The Rich Role of Mobile Phones in Financial Inclusion

The mobile phone has become a useful tool in tackling the  financial access deficit in many countries. M-PESA in Kenya has shown that adoption curves typical of new information-based technologies (radio,TV, mobiles, internet) can be applied to  financial services. Yet M-PESA-like mobile payment schemes have only scratched the surface of what is possible. The typical mobile money user still uses it only a couple of times a month.

In a recent paper, Colin Mayer of the Saïd Business School at the University of Oxford and I argue that the real power of mobile will come when it is seen not only as a mechanism for reducing access costs but also for building new types of banking experiences. Indeed, the agenda needs to shift from access to use. The basic premise to-date has been that if transactions can be initiated remotely through a secure electronic channel (ensuring the proper authentication of transacting parties and integrity of the data transmitted) and authorized in real time (ensuring that all transactions are pre-funded), then banking transactions can safely be taken outside of bank branches and into neighborhood stores (which act  as banking correspondents) or right into customer hands (with mobile banking as a self-service channel). This reduces access costs for banks, because they can switch from large fixed infrastructure costs in poorer and rural areas to a per-transaction variable cost structure. It is especially cost-efficient for customers, because it reduces the expenses associated with traveling to and from distant branches.

Beyond reducing costs, mobile phones also permit customers to interact more directly with their bank, checking balances and initiating transactions from wherever they are. Using mobile phones as the access device offers the customer a level of immediacy, convenience and control that no other channel can provide.

Promoting financial inclusion involves developing customer experiences that help people plan for and achieve their financial and expenditure goals. That requires two things: (i) extracting information from clients as to what their goals are and in what time frame they aim to achieve them, and (ii) presenting the bank’s various services (savings, credit, payment) in the context of those goals.

Both these things are hard to do when customer interactions are infrequent and not very consistent. In one month, a bank client typically listens to one bank advertisement on the radio or TV and walks over to a branch once, which means that communication is very limited and mostly one-way. In this setting, the bank’s promotion has to be as simple as possible, and that means making it product-driven.

But when banks and their clients are connected by mobile phones, there is the potential for the interaction to be much more frequent and interactive.  With this in place, the bank can start thinking about having a conversation with their customers based on their goals and aspirations rather than on the bank’s standard list of products. There is less pressure to propose the right products to customers from the outset, as customers will guide banks on an ongoing basis as to what they need. The mobile user interface should draw customers into this conversation, so it must be structured around people’s goals. It is up to the bank to fit their products to these goals.

In a successful mobile banking relationship, clients would be reaching for their phone every time they have money coming in – and at the base of the pyramid, this can be both unpredictable and high frequency. But the interactions could also be bank-initiated, and evolve into an ongoing conversation. If the customer is saving money for March 31st, why not contact her (by SMS or a call from the contact center) to find out what her goal is and how much she needs? If she doesn’t seem to be following through on a pattern of set-asides for her March 31st goal, why not reach out to her to remind her of her goal or find out why she is having trouble?

Each of these interactions is an opportunity to capture information that can be useful in two ways. First, the bank can play back this information to the customer and show that it listens and cares about her. When the customer sets aside money for March 31st, the receipt can now refer to how far the customer is from getting her motorcycle. Second, knowing how people manage their money and observing how regularly they meet their objectives constitutes valuable information for credit scoring. Now part of the offering can be, at some point, to advance the rest of the money the customer needs to buy her motorcycle. The promise of the advance itself can induce the customer to set aside some more money (“if you get to 50% of your goal within a month, we’ll advance the rest”).

Mobile phones can be used as a lower-cost alternative to rolling out cards and POS terminals. But, beyond cost, the real opportunity with mobile phones is for the bank to establish a direct, on-demand connection with its customers. Mobile phones make it possible to think of a future where banks and their customers have daily interactions which are based less on the banks’ products and more on the customers’ goals. Banks’ offerings then go from being productized (offering choices within a set à la carte menu) to being mass customized (where customers interact uniquely though using the same set of tools).
 

(Photo Credit: Erik Hersman)