Close to Washington, D.C.’s antipode in Perth, Australia I attended the Fifth Annual Responsible Finance Forum, which this year focused on responsible digital finance. The organizers assembled an impressive mix of representatives from all three legs of the responsible finance stool – industry, regulators, and consumers. A number of familiar risk areas were examined during the two great days of presentations, debate, and discussion, and three prominent themes emerged for me: the centrality of the service agent, the increasing importance of financial education, and considering responsible finance at the ecosystem level.

The first day of the forum focused on the identification of risks to consumers from digital financial services (DFS) and the second day was framed around how to mitigate and minimize those risks. An online “Global Pulse Survey” that CGAP conducted as well as some demand-side research conducted by MicroSave and Bankable Frontier Associates (BFA) brought both the practitioner and consumer perspectives on DFS risks to the forefront. The MicroSave and BFA research canvassed nearly 700 DFS users and 50 non-users through focus groups in Colombia, Bangladesh, the Philippines, and Uganda. While respondents of the survey and focus groups identified a wide variety of harms or worries, some common items emerged, listed in the table below. Though preliminary, this data is extremely important in helping us frame the areas where stakeholders could focus to mitigate against client harm and risk. These risks fall squarely into the framework of the Smart Campaign’s seven Client Protection Principles, furthering our belief that a principles framework can carry forward into digital financial services.

The Centrality of the Agent

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Most of the risks to clients mentioned during the conference stem from behaviors or practices by an agent of a mobile money or branchless banking network. Agents, typically operators of retail outlets or small kiosks, occupy a murky position that is not well understood by customers or even the agents themselves. They are representatives of services, like MTN or Easypaisa, but are not employees. Yet many customers interact only or primarily with agents, never coming in contact with full-time staff members of a DFS service. In these cases, agent behavior colors the perception of the entire service. MicroSave spoke of extremely high turnover in agents, particularly in Uganda, and others discussed lack of training and incentives for agents to treat clients well. There were some positive examples, such as those presented by Oxigen, India’s largest money transfer service provider, but the centrality of the agent to client protection concerns was clear. While some forward-thinking participants in the conference envisioned a system that bypassed the agent and was completely mobile, most agreed that for the near-term agents are here to stay and are an integral part of the DFS ecosystem. There is a need for more thinking around the incentives, training, and practices that could help to minimize the risk of agent harm to clients.

Financial Education

Another common refrain was the need for strong financial education for clients to support the increasing complexity of DFS, to help clients “self-protect” and minimize their own risk. While the need for financial education is huge, evidence to support its effectiveness is slim. With each clarion call sounded at the conference for large financial education efforts, I pondered the cost-effectiveness of investing a small percentage of programmatic money into rigorous evaluations. Folks like Innovations for Poverty Action, ideas42, and Microfinance Opportunities are on the cutting edge of understanding the evidence on what works in financial education, particularly regarding the use of behavioral psychology insights to shape design and delivery, and technology as a delivery channel. Of course implementation should not cease completely until all the evidence emerges, but given the importance put upon financial education, and the money likely to be spent on financial education programs, there should be more attention to experimentation and evidence.

Responsible Ecosystem

While the framing of the forum was around the client protection risks to consumers, there were consistent calls for a responsible DFS ecosystem that involved interoperability, processing systems that allow for maximum usage and reduction of costs to consumers. Participants cited the emergence of SWIFT, which established common standards for financial transactions and data processing in the mid-1970s in the hopes that analogous systems could be developed and deployed for financial inclusion. Ripple, an open payment protocol that simplifies interbank payments and makes them faster, and Klickex, a currency exchange service, were held up as potential examples. While further removed from the treatment of a client by a financial institution, progress on these issues would certainly yield benefits to clients in terms of reduction of costs and increase of value.

Looking back on the two productive days in Perth, and still fighting off jet lag after safely circumnavigating the globe, I’m encouraged by the enthusiasm and attention demonstrated for responsible digital finance. With the rapid expansion of technology-enabled services, action in this area from all stakeholders will be needed to ensure that clients are adequately protected.

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In 2012, developed countries spent 8.6 percent of GDP on insurance, while developing countries spent only 2.7 percent. Traditional insurance providers face difficulties when serving low-income and unbanked customers with traditional insurance products in areas like transaction size, client education, and outreach, among others. However, mobile technologies have disrupted the way insurance is delivered and in the last two years a new array of mobile microinsurance services have popped up. Earlier this year CGAP identified 74 operators with live mobile microinsurance services, making up an increasingly diverse space that is active in more countries, offering a wider range of products, and using different business models.

Two of these services stand out, given their success, both with leading mobile network operators (MNOs). Tigo Kiiray in Senegal enrolled 13 percent of Tigo’s 3 million subscriber base during its first year and a half of its launch. Talkshawk Mohafiz by Telenor Pakistan managed to issue 400,000 insurance policies within its first two months of operations. What have these models done to gain access to this historically difficult market segment?

Tigo partnered with Bima, a microinsurance specialist, to launch a “freemium” microinsurance service. Customers spending at least $3.13 per month on Tigo’s mobile phone services are eligible for life insurance coverage with a payout range of $125 to $630. Customers are also given the option to enroll in a premium service where $0.69 is deducted directly from their airtime account through small increments over the course of each month; in exchange they get twice as much coverage. Tigo has experienced better than expected direct revenue and brand strengthening. Though mobile microinsurance revenue is only fractional compared to other core business areas, it is comparable to revenue from ringtones or entertainment purchases. In fact, the microinsurance service has been so successful that Tigo is planning on expanding the insurance offering with a health insurance product.

Telenor Pakistan partnered with MicroEnsure to launch Talkshawk Mohafiz in 2013. Talkshawk’s model is similar to the freemium set-up of Tigo Kiiray. Mobile subscribers spending at least $1.90 per month on Telenor’s network are eligible to receive life insurance worth $190 or more. Also last year, Telenor launched Khushaal, a savings and insurance product, through its fast-growing Easypaisa mobile money service. Telenor launched Talkshawk as a mass market product for its phone user base and Khushaal as a reward product for the subset of its customers who actively use the mobile wallet service.

Tigo Kiiray and Talkshawk Mohafiz have a few crucial characteristics in common. Both services are driven by MNOs with extensive infrastructure and client bases, and both providers identified the need to partner with expert organizations in microinsurance. For the product, both started with very simple, inexpensive or free, easy to understand offerings, and they took action based on the premise that insurance doesn’t sell itself. Tigo Kiiray and Talkshawk both have highly trained, product-savvy frontline staff solely focused on insurance in order to achieve high levels of client product awareness and satisfaction. Bima, for example, allots the majority of its investment in Tigo Kiiray to dedicated roving and call center insurance staff. Bima’s CEO, Gustaf Agartson, estimates that, in his experience, all-purpose staff in other markets have been roughly 5 percent as productive as Bima’s dedicated insurance agents in Senegal.

Much of our work at the Financial Inclusion 2020 project focuses on widening the product offer so that customers have access to a full suite of quality products. It is encouraging to see cross-industry partnerships forge business models that side-step traditional providers’ cost-prohibitive practices while bringing value to customers.

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Mobile money services have spread like wildfire, making people less cash-reliant and able to easily carry out transactions like bill payments and money transfers. GSMA’s Mobile Money for the Unbanked program identified 14 mobile money sprinters – leaders of some of the fastest growing mobile deployments in the world. Among these, three case studies from mobile money services in Pakistan, Somaliland, and Zimbabwe have been published. The case studies highlight the reasons why these particular schemes have achieved significant customer bases and transactions volumes since their deployments.

Easypaisa (Pakistan). After only 11 months, Easypaisa registered 5 million transactions and by the end of 2012 it had 100 million transactions with a volume of $US 1.4 billion. Easypaisa was created in late 2009 by the MNO Telenor Pakistan and Tameer Bank, after Telenor acquired a 51 percent stake in Tameer. Telenor acknowledged that launching a mobile wallet product wouldn’t be the ideal way to set up Easypaisa since they only had a 22 percent market share and so the product wouldn’t encompass 40 million non-Telenor customers. Furthermore, regulations in the country called for very comprehensive Know-Your-Customer (KYC) procedures, creating the additional obstacles of increased registration cost and time.

Taking this into account, Easypaisa was set up as an over-the-counter (OTC) service, offering money transfers and bill pay. All of the transactions were assisted by an agent and registration wasn’t required. Customers could go to an Easypaisa agent, present their national ID card and the money to be transferred, and the agent took care of the rest. No mobile phone account was necessary. This model proved to be successful as 70 percent of customers using the services were not Telenor Pakistan clients. Easypaisa’s big-picture vision was to create a mobile wallet product, since the OTC service had the downside of a limited product offering, and then slowly migrate users to the wallet system. This mobile wallet service now has products other than money transfers and bill payments such as savings and insurance through Easypaisa Khushaal.

Telesom ZAAD (Somaliland). Telesom ZAAD has been considered a great success; 70 percent of their subscribers actively used the service after one year and users were performing an average of 30 transactions per month. This journey started when a team of senior level officers from Telesom, a mobile network operator in Somaliland with 85 percent market share, traveled to Kenya and Tanzania to learn about the M-Pesa platform. Telesom’s vision was to start a similar service, however from the beginning they had in mind the idea of building an ecosystem that included salary payers and merchants.

Even before launching the service (in June 2009), 170 merchants had agreed to accept payments via mobile money and were encouraged to buy Telesom products using the same service. Likewise, Telesom led by example and started paying all of their employees the entirety of their salaries through Telesom ZAAD. This sent a powerful message to other companies such as Kaah Electric Company and Amoud University, which also started paying their employees using the same method. As of April 2013, ZAAD reported 368,000 customers of whom 59 percent held an average balance of $37 on their accounts, and 8,600 merchants of which 83 percent reported an average balance of $352. In other words, Telesom ZAAD has been effective as a cash replacement tool.

Ecocash (Zimbabwe). Econet Wireless, an MNO with 70 percent market share in Zimbabwe, set out to develop a mobile money platform in 2011. Eighteen months after Ecocash was launched it already had 2.3 million registered users, over one million active accounts, and an estimated monthly transactions volume of $200 million. Although Ecocash was launched initially as a person-to-person payments platform, Econet’s vision was to move beyond payments and become the “primary way people pay for goods and services,” explaining the unusually large investment in this mobile money service.

Ecocash identified the most important pain points in the financial system (payment needs of the informal economy, replacing cash, and bridging the gap between formal and informal economies) and has ambitiously set out to address them. Ecocash started simple by offering P2P transfers. Now, it is building two vital structures, a network of merchants that accept mobile money payments and full interoperability with other banks in the country.

These three mobile money services are considered successful and yet they are so different. Easypaisa started as an OTC system, ZAAD for salary and merchants pay, and Ecocash as a P2P system. Why have they all been so successful? They have done well in gaining a deep and detailed understanding of the particular market conditions in their respective countries. Easypaisa acknowledged their market position and the costs of first creating a mobile wallet. Telesom could have transposed the M-Pesa model to Somaliland, but they recognized that this could have failed given the market conditions, including unfamiliarity with mobile money, low income levels, and a lack of formal banking infrastructure. Econet realized that people had lost trust in Zimbabwe’s banking institutions due to the hyperinflation crisis and recognized that there was a role for a prominent MNO to play in the mobile money market.

Though these systems all face their challenges and shortcomings, valuable lessons from their experiences should be shared on how they solved the problems encountered in each market and the obstacles that still remain.

What mobile money deployments do you know of that hold insights for the industry?

Image credit: carol mitchell

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