Posts Tagged ‘telco’

Lessons for Formal Finance from Informal financial services


On one of my many field explorations on rural financial services,  I found out, that for one mama biashara, as soon as payment checks in, she withdraws all her funds from her local coffee SACCO account, and spreads it out via micro-deposits across her more than 5 local informal savings groups (from right to left on diagram).


Choice of Informal Formal financial services – continuum


A report conducted across East Africa using data from [Finaccess, Fin survey – ’09,’12,’13] Kenya, Uganda, Tanzania, Burundi and Rwanda, found that on average, 60% of survey participants saved with informal groups and places – ASCAs, ROSCA, SECRET place


“Determinants of Household Savings Mobilization across EAC Countries: An Exploratory Analysis.”


Even M-Shwari – “a new [mobile] banking platform that enables customers to save, earn interest, and access small amounts of credit instantly via their mobile phones”, on paper an ideal tool for banking the unbanked, faces the same challenge as per CGAP’s How M-Shwari Works: The Story So Far Report (pdf).

“The main competition to M-Shwari as a place to deposit and store money temporarily comes from informal savings groups and banks”

There is mounting evidence of widespread use of informal and semi-formal financial services, despite efforts to shift to digital financial services (DFS). While in formal circles they may be perceived as ‘a risky place to borrow/put your money’, based on evidence, there is an allure that does not readily lend itself to be seen. Often, what is lost in countless narratives, is the fact that before banks (B.B.), people weren’t necessarily unbanked per se. As creative social beings, they devised ways to meet typical banking functions  eg credit, saving, credit rating etc Not devoid of shortcomings, but filled a role all the same.

How, do they [informal financial services] compete so well with formal finance with nil marketing budgets?


Consider Financial Historical Data

In the formal world of finance, any unrecorded financial history before Banks or Telcos proprietary mobile phone spending history is non-existent. Mobile phone history instead, is preferred as a surrogate for credit history. In turn, the bank provider

“partners with Safaricom (telcos) to use one’s mobile phone usage data and Mpesa transaction data as a credit score for how much in instant loans you qualify for”

Here, there is a rather obvious disconnect. For starters, majority of transactions in rural and informal economies (where the poor, unbanked and underbanked likely found) occur in cash – forms of savings, micro-loans and micro-transactions! Secondly, rich peer to peer (P2P), business to consumer (B2C) and business to business (B2B) credit exchanges, occur frequently in this domain, based on social ties, trust and familiarity in rural and informal economy transactions. Both inherently valuable credit histories.

Yet, all these financial exchanges that take place in these groups and the informal cash intensive economy are not considered as valid credit history.  If we consider mama biashara’s alternatives (as per my formal -informal continuum diagram above), for emergencies, she is likely to turn to her informal devices for plugging her short term credit needs – P2P credit, B2B credit, Business Self Help group etc than say a bank. As a function of trust therefore, these informal devices, rank favorably in her implicit trust continuum scale seen here.


Trust Continuum – informal and formal financial services


Takeaways from Informal

If by their own admission, telcos and banks admit informal savings groups are their biggest competitors, shouldn’t the first step be to understand the competition ?

by Damien Newman

Cash intensive rural and informal domains are a rich data mine semblance of spaghetti balls, unlike digital data that lends itself to direct measurement. The nature of this data is more qualitative – the kind collected from exploratory research, people, immersion, observing behavior, cues picked up from dialogues, and time spent interacting in environments. While we focus on readily measurable metrics, we are missing out on an even bigger source.



ASCA –        Accumulating Savings and Credit Associations
ROSCA –     Rotating Savings and Credit Association
SHG –          Self-help group of mamas with common business interest
Chama –      Informal cooperative society used to pool and invest savings
P2P credit –     peer to peer credit eg mama to mama
B2C credit –     business to consumer credit eg mama to her customers
B2B credit –     business to business credit eg a supplier to mama
MFI –          Micro Finance institution
SACCO –     Savings and Credit Cooperative

Connecting the Continent: Mobile Money across Africa

With much less fanfare than banking and accounts, a quieter revolution has been taking place on the electronic pathways connecting people in African regions. Historically competitive telcos are shaking hands and joining forces on mobile money. Interoperability has long been a dream and it is only now that we see things starting to take shape. Since the news has been dribbling out in bits and bobs over time, lets take a comprehensive look at the landscape of the operating environment and the connections being made across the continent.

social-media-listening-dashboard-5-638Safaricom, the progenitors of MPesa, the grandfather of all mobile money payment systems, isn’t actually a major telco on the continent. Its monopoly on mobile services is only in Kenya. However, when it comes to active mobile money users, its in the lead.


This is the current state of the art of mobile money across the continent


And here are some of the connections being made, with the most recent, first.

CDV_KdpWIAAiT23.jpg large

crossborderremitEACYou’ll note the significant leap that MPesa has made by going beyond its original agreement with Tanzania’s Vodacom – a Vodafone group company – by joining hands with MTN. Using the same colour coding for the graphic below, we see the flows in West Africa:

crossborderremitWaemuIn addition to these mapped intra African operator alliances, here are a few intra-operator mobile money alliances to note:

  • Three of Tanzania’s four mobile networks, Tigo, Airtel and Zantel  announced Africa’s first agreement to allow their customers in the country to send money to each other whether using Tigo Pesa, Airtel Money or EzyPesa on their mobile handsets.
  • M-Pesa Tanzania and Tigo Pesa Tanzania interoperable
  • Airtel subscribers could also begin cross border remittances of money on its platform sending and receiving money amongst other users in Rwanda, Democratic Republic of Congo (DRC) and Zambia.
  • The other countries that will be offering the Airtel Money service soon include Uganda, Kenya, Tanzania, Ghana, Burkina Faso, Niger, Nigeria.

That last is interesting, because the Zambians are asking the $64,000 question even as all eyes are on the media hoopla.

Our concern is that the other 2 countries, DRC and Rwanda, are not exactly the first options for trade by Zambia, but are some of the markets Airtel is in. If countries like Nigeria and Tanzania were the first to get access, we’d see so many transfers from here.

For now, we predict the transfers made will be more personal, to family/friends, than for trade purposes. If not, we would gladly appreciate any statistics on this from Airtel itself.

I don’t think the telcoms are even thinking about trade. The GSMA cross border report focuses on the remittance aspect, with the broadly unquestioned assumption that its all to family and friends.

Mapping it all

I’d love it if someone could capture all of this into one map and infographic – not only the cross border transactional ability but also the cross border interoperability as well as in country interoperability. Like the Zambians, I think the potentials for business, trade, e-commerce and biashara are far more than anyone has even considered. Top down reportage on banking and interoperability seems to focus only on the customer’s individual needs, and overlooks their agency as entrepreneurs, traders and business people.

The Telco and the BoP (January 2009)

Taken in Raawal village, Rajasthan by Goverdhan Meena, Dec 31st 2008’s Rob Katz recently posted an Indian news snippet based on research that led the writer to argue that telco’s should focus on their most profitable customers, those at the top of the pyramid. The BoP (Bottom of the Pyramid), as the numbers demonstrate, are simply not worth it. Following some commentary, Rob added his thoughts on why telco’s should overlook these facts and in fact, find ways to emphasize their services for those at the bottom of the social and economic pyramid.

Now, its my turn to add my 5 rupees worth to this debate, luckily, at this point of time, I’m not on a project for any telco as used to be the case in 2008. First, lets put the visual of the data results here, then I’ll proceed with thoughts that have simmered and have been bitten back for quite some time now.* I’ve also had the pleasurable interlude of chatting about mobile phones with numerous people in rural and urban India, particularly those who would be considered BoP, returning just a couple of weeks ago.

What inspired this ramble were Rob’s closing lines,

The debate is ongoing, and there’s no clear winner.  What is clear, however, is that this is not a simple analysis.

Imho, the basic issue is not even a matter of analysis, simple or not, but instead, that of perspective.

The analysis itself is simple, follow the rules of the book, look at the colourful numbers above and simply apply the fundamental principle of Pareto – focus on the 9% that bring you 45% of your profits. No brainer, right?  Then why are we even having this argument? Forget serving the next billion, or 4 billion or even every human being on this planet who isn’t profitable, including your three year old.

But telcos everywhere still persevere. The roads to Ranthambhore are papered over with bright red Vodafone signage. Ironically there’s no coverage outside the district capital and only BSNL or Airtel seem to work depending on the village. So why are the telcos all looking at this market? And not just telcos, why are Google and Microsoft in addition to Vodafone and Nokia, all turning to look at the BoP, unprofitable though it maybe?

Its because somebody somewhere, in fact, a lot of somebodies in a lot of somewheres, all have that niggly little feeling in their gut that if only they could crack the code, there’s gold in them thar hills. Or at least, profits. Lets start with some challenges telcos face when addressing the problem of the “unprofitable” BoP subscriber:

Internal mindset – business school programming

The Institute of Design taught me one of the most powerful lessons in design – aka problem solving – if you can frame the problem correctly, then half the solution is right there. The uppermost problem on every telco employee’s agenda is that of dropping ARPU rates. As in, “OMG, we’re adding the population of Sweden every month to our mobile subscriber base but our Average Revenue Per User continues to drop.”  Duh, yeah.

Of course ARPU will drop. You’re expanding your subscriber base lower and lower down the income stream who will be, most logically, spending less and less on your services. Growth, in this case, is simply adding to the denominator in your own mathematical formula. Perhaps the metric of success when expanding into BoP markets cannot be the same as that held for your ‘richer’ markets?

The BoP are a funny thing. In one sense, they are a numbers game – there’s billions of them – but in another, they aren’t. They will NOT spend in the same way that your wealthier, professionally employed, high tech gadgeteering, mobile data surfing geeky segments are likely to do. Case in point, those 9% up there who are oh so profitable to their respective service providers.

However, the BoP will spend – but only, and this is crucial, only if they perceive the value of what they are spending for, more so when it starts to go beyond the essentials (in the case of the mobile, that’s basic maintenance of their SIM card validity and enough for an emergency call or two). Services and applications for the BoP need to demonstrate simply and clearly the answer to the question “Why should I spend good money on this?”

But before we go into what the BoP needs and why and how they make the decision to spend their hard earned cash, lets take a look at why the telcos haven’t been able to crack this problem with that holy grail, the “BoP killer app” ? (except mPesa, so perhaps that’s a lesson there in itself, eh?)

Big companies like telcos are staffed with MBAs and every decision to spend money on developing a new product (service, application, you name it) must be justified up chains of command and control with shiny numbers, excel spreadsheets, estimates of target audience, demographics and one of the biggest killers for the development of valid BoP services – the concept of “disposable” income. Those at the BoP will find the money for some expense or purchase if its deemed necessary to their wellbeing, survival or future but no penny they have is disposable.

And if you begin the design process by starting with the segment of the BoP who have the disposable income for your product rather than starting with a clear value proposition and an understanding of your target market’s mindset, what are the chances you are going to end up with a dud product that nobody wants to buy?

Pareto’s killer principle

Pareto’s principle applies globally as well and for those telcos whose footprints span the globe, its not just the top and bottom of the same pyramid, but the difference between what’s being spent by their wealthier subscribers in hard currency zones versus their returns from the developing world. Because of those numbers, in that chart, the ones that clearly demonstrate its not worth the effort to invest in developing relevant, affordable or appropriate services for the BoP on the mobile platform, you know, the stuff they’d actually want to shell out good money for, the BoP usually end up with crap that’s irrelevant and useless. For the logic goes, lets develop something for our subscribers in X, Y, or Z OECD nation and simply adapt it for our emerging markets, yeah?

So users in Berlin get scrutinized for ideas that will conceivably make pots of money in Calcutta and CapeTown. Forget Raawal village or Soweto or the outskirts of Kisumu. Naturally, one assumes, that since a phone is a phone is a phone, what Herr Schmidt likes to download and spend money on is the same as Goverdhan Meena. They just speak a different language and perhaps, Mr Meena earns a lot less. Sigh.

Otoh, if you were to actually look at the culture and context of your emerging markets, or in the case of India, the subject of the original post, the difference in needs and spending habits of the surfing urban 9% and the aspiring rural farmer’s son or migrant worker and then developed some services and solutions that made sense to him, do you think he might not want to buy it?

The irony is that this is not unknown or rare knowledge – that there’s a gulf between the urban and rural, the ToP and the BoP or the West and the East – but it seems to me that when it boils down to it, the telco chappies still seem to think that one size will not only fit all but there’s no cognitive dissonance in the exercise either. Top down concept design and development will only go so far – that is, to the limits of those who are part of mainstream consumer culture, who seek entertainment and iPhones (well described as a phone for those who wish to consume rather than produce). LirneAsia’s research on mobile usage at the BoP had led Dr Rohan Samarajiva to proclaim that for the BoP it would be models based on production – save them time or make them money – that would work, not models based on consumption – no matter how attractive the game, your average member of the BoP would think twice about downloading entertainment.

In fact, let me digress into a story here, when I was talking to Sanjay (a factory worker) about downloading stuff onto mobiles he said that he preferred “nokia dot com” (as he called it)- he said that when wanted to download something – a ringtone, a wallpaper, whatever – he preferred Nokia because before download they told you how much it would cost to do it and then you could take the decision to spend but Airtel and Hutch et al simply download and only later you found out you’d spent Rs 20 on something you didn’t think was worth it. Case in point, your customer feels screwed. Brand loyalty is rarely built by advertising alone and the BoP are far more cynical than your average mainstream consumer. He doesn’t have that spare Rs 20 for experimenting, every penny counts.

Finally, the bottomline

That’s the biggest problem innit? The bottomline aka profits? Although I must admit that because this entire rant was triggered by an Indian analysis, I would like to take this moment to point out that there’s still little or no comprehension in India of the need to do something for the BoP, that business can still be run on the metrics of profitability alone and the next billion will either somehow manage or its the government’s job to provide.Its an attitude problem, not an analytical one.

I came back from India thinking that innovative new services on the mobile platform would not emerge or bubble up indigenously, but ironically were far more likely to diffuse from sub Saharan Africa. There’s simply no focus on the needs of the BoP there, although data now begins to show that states that have significant mobile penetration are doing far better than states where mobiles have yet to reach the lower income strata. Not to mention all the studies done on the impact of mobile phones on the GDP of developing nations. No, your average Indian techie is too busy chasing the iPhone crowd to even imagine that his driver’s mother back home in the village might want a service on her mobile. Let them eat cake.

Global multinationals are certainly focusing on the BoP markets, as Rob has pointed out in his second post, but they too stumble along using outdated methods and assumptions when attempting to design something for this new and critically, unknown, market. If Nokia can launch English language lessons in China – just think of the market for that – why do the rest of the device manufacturers cling tightly to the idea that they’re just device manufacturers? Its ironic to think that the kind of brand power Nokia has among the BoP will allow them to someday overtake the telcos in “ARPU”.

And if mPesa can capture the attention of the world, then what’s stopping the Indians telcos? Will it take their ad agency to inspire them to do something or will continue to rely on outdated lessons of how to address a new market from business school teachings or big name management consultancies who have yet to catch up with today’s global economic reality?

What will happen though if the telcos continue to think this way is that they’ll be simply overtaken by the hackers themselves. The bottom line is about enhancing people’s lives now not profitability alone.No excel spreadsheet will show you that nor Pareto’s principle apply, to be honest, we’re talking about too many billion people who cannot be ignored for emphasis to continue to the 20% who consume the most resources. Refresh your assumptions, open your eyes, look at the big picture. The future is staring right at you, its all about give and take. Help them and they’ll help you. The BoP are people too.

Update May 19th 2010: Has anything changed in the past 16 months? And if so, what and how?