We are just scratching the surface of what digital technology can do for low-income consumers. If we have learned anything in the last decade, it is that our ability to make change happen at scale is not about technology: it is about focusing on what customers actually need, being brave enough to rip up some old business models, and good old-fashioned operational delivery in a sometimes very analogue world.
Mobile has been a game changer. Mobile technology has already disrupted the barriers of distance, speed and cost. Today there are tens of millions of people whose first ever ‘non-cash’ transaction has been done using a mobile phone. This trend will continue as we see the regulatory inertia change, players moving from adjacent sectors driven by the hunt for new revenue or threat of displacement (for example network operators buying banks and vice versa).
What’s coming next? There are even more powerful digital tools in the pipeline. As digital access becomes ubiquitous we will see, for example, accurate, enforceable digital identity; transparent, accessible digital public ledgers; the massive emerging world of connected, affordable equipment that can be a productive asset for the user.
This is complex and it is hard to make broad predictions on how this will work. Instead, I’ll pick a few lessons from personal experiences that I believe apply to a digital future.
1. Technology is a means to an end.
We need financial products, services, applications that solve real problems. Traditional savings, loans and insurance products will always have a role, but when we use digital payments to tackle liquidity and flexibility, I think we can make a bigger difference in people’s lives. Thanks to the fabulous work of Stuart Rutherford and the financial diarists, we now understand the daily challenges that low-income households face because of erratic income and unpredictable cash flows.
Drawing from my own experience at M-KOPA, we use mobile payments to asset finance a ‘connected’ solar energy device, selling this as a service - not hardware. By making small incremental payments anytime, we allow the customer to displace the costs of expensive, harmful kerosene, free up household cash and acquire a re-financeable asset. Is this digital? Yes, in part. But more importantly it’s a proposition that meets an acute need, in a way that provides the customer with a flexible pathway to new services. See here for a short paper for some lessons in acquiring our first 250,000 customers.
2. We can’t take our eyes off operational delivery.
I can’t emphasize enough how critical it is to stay focused on operations. Technology does not and cannot replace the need to put boots on the ground, grow management capacity in a customer service organization, or do the ‘hard yards’ of running a business. We learned this in taking the exact same M-PESA platform between two geographically adjacent markets: customer adoption can have little to do with the technology per se. It is all about how the service is delivered, how local conditions are taken into account and the positioning of that service in the minds of the customers. And it goes without saying that commitment and strong leadership are needed to make change happen. These are hard things to do.
3. New customers = new understanding.
The ability to adapt and be flexible is critical as we discover new things about previously unreachable customers. We know today that the needs of low-income consumer are varied and complex. Banked/unbanked; on-grid/off-grid; employed/unemployed – these categorizations are too simple and don’t add much value when it comes to product design. Preconceived customer traits must be jettisoned and business models adapted. Again some examples from my own experience: Of the first million customers who used M-PESA, the majority were already banked. In the first quarter of a million customers using M-KOPA’s pay as you go energy service, 20% pay quicker than they need to (or as economic rationality would indicate). In both cases, these unanticipated customer responses, once understood, can be leveraged to shape an improved offer.
4. New rules; different value chains.
Technology is not something exogenous that we can grab and wave like a magic wand to solve problems. But it does let us throw out the old rule book when it comes to ‘who gets what’ in the value chain. More connectivity will blur lines of distinction between customer, enterprises, communities etc. Value will get created in more places than we think, and it will be more distributed than the traditional linear, service provider-to-customer model.
Peer-to-peer lending and crowd-funding are obvious examples of new business models made possible by technology. More fundamentally, look at the employment and income created in successful mobile money agent networks. bKash in Bangladesh has done this brilliantly, focusing first and foremost on building a brand through a large network of incentivized agents. Other mobile money programs have faltered where the service provider does not invest in allowing others in the value chain to do well early on. Another, even simpler example: 30% of M-KOPA’s customer base make a small income through selling charging services to their neighbors.
It is hard to capture this complexity in a blog but the rate of technology change feels exponential, which is good. We will see many new business models emerge and those that scale successfully will have kept their focus on solving customers’ problems.
Could not agree more with your thoughts and explanations. I think "Technology is to enable Services to meet the need of people". There are 3 words in this sentence "Enable", "Service" and "Need" and a technology which can bring all three together is the one which will flourish and surely make an impact of people's lives.
Thanks for your nice article.
Technology is not the solution to all the Microfinance services. I am a great believer in technolgy (I jhad mi firest real computes with the HP magnetic cards calculator and after with a RadioShack model I, etc.), but I also happen to be a psycholgist, so I understand that technology has three weak links: (1) It can be adictive, (2) it interphases with people (Good and bad) and (3) Many issues are batter solved with a "handmatic" solutions (An inteligent combination of Good Old-Fashioned Artificial Intelligence (GOFAI) blended with the traditional handwork with an inteligent the automation of technology, this I call "Handmatic" Solutions). Three examples: First, M-PESA_ Read the article in CGAP http://www.cgap.org/blog/safaricom-launches-feature-prevent-errant-tran… - where crooked minds are creating a risk factor and the solution of SAFARICOM is not too convincing; the SPAM filters. Aecond, Just ask yourselves how many important mails were losted when de SPAM filters block it and many important messages you send from clean sources that were rejected automatically (I like to delete my SPAM personally) and Third, the credit scoring that made loan approval a masive option since 2002 and was considered the best solution to massify credit, which is a selective prosuct, and took us to the Credit Crunch that started in 2008.
Technology can be very helpfult but is means not and end and there is still a huge need of financial education gefore technology can be used rffrctivrlly, this is true with time, I ask myself what de conseceuneces will be and worst, what conseuences ofrom the viral contagious in Microfinances that is happening with the Kenya model worl wide, will it occur before we have a new Andhra Pradesh Microfinance Crisis. True, that technology helps a lot, mainly in the teller operations, money transfers and account consultations, but what about the personal contact (We must learn from the international remittances experiences
You have articulated all your points with logic and I completely agree with you that we can not remove human touch when dealing with humans. Technology certainly help in making things faster but its not an answer for the human intelligence and intuitions.
But we need to accept that to make large number of people financially literate and in short period of time, we need the help from technology. Its really a catch 22 situation where we need technology to make people learn and because of technology (and crooks) less knowledgeable people get cheated.
All the financial crisis in the past & in future would be the results of human greed and we can not blame technology for that. I don't think any body who has developed different technology solutions has developed to cheat but in this material world we have all kind of people and small portion believe in negative disruption of the technology solutions.