The ‘Uberification’ of Financial Inclusion: What’s Possible?
What Uber is achieving in the transportation sector is fascinating for most of us. Some are angered by the approach (surge pricing) and the implications for regulated businesses, but most seem intrigued. At CGAP, we want to understand what Uber and other socially interactive business models could mean for financial inclusion.
Leveraging social supply and demand in real time
This is arguably the foundation of Uber’s business model – leveraging existing underutilized social capacity to meet the transport needs of society, by matching supply and demand in real time.
How can the same logic be applied to financial inclusion challenges? Admittedly, the fact that there is cash involved adds risk to the transaction. But in the same way as companies like Uber and Airbnb leverage user feedback to manage the not-insignificant risks of their businesses, similar mechanisms could come into play for financial inclusion.
As an example of a use case, why not call on local communities to address the cash shortages of remote agents? With the right rules in place to manage risk, and appropriate incentives to encourage the behavior, perhaps a financial service provider could leverage the attributes of digital channels (location intelligence, real time interactions, data) to manage the supply and demand for cash. Instead of paying to transport cash to agents, or bearing the cost of illiquid, ill-equipped agents, why not incentivize customers to solve the problem directly?
Here’s how it would work. The agent would effectively be the Uber customer calling for a taxi (cash in this instance), and the community members would be the Uber drivers that only switch on their ‘cash provider’ app when they have surplus cash (savings under the mattress, windfall from rotating savings club, wages, surplus from harvest season etc). If the agent is willing to pay for cash, immediately-underemployed community members might be inclined to deliver small amounts of cash within minutes. As with Uber, there might be some ‘surge pricing’ at high demand times when providers or agents are willing to pay extra (e.g. when social grants get paid). Could this type of socially interactive business model help with the distribution challenge?
While perhaps more risky, an agent might also alert customers to e-money shortages (cash surpluses). However additional risk mitigation might be required here. For example, the agent might choose to only alert individuals in his/her social network so as to avoid theft.
Photo Credit: Tom Perry / World Bank
Reducing unknowns and managing risks
What is the financial inclusion equivalent question of “how long will my taxi take to arrive”? Uber removes the anxiety and unknowns by showing customers the answer, updating the information, and even giving eager customers the opportunity to verify the information (the driver’s name and mobile number).
We know mobile money customers want to know their balance – before, during and after every interaction. What other information would reduce customers’ anxiety? Perhaps money transfer customers want to know – visually and in real-time - if mom has received and used the money. Or would it help to show how far the closest agent to mom is before the transaction, and whether the agent currently has the liquidity to cash out? Let’s take things further. Will the agent rip mom off - have past customers given him or her high ratings? Will he or she surcharge? Will he or she require a purchase to make a withdrawal? Uber’s rating system tries to answer the taxi-equivalent of some of these questions by providing immediate feedback on drivers (and customers), thereby incentivizing enhanced customer and driver experiences.
Simplifying the user interface
As smartphones penetrate even low-income communities, creating intuitive user interfaces that require no more than 2-3 touches will become an increasingly relevant opportunity. An intuitive 2-touch user experience for low-income, low-literate customers could be the difference between failed transactions and 70% inactive customer rates, versus mass take-up, increased usage and network-effect driven exponential growth.
Offering customers choice
How do we give customers choice without complicating things, and without sacrificing the 2-touch transaction? With Uber, the basic choice is whether you are price sensitive or not – UberX vs UberBlack (basic car vs luxury). The first step would be to identify the choices financial service customers think are critical. For example, service could differentiate the price of transactions completed face-to-face versus those moving money over distance – one being inherently more valuable than the other. Over time other options and services could be experimented with, gradually expecting more of customers without losing the simplicity.
The digital finance frontiers initiative at CGAP has the exciting job of identifying sources of innovation, and working with providers to drive experimentation in the highest potential and most effective ways. We expect the financial services sector to continue innovating around socially interactive business models – moving to a world where the excess supply of labor creates an independent but socially-monitored and connected workforce that could sign up and train new customers, exchange cash for electronic value (with agents and eventually with other customers), and provide input on the credit worthiness of social connections.
If you have other ideas on how socially interactive business models could be applied to advance financial inclusion, please leave us a comment.
Rural India has been receiving millions of ATM debit cards with their recently opened accounts , but have very few ATMs say around 30,000 for over 500,000 villages having some populations. ATMs in most of these villages are not viable due to lack of footfalls or low balances. One possible solution with a social angle can be that the village authorities set up an ATM and bear the running cost, outsourcing the whole operations to a third party. However, the ATM is attached with a bank to take care of account opening, deposit taking, remittances, credit dispensation,etc. ATM, like village road, is a necessary economic infrastructure, even if it's utilisation is low, at least initially. I am confident that at least 20% of villages authorities shall be able to afford setting up and running an ATM. This will save huge mandays lost in accessing basic financial services and lead to simple inclusion and then provision of quality services in due course.
Les rigidités de la supervision et de la régulation financières concernent essentiellement l'activité des professionnels impliqués dans le processus d'inclusion financière. Quand aux opérations P2P, elles sont à la base des opérations civiles. Les opérateurs de téléphonie mobile ont mis en place des solutions P2P qui comptent en termes de coûts de transaction et de ressources pour les personnes impliquées dans ce type d'opérations. Cela marche entre personnes proches, c'est-à-dire, entre les personnes qui entrent en relation pour une raison quelconque. Le caractère pluriel de l'économie de marché se réaffirme spontanément et s'imposent tant aux régulateurs et autres professionnels qu'aux Etats en quête de ressources fiscales. Au nom du principe de la liberté inscrit dans la Déclaration universelle des droits de l'homme, la limitation de toute initiative pouvant impliquer tout individu situé à proximité peut donc participer de l'obstruction à la liberté d'entreprendre. Parce que l'opération initiée génère des données et une traçabilité confortables, même les services fiscaux sont servis.L'éducation à la citoyenneté et l'éducation financière peuvent être alors mieux se diffuser dans le tissu social. Ainsi, l'accès aux services de paiement - service public par excellence voire un droit pour tout individu - peut alors se diffuser, indépendamment du type de prestation - civile ou professionnelle - , le plus important étant la concrétisation du droit de chacun. Il revient donc aux Etats de réguler cette liberté de transaction. Il s'agit de la confirmer et de mettre en place la libre déclaration auprès du fisc ex-post voire instantanée. Par ce moyen, le service de paiement se diffuse progressivement et inexorablement dans le tissu social. L'existence d'une liaison téléphone portable - compte bancaire en passant par le porte-monnaie électronique établit bien un processus d'"uberisation" ou d"'uberification" en totale adéquation avec le libéralisme économique. Tout semble donc lié, in fine, soit au modèle économique qui pourrait être mis en place s'agissant d'une professionnalisation de l'opération, soit de l'intérêt et de la capacité d'un individu à offrir un service de proximité au demandeur. La promotion et la culture de l'esprit de citoyenneté constituent bien un enjeu de taille à la concrétisation du processus d'"uberisation" ou d'"uberification" du service de paiement.