos like Sprint have recently announced their intent to drop the 2 year contract business model, offering smartphones on lease just like competitors Verizon and T-Mobile. And phone maker Apple has gone as far as to offer their own rent to own program, one which resembles SUV leasing arrangments with a new model every year.

Screenshot-2015-09-10-10.02.44-600x283This is an interesting trend as it points to the reluctance of consumers to commit to 2 years of unexpected bills at the end of the month, preferring the certainty that prepaid offers over your spending. Concurrently, there’s been a noticeable rise in prepaid credit cards and other similar facilities.

As of 2012, roughly 12 million Americans used a prepaid card at least once a month and we collectively loaded $65 billion to them – double the amount loaded just three years prior. That figure is expected to rise to $337.8 billion by 2017, according to Mercator Advisory Group – an increase of 420%.

The prepaid business model empowers customers by putting control over timing – frequency & periodicity, as well as amounts spent, in their hands. Flexibility to manage one’s expenses, against incomes, is another aspect that’s attractive about this business model. Companies love it too as cash flows accrue in advance, minimizing the risks of defaults.

Consumer income streams are changing in America

Do these trends reflect the changing patterns of cash flow among consumers, as indicated by the rise of such revenue generators as Uber, AirBnB and others of their ilk?

Irregular and unpredictable income streams are part and parcel of the independent worker, regardless of label, as they are not guaranteed a known amount in the form of a salary arriving on a predictable calender schedule.

This app offering to help you manage uncertainty seems to imply so.

Introducing The Global Prepaid Economy

This week, that venerable newspaper The Financial Times, published an original piece of writing on the World Economic Forum’s Agenda blog. Its not a reprint from their own publication. It proposes the end of “Emerging Markets” (EM) as we know them:

Now, commentators say, it is the world’s mental map that is in dire need of an overhaul, particularly when it comes to the practice of categorising countries as “emerging” or “developed” markets.

The current economic hierarchy, which places emerging nations at the periphery and developed markets at the core of world affairs, no longer accurately describes a world in which EM countries contribute a bigger share to global gross domestic product than their developed counterparts, when measured by purchasing power parity. Nor does the capacious category, which lumps together countries of such diverse economic strengths as China and the Czech Republic, serve to illuminate crucially different realities between these nations.

“The EM term has outgrown its usefulness,” says Michael Power, strategist at Investec, a fund management company. “The term today embraces big and small, developed and under-developed, industrialised and agrarian, manufacturing and commodity-based, rich and poor, deficit runners and surplus runners, and I could go on,” he adds. At issue are not merely the niceties of symmetry and order.

As someone who has been looking at emerging markets, one way or another, for the past 10 years, both in my writing as well as in my work, this comes as a welcome relief. These markets can’t still be emerging, I thought, when I was in New Delhi at the beginning of June this year.

Yet, in some ways, we need the conceptual means to capture their dynamic potential, as they’re still in motion. As the article concludes:

These contradictions threaten to consign the term emerging markets to the dustbin. But if it follows the likes of “third world” into virtual extinction, its passage will raise the question of what, if anything, should replace it.

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The Global Prepaid Economy. (Data: GSMA Intelligence)

In November 1996, Vodacom South Africa was the first network in the world to introduce prepaid airtime on an Intelligent Network platform, which made it possible to debit customers’ accounts while they were speaking. Two years later, they went on to win the Global Mobile Award for the “Best GSM Service” for the VodaGo prepay system. Less than twenty years later, prepaid airtime is the dominant business model across the entire planet.

And, interestingly, if you look at the map above, the economies where the prepaid business model dominates are more or less those which were formerly known as emerging markets, frontier markets, developing countries and/or the majority of the erstwhile third world.

2014 prepaid data gsmaAcross emerging markets and developing countries, the preference for prepaid mobile services cuts across income range, socio-economic class or type of employment. Choosing to pay as you use seems to have little or nothing to do with regular paychecks, bank accounts, credit cards or age.  So vast is it that one can consider it an economic characteristic in its own right.

The global Prepaid Economy.

What do all the regions where the prepaid business model dominates have in common?

  • Cash intensive
  • Informal sector employs more than the formal
  • Still developing
  • More volatile
  • Higher uncertainty
  • Less social safety nets
  • Faster growth

What does the prepaid business model do for the customer?

It empowers them. Control over how much to spend (the amount), and its timing (the frequency and periodicity of purchases) is in the hands of the end user, the mobile subscriber. There’s no bill at the end of the month, to be paid by a deadline, for an as yet unknown amount. That is, there are no surprises.

Why does this matter?

In cash intensive operating environments, where expenses must be managed within the constraints of cash available on hand, the prepaid model offers manageable access to voice, text and data. Where the informal sector might be the source of employment for a greater majority of the population, uncertainty is a defining characteristic as incomes may be irregular, unpredictable and/or seasonal. That is, there is a greater degree of volatility to be managed. And, where there are fewer social safety nets to rely on, surprises in the form of a bill at the end of the month might make the difference between going hungry to bed or putting meat on the table.

In this series of articles, I’ll be taking a look at the nature of the prepaid economy and characteristics common across many geographies. Next part will look at the relationship between Time and Money.

A design challenge for agric service innovation in rural Africa

Find a way to embed principles of sustainable good agriculture for the smallscale farmer in a socio-economically beneficial way.

drawing credit: herman weeda

drawing credit: herman weeda

How would we do this?

Where do we begin?

The answers to these questions and more will be forthcoming on this blog. I reach out and encourage you all to consider submitting your thoughts and opinions between 1000 to 1500 words in length. We will combine the thoughts of many voices together in this blog stream so you really should consider subscribing to the RSS feed.

Part 3: Synthesis and Insights from original research on rural economic behaviour

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One can conclude from synthesizing the data collected across the geographies and the range of “BoP” income levels that rural households demonstrated similar patterns of behaviour in their management of household expenses on irregular income streams. These are:

  • the rapid conversion of cash into tangible assets such as goods or livestock,
  • the  subsequent storage of wealth in this form,
  • the ability to conduct cashless transactions by mechanisms both simple and sophisticated
  • shared or cooperative financial tools such as investments, loans, purchases and savings
  • the use of multiple resources allocated by cost and usage
  • knowledge and experience of seasonal ebb and flow influencing cash flow management

The irregularity of cash flow or income over time in the households studied can be said to be a combination of the known – such as the ebb and flow of income over the course of the year, either directly due to the natural seasons or due to other unnatural but predictable factors such as Christmas or vacations; and the unknown –  either the truly unpredictable such as a natural disaster or the simply random, such as not knowing how many customers will make a purchase on any given day.

The known component or the “reasonably predictable through experience”, is less a matter of the actual amount of income earned and more about knowing when to expect peaks and lows in cash flow. This element of seasonality would be a critical component of knowledge pertaining to a particular region or market for BoP ventures seeking to create value through successful introductions of products or services.

For example, in the rural region of The Philippines, January to approximately April or May (or until the rains begin) is considered the annual “summer” or “dry” season – unless a farm is very lucky to have access to sufficient water for rice growing regardless of rain, the farmers can only start planting when the rains arrive and are dependent on it for their second harvest as well. So overall, whether its tiny sari-sari1 stores supplying everyday essentials, snacks and cold drinks or some other business – even those selling necessities like food, all consider this a lean period.

Those who earn daily wages  helping farmers plant the rice have little work, farmers live on their stockpiled rice, everyone tends to spend less but along with the rains all of this changes and the pattern of spending increases until the annual Christmas peak. For some, wholly dependent on what they can earn locally (receiving no remittances from relatives abroad) this can mean a difference of 100% in their weekly earnings between the “wet” and the “dry” season.

The Indians and the Malawians were influenced in similar ways, only the actual timings varied due to geography. Whatever the reasons in any particular region, when evaluating the purchasing power of those who manage with irregular and unpredictable income, the first question to ask is if there are any known patterns of ebb and flow in their cash flow.

It is the unknown component that creates the unpredictable volatility that those on irregular income streams must deal with in order to manage their household expenses with any degree of control. The behaviours observed listed above, taken together, can be summarized to state that each household managed what could be called a “portfolio of investments” that acted as deposits maturing over time.

They either maintained multiple sources of income simultaneously since available cash was often converted into these investments, spreading the risk of any one source failing when needed or stored their wealth accordingly.  Maximizing available resources based on their cost and intended usage along with the tendency towards minimizing the need for cash based transactions all worked together  to smoothen the volatility of the household‘s income.

For example, one family in Malawi reared pigs for sales (or food in emergencies), grew vegetables and maize for their own needs, distilled wine from sugar cane for cash sales and also kept bees with a cooperative for annual harvest of honey. Cash was thus available in varying amounts from a variety of sources at different points of time.

In the Philippines, an extended household living together in one compound pooled their resources from a kitchen garden, stored fuel in the form of bamboo and dried coconut husk, kept chickens and occasionally a pig, as well managed on the small amounts of cash earned daily through running at small sari-sari store on the premises.

While in the Indian village, even the silversmith who made ornaments only during the harvest peak, used his metalworking skills and workshop the rest of the year to make doors, windows and grillwork.

This portfolio management approach to household expenses* implies the manipulation of their span of control over elements of time such as periodicity and frequency as well as currency, i.e. cash or goods, in order to decrease the volatility of their cash flow, improve their ability to plan and while decreasing the variance between expenses and income.

Across the board, the particular characteristic that most stood out during conversations with the rural populace in India and The Philippines, echoing  prior experience in the field elsewhere, was their undeniable pride in their degree of self reliance, and thus, their level of independence from the formal or cash based economy.

Over and over, people would proudly point to assets like firewood, livestock, kitchen gardens etc and emphasize that these resources were ‘free’ and didn’t need to be purchased for cash, often in the same breath pointing out how everything needed to be bought if you lived in the city. Whether it was a nanny goat kept just to provide the daily cup of milk for morning tea or an extra sack of rice held back from the harvest sales, there was a distinct sense of achievement for every penny that didn’t have to be spent.

This trait of minimizing the need for actual cash money also cropped up in other patterns of behaviour including the storage of wealth in the form of ‘kind’ or ‘goods’ (that could be liquidated when and if required); cashless transactions within the community, from the simple to the sophisticated; and the rapid conversion of surplus cash into goods or ‘kind’ (livestock, for example, as investment or planned savings in the form of silver or bricks for a future house).

Expensive resources that required cash outlays such as fuel – diesel for irrigation pumps; liquid petroleum gas cylinders for cooking; or airtime minutes purchased on prepaid plans for the ubiquitous mobile phone, would be stretched out for as long as possible before the need for replenishment. For example, a common behaviour was the choice of cheaper or ’free’ fuel such as firewood or dried cow dung for cooking food which took a long time to cook such as beans or stews, saving the use of the more expensive gas stove for fast cooking items.

All of these behaviours, taken together, imply a challenge for businesses seeking to serve rural populations effectively since their relative lack of liquidity places them in a challenging position as future customers. Conventional business development methods include the use of market research to evaluate the disposable income or purchasing power of the target audience. When considering rural BoP households, these tools may not supply any meaningful data, skewing the perceived income levels or earnings of those studied.

In sum, it can be concluded that the challenges for value creation can be quite different for BoP ventures interested in addressing the rural markets. From the observations made in the field, we can highlight three key implications for business development. These are:

1. Seasonality – with the exception of the salaried, everyone else in the sample pool was able to identify times of abundance and scarcity over the course of natural year in their earnings. Identification of a particular region or market’s local pattern of seasonality would benefit the design of payment schedules, timing of entry or new product and service launch, for example.

2. Relative lack of liquidity – The majority of the rural households observed tended to ‘store wealth’ in the form of goods, livestock or natural resources, relying on a variety of cashless transactions within the community for a number of needs. Conventional business development strategies need to be reformulated to take this into account as these patterns of behaviour may reflect the household’s purchasing power or income level inaccurately.

3. Increasing the customer’s span of control over the timing, frequency and amount of cash required – Since the availability and amount of cash cannot be predicted on calendar time, this implication is best reflected by the success of the prepaid mobile phone subscriptions in these same markets. When some cash is available, it can be used to purchase airtime minutes for text or voice calls, when there is no money, the phone can still receive incoming calls. Models which impose an external schedule of  periodicity, frequency and amount of cash required may not always be successful in matching the volatile cash flow particular to each household’s sources of income.

Conclusion

Broadly speaking, there was evidence of far more sophisticated cash flow management than has either been expected or assumed among the rural BoP households in the sample pool. In fact, one future task would be to parse out whether the terms ‘irregular’ or ‘unpredictable’ can be be applied. Certainly, income was not as predictable and regular as a salary, but on the other hand, neither were they totally random and unknown. At this point, it seems far more accurate to say that the rural BoP households do not manage their expenses on a “fixed amount arriving on a known day or date”.

Also to be reconsidered is whether those in the rural communities in developing countries should simply be lumped together with their urban brethren as an undifferentiated mass called “the BoP” or “the poor” – for one, living on $2 a day has an entirely different meaning where much of the hyper local economy may not even be based on cash transactions, or else, few daily requirements need to be purchased.

If we’re to seriously evaluate business development for BoP ventures, then a far more nuanced understanding of local culture, buyer behaviour and segmentation of these emerging consumer markets is required.

* Given the similiarities in findings, it should be noted that these insights emerged from a workshop conducted in Helsinki, Finland in April 2009, prior to the release of the now famous book, Portfolios of the Poor.

Why prepaid business models work so well for the rural and informal economy

We broke down the basic concept of the ‘pay as you go’ or prepaid mobile plan – in general, discounting the details of the various different strategies and pricing/time plans of different countries as a way to begin understanding what is it about this model that makes it work at the BoP.

Could we somehow find a general principle that could then be applied elsewhere, seeing as how successful this model has been amongst the lower income markets?

Fundamentally, all prepaid plans had one lumpsum upfront amount for the starter pack/activation and thereafter could be kept ‘alive’ by a minimum additional recharge or top up accordingly.

That is, this payment plan is flexible – it allows you to decide how much you wish to pay and when, though the absolute minimum frequency does depend on the provider’s rules and this decision making thus puts you in control of how much you spend and when; based on your incoming cash flow and current priorities for your discretionary spending.

Just for comparison’s sake, a mobile phone subscriber on a post paid model would have to pay the amount on the monthly bill by a certain date in order not to fall behind or incur penalties. That is, there is little flexibility (other than making actual changes to which plan you’re on) and the control of when to pay, how much to pay and the frequency of the billing is all in the hands  of the service provider. The user (customer) has little control over time and money.

Now, bringing it back to our findings from the workshop on the financial planning behaviour observed among those at the BoP where we see that it is their ability to control the elements of time – periodicity & frequency; money – cash or goods and also social capital or in this context “trust” that in fact allows them to increase their ability to plan their ‘cash flow’ and ‘working capital’ across their multiple sources of income and resource allocation, thus decreasing the variance between their income and expenditure.

We can already see the fundamental reason why, then, the pay as you go model has been successful for those at the BoP, it is one of the very few that essentially puts control over time and money in the hands of the user (customer) rather than the provider (business). One could, at this point, say that the element of trust or social capital is also involved – just as Ram Babu’s neighbour who loaned him Rs 1300 was willing to let him pay it back in small sums from the money he earned daily from his wheat mill until the total was paid off, the prepaid model does not impose fixed amounts and payment schedules on the user. The transactions occur at the customer’s discretion.