In many emerging economies, the need to give people in poverty better access to financial services seems obvious. The mobile phone is a perfect vehicle, given their widespread adoption, even among the financially less well off.
Designing a profitable solution for an unmet market need should be business strategy 101 for most entrepreneurs, so why have so many mobile money service offerings failed?
It’s a question being studied by Rajiv Lal, the Stanley Roth, Sr. Professor of Retailing at Harvard Business School. “You would think mobile money should be a hands-down success all over the world,” Lal says. “But 80 to 90 percent of mobile money operations are failures.”
“If you don’t identify the right problem, the rest of it will not go anywhere”
His research shows that companies are starting their market analyses in the wrong places.
“Mobile money does not solve the same problem for every country,” says Lal. “If you look at successful implementations, they all started with, ‘What problem can I solve?’ If you don’t identify the right problem, the rest of it will not go anywhere.”
Lal researched successful mobile money programs, and a few that flopped, to compile tips designed to help prospective operators—and perhaps entrepreneurs in other industries as well—take an educated shot at developing a winning service. He outlined his advice in a July working paper, Mobile Money Services—Design and Development for Financial Inclusion, co-written by HBS research associate Ishan Sachdev.
Mobile money operators struggle
A growing number of companies are seeking to provide a level of financial access that is considered key to lifting people out of poverty and driving economic growth. A few have seen success, including Vodafone/Safaricom’s M-Pesa in Kenya, which processed $10 billion annually and acquired 15 million customers—more than a third of the country’s population—within five years of launch.
A woman checks her mobile phone at a floating market in the Mekong River, Vietnam. Mobile phone use is widespread in emerging economies. ©iStock/lanolan
Many others have struggled and attempts to copy successful services haven’t always worked out. For example, despite Vodafone’s widespread success in Kenya, its effort to take the M-Pesa model to South Africa fell flat.
Mobile money operators do not seem to have a good sense for what contributes to a service thriving or failing. And many are jumping in without doing their homework to determine the distinct financial needs of consumers in the countries they are targeting.
“Successful operators deal with the unique circumstances of countries to provide a product offering that makes sense in that context,” Lal says. “On the one hand, this is not rocket science, and yet you see hundreds of applications not doing well.”
Lal’s research delved into five successful mobile money deployments: Telesom ZAAD in Somaliland, Dialog eZ Cash in Sri Lanka, Econet EcoCash in Zimbabwe, SMART Communications SMART Money in the Philippines, and Globe Telecom GCASH in the Philippines. He also reviewed five less stellar deployments: Vodacom M-Pesa in South Africa, MTN m-money in Uganda, Eko Financial Services in India, and the broader situations in Nigeria and Brazil.
Lesson 1: Work well with regulators
Regulations can make or break a mobile money service, so it’s important for operators to reach out to regulators early to gather input. Lal found that a test-and-learn approach is best, with regulators establishing guidelines that allow mobile money operators to experiment with different service delivery methods before developing more specific rules.
“Regulators should have the temperament that ‘we need to make this thing work,’ but most regulators don’t think about it that way and just want to protect the down side,” Lal says. “Regulators should have an open mind, setting guidelines that limit the risk the country faces, but also encourage innovation to solve problems that people haven’t solved before.”
Regulations that are too loose can lead to confusion. This was the case in Brazil, where the government chose not to establish specific mobile money regulations. Only one operator, Oi, even attempted to launch a mobile money service, Oi Paggo, but ultimately decided to re-launch the service under a different model.
Regulations that are too strict can stifle innovation. In Sri Lanka, the Central Bank of Sri Lanka (CBSL) initially required all mobile money customers to have a traditional bank account. When the bank launched a mobile money service, eZ Pay, only 13,000 customers signed up. The CBSL later allowed customers to register without having a bank account and also allowed for remote customer registration through a mobile phone. With these changes and others, the revised program was successful, reaching one million registered users just a year after launch.
Lesson 2: Keep services free
Companies should expect to invest significant capital in a mobile money service, since a new service may not become profitable until it reaches a large scale. Lal’s research found that the break-even point can take three to four years, and profitability can take five years or longer.
Mobile operators should also think long and hard before charging consumers fees for their financial transactions, especially at first. Many successful services start out being free for customers.
“If you look at the day-to-day life of a poor person, those fees would be very difficult to justify,” Lal says. “If you can make the service free, that is the best way to initiate adoption, and then you have to think about how you make your money. What are some other sources of revenue?”
In Somaliland, where competition is keen, Telesom ZAAD initially made mobile money services free and managers focused on customer acquisition and training employees to effectively explain the service to prospective customers. In addition to gaining indirect revenue from a reduction in customer churn and an increase in airtime sales, the mobile money service grew to about 400 million subscribers.
Lesson 3: Get agents on board
Mobile money operators need to treat their sales agents well, providing financial incentives and making them feel strongly invested in the success of the service. After all, many of these agents are busy selling other goods in their stores. “You have to make it clear why it is worth their time and money,” says Lal.
A balanced approach to agent network growth is best. When growth is too fast, agents compete among a small group of customers, don’t make much money, and might abandon the system. When growth is too slow, customers can become disgruntled from not being able to find enough agents.
Lesson 4: Make customer registration easy
Lal believes customers must quickly grasp the benefits and the sign-up process must be as painless as possible.
In Zimbabwe, managers of EcoCash aggressively marketed its service, in part by assigning brand ambassadors to the same high-traffic areas and economic centers where it was building out its agent network, to help educate and register customers. These brand ambassadors drove 75 percent of customer registrations, with EcoCash achieving a total of 2.3 million registered users, almost a third of the country’s adults, within 18 months.
Lesson 5: Earn consumer trust
One critical component to the success of any mobile money venture is building consumer trust, a challenge tough to overcome in many developing countries where potential customers are accustomed to holding onto their money physically rather than electronically. And pervasive stories of scam operators who absconded with customers’ money don’t help.
Operators should consider building trust however they can into their technology, for example by showing that transactions have been completed or that a customer’s money is safe.
Operators also need to think of themselves as more than technology companies and take responsibility for their agents’ actions.
“Imagine what kind of trust is needed between the customer and the [unknown] agent…to let the agent make a transaction on his behalf. It’s huge,” Lal says. “It takes only one bad apple to destroy that trust.”
Lesson 6: Keep products simple
It’s best to launch mobile money services with a single or limited amount of product offerings that is easy to understand and promoted through a simple marketing message to help drive adoption.
The importance of geo-targeting was underscored when Vodacom launched M-Pesa in South Africa. Vodacom attempted to replicate its successful model in Kenya but made several mistakes. For one, it failed to identify and pursue a particular target market, instead launching in higher-income areas where people had other financial options and essentially ignoring lower-income and rural populations. The service was also poorly marketed, says Lal, and the lengthy registration process was so onerous that M-Pesa agents were dropping out because the long lines created by slow registration was disrupting their retail businesses.
Two years after launch, M-Pesa had only 1.2 million registered users. Vodacom eventually decided to discontinue the service in 2013 and relaunch with a new banking partner and new model in 2014, with a focus on serving lower-income people and others who aren’t served by banks.
It’s a lesson all prospective mobile money operators and many entrepreneurs in general should learn: A one-size-fits-all approach won’t work for emerging markets.
“One has to really look at the circumstances of the country,” says Lal. “You need to determine the value of the mobile money service in an economy. That value is not the same for every country.”