The mobile revolution: A huge potential for inclusion, but how to get in their phones?
“5 years ago, almost no one had one” remembers Agosto, a shop owner in the rural village of Acarí. “Nowadays everyone has a smartphone, if not two!” Facebook and WhatsApp are the most used applications, next to good old phone calls.
Even in the most remote areas in rural Peru the smartphone has made its entrance. Smartphone sales in the country grew 27% annually in Q3 2017, according to Counterpoint, an industry analysis firm. This is mainly due to cheap Chinese technology, which made mobile technology available to the masses. Huawei is market leader with a market share of 18%. Moreover, mobile operators offer hefty subsidies on devices to retain or attract new subscribers, which adds to the spread of smartphone usage. 64% of rural Peru now has 3G or 4G coverage from the main telecom providers.
This impressive growth of mobile usage offers tremendous opportunities for inclusion of all sorts. It makes it easier to reach individuals living in hard-to-reach areas, or in areas so thinly populated that the business case for opening an office or point-of-sale was not viable. As for credit providers usage of mobile technology helps to overcome the two main challenges in serving rural clients: distance and asymmetric information. Challenge remain though: Often usage of smartphones remains limited to calls, WhatsApp and games, using a negligible part of the mobile potential.
Clients of Fondesurco, a credit cooperative operating in southern rural Peru, pay their dues and receive their credits at the nearest agency, in cash. Fondesurco has 23 agencies covering 368 ‘zonas alejadas’ or remote areas. These are areas more than 1 hour driving away from the agency it is served by. It is not only the distance as well as the difficult geography making these areas hard to reach. Three issues arise from this fact. First, there is a high operative cost for evaluating loans, collecting debt and promoting loans in these areas, increasing the interest rates of the loan. Second, the transaction cost of making repayments is high, amounting to up to 10% of the original monthly payment, depending on the area and size of the payment. This does not include lost productivity due to the time lost for traveling to the agency. Third, if the client uses a middleman to make repayments there is the risk of him stealing your money. And then there is the added risk of theft, since either way someone has make the trip carrying large amounts of cash.
The problem credit providers in this area must deal with is a problem of physical distance. However, if you consider the virtual distance the trip is a matter of milliseconds! If clients can make and receive payments with a mobile wallet, this lowers transaction costs and risk, and saves the client the time needed to travel to the agency. And it doesn’t stop with mobile payments; consulting your account and requesting a loan are activities that a (prospective) client could easily perform on his mobile phone. Instead of the client coming to the agency, the agency comes to the client. This requires a new way of thinking for traditional service providers.
paying your dues in Lomas
How to get into their phones?
The question for financial entities changes to ‘How do I get clients to my bank branches?’ to ‘How do I get into their phones?’. Mobile applications targeted to a rural population at the bottom of the pyramid (BoP) require characteristics specific to the target group. The main challenges are cultural. In Peru many people living in the rural area have never used an ATM. Hence the long lines in front of the bank office every morning. So, how to get your clients to use your mobile banking service?
1. Build smartphone applications, but don’t forget basic phone users.
Smartphones are on the rise but remain a lot more expensive than basic phones, which means not everyone can afford one. To create a truly inclusive service, use a communication method that is accessible through basic phones, such as USSD and SMS. However, given the fact that smartphone usage is massively increasing while basic phones are dying out, provide accessible smartphone applications. These are more user friendly for customers used to using applications, and the opportunity to offer a wider range of services.
The design of the service should be user-friendly and relate to the context of the user. A great barrier to usage is the perception that a service is ‘too difficult for me’. This means that every step in the process is logical and intuitive. The use of formal, technical language scares people off. Use simple, natural language instead. Although alphabetization rate in Peru is high, many rural workers are not used to reading a lot. In the case of an application use pictures and icons to help clients through the process and provide video manuals.
3. Gain and keep trust
One of the biggest challenges in providing digital financial services is convincing people that it is safe to use it. 84% of the financial transactions in Peru are in cash, while 95% of savings is kept in the form of cash. A 65-year-old farmer commented laughing: “If I go to the bank office at least I know who ripped me off!”. People want to feel, hear, smell their money rather than have some numbers on a screen. 17 million adults don’t use bank accounts and hence no credit- or debit cards. “If I’m going to pay with my phone, I’ll be bankrupt in a matter of time!” Joked one of the clients of Fondesurco. She explained that if she had confidence in her own skill to manage mobile payments she would use them. When offering a mobile financial service, make sure to win the trust of people and not to betray their confidence. Do so by complying to the highest security standards. Data breaches and security incidents are lethal for the reputation of the provider and the trust in digital services in general. Also, help your customers in making their first steps into mobile financial services. Boots on the ground remain indispensable to build trust and provide assistance.
“If I go to the bank, at least I know who ripped me off!”
- Viral Learning
In small communities the analyst can advise users how to use a mobile banking service. However, to get users at a large scale, this method is very expensive. The experience of Daviplata in spreading usage shows the power of virality to get users to adapt mobile services. They discovered that “Added value products” from telecom providers such as ringtones, screensavers, ‘joke of the day’ etc. were a booming business. People used virality to learn to download these products, teaching each other how to use it. The lesson is that the product should be so good that people are incentivized to use it and recommend it to friends, family and neighbours, optionally with some kind of reward involved.
- Learn from the experts
Financial service providers are an expert in what they do: Providing financial services However, as mentioned before the question is no longer how to get people to the bank, but how to get into their phones. Telecom providers are experts in this area, as it is their daily work. Develop an understanding of the techniques and processes. Learn from design choices made by the most successful applications such as Whatsapp.
- Let data work for you
One of the side-effects of digital payments is that people leave a data-trace that can be used to analyse payment behaviour. This combined with the ability to process big data allows credit providers to reduce credit risk and adjust risk modelling algorithms real time. Having a system in place to capture data in a structured manner and software to analyse it allow to improve the quality of products, individualize service and discover opportunities to serve your clients better.
Mobile payments were pioneered by M-pesa. Launched in Kenya by Vodafone and Safaricom in 2007. The most important feature is that the service does not rely on traditional payment infrastructure of banks or bank accounts. In 2017 M-pesa had 29.5 million active users in 10 countries, handling 529 transactions per second. In Latin America, this success was emulated in Colombia by Daviplata, a venture of Davivienda launched in 2011. The Colombian government distributes welfare payments through its platform, and customers can transfer money, pay public services and withdraw cash from Davivienda ATMs, even without a checkings- or savings account. In 2016, Daviplata had 3.2 million active users in 2017, of which 2 million without a bank account. In Peru the Billetería Móvil (BIM) or Mobile Wallet has been launched in 2016, a joint effort by banks, telecom providers and the government to promote digital payments.
Unlock the mobile potential
Smartphone offer tremendous opportunities to BoP customers since they lower transaction costs and mitigate the problem of distance. A lot of challenges remain. There are still parts of the world without access to a mobile network, which excludes them from using mobile services. There exists the danger of a digital divide, in which one part of the population without access or skills to use technology lags behind the part that does have access to technology and knows how to manage it. And in the case of digital payments, next to trust and habits there is the technical problem of converting cash to digital cash.
In rural Peru there are still too few agents where one can change his money. Moreover, as long as most shops and government institutions don’t accept digital payments, money in mobile wallets is ‘dead capital’. The ecosystem will have to go through a transition period from cash to digital before one can enjoy all the benefits of digital money. And for some transactions or services people will always prefer to meet an advisor in real life rather than a digital agent.
Many smartphone-owners don’t know the potential of their device. They use it only to make calls and sent messages on WhatsApp or play games. This is progress, but when the world is in your hands people could use it for education (Learn English, learn about healthy lifestyle, business management), financial services and much more. “How do I get into their phones?” is a question for governments, companies, financial institutions and NGOs striving for inclusion of all sorts. Understanding of the target group is key. The smartphone is a unique contact point: Shops, services, institutions and education are all in your hands. The next step is to use this potential.
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