The Lurking Challenge of Activating the Inactive Customer

In the past year, several high-profile branchless banking deployments have publicized the fact that they’ve reached more than one million users. Yet what is never publicized in press releases or speeches is the very low number of active users in most deployments. In a recent CGAP survey, 64% of mobile money managers indicated that less than 30% of their registered users are active, and active rates of less than 10% are not uncommon.

This is a problem for several reasons. First and foremost, since it costs money to acquire customers, low activity rates greatly drive up the cost of acquiring each active customer. The figure here shows the acquisition cost per active customer based on a $5 customer acquisition cost. This covers the commission bonus to agents, fulfilling back-office KYC requirements and a starter kit for customers available with some services. If a deployment has a healthy 50% activity rate, the acquisition cost is a reasonable $10 per active customer. However, if the activity rate drops to 10%, the cost per active customer increases dramatically to $50. Some deployments have activity rates as low as 1% – and they are paying $500 for every active customer, an investment that may never be recouped.

Since the issue at hand is low customer usage, it’s easy to simply think of this as a problem related to customer perception of the service’s value for money, leading to tweaks in pricing or higher investment in marketing and financial education.

These items may very well need to be changed in a particular deployment, but we think the answer is more complex than that. As customers move through the process of first becoming aware of a service, then signing up and transacting for the first time and finally becoming a regular user, there are six levers which impact their experience. These levers are product features (including pricing), marketing, the agent network, customer service, the user experience and the system/network. CGAP has developed a framework to map the process for active customers of moving from awareness to ongoing activity.

Although some of these levers may seem more important than others, if any one lever fails during one of the critical parts of the process, the customer is unlikely to progress to active usage. For example, if there is a network outage while the customer is trying his first remote transaction and it fails, there is a good chance that he may never try again. This means the issue of activating inactive customers should not be thought of as a stand-alone customer issue – it is highly integrated with business operations, the agent network and other areas. It also means that there isn’t a single ‘magic bullet’ that can fix this problem worldwide. Each deployment struggling with this issue will need to do a diagnostic of their own service to understand where the weak links are for their customers as they progress from awareness to ongoing usage.

What do you think? CGAP intends to examine this issue in more detail in the coming months and we’d love to hear if you’re struggling with this issue and what you’re doing to overcome it.

- Claudia McKay