Designing mobile money products to serve the unbanked consumer

Innovation & Integrated Solutions, ACCION International Frontier Investments Group Vanessa Vizcarra Bianchi Marzo 2010

Jun 2009
2010 ACCION International 1

Contents

ACCION International & Frontier Investments Profile of an unbanked consumer - Who they are - How they save - How they feel about electronic currency Marketing segmentation and identifying the crucial early adopter segments Developing promotional strategies that target the unbanked The role of client education to increase trial, usage and adoption of mobile money

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Data suggests that commercial approach is driving success for MFIs

Tier 1 2%

Serving >>

86% of all clients 9% of all clients 3% of clients 2%

Tier 2 ~10% of all MFIs Tier 3 ~17% of all MFIs Tier 4 ~71% of all MFIS

Tier 1 2 3 4

# of Clients Over 100,000 10,000 -100,000 2,500- 10,000 Under 2,500

MFI Characteristics: Mature, well-known with strong operational track records. Most are regulated. Successful, smaller, younger, less well known. At or near profitability. Nearly all NGOs Young, lack capital, weak systems. Approaching profitability. Nearly all NGOs Unprofitable MFIs, Start-ups, post conflict settings, weak institutions or MF is not focus

Sources: Meehan, Jennifer Tapping the Commercial Markets for Microfinace. Grameen Foundation, Feb 2005 and 2007 MicroCredit Summit Campaign Report

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For ACCION, taking a commercial approach is about impact

Mission

Give people the tools they need to work their way out of poverty

Means

Market knowledge / field presence

Institution building/technical support

Continual re-invention/innovation

Metrics

Value Scale Market Links

PERVASIVE, PERMANENT IMPACT

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ACCION s footprint is now global

Over 50 Institutional Partners / Portfolio companies in over 30 Countries

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Results: innovation
2007: Compartamos IPO 2006: Frontier Investments (Gateway Microfinace Infrastructure Fund) 2005: ACCION expands into India and China 2004: ACCION founds Council of Microfinance Equity Funds 2003: ACCION Investments in MF 2000: ACCION Expands into Africa 1999: Palm Pilot paperless microcredit 1996: First microfinance bond issue: BancoSol 1994: First MFI diagnostic tool: CAMEL 1992/3: First Equity Funds for Microfinance: Profund and Gateway Fund 1992: First private commercial bank for the poor: BancoSol 1985: First microloan guarantee fund: Bridge Fund 1983: First international network of microfinance institutions 1973: First microenterpirse loan in Brazil

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Still, future success requires a quantum leap

CHARTING A NEW PATH The microfinance industry is still in its infancy, and there are significant bottlenecks to continued expansion of financial inclusion Though ACCION may be leading the pack among NGOs, the industry is evolving and we can t rest on past laurels

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Impact investing can reshape the industry; Frontier Investment

New Business Model requires evolution from
traditional microfinance
HISTORICAL DRIVERS OF SUCCESS Credit methodology Orientation on the microenterprise Access; first mover advantages High touch personalized service NEW BUSINESS MODEL VISION Value offer Services targeted at low income households Distribution / coverage Speed, convenience and price

focus to Frontier Investing

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Frontier

Investments:

Breaking

the

Bottlenecks

to

Expanded Financial Inclusion

FRONTIER INVESTMENT CHARTER: Catalyze innovation through impact investing in core sectors of ACCION s Business Model

Bottlenecks
Custom Built, People + Paper Based Capital and Cash Intensive Limited Product Offer

Lever

Breakthroughs
Scalable platforms (core banking systems, BPO, credit scoring) Branchless/mobile banking (mobile, stored value, cards + POS) Microinsurance, housing & other financial services beyond business loans

Technology Distribution Products

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Profile of unbanked customer

There are three fundamental variables that differentiate those who represent the biggest potential to use a channel: positive attitude towards the channel knowledge of the channel Knowledge about financial products Demographic variables are not the most important. One that has a major impact when the profile of unbanked consumer is the level of education. MFIs face a particular challenge because their customer base are generally lower income, less educated and have lower familiarity with financial services and technology than mainstream banking customers. Especially in alternative channels where customer may not understand benefits. Institutions should base decisions more on properly designed qualitative and quantitative market research to understand customers. Properly designed customer research allows Institutions to segment its market and carefully design the channel to meet the segment needs.

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Profile of unbanked consumer: who they are?

More active in requesting the channel Receptive to the direct offering but with fears Slightly receptive to the channel with big barriers

Enthusiasts
Attitude Financial Products Very good attitude to channels (reliable and easy to use) Better knowledge of channels Major possession of financial products different than savings

Traditionalists
Attitude Financial Products Little experience with channels' use, but relatively open attitude. He needs help for use He knows and mostly use other financial products different than savings. Little knowledge of channels

Reluctant
Attitude Financial Products Suspicious / difficulty of channels' use Ignorance of financial services Minimal knowledge of channels

Demographic characteristics Demographic characteristics Minor educational level More educated (diversified) Demographic characteristics More married with children More single people without Average level of education More housewives than in children (primary) other segments More micro entrepreneurial More housewives than Segment almost completely and wage earners between the enthusiasts femininely Mainly located in cities Proportion mediated of More villages (urban) married, with children Income: no more than $500 Average income: no more Mixed age, between 35 to 45 Entire dependency on the than $500 years. remittance Younger people Average Income: no more than $500 Men's major proportion vs. other segments They tend to depend almost completely on remittances They travel more to principal mediano Base : 700 encuestas (350 agropecuarios, 350 no agropecuarios) * Valor cities
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Profile of unbanked consumer: how they save

Rural Market
Static savings Guardadito
(balance does not increase)

Urban Market

13 % Saving keeps growing 37 % Does not save 50 % Does not save Saving grows "Guardadito"

Panama Urban 50 40 10

Nicaragua Urban 45 40 15

Integral Research of Rural consumer behavior : Colombia, Per, Ecuador, Nicaragua, Dominica Rep., ACCION Int, Global Programs - I&IS Unit, 2009

Market Reserach of savings for housing in Panam; ACCION Int; Global Programs - I&IS Unit; 2009 Market resrach f or urban savings in Nicaragua; ; ACCION Int; Global Programs - I&IS Unit; 2009

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Profile of unbanked consumer: how they save (savings accumulation)

RURAL MARKET
Saves when there is extras

25% 15% 60%

Spend and then save the remainder

Save first then spend the remainder

URBAN MARKET
Panama Nicaragua Urban Urban

Integral Research of Rural consumer behavior : Colombia, Per, Ecuador, Nicaragua, Dominica Rep., ACCION Int Global Programs , - I&IS Unit, 2009

Spend then save Set aside first then spend Save when extras come

55 33 12

55 24 20

Market Reserachof savings for housing in Panam; ACCION Int Global Programs - I&IS Unit; 2009 ; Market resrachfor urban savings in Nicaragua; ; ACCION Int Global Programs - I&IS Unit; 2009 ;

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Profile of unbanked consumer: How do they feel about electronic currency?

In customer market research that ACCION has conducted in Peru, Guatemala, Ghana, China and India; lack of trust in alternative channels has been a familiar refrain for certain, not all, segments of low income population. This is specially the case if interaction involves technology, a non cash transaction or little human interface. Mobile banking has all three characteristics is consider one of the most difficult channel to gain momentum among the base of the pyramid. However, when mobile banking overcome the initial inertia, its benefits of safety, speed, lower costs can gain traction very rapidly among certain low income segments.

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Profile of unbanked consumer: How they feel about electronic currency?

Opportunity of use alternative channels

Opportunity of Use

Facility of use

Agricultural
Base : Agropecuarios (350) Base : Usan cajero ATM (56)

Opportunity of Use

Facility of use

Not agricultural
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Base : No agropecuarios (350)

Base : Usan cajero ATM (91)

Market research Rural Consumer Behavior Peru 2009 / ACCION International, Global Programs, I&IS Unit

Profile of unbanked consumer: How they feel about electronic currency?

Probability of use of an ATM s card without need to open account in an Institution

Probability to use ATM s card

Reason for not using card

He does not know how to use it Lack of security He is not familiar with service He is not interested Fear of being assaulted when withdrawing Would prefer to go to a bank branch High maintenance fee There are not ATMs close home / work 39.1% 17.4% 13.0% 10.1% 5.8% 5.8% 4.3% 2.9% 1.4%

Agricultural
Base : Agropecuarios (350)

Would need to pay account maintenance fee Base : No usara (69)

Probability to use ATM s card

Reason for not using card

He does not know how to use it Lack of security Fear of being assaulted when withdrawing He is not familiar with service He is not interested Would prefer to go to a bank branch
Would need to pay account maintenance fee

Not Agricultural
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High maintenance fee There are not ATMs close home/work

Base : No agropecuarios (350) Base : No usara (84)

32.1% 27.4% 11.9% 8.3% 8.3% 3.6% 3.6% 2.4% 2.4%

Market research Rural Consumer Behavior Peru 2009 / ACCION International, Global Programs, I&IS Unit

Profile of unbanked consumer: How they feel about electronic currency?

Disposition of use and handling of a bank account through a cell phone

Disposition of use and handling

Reason for not using it

Lack of security / confidence / trust Many frauds using cell phones Fear to have cell and money stolen Not familiar with service Prefers to go to a bank branch Not interested 41.6% 35.1% 9.1% 7.8% 3.9% 2.6%

Agricultural

Base : Agropecuarios (350)

Base : No usara (77)

Disposition of use and handling

Reason for not using it

Lack of security / confidence / trust Many frauds using cell phones He is not familiar with service Fear to have cell and money stolen Prefers to go to a bank branch Not interested Using cell phone is more costly 33.6% 29.5% 14.8% 12.3% 4.9% 4.1% 0.8%

Not Agricultural
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Base : No agropecuarios (350)

Base : No usara (122)

Market research Rural Consumer Behavior Unit

Peru 2009 / ACCION International, Global Programs, I&IS

Marketing segmentation and identifying the crucial early adopter segments

Rate of adoption depends on many factors: Perceived benefits of alternative channel & product related How benefit is communicated and promotional efforts Price and ongoing costs Enthusiasts Traditionalists Easy of use Perceived risk

Reluctant

?
Relative Adoption
Buying decision heavily influenced by early adopters Channel will have to cross the chasm to gain mainstream acceptance

Time of Adoption

Customer Attributes to confirm

Young, Educated, Literate, Urban

Middle-Aged (3550), Some Secondary Education, Literate, Urban Frequency

Middle-Aged (3550), Some Elementary Education, Basic Literacy, Mainly Rural

Middle-Aged and Senior (35-60), Little or No Elementary Education, Basic or No Literacy, Rural

Senior (50-60), No Elementary Education, No Literacy, Rural

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Developing promotional strategies that target the unbanked

To increase adoption of the channels we can consider the following: Design different product and marketing strategies to respond each segment individual needs. Simplicity of the customer value proposition: while it is tempting to offer an array of services through multiple channels, a best practice is to offer a single, compelling benefit to the customer. Many customers need to experience the alternative channel (as in convince themselves that if it truly functions as the marketing messages promise) a number of times before employing it regularly on their on. Marketing strategies considered are: For Innovators will consider: mass advertising, material in branches or other locations, promotions in commerce s associated. For Early adopters: one to one interaction, incentive programs to use the channel, educational programs that pave the way to reach scale (successfully implement early majority segments).
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Role of client education to increase trial, usage and adoption of mobile money?
In person training and written materials are important and crucial for any successful deployment of alternative channels. Clients are receptive to different types of education (work cases, classrooms, testimonials, short stories, one to one interaction) Education to users on financial products and security and fraud is a key factor to grow mobile financial services. This is an area where both Institutions and operators should improve. Operators because they know how channels are covering subjects and Institutions because clients trust them. Client education by itself is not a panacea: alone it cannot fundamentally change behavior from reluctance and fear into eager adoption of a channel. Efforts have to be combined with educational and marketing campaigns to pass the message (what we in ACCION call: educational marketing ). Educational marketing programs aim to encourage customers to learn and understand multiple benefits of new channels. Have the client understanding value offer of the channels and how to use them. This programs are focused in barriers customer might have.
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Thanks

2010 ACCION International