Technology Challenges Accompany Voluntary Savings
Our discussions on branchless banking on this blog do not often touch on the role of microfinance institutions (MFIs). The main actors in this space seem to be mobile network operators, commercial banks, larger microfinance banks and technology companies. We have done a bit of thinking on microfinance and mobile banking, notably in this Focus Note and at this Virtual Conference.
In our last post of the year, we bring the discussion squarely back to the role technology can play for MFIs.
Grameen Foundation’s Microsavings Initiative is a three-year project funded by the Bill & Melinda Gates Foundation. It was launched in November 2009 with a goal of reaching 1.45 million new savers across 3 MFIs in the Philippines, India and Ethiopia.
Offering voluntary savings is demanding. Financial institutions compete with the alternatives that exist to formal savings accounts (home, relatives, neighbors, etc.). A common theme in our savings market research is the customer’s desire to have easy and convenient access to their funds. To deliver on those desires, our MFI partners face common technology challenges.
Here are two major challenges:
1. Front End Technologies
To meet customer demands, financial institutions must develop delivery channels that offer accessibility and close proximity to the end client.
Selecting the right technology is an important first step. The 3 MFIs are at various stages of investigating or implementing mobile technology. In India, CASHPOR (CASHPOR Micro Credit) incorporated mobile in both their credit and savings processes. In the Philippines, CARD Bank (Center for Agricultural and Rural Development) implemented an SMS system for an on-demand savings deposit pickup service. The use of mobile phones is clearly a powerful venue for bringing the transaction closer to customers. However, it is not the only technology to be considered.
In Ethiopia, ACSI (Amhara Credit and Saving Institution) is planning to use cards (most likely smart cards) and POS devices as their first front end technology implementation. With only approximately 14% mobile penetration in the country, all indicators point to the fact that the majority of the rural poor will not have access to mobile phones in the next couple of years. In the Philippines, the majority of microfinance customers are in provinces classified as “urban” or “semi-urban”. In many of these areas, ATM machines are accessible. CARD Bank chose to provide access to the national and international network of ATMs as a feature of its voluntary savings product in addition to the use of mobile phones.
Integrating all the sophisticated technology requires the help of external providers who can bring a wide array of specialized expertise to the organization. However, managing relationships with outside technical providers can be new and difficult since most of the technical needs of MFIs had previously been met by in-house expertise.
The MFIs are ultimately responsible for the relationship with their customers. The MFIs therefore have to provide the training and support needed to make sure members are comfortable with and trust the technology. A component of our holistic program has been to recognize this need and to develop educational programs to introduce not only the savings products but the technology associated with them.
2. Core Infrastructure Upgrades
Offering savings products fundamentally changes the relationship between the institution and the customer. When a loan is the primary purpose for an interaction between the two, their dealings are regular and expected. Taking voluntary customer deposits radically changes that relationship. Now the transaction is initiated by the customer and the amount of deposits or withdrawals vary. The customer interaction is less predictable. At any time of the day or night, the customer can ask for her balance and withdraw from it.
What does this mean for our MFI partners? The 3 institutions are investing heavily in upgrading their ICT systems as well as the fundamental operations and the skills that support them. To begin with, they are moving to centralized automated systems. This is necessary since all of their delivery channels need the most up-to-date information to authorize or decline customer requests.
Imagine what would happen if the central processing system was updated only twice a day. A customer with a $50 balance can withdraw $45 from the ATM, walk to the mobile cash agent and withdraw $45 and go to the nearest branch and withdraw $45 over the counter. Only when the central system is updated would everyone realize that the $50 balance was used as the basis for multiple withdrawals resulting in a huge negative balance.
Maintaining these systems requires knowledgeable technical staff members who are now striving to maintain operations all hours of the day and night. While branches may close, front end technology can operate at any hour. After all, this access is part of the reason to deploy them. Consequently, ICT staffs are implementing and maintaining servers, databases and network systems that are more sophisticated than any they’ve worked with. To meet these challenges these organizations are expanding work schedules, re-tooling and undergoing some serious skills upgrades.
Changes in the organizational support structure are critical to react effectively as the needs arise. All of the ICT organizations are being scrutinized and major transformations are underway. At CARD Bank, a Help Desk operation was established for internal staff support. Through chat software, online trouble tickets and phone support, the ICT organization operated during branch operating hours and through the evening’s closing procedures. To support front end technology and the new core banking system, coverage was increased to eighteen hours a day, six days a week with plans to increase to 24×7.
All three organizations are meeting the challenges of technology differently. Certainly not all MFIs offering savings will face these challenges to the extent that ACSI, CARD Bank, and CASHPOR are. But any organization trying to establish a voluntary savings program through the innovative use of technology will face similar challenges.