> Posted by Paul Breloff, Managing Director, Accion Venture Lab
The following post was originally published on the CGAP Blog.
In my last post, we talked about the potential for start-ups to shake things up in the financial inclusion space. But where’s the real opportunity today? At Venture Lab, we’ve got our eye on a number of trends for 2013.
First, mobile. There’s no denying the increasing ubiquity of mobile phones – over 4 billion in the developing world and counting – and we’re excited to explore the ways that mobile phones provide a channel to reach people with financial services. Our financial inclusion community has long focused on the growth of Kenya’s M-PESA, and no doubt, with over 16 million customers and 80 percent of the nation’s population having used it last year, it’s an iconic story in a sector thirsty for scaled success stories. Hopefully, markets like Pakistan, Tanzania, and Mexico won’t be far behind.
But there are other ways mobile can enable more widespread access to financial services. Take Coda Payments, for example, one of our first investments working in Southeast Asia. Coda operates a payments processing platform that connects with mobile network operators’ (MNO) billing systems and enables customers to purchase digital goods with a straightforward deduction against prepaid airtime. Think apps, e-content, information services, insurance premiums, and more.
Because Coda doesn’t require a new account, there’s no need for account-opening bureaucracy (such as “know-your-customer” procedures or documentation) or extensive customer marketing. And because the value is simply stored airtime credit sold through existing distributors and retailers, there’s no need to appoint and manage a new agent network. For merchants of digital goods, it provides a straightforward way to access the bottom 90 percent of the market that may not have a credit or debit card, but likely does have a cell phone.
Point-of-sale innovations like U.S.-based Square also leverage widespread mobile access to expand card acceptance among merchants and help customers become part of the digital or “cash-lite” world. Companies such as Square offer a minimalist card reader that plug into smartphones, turning smartphones into full-service point-of-sale devices. This technology in combination with sophisticated risk management tools enable them to support merchants who may traditionally have been ignored by mainstream banks and merchant acquirers.
Square now processes over $8 billion in payments on an annualized basis and was recently valued at over $3 billion. Its success has inspired a new breed of payments start-ups adapting this successful model in less developed markets, such as BlitzPay in Mexico (one of our investments) and Ezetap in India.
Frankly, the m-payments platforms themselves are only part of the fun. Perhaps more exciting will be the ways these platforms (such as M-PESA and Coda) can be used as the “rails” on which innovative financial services can be offered – say, enabling people to pay for micro-insurance with micro-premiums, enabling “pay-as-you-go” energy or clean water access, or even enabling a new kind of microlending altogether.
Innovations like these unlock the potential of digital transactions for the base of the pyramid, and over time may stimulate additional offerings targeting a now-empowered mass market, such as training or education, health or agricultural information, job listings, and even new forms of insurance or credit.
The second area of potential has been enabled by increasing internet access (especially through data-enabled smartphones), and promises an even richer and deeper way of delivering financial services to the BOP.
Companies like Lenddo and Wonga are pioneering a new way to find customers, build relationships, and deliver sophisticated financial services at a scale and cost well below brick-and-mortar alternatives. Further, crowd-funding platforms, which can provide more direct and efficient ways of accessing funding by using web platforms to cut out the middleman, are on the rise.
To read the rest of this post, visit the CGAP Blog.
Image Credit: Jay Bendixen / CGAP
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February 1, 2013 at 10:44 am
John Gitau
Paul,
Hey, hold there! We need to digest one thing at a time. This is very interesting and the way you have intertwined the various innovations makes one wonder if technology isn’t running amok, creating backdoor derivatives in the form of shortcuts that can deny mobile service providers revenue. Airtime as currency is a new paradigm! Soon, we could have black market trade around airtime. M-pesa, for example has a cash holding limit to for obvious reasons of ML. I know no limit of access to airtime. Could some of these innovations be open to abuse? We could have black markets around airtime as a mode of payment with no system tracking. However, the possibility of a 90% inclusion level outweighs the potential risks, which can be addressed in new ways.
With this proliferation of mobile options, the custodians of financial inclusion need to consider changing financial inclusion metrics. “Open a bank account to be included” would be replaced by “buy a mobile phone to be included”. And on that note, knowing how pivotal mobile phones have become, financial institutions should be busy providing mobile phone purchase loans. If not that, mobile money companies can think of giving them free to those who don’t have, with an expected quick payback from services use. In Kenya, Safaricom occasionally runs mobile phones sale promotion at very subsidized prices. Such offers are always eagerly awaited and when they come they get snapped up quickly. This should inform Safaricom that there is a bigger mobile phone need and since it is the biggest service provider, it is to her interest to have all adults own phones.
Paul, since you are a thought leader and many people listen to you, as you talk about financial services, remember to mention financial literacy on the same breath. The two go together. like cigarettes packets and health warning, each financial service delivered through the rail should be followed with a financial education advice. Eg, when inquiring an M-pesa balance, below the response balance figure can be a statement ” Save some, or Budget your money, or Don’t consume all or Think before you spend and such statements. That would be a good intercept financial literacy moment. Each phone should have a financial literacy user interface where senders of money would choose financial literacy preset messages relevant to money use. Eg, if I am sending money to my sister in the rural areas, before sending money, I would choose a message ” Spend money carefully”. That message will appear at the bottom of the sms of my sister’s phone confirming money receipt. Reminders have been proven to work as they provoke the financial discipline conscience.
Delivery of Financial services without financial education is like taking a boat ride in the sea without a life saver. What is the use of a financial inclusion statistic based on a bank account which runs on zero balances?.
A mobile phone with a transfer, borrowing, saving possibilities is perhaps better and with this consideration, owning a mobile phone should be seriously considered as a financial inclusion parameter.
February 5, 2013 at 7:47 pm
Paul Breloff
Thanks John, you raise some very interesting points. I agree that all of these new technologies and business models raise interesting and complicated regulatory and policy questions – which I won’t even attempt to delve into here… But I do completely agree with you on the importance of financial education and literacy. As you mention, many in our industry are doing great work on this subject. At Venture Lab, we’ve been particularly interested in groups that are using new technologies (like mobile) to improve financial capabilities – groups like Juntos Finanzaz, PayPerks, Agent Piggy, Piggy Mojo, and more. These groups are using phone and internet access to encourage more healthy financial behaviors, like you suggest. Turns out all this new tech doesn’t only open up opportunities to deliver financial services, but also to deliver the financial training that you suggest should go along with them.
Thanks again for reading and your comment!