The Case for Product Innovation in Branchless Banking
The promise of branchless banking is increased access to finance for the poor and new revenues for providers of all stripes. That’s not happening yet.
CGAP counted 22 branchless banking services with more than 1 million registered users; we also counted more than 70 others which have not reached that threshold (as of Q1 2011). That’s about a 1 in 4 “hit rate”. If we look at services which have launched since 2007 (i.e. since M-PESA got everyone excited) and acquired more than 250,000 active users (a better indicator of traction in the market than registrations), success rate drops to 1 in 15. Not so hot.
This might just be the growing pains of firms still figuring out how to operate in this new space at the intersect of several industries (mobile, banking). Some providers have fallen into regulatory ruts, some are finding it hard to build robust agent networks, while still others are struggling to make technology platforms stable (often wrestling with vendors who provided them in the first place). In short, there is a lot of worthwhile work going on laying the rails for branchless banking.
But all this supply-side effort seems to have crowded out the demand-side question of whether consumers actually want the products on offer. Why are we so certain that a liquid wallet with P2P and bill pay functionality is the “killer app”? Partially because people saw it succeed in Kenya (though nowhere else yet). Partially because most telcos don’t want to take the lead on more complex financial services, and they’ve convinced themselves they don’t have to. And partially because it seems the question is just not getting asked.
Despite this, the data seems to beg the question: With nearly 100 live branchless banking implementations worldwide but so few gaining traction with consumers, could the product be the problem?
Some higher income clients can be captured by convenience and the cool factor of easier money movement. But the mass market of low-income, unbanked consumers is different. The microfinance sector has known for some time that these consumers have a range of financial service needs which are deeply felt but often poorly met (even by the microfinance industry itself). CGAP has called for more attention to consumer wants and deeper thinking about converting the inactive to active. There are certainly some innovative products out there. These include Mobile Venture Kenya’s adaptation to mobile phones of Stuart Rutherford’s P9 product, which blurs the lines between credit and savings. We’re also intrigued by the airtime-based life insurance with MicroEnsure and Tigo in Ghana.
Unfortunately we don’t see enough of this happening. There are three main reasons:
1. Firms are firing on all cylinders just to get a basic offering to market. It can be an all-consuming process. But why kill yourself pushing to launch without devoting adequate thinking to whether your offering will be attractive to clients?
2. Many managers struggle to source meaningful insights about consumers. This is especially true for new products (where traditional focus groups or quick-hit surveys may not surface underlying needs) or for companies moving across sectors (either MNOs into financial services or banks extending their customer base to the bottom of the pyramid). Managers need better tools to understand consumers and convert insights into product ideas.
3. Existing product development processes often make launching new products a high-stakes game for the manager pushing it. New products often aren’t really tested until commercial launch, by which time it is costly to make changes. Many firms would benefit from a rapid prototyping process that puts product concepts to the test early and often in the hands of real consumers. Building out new products would be much less risky and expensive.
CGAP’s Technology and Business Model Innovation Program is partnering with at least 3 providers to launch Product Labs that demonstrate new ways of understanding clients, testing ideas and designing breakthrough products. This blog series will say more about what the Labs will look like, explain what we’ve learned about product innovation in other industries.
- Sarah Fathallah, Toru Mino, Mark Pickens