Last mile of achieving cashless

Last weekend I was walking around Kallio district in Helsinki, when I saw these handwritten signs informing passers-by that mobile payments were accepted here. It was an unstructured neighbourhood flea market where people put their own unwanted stuff out for sale. This is the last mile of cashless transactions in Finland.

This recent news article informs us 9 out of 10 transactions are already cashless but nobody expects cash to become obsolete anytime soon.

…leading daily Helsingin Sanomat runs a long feature story on the dwindling use of cash for payments in Finland. Recent statistics show that less than one-fifth of Finns use mostly cash to pay for their daily shopping. Among 20 to 34 year olds, that percentage falls to one-tenth.

Even traditionally cash-heavy domains like flea markets and yard sales are making the switch. Many of the young entrepreneurs at May’s Restaurant Day, for example, used the Mobile Pay application or an iZettle payment terminal to handle their transactions.

Uber’s problems with women’s safety in India – my 2 rupees worth

In its mindless rush for scale, Uber leapt into the Indian market with their “hassle-free” service of hailing a car with a push of a button on your smartphone. I call this mindless because “will it scale” is an unquestioned imperative for a startup, not something that is thought through. Nobody asks should it scale, or, is this the right place to scale? Neither does anyone look at the compromises made, to the brand and to the customer experience, in this drive to scale. Thus, its no different from the mindless growth of an amoeba, responding to the instincts imprinted on its DNA.

I’m due to arrive in New Delhi next week. Would I use Uber? No. I’d rather walk across teh street to the Sardarji sitting in his tent at the local taxi rank and ask him for a car and a reliable driver. It could be for the day or for the week but I’ll insist on the same guy showing up, without extra company in the front seat, and register my home address and phone number with the taxi rank. For additional peace of mind, I’ll walk back across the road to the guardhouse at the entrance to our apartment complex and point out the taxi fellow responsible for driving me around.

In the neighbourhood where our apartment is located, we are recognized as original owners, not newbies, and the local taxi standwallah isn’t going to risk his future business and his reputation if there’s even a peep of complaint from me. The eyes of the community should be sufficient to keep the animal instincts of the average Delhi eve teaser under control. A little further down is the auto rickshaw stand, under the shade of a large tree where the chaiwallah makes his brew. More strangers come and wait here unlike the taxi stand, but one can still spot a regular or two. At least, that’s how it used to work back when I was taking a scooty to work every morning.

In neither case would I think of wandering around after dark, if I was alone in the vehicle.

Uber arrives.

Why do we hear of women taking these cars at night all by themselves?

Things might have changed in the last couple of years since the horrific news of the bus rape in New Delhi, what do I know? So I did a little digging to see if my premise on why Uber was enabling women to lower their barriers to conventional common sense in India.

“To the extent that the Uber brand name induces a sense of security and this is used as a business strategy, a proper legal regime should allow the Indian woman’s strategy to succeed,” source

Because it needs a smartphone, knowledge of English, and an internet connection, is there an implied raising of standards of who’ll show up at your doorstep? Implicit here is that education and data plans imply greater security?

On the other hand, this knowledge hasn’t helped this lady in Chennai whose Uber driver kept trying to ‘cancel trip’ in the middle of a secluded location.

The internet’s explosive growth in India, coupled with smartphones, mobile wallets and e-commerce, seems to have lowered the barriers to services such as these, which probably leads to a greater acceptance of an app driven service along with the perception that it’s somehow “safer” than hailing a regular taxi on the roadside.

Yet, the very same internet has always provided trolls with the anonymity and impunity with which to harass and abuse women without consequence. This element of the web seems also to have now transferred itself onto the app driven sharing economy.

SOS buttons in a context where the police aren’t likely to jump in their vehicles and race over to save you, nor can they be trusted not to molest you, is a technological solution meant for the VCs back home.

Taking a taxi ride is not the same thing as purchasing a book or making a restaurant reservation. Can you scale trust and local context as instantly as you do an app?

‘Mpesa si pesa’ – mobile money’s collision with informal sector’s cash culture

Ever since mobile money (MM) came along, ‘cashless’ is all the rage in East Africa. Money experts have a sack-full of reasons why mobile money is good for the economy. The truth is, however, making a case for MM is easy – no doubt, but, one perspective that is often left out in almost all the headlines is how people interact with it (MM). In particular, those living or working in rural/peri-urban “informal sector” micro-economies – matatu drivers, Mama mboga, boda boda guys.

Karantina, Kenya [Photo Credit: Niti Bhan]

This segment is important for several reasons

It makes up 55 per cent of Sub-Saharan Africa’s GDP and 80 per cent of the labour force according to Afdb’s Recognizing Africa’s Informal Sector
Sub Saharan markets are mostly dual economies – a mix of formal and informal markets
90% of all transactions in informal markets are conducted in cash money.
The unbanked and underbanked are more likely to be found here

Valuable insights, unlikely to come up in the comfort of an office, have sprung out of my regular interactions with this segment.

Listening to the people

Consider Gichage for instance, a fruit vendor in Nairobi who says

“Mpesa si pesa” swahili for ‘Mpesa is NOT money’,

right after I ask to pay for my 3 mangoes via mobile money. Or, the same look I get whenever I ask to make low value payments for boda boda flights or lunch at mama mboga’s (less than 200 KES/ $ 3).

“Hauna cash?” – Don’t you have cash?

“Utatuma na ya kutoa?” – Will you send with additional fees to cover withdrawal charges?

Almost always, a quick withdrawal into cash at the local MM agent (at a cost of time and money) becomes necessary to settle my bills. The rest of the time, I oblige and pay dearly to have them accept my money.

Gleaning insights from the ground

Here, it seems I am a foreigner because, unlike the fancy malls where I pay with card/cash/mobile money – cash (and social capital) are the norm. What’s more, it is not just within this interaction space, but on the fringes as well where, the infomal crosses path with formal and semi-formal sectors & actors. My electronic money – MM and debit cards – is no good here – arguably, “si pesa”

http://ethnographymatters.net/blog/2014/02/20/a-shift-in-the-business-environment-that-ethnographers-cant-ignore/

Are attempts at replacing cash with digital money, deep down, really about taking on ecosystems? – systems comprising of actors who interact and transact mostly in cash, social capital based debt instruments, community currencies or what have you.

If it is anything like the image above, where cash relationships are a complex web of bubble collisions, then, replacing cash is a greater challenge than we think.

This post is a guest blog by Michael Kimani (@pesa_africa) founder of the African Digital Currency Association

Estimating price in unexplored and untapped markets

In addition to estimating the size and value of the Kenyan cyber cafe industry for our client, Village Telco of Cape Town, South Africa, we were tasked with finding out what would people pay for their product, the Mesh Potato. This challenge was the equivalent of walking up to someone and asking:

How much would you pay for this thing you’ve never heard of and you’re not sure what it does?

We discovered it was through the long rambling conversations we were having with our selected cyber cafe owner operators that we were able to get to this point of being able ask such a question. The conversations allowed us a peek into the way they thought about investing in new technology, and in many ways, reflected back to us the basics of the “BoP” consumer mindset that had already been identified previously. For example:

Maximizing ROI (return on investment)

When asked what he’d pay for a Mesh Potato, our friend Moses responded with a question, “It depends, how much money will it make for me?”

That is, as a business owner, his evaluation of the product’s price was intrinsically linked to its ability to generate an income stream. Maximizing the return on the investment is his primary criteria – whether it will save him money or a significant amount of time, and how soon will that possible are all the factors that go into the decision to purchase. His question also implicitly holds the corollary premise of Minimizing Risk.

So rarely was the price seen in isolation but instead it was considered in context of a variety of other factors. For business owners, their primary value driver was “Is this a source of increased income for me?”

Another factor was that of the need to question assumptions underlying traditional models for assessing pricing – from wikipedia’s entry on the underlying assumptions used in Van Westendorp’s model:

The assumption underlying the Price Sensitivity Meter (PSM) is that respondents are capable of envisioning a pricing landscape and that price is an intrinsic measure of value or utility. Participants in a PSM exercise are asked to identify price points at which they can infer a particular value to the product or service under study. PSM claims to capture the extent to which a product has an inherent value denoted by price.

What if price is not the intrinsic measure of value or utility but long term revenue generation potential is?

Until we are able to gather enough insights over the course of a number of such studies and come up with frameworks customized for a very different operating environment, it will only be through the willingness to question all our assumptions and adjusting our approach that we will be able to make reasonably accurate assessments for these untapped markets.

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.

The prepaid economy of Africa

As the chart shows, Africa’s mobile subscriptions are 96% prepaid or pay as you go. That is, they are not bound by contract to any mobile services provider. A reasonable number have more than one SIM, to take advantage of different operator offers.

This demographic cuts across all income, education and professional barriers, its literally the Prepaid Economy of Sub Sahara, when only 4% of the phone users sign up for an unknown monthly bill. Many of them are in South Africa, where having a monthly subscription to mobile services is an immense jump in status signalling.

When such a significant majority of the phone users in Africa choose to pay as they use voice and data, on demand and usually on a preset budget, it is a strong signal of the characteristics we would look for in order to understand the local cash economy. This could be primarily from the informal sector, if only because of the irregular and unpredictable income streams from a variety of sources over the course of the natural year are what everyone has in common.

This is reflected in the prevalence of a flexibile system that offers the end user the maximum control over how much (time – duration, periodicity, frequency) and how much money (airtime – money, voice, text, data) they allocate among their resource base, in order to minimize the variance between income flow and outgoing expenses, thus decreasing the volatility of their irregular incomes. Nobody was paying them a regular monthly salary, on which basis they could budget and plan with some accuracy of estimated amounts.

A sample of the rural population demographic was set 4 questions in rural India, rural Philippines and semi-rural Malawi.

Risk is dynamic, not static

Exhibition Panel – Samsui Woman, National Museum of Singapore, March 2013

And investor, bankers and venture capitalists imagine they are taking risks that deem high interest rates when operating in Sub Saharan Africa.

Come now, you do not gamble with your next meal, your risk is static.

What every micro entrepreneur, in the informal economy they’re still trying to grasp,* knows is that risk and rewards are dynamic over time. The best one can do is negotiate on time and money and the degree of wriggle room one allows, in order to minimize the volatility of the spikes. Its rarely the amounts that are the problem in cash flow management but the whole pipeline.

This is why ambitious craftsmen across Kenya prefer to save cash money (Savings of anywhere between 18 to 24% interest rates by formal banking industry) to fund their expansion plans, as they’ve noticed the uber frugal Asian traders do across the railway lines.

Would you be paying those rates for your home improvement loan?

* (92% of employment in India is from the informal sector including agriculture)

Minimizing risk: buyer behaviour among the BoP confirmed by Nielson

The South African Shopper Trends report by Nielson highlights some aspects of the township customer’s mindset and buyer behaviour, as demonstrated by the following snippet from this analysis:

How we make purchasing decisions
We make decisions based on what other people say, as well as how we experience a product. There is a major fear amongst consumers (especially in the township) of wasting money on a product that may fail on delivering – hence why 92% of consumers cite word of mouth as the best source for new product ideas. This results in very little initial experimentation, with consumers rather sticking to what they know and trust. For example, many people would rather walk for 20 minutes to buy airtime from Pep than buy immediately from a trader on the roadside. If there is a problem with the airtime, they know Pep will solve it, but the trader won’t – so there’s effectively too much of a risk to not buy from Pep.

Lack of willingness to take a risk on an unknown brand or service, minimizing the risk by the tried and true over something ostensibly ‘new and improved’. Proof of performance is critical as is getting the maximum value for their money i.e. the return on their investment. Reading these two articles linked reminds me so strongly of the purchasing patterns and buyer behaviour observed among BoP customers – the very first time in the townships of South Africa back in January of 2008, that I think I’m going to finally get around to sharing my Life is Hard presentation, and my accompanying talk to go along with the slideset.

Published! Pathways Out of Poverty by iBoPAsia Project

Innovating with the BoP in Southeast Asia.

The iBoP Asia Project has published the complete set of small grants funding innovation projects for those at the Bottom of the Pyramid in the ASEAN region. One of the first projects to win the Small Grants competition in 2008 was The Prepaid Economy Project: Understanding BoP household financial management.