Designing mobile money products to serve the unbanked consumer

Innovation & Integrated Solutions, ACCION International Frontier Investments Group Vanessa Vizcarra Bianchi Marzo 2010

Jun 2009
© 2010 ACCION International 1

Contents

ACCION International & Frontier Investments Profile of an unbanked consumer - Who they are - How they save - How they feel about electronic currency Marketing segmentation and identifying the crucial early adopter segments Developing promotional strategies that target the unbanked The role of client education to increase trial, usage and adoption of mobile money

© 2010 ACCION International

Successful. less well known.000 2. well-known with strong operational track records. smaller. Grameen Foundation. Feb 2005 and 2007 MicroCredit Summit Campaign Report © 2010 ACCION International . Start-ups. Nearly all NGOs Young. Jennifer Tapping the Commercial Markets for Microfinace. post conflict settings.000 10. weak systems. younger.10.000 -100.Data suggests that commercial approach is driving success for MFIs Tier 1 2% Serving >> 86% of all clients 9% of all clients 3% of clients 2% Tier 2 ~10% of all MFIs Tier 3 ~17% of all MFIs Tier 4 ~71% of all MFIS Tier 1 2 3 4 # of Clients Over 100. Approaching profitability. Nearly all NGOs Unprofitable MFIs. At or near profitability. Most are regulated.500 MFI Characteristics: Mature.000 Under 2.500. weak institutions or MF is not focus Sources: Meehan. lack capital.

For ACCION. PERMANENT IMPACT © 2010 ACCION International . taking a commercial approach is about impact Mission Give people the tools they need to work their way out of poverty Means Market knowledge / field presence Institution building/technical support Continual re-invention/innovation Metrics Value Scale Market Links PERVASIVE.

ACCION s footprint is now global Over 50 Institutional Partners / Portfolio companies in over 30 Countries © 2010 ACCION International .

Results: innovation 2007: Compartamos IPO 2006: Frontier Investments (Gateway Microfinace Infrastructure Fund) 2005: ACCION expands into India and China 2004: ACCION founds Council of Microfinance Equity Funds 2003: ACCION Investments in MF 2000: ACCION Expands into Africa 1999: Palm Pilot paperless microcredit 1996: First microfinance bond issue: BancoSol 1994: First MFI diagnostic tool: CAMEL 1992/3: First Equity Funds for Microfinance: Profund and Gateway Fund 1992: First private commercial bank for the poor: BancoSol 1985: First microloan guarantee fund: Bridge Fund 1983: First international network of microfinance institutions 1973: First microenterpirse loan in Brazil © 2010 ACCION International .

future success requires a quantum leap CHARTING A NEW PATH The microfinance industry is still in its infancy. and there are significant bottlenecks to continued expansion of financial inclusion Though ACCION may be leading the pack among NGOs. the industry is evolving and we can t rest on past laurels © 2010 ACCION International .Still.

convenience and price focus to Frontier Investing © 2010 ACCION International . first mover advantages High touch personalized service NEW BUSINESS MODEL VISION Value offer Services targeted at low income households Distribution / coverage Speed. Frontier Investment New Business Model requires evolution from traditional microfinance HISTORICAL DRIVERS OF SUCCESS Credit methodology Orientation on the microenterprise Access.Impact investing can reshape the industry.

housing & other financial services beyond business loans Technology Distribution Products © 2010 ACCION International . credit scoring) Branchless/mobile banking (mobile. stored value. cards + POS) Microinsurance.Frontier Investments: Breaking the Bottlenecks to Expanded Financial Inclusion FRONTIER INVESTMENT CHARTER: Catalyze innovation through impact investing in core sectors of ACCION s Business Model Bottlenecks Custom Built. People + Paper Based Capital and Cash Intensive Limited Product Offer Lever Breakthroughs Scalable platforms (core banking systems. BPO.

less educated and have lower familiarity with financial services and technology than mainstream banking customers. Properly designed customer research allows Institutions to segment its market and carefully design the channel to meet the segment needs. One that has a major impact when the profile of unbanked consumer is the level of education.Profile of unbanked customer There are three fundamental variables that differentiate those who represent the biggest potential to use a channel: positive attitude towards the channel knowledge of the channel Knowledge about financial products Demographic variables are not the most important. Especially in alternative channels where customer may not understand benefits. MFIs face a particular challenge because their customer base are generally lower income. Institutions should base decisions more on properly designed qualitative and quantitative market research to understand customers. © 2010 ACCION International .

He needs help for use He knows and mostly use other financial products different than savings. between 35 to 45 Entire dependency on the than $500 years.Profile of unbanked consumer: who they are? More active in requesting the channel Receptive to the direct offering but with fears Slightly receptive to the channel with big barriers Enthusiasts Attitude Financial Products Very good attitude to channels (reliable and easy to use) Better knowledge of channels Major possession of financial products different than savings Traditionalists Attitude Financial Products Little experience with channels' use. but relatively open attitude. 350 no agropecuarios) * Valor cities © 2010 ACCION International . Little knowledge of channels Reluctant Attitude Financial Products Suspicious / difficulty of channels' use Ignorance of financial services Minimal knowledge of channels Demographic characteristics Demographic characteristics Minor educational level More educated (diversified) Demographic characteristics More married with children More single people without Average level of education More housewives than in children (primary) other segments More micro entrepreneurial More housewives than Segment almost completely and wage earners between the enthusiasts femininely Mainly located in cities Proportion mediated of More villages (urban) married. other segments They tend to depend almost completely on remittances They travel more to principal mediano Base : 700 encuestas (350 agropecuarios. with children Income: no more than $500 Average income: no more Mixed age. remittance Younger people Average Income: no more than $500 Men's major proportion vs.

ACCION Int. ACCION Int. Nicaragua..I&IS Unit. ACCION Int.Profile of unbanked consumer: how they save Rural Market Static savings Guardadito (balance does not increase) Urban Market 13 % Saving keeps growing 37 % Does not save 50 % Does not save Saving grows "Guardadito" Panama Urban 50 40 10 Nicaragua Urban 45 40 15 Integral Research of Rural consumer behavior : Colombia.I&IS Unit. Dominica Rep. . Global Programs . 2009 © 2010 ACCION International . Ecuador. 2009 Market resrach f or urban savings in Nicaragua. Global Programs . Global Programs . Perú. 2009 Market Reserach of savings for housing in Panamá.I&IS Unit.

I&IS Unit. 2009 . Nicaragua. © 2010 ACCION International . . Dominica Rep. Perú. 2009 .I&IS Unit.I&IS Unit. ACCION Int Global Programs . Ecuador. ACCION Int Global Programs . ACCION Int Global Programs . 2009 Spend then save Set aside first then spend Save when extras come 55 33 12 55 24 20 Market Reserachof savings for housing in Panamá. Market resrachfor urban savings in Nicaragua. .Profile of unbanked consumer: how they save (savings accumulation) RURAL MARKET Saves when there is extras 25% 15% 60% Spend and then save the remainder Save first then spend the remainder URBAN MARKET Panama Nicaragua Urban Urban Integral Research of Rural consumer behavior : Colombia..

when mobile banking overcome the initial inertia. not all. China and India.Profile of unbanked consumer: How do they feel about electronic currency? In customer market research that ACCION has conducted in Peru. Guatemala. its benefits of safety. segments of low income population. © 2010 ACCION International . lower costs can gain traction very rapidly among certain low income segments. Mobile banking has all three characteristics is consider one of the most difficult channel to gain momentum among the base of the pyramid. a non cash transaction or little human interface. However. Ghana. This is specially the case if interaction involves technology. lack of trust in alternative channels has been a familiar refrain for certain. speed.

I&IS Unit .Profile of unbanked consumer: How they feel about electronic currency? Opportunity of use alternative channels Opportunity of Use Facility of use Agricultural Base : Agropecuarios (350) Base : Usan cajero ATM (56) Opportunity of Use Facility of use Not agricultural © 2010 ACCION International Base : No agropecuarios (350) Base : Usan cajero ATM (91) Market research Rural Consumer Behavior Peru 2009 / ACCION International. Global Programs.

4% Agricultural Base : Agropecuarios (350) Would need to pay account maintenance fee Base : No usaría (69) Probability to use ATM s card Reason for not using card He does not know how to use it Lack of security Fear of being assaulted when withdrawing He is not familiar with service He is not interested Would prefer to go to a bank branch Would need to pay account maintenance fee Not Agricultural © 2010 ACCION International High maintenance fee There are not ATMs close home/work Base : No agropecuarios (350) Base : No usaría (84) 32.9% 8.1% 27.3% 2.0% 10.4% Market research Rural Consumer Behavior Peru 2009 / ACCION International.8% 5.3% 3.4% 13.9% 1.6% 2. I&IS Unit .4% 11.8% 4.4% 2.Profile of unbanked consumer: How they feel about electronic currency? Probability of use of an ATM s card without need to open account in an Institution Probability to use ATM s card Reason for not using card He does not know how to use it Lack of security He is not familiar with service He is not interested Fear of being assaulted when withdrawing Would prefer to go to a bank branch High maintenance fee There are not ATMs close home / work 39.6% 3.1% 17.3% 8.1% 5. Global Programs.

Profile of unbanked consumer: How they feel about electronic currency? Disposition of use and handling of a bank account through a cell phone Disposition of use and handling Reason for not using it Lack of security / confidence / trust Many frauds using cell phones Fear to have cell and money stolen Not familiar with service Prefers to go to a bank branch Not interested 41.9% 4.8% Not Agricultural © 2010 ACCION International Base : No agropecuarios (350) Base : No usaría (122) Market research Rural Consumer Behavior Unit Peru 2009 / ACCION International.1% 9.1% 0.6% 35. I&IS .9% 2.5% 14.8% 12.3% 4.8% 3.6% Agricultural Base : Agropecuarios (350) Base : No usaría (77) Disposition of use and handling Reason for not using it Lack of security / confidence / trust Many frauds using cell phones He is not familiar with service Fear to have cell and money stolen Prefers to go to a bank branch Not interested Using cell phone is more costly 33.6% 29.1% 7. Global Programs.

Literate. Basic or No Literacy. Little or No Elementary Education. Urban Frequency Middle-Aged (3550). Educated. No Literacy. Literate. Basic Literacy. Mainly Rural Middle-Aged and Senior (35-60). Some Secondary Education. Rural Senior (50-60). Some Elementary Education.Marketing segmentation and identifying the crucial early adopter segments Rate of adoption depends on many factors: Perceived benefits of alternative channel & product related How benefit is communicated and promotional efforts Price and ongoing costs Enthusiasts Traditionalists Easy of use Perceived risk Reluctant ? Relative Adoption Buying decision heavily influenced by early adopters Channel will have to cross the chasm to gain mainstream acceptance Time of Adoption Customer Attributes to confirm Young. No Elementary Education. Urban Middle-Aged (3550). Rural © 2010 ACCION International .

For Early adopters: one to one interaction. Simplicity of the customer value proposition: while it is tempting to offer an array of services through multiple channels. educational programs that pave the way to reach scale (successfully implement early majority segments). incentive programs to use the channel.Developing promotional strategies that target the unbanked To increase adoption of the channels we can consider the following: Design different product and marketing strategies to respond each segment individual needs. a best practice is to offer a single. promotions in commerce s associated. Many customers need to experience the alternative channel (as in convince themselves that if it truly functions as the marketing messages promise) a number of times before employing it regularly on their on. Marketing strategies considered are: For Innovators will consider: mass advertising. material in branches or other locations. compelling benefit to the customer. © 2010 ACCION International .

© 2010 ACCION International . Have the client understanding value offer of the channels and how to use them. This programs are focused in barriers customer might have. one to one interaction) Education to users on financial products and security and fraud is a key factor to grow mobile financial services. short stories. testimonials. Efforts have to be combined with educational and marketing campaigns to pass the message (what we in ACCION call: educational marketing ). Educational marketing programs aim to encourage customers to learn and understand multiple benefits of new channels. usage and adoption of mobile money? In person training and written materials are important and crucial for any successful deployment of alternative channels. Operators because they know how channels are covering subjects and Institutions because clients trust them. Client education by itself is not a panacea: alone it cannot fundamentally change behavior from reluctance and fear into eager adoption of a channel. Clients are receptive to different types of education (work cases.Role of client education to increase trial. classrooms. This is an area where both Institutions and operators should improve.

Thanks © 2010 ACCION International .