The Case for Product Innovation in Branchless Banking

The promise of branchless banking is increased access to finance for the poor and new revenues for providers of all stripes. That’s not happening yet.

CGAP counted 22 branchless banking services with more than 1 million registered users; we also counted more than 70 others which have not reached that threshold (as of Q1 2011). That’s about a 1 in 4 “hit rate”. If we look at services which have launched since 2007 (i.e. since M-PESA got everyone excited) and acquired more than 250,000 active users (a better indicator of traction in the market than registrations), success rate drops to 1 in 15. Not so hot.

This might just be the growing pains of firms still figuring out how to operate in this new space at the intersect of several industries (mobile, banking). Some providers have fallen into regulatory ruts, some are finding it hard to build robust agent networks, while still others are struggling to make technology platforms stable (often wrestling with vendors who provided them in the first place). In short, there is a lot of worthwhile work going on laying the rails for branchless banking.

But all this supply-side effort seems to have crowded out the demand-side question of whether consumers actually want the products on offer. Why are we so certain that a liquid wallet with P2P and bill pay functionality is the “killer app”? Partially because people saw it succeed in Kenya (though nowhere else yet). Partially because most telcos don’t want to take the lead on more complex financial services, and they’ve convinced themselves they don’t have to. And partially because it seems the question is just not getting asked.

Source: CGAP Source: CGAP

Despite this, the data seems to beg the question: With nearly 100 live branchless banking implementations worldwide but so few gaining traction with consumers, could the product be the problem?

Some higher income clients can be captured by convenience and the cool factor of easier money movement. But the mass market of low-income, unbanked consumers is different. The microfinance sector has known for some time that these consumers have a range of financial service needs which are deeply felt but often poorly met (even by the microfinance industry itself). CGAP has called for more attention to consumer wants and deeper thinking about converting the inactive to active. There are certainly some innovative products out there. These include Mobile Venture Kenya’s adaptation to mobile phones of Stuart Rutherford’s P9 product, which blurs the lines between credit and savings. We’re also intrigued by the airtime-based life insurance with MicroEnsure and Tigo in Ghana.

Unfortunately we don’t see enough of this happening. There are three main reasons:

1. Firms are firing on all cylinders just to get a basic offering to market. It can be an all-consuming process. But why kill yourself pushing to launch without devoting adequate thinking to whether your offering will be attractive to clients?

2. Many managers struggle to source meaningful insights about consumers. This is especially true for new products (where traditional focus groups or quick-hit surveys may not surface underlying needs) or for companies moving across sectors (either MNOs into financial services or banks extending their customer base to the bottom of the pyramid). Managers need better tools to understand consumers and convert insights into product ideas.

3. Existing product development processes often make launching new products a high-stakes game for the manager pushing it. New products often aren’t really tested until commercial launch, by which time it is costly to make changes. Many firms would benefit from a rapid prototyping process that puts product concepts to the test early and often in the hands of real consumers. Building out new products would be much less risky and expensive.

CGAP’s Technology and Business Model Innovation Program is partnering with at least 3 providers to launch Product Labs that demonstrate new ways of understanding clients, testing ideas and designing breakthrough products. This blog series will say more about what the Labs will look like, explain what we’ve learned about product innovation in other industries.

- Sarah Fathallah, Toru Mino, Mark Pickens


27 August 2012 Submitted by Anonymous (not verified)

Your perspective on the lack of success for these services makes lots of sense, and it is the same experience felt in many products that lack effective user participation in the design and development process. I’d highly recommend inclusion of Human Centered Design methodologies to the development process, and in fact it might be possible to partner with IDEO.ORG since introduction of these techniques to eliminate poverty is their core mission and IDEO is one of the best in the business.

27 August 2012 Submitted by Anonymous (not verified)

Thanks once again to the CGAP team for highlighting this critical point. Over a 20 year history of partnering with more than 250 development finance institutions, SBI’s own experience reinforces the “client is king/queen” reality. The alternative delivery channels revolution just demands this continued focus in new ways, given the latitude for product/service innovation opportunity available through the new technology platforms. Incorporating rigorous quantitative market research and demand segmentation into ADC design is a critical complement to more qualitative approaches like focus groups and intercept surveys, in our experience. Product pilots through ADCs are an excellent way to go, given the combination of relatively inexpensive roll-out, and ability to tightly target and monitor uptake and feedback from the marketplace. Perhaps the CGAP team could consider developing/hosting an “ADC product/innovation wiki” or equivalent, so that innovation and successes/failures can be more broadly and effectively captured and shared across the growing range of ADC implementers?

27 August 2012 Submitted by Anonymous (not verified)

Richard, Stay tuned to the 3rd and 4th blog posts in the series where we will talk about the kinds of more observational and prototype-driven approaches to understanding what clients want. That’s not to say surveys don’t still play a role, but it’s not uncommon to get different insights from asking what clients want (surveys) vs. watching what they actually do (more observational techniques).

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