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Mobile Tech in Social Innovation Series: Commerce
Welcome to Day Four of Echoing Green’s Mobile Technology in Social Innovation online series. Today’s focus is on Commerce and Banking.
How does your organization use mobile technology?
David Del Ser: Frogtek uses mobile technology to bring a traditional PC tool, accounting and inventory management, to a mobile platform that can open up access for poor micro-entrepreneurs. We also use mobile technology heavily as part of our operations team.
Shital Shah & Jesse Fripp: Shorebank International is in the business of innovation. Whether the objective is to ensure rural access to finance in a country with no existing banking system, to mobilize savings in institutions that historically focus only on lending, or to help leading financial service providers reach previously underserved populations, SBI develops solutions that apply flexible, creative, and responsive approaches to local market realities. Through implementation of alternative delivery channels, SBI enables financial service providers to lower their costs and reach new markets while making a full range of financial products and services more accessible, convenient, and affordable for clients of all income segments and geographic locations. SBI is implementing a variety of alternative delivery channels for branchless banking in South Asia, the Middle East, LAC and elsewhere, including through use of POS devices with business correspondents and mobile banking through agents and/or third-party outlets.
What are the advantages of modern mobile payment systems?
Arjuna Costa: In developing countries, mobile phone penetration exceeds the penetration of formal banking services by several orders of magnitude. Given the cell phone’s relative ubiquity (though penetration continues to lag in frontier markets) and the fact that the reach of the mobile phone agent network far exceeds that of traditional banking infrastructure, mobile money is significantly more accessible to poor and rural residents in the developing world. This translates to meaningful savings in time and the actual cost of accessing financial services. From the providers’ perspective, mobile money has the potential to drive down delivery costs significantly, which should allow for greater innovation and a wider array of financial services that will eventually be accessible by the poor.
David: The advantages are too many to list, from reducing friction due to cash to enabling new business models. For example, you could implement a service for low-cost health clinics that would help pregnant women get tips while they're saving up to their delivery package, all from their mobile.
What are the disadvantages of modern mobile payment systems?
David: The disadvantages are high fees, which limit some of those innovative business models, and the need to transform the cash into m-cash.
Shital & Jesse: The disadvantage of the modern mobile payment system, as it stands today, is that it has not moved beyond payments. Currently, customers commonly use the system to do bill payments, remit funds domestically and/or internationally, or top up their airtime. Mobile payment systems are not used for a full suite of financial services because of regulatory constraints, lack of functional MNO-bank partnerships, and/or a limited basket of financial products driven and defined by clearly understood customer demand. As the system continues to develop, customers may be able to access more financial services, but right now, this remains limited.
Arujna: Very few mobile money platforms have achieved meaningful scale, and the principal success story continues to be M-PESA in Kenya. Challenges remain, especially in markets characterized by competitive and fragmented mobile phone operators. Too often the various mobile money systems are not interoperable, driving up costs. Third party providers of financial services often find it difficult to integrate into the systems of the mobile money operators. In addition, in many cases the financial service providers no longer own the customer relationship as closely as perhaps banks did in the past as the mobile agent becomes the primary customer touch point, and it remains to be seen how well evolving customer needs are met.
Will micro-entrepreneurs access credit and other financial services through the mobile phones?
David: They are already doing so! In Kenya, which is the most successful example worldwide, customers of Equity Bank, a microfinance institution, have access to a savings program through their mobile phones.
Arjuna: Yes, we are already seeing instances of companies setting up virtual microfinance institutions. However, there are some complexities to think through, especially on the credit front. Traditional microcredit has relied on in-person, trust-based relationships (between the lender and the loan officer, and between members of a lending group in the group-based lending models) as a way of increasing people's likelihood to repay their loans. Eliminating this “socialization” of risk and making these interactions virtual could result in lower repayment rates.
Shital & Jesse: The offering of financial services through mobile phones is an evolving service. Currently, most mobile phone financial services facilitate payments (bill payments, air time top ups, transfers). However, as users become more familiar with the new use of this technology, regulatory environments allow for fuller offerings through the phone, MNOs and financial institutions develop workable partnerships, and providers develop the appropriate frameworks, we hope mobile financial services can move beyond payments and begin offering credit, savings, and insurance. We are seeing this in a few areas around the world, but it will take further maturing of these services and of the business environment to get to the point where micro-entrepreneurs (and households) can access a broader set of financial services.
Can mobile phones become a channel for large companies to reach the bottom of the pyramid?
David: Absolutely. One could argue that the mobile operators are themselves large companies that have reached deeply into the BOP. In their wake, other sectors like consumer packaged goods or insurance are exploring different ways to repackage their offering through phones. Examples of this are mobile coupons over SMS and the sale of micro-insurance through a mobile phone.
Arjuna: Yes. In addition to the success stories in mobile banking, a number of other sectors including health and agriculture are increasingly looking to the mobile phone as a channel to reach the poor. While many of these innovations have come from start-up companies, increasingly larger companies are recognizing the potential of mobile.
For example, Coke is using mobile payment solutions to streamline its supply chain, both between bottler and distributor as well as distributor and retailer. The next step in this evolution will be the ability to capture information and customer preferences, which will enable Coke to grow its business. As another example, the agribusiness giant Syngenta, working in partnership with a large Kenyan insurance company, UAP, has set up an innovative mobile phone based crop insurance system. This insurance scheme is increasing the poor farmers’ willingness to invest in better crop inputs and driving business to the two corporations involved, with the ultimate impact of improved yields and incomes for poor farmers.
Where's the gap in mobile banking? What needs to happen to break open the sector?
Arjuna: While there are many promising innovations in mobile banking to date, we've seen very few deployments at scale. How do we change this? Regulators need to get more comfortable with mobile banking and agent-led see it as a true value-add. We'd also like to see more partnerships between banks and mobile operators, and a willingness to partner with third-party innovators. And finally, we'd like to see better interoperability across different mobile platforms.
Shital & Jesse: Because of the different contexts from country to country, we see different business models emerging. It is not really possible to just replicate a mobile banking model from one country to another. As banks and third party providers test out pricing and product strategies, along with different revenue models, we’ll hopefully see this gap filled.
Is mobile banking really helping to bank the unbanked? How can it do so more effectively for the bottom of the pyramid?
Shital & Jesse: Mobile banking definitely has the potential to bank the unbanked. When we consider what’s already been done, even on a small scale, we see that previously unbanked clients are starting to use the services for easier transactions and even to save small amounts of money. As the service expands and becomes more widespread, we predict that the unbanked will begin to rely on mobile and agent banking as their primary access point for their banking needs. Through these services, they have access to a full suite of asset-building financial services that were previously unavailable; and, as a result of the inclusive financial service dynamic, there will be greater economic development and equity.
Arjuna: Right now the biggest mobile application used to serve the unbanked has been person-to-person payments and transfers. The benefits of this are twofold. Most obviously, it's reduced the cost and risks of sending money. But perhaps more important (and less obvious) is that it's also beginning to give people a safe way to store value—along the lines of a traditional savings account. As mentioned before, we are beginning to see greater innovation in bringing a broad suite of financial products and services to the previously underserved.
How will mobile phone technology be different in 5 years?
David: Very tough question! I believe we will drop the smart in smartphone, as the industry won't be selling any more feature phones. It will be increasingly hard to separate mobile computers from other types, as tablets blur the line with laptops. And hopefully we will have many companies serving the BOP by delivering tools designed for micro-entrepreneurs.
Shital & Jesse: In five years, mobile phone technology will become more sophisticated. We’re already seeing the trend of affordable smart phones. Mobile financial services are offered through simple, SMS and Java-enabled handsets; soon, as more people are able to own smart phones–and as 3G/4G networks grow and become increasingly interoperable–we’ll see more IP-based banking at the BOP as well, instead of the reliance on SMS services and dedicated USSD channels linked to a single MNO operator.
Excerpted interview. Download full transcript.
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