Transitions from OTC to Wallets: Evidence from Bangladesh

Despite being a relative newcomer in the mobile financial services arena, Bangladesh, which entered the market in 2011, is already making its mark. There are about 13 million registered mobile banking accounts in Bangladesh as of January 2014 and nearly $900 million in transactions per month through about 150,000 agents (Bangladesh Bank). New products are being added to the mix of mobile financial service offerings on a regular basis, including: salary disbursements, Government to person (G2P) payments, savings, loan repayments, and revenue collection. The market is in rapid transition and changing quarter to quarter.

Globally we see many markets where there has been unexpectedly high levels of Over the Counter (OTC) use of agents for fund transfers. Countries such as Ghana, Pakistan, and Paraguay the levels of OTC have been unusually high - often more than half of all transactions. In Bangladesh as well the early volumes are dominated by OTC.

CGAP together with pi Strategy Consulting sought to better understand OTC and wallet use patterns by assessing who were the early users of various payments services and inquiring whether or how a transition to wallets is underway.  For more information, please read the full findings.

Photo by Zakir Hossain Chowdhury

Some of the high level observations and business strategy implications from this research are:

1. Many customers see the value differently than designers expect. While we would like to think that everyone who wants to use mobile banking should open an account – or wallet – as a prerequisite, customers view and evaluate choices differently. There will be some who will open and use a wallet right away. But there will be many others who want to use the service without opening a wallet because they aren’t literate or don't have enough comfort with technology to go through the account opening process or even manipulate their mobile accounts on their own. We found however, if there’s a strong enough consumer need for a product people will figure out a way to use it. Enhancing the value proposition significantly for the “preferred” product (wallets) and allowing the consumers to make the transition on their own terms is a far more sustainable strategy. In Bangladesh’s early days of mobile financial services, much of the advertising campaigns focused on one specific feature: instant funds transfer. It was perhaps because this new service was positioned to compete head-on with existing and familiar forms of funds transfer services, such as informal courier services and via post offices. Initial public opinion was that funds transfer through mobile banking was a convenient alternative. This had a positive effect on the early adoption of mobile financial services and still drives the impressive volume seen in Bangladesh today. However, there was also a negative effect. People began to see mobile banking as primarily a funds transfer service. Since no account opening procedures are required for courier or post office services, people did not see the value in account opening for mobile banking funds transfers either. Our research documented many cases of those surveyed believing a bank account is something entirely different from mobile funds transfer. As a result, OTC itself was viewed as a separate product and it gained a strong foothold. More recent advertising campaigns highlight the additional benefits of wallets and a transition to wallets is underway. But it will take time to change and move perceptions.
2. The early adopters of wallets have a particular profile. In markets such as Bangladesh where mobile financial services (MFS) are dominated by OTC usage rather than wallet usage, somewhat distinctive customer characteristics are emerging between those who predominantly use OTC and those who predominantly use wallets. Wallet users are better educated, they have higher earnings, they are younger, and some of them already have accounts with formal financial institutions. Wallet users view trust as the most prominent driving factor for adopting MFS, whereas OTC users view instant transfer to be the most important factor. Over 90% of those surveyed use MFS to transfer funds among friends and family. These customer insights have direct implications on business strategy and regulatory environment. Knowing who the users are and how they use MFS products can better inform tailored customer acquisition strategies, especially to drive greater wallet usage. For example, wallet features that simply facilitate transactions among friends and family may lead to higher adoption of wallet usage. Perhaps a special friends and family package could be designed and marketed to heads of households. From a regulatory perspective, the customer insights may inform policy changes that create the necessary enabling environment to allow OTCs and wallets to co-exist, while at the same time offer a series of enhanced benefits and incentives to encourage wallet usage.
3. There are multiple pathways to wallet use. Transition to wallet ownership and usage happens in many ways. Some people transition from non-mobile platforms such as informal couriers or the post office. Others transition from one form of mobile platform (OTC) to wallets. And some use multiple platforms simultaneously; for instance, using a courier to send large sums of money and mobile to send more frequent smaller sums. While there is no single pathway one thing is clear: people will test multiple platforms before settling into a predominant pattern. Some of the dominant pathways are from courier service money transfer to wallets, and from post office money transfer through OTC to wallets. An MFS provider may get a higher ROI on opening a wallet by ensuring agent availability or that marketing collaterals are close to a courier service outlet rather than a post office. Our research also finds that 25% of those surveyed own wallets, but only 3% of those who own wallets conduct wallet-to-wallet transactions. Yet, of those who conduct wallet to wallet transfers, the transition is dramatic. Heavy wallet users have already moved into what we call a “single mode” phase – those that exclusively use wallets for all their MFS transactions. This finding has significant implications for business strategy. Since we expect that a large majority of those who conduct wallet-to-wallet transactions will reach single mode phase, devising special incentives and promotions to encourage wallet-to-wallet transactions will yield considerable ROI in terms of brand stickiness and possibly drive a large network effect common in mobile phone voice connection or social networks such as Facebook. The network effect can be leveraged for uptake of MFS. It is still the beginning of mobile financial services in Bangladesh. The market will continue to undergo rapid transitions into 2014 and beyond. At a recent event the Governor of the Central Bank reported that “this was the most comprehensive study on mobile financial service customer insights that has ever been conducted in Bangladesh.” As the market continues to transition we will learn more but this early stage research provides a useful baseline on user behavior that is a reference point to mark further transitions in the months and years ahead.

For more information, please read the full findings.