Tips on Mobile Money Product Design from Uganda
How much would you like to pay to save? Zero, most likely. In fact, you probably hate the fees your bank charges for the privilege of holding your funds and disbursing when you ask for them.
So why was it so easy to find people paying huge negative effective interest rates on a recent trip to Uganda?
One man – let’s call him Richard – used an ingenious method to save for a new motorcycle. Whenever he had a bit of extra cash he wrapped it in heavy plastic, waterproofed it with industrial-grade resin, and dropped it into the petrol tank of his current motorcycle. After a year when he thought he had enough to buy a bigger, better vehicle, he had the petrol tank removed and cut open with an acetylene torch to recover the currency. The motorcycle cost USD 750. He paid USD 110 to have the petrol tank cut and buy a new one to make his old motorcycle re-sellable. That equates to negative 14.66% annual interest on his savings.
Why would he do this? Same reason a woman — let’s call her Jennifer – dropped coins into her jerry can of cooking oil. She wants to save money to buy some clothes for her children at Christmas (at which time she cut open the jerry can to get to the money).
For both Richard and Jennifer, the requirement to destroy something they owned created an effective barrier against temptation. For the poor, the most salient feature about their incomes, after the low level, is its variability. They may live on an average of USD 2 per day, but rarely see exactly that much. Some days they earn USD 10, other days nothing. But expenses for food are constant, and emergencies arise no matter how much they earned that day. The temptation to raid savings is continual and almost irresistible. Unless big barriers are erected.
Can we productize these insights to improve branchless banking services? The wallet in most mobile money is rarely marketed as a product in its own right. Most providers have styled the wallet as nothing more than a temporary holding zone for money before you send it, or the landing spot when you receive some. Wallets are designed with zero features except liquidity: if you pay the requisite fee, you can deposit or withdraw money whenever you like.
What if this liquid wallet had a twin: a store of value that was explicitly illiquid? What if Richard or Jennifer could name the point in time when they wanted their money? What if they could not touch it until reaching their goal? There might be an emergency safety valve to get at the funds, but from looking at the savings instruments that Richard and Jennifer devised, consumers might very well want the barriers to be very high indeed.
Moreover, consumers might be happy to pay for the service. Perhaps not the effective 15% which Richard paid, but 2% to 3%. That’s the same average price many people are paying already on an average mobile money transfer. P2P helps consumers alleviate the pain point of moving money over distance. Is it so crazy to think poor people might pay for a service which helps them effectively move money over time, allowing them to move current income forward to the future to finance much-desired purchases? Maybe not so crazy if we understand that a better motorcycle helps Richard earn more as a motorcycle taxi, or if we could see the smiles of Jennifer’s children when they open Christmas presents.
For those of us working to design better financial services for the poor, it may pay to spend some more time understanding their lives.
- Mark Pickens