Why is the Progress of Mobile Money so Gradual and Patchy?

Per the norm, a great post from Ignacio. On the issue of merchant acceptance of mobile money, I'm curious on this community's thoughts on the demand side from the perspective of a micro or small business. There seems to be a constant voice telling us about cash's inherent costs, so wouldn't merchants be motivated to decrease their cash holdings by accepting mobile payments? But what costs do merchants associate with mobile money? Identifying these costs could lead to significant discoveries.

Great post. Crisp, clear and to the point!

I can shed some light on the reluctance to store value on phones based on my anthropological fieldwork in Kenya in 2012. People see their phone as a social networking instrument. Mobile money is an adjunct to that social function, not a separate "banking" function. People participate in small and frequent remittances with core groups of family members. Money on your phone is potentially "in circulation." Most people, even those without a lot of resources or money, experience frequent, even daily requests for remittances from relatives and friends. People keep several handsets or sim cards, change or cancel registrations - all in an effort to manage social networks - it is unacceptable to verbally refuse a request. The minority who have bank accounts send money from the phone to the bank account to further their savings and take that money "out" of circulation.. Based on our conversations and surveys only small numbers of people use their phone accounts for earmarking or managing money - and these are mostly RoSCA members who earmark their group contributions.
Another reason people do not have value on their phones is that they do not have value. The level of poverty in Western Kenya is great. We often model the MM customer as a small scale entrepreneur or someone who has access to value and its transformations in the first place. These are the lucky ones. Most people in Western Kenya are subsistence farmers with very little access to money. They send MM in emergency situations - mother has no food, my child has been sent home from school, I am stranded without transport. Remittances are a coping mechanism and a lifeline for people in poverty, and there is not enough money to save in the first place.

Our anthropological fieldwork done in Western Kenya in 2012 also found that people store very little value on phones. Using mobile money is a part of using a mobile phone, and a mobile phone is a social networking tool. People participate in the circulation of small, frequent remittances with one or more groups of people, such as relatives and friends or savings groups. Keeping value on one’s phone means that it is potentially “in circulation”. People avoid keeping money on their phones because of constant, even daily requests for remittances. It is not acceptable to say “no” to a loved one’s request. Instead people manage multiple handsets and multiple SIM cards for different kinds of contacts, or they even discard SIM cards and cancel MM account registrations to duck a request for a remittance. Managing mobile money is, like using a mobile phone, about social networking as much as (or more than) it is about financial behavior.
The minority who are “banked” and can afford the significant fees will send value from phone to bank account in order to save. We were told that if money is on the phone, it will be spent or sent to a loved one who needs it. Women who are members of savings groups were the only people we met who consistently used MM as a means of earmarking monthly contributions, probably because these contributions were sent via MM to the group’s treasurer. Another reason people have very little value on their phones is because they do not have the value in the first place. The entrepreneurs and others who use mobile money frequently, especially its banking features, are the minority. Subsistence farmers, the majority in the rural areas, have no value to store. Remittances in the settlement schemes among subsistence farmers are a coping mechanism and manage crises of all kinds, including lack of food, medical care and other basic needs.

You make really excellent points about the role of organizational culture - of both MNOs and banks - in impeding the growth of MM. I believe we can and should tackle changing the cultures of some of these organizations in order to allow MM to blossom. But any change, especially org culture change, will take a LONG time. Let's not give up. Can we find a few visionary leaders who are willing to transform their org's culture? Research indicates that Leadership impacts 70% of culture, which in turn impacts 30% of overall business results. In the case of MM, and as Ignacio points out, the impact of culture is even higher than that!

Thanks Micah and Madhu for the kind words.

Micah, I don't think most stores would see inherent value in accepting electronic/mobile money from a safety/logistics point of view while only a minority of customers pay electronically. In this situation, you still have to deal with the usual volume of cash plus you know have the added headache of handling one more form of payment. But once a majority of customers do pay electronically, then you can start seriously taking cash out of the business, with all the attendant benefits. That's a classic coordination problem: stores will want it only if a majority of customers want it, but customers will only grow into it gradually. So in the early days, the business case for accepting electronic payments remains in offering customer choice and convenience, not letting your competitors woo those (few) customers who prefer to pay electronically, and preventing the odd customer from walking out of the store without doing a purchase for lack of cash.

Hello Sibel. I agree entirely with your analysis, thanks for sharing these excellent insights. Mobile money the way it is currently conceived has some serious shortcomings as a store of value, but I don't think it need be that way. Most people want to save, most people do save in some way or other, and a communication tool like the phone ought to provide the kinds of discipline and control mechanisms that people want around their money management. There are obvious ways to improve the mobile money service to make it more savings-friendly, reflecting the mental models and money management practices that most poor and non-salaried people live by. I'm not giving up on mobile savings: see my early thoughts on the topic at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2018807.

I also think technology is an inhibitor on the user-side of the equation. USSD and SMS interfaces are clunky and confusing especially to users who sometimes have little schooling and may share the device and therefore be an infrequent user of the phone.

I think when low-cost Android phones make their way to the rural poor around the world, we will see more adoption of branchless banking, more acceptance by merchants, and better service by agents. The process is often cumbersome and of too little value to agents.

More intuitive user experiences enabled by smartphones solves lots of problems.This will also enable better money management including the possibility of hiding some accounts as a way to fend off remittance requests.

Dear Ignacio Mas Thank you for the post. It is very much refreshing to see the rare analysis presented distinguishably for supply and demand side realities in this blog . The recent postings and the present one in the blog with demand side perspectives on the unintended outcome on the much hyped mobile magic in the poverty sector is of any indication , then it should be regarded as warning signals for further technological intrusion in the name of financial inclusion or branch less banking particularly in developing countries . It is revealing from anthropological field work to note MM as an adjunct to that social function not a separate banking function . I agree with Sbel Kushimbe. Besides MM not having value in the first place for the poor on one hand and serving small number of user groups on the other as pointed , it would also widen the inequality gap which is more harmful than poverty. Policy makers both at global and national level, need to think the priority in the development process to choose between “Mobile Money” or “Mobile toilet” in poverty rich continents – Asia and Africa
Dr Rengarajan

A truly stimulating post from Ignacio.Definitely,one of the reasons mobile money users do not use it as a store of electronic value is because of the low uptake of using it as a payment means at merchants where people shop regularly e.g. groceries, department stores etc. In such a scenario there is no alternative to convert the electronic money into cash at agent points and use the cash to shop. However, there is one more catch here. Cash-out at agent points is chargeable under most of the mobile money deployments. This would mean mobile money users would prefer to withdraw all the electronic money and convert to cash in one transaction rather than preferring to store money and pay recurring Cash-out charges later.

Fab Ignacio. You have once again shown how difficult it is to state the obvious succinctly. Keep em coming

Thank you, Ignacio, for your insightful article – and for the reference within your piece. At MasterCard, we believe in a world beyond cash, and the world beyond cash is also a world beyond plastic. Mobile technology is a key driver in realizing this vision, opening access to the economic mainstream in markets like Africa, which has, collectively, 1/9th the economy of the United States, but more than double the number of mobile phones. There has been an explosion of remittance and payment products that leverage existing mobile networks, and SMS technology supported by investment in payment agents. In 2012, we announced our Mobile Money Partnership Program to help consumers worldwide make purchases of goods and services via their existing mobile money accounts, as well as transfer funds and pay bills. As a company, we continue to innovate to define and enable the future of commerce and foster greater financial empowerment, where economic growth is more equitable, inclusive and sustainable.

What a refreshing post. I have been thinking a lot about mobile money recently and particularly in the context of Latin American countries, where the potential seems to be really high but in practice, not much can be said about experiences that really worked, and are successful in terms of improving financial inclusion and, are developed in a sound regulatory environment. Thanks for challenging our thinking.

This is very good analysis of the problem.
It is important to notice that money is an exchange that facilitates purchase of goods and services. If touch points, where exchange of money takes place for goods and services are not enabled simultaneously, cash outs are likely to happen and electronic money will soon lose interest and buy in. It is a catch 22 situation. The article does state, that to motivate merchants, it is important to increase holding in electronic money. But at the same time customers who are unable to use the electronic money for goods and services will cash out faster. So while experimentation with electronic money transfers has been proved successful, the second stage should concentrate uniformly on empowering both merchants, saving and investments through mobile money. This will ensure more usage, acceptance and hence success
This gets me to my second argument: mobile money has long been pioneered by operators. There has to be a mainstream foray by banks supported through operators as they are eventually the building block of an economy's financial structure. Central and subsidiary banks can enable all touch points, facilitate acceptance and flow of money and govern trade and micro finance through the system of accounting, checks and balances that is so intertwined with the economy. One of the reasons why we see such fragmented acceptance is because of who propels and facilitates mobile money – operators and gateways, institutions that actually do not form the core governing house for payment systems.

Moreover each economy and region has to be approached differently as the socio-economic realities are different and need peculiar insights and redressal.

I'm a bit overwhelmed by the range of responses to this blog post, it does show that there is a lot of anxiety out there about whether the mobile money/banking experiences out there are proving as fulfilling as we'd all hope.

To be clear, Dr Rengarajan, by highlighting the lackluster results on the ground I am questioning whether current approaches are good enough, not the ultimate objective. I don't see why banking technology should be frozen at today's levels. Do you agree banks should have IT systems, ATMs, switches enabling interbank transfers, call centers to address customer queries? So why might it not be appropriate to develop alternative channels that offer the opportunity of delivering superior customer experiences? I believe much of this can happen on commercial models, so your trade-off with mobile toilets is actually a false choice.

David, I share your concerns about the quality of the customer experiences that can be built on SMS and especially USSD channels. But fear not, time is on our side, the day is now not too far off when most people will have much more capable phones -- what we call smartphones. Then we will have much more leeway to construct mobile applications that truly reflect how people think about money, helping to turn the mobile phone into an intuitive money management tool. Think of using your finger to literally drag some representation of money across your screen to separate it out; think of then dragging the school icon onto that pile to lock that in as the purpose. What is being deployed now I call mobile money version 0.1; the first really good money management service, version 1.0, will run on smartphones. Smartphones will also get us telco independence and much lower connectivity costs (using the data channel). Then the fun will begin.

Vivek and Sanjay, of course acceptance is very important. But I don't believe that just getting all mom & pop stores to accept electronic money will make people want to store substantial amounts of electronic value in their mobile account. And that's because having a single lump of liquid value is simply not how most people want to manage their money. We need to give them the tools that make them feel they have the power to manage their money and control themselves. In my opinion, that's the "missing link" in the mobile money chain, sitting squarely between issuance and acquiring. Once people are comfortable that they can control money on their phone effectively, then they will look for convenient ways of deploying their electronic money when they make purchases, and electronic acceptance can then thrive.

Here in Brazil the situation is worse. I developed a simple and inexpensive technology to be deployed within any company to m-payments technology called GetCode and no company wants to listen to my project. It is a technology that only needs internet access .. Do not use USSD, SMS, NFC, nothing. Simple, fast and efficient. If I were an American, or a Harvard/MIT graduate, was already working as a primary means of payment in the world.