It's Africa calling for mobile operators

Preeti Mehra New Delhi | Updated on June 25, 2011


Cashing in on the cell phone in the hinterland

As operators in India look to offer mobile banking services for the unbanked in the hinterland, it would be pertinent to take a cue from the experiences operators have had while trying to push the service in African countries.

A Harvard Business School (HBS) study looks at the learning of operators in South Africa and Kenya to arrive to a firm conclusion — do not assume that folks at the base of the pyramid need the same types of services that their urban counterparts vie for!

Joint venture

Early this year, the largest bank and the largest mobile operator of the country — the State Bank of India and Airtel — had announced a joint venture for precisely this service to provide banking services to the country's millions of unbanked people. Other operators and banks, too, are eyeing the same space. The HBS case study could provide a lesson or two.

‘Mobile Banking for the Unbanked' by Prof. V. Kasturi Rangan and research associate Ms Katharine Lee looked at two different mobile financial service models — one in South Africa and the other in Kenya — targeted at what we in India would call the below-poverty-line population of the two countries.

WIZZIT, a third party start-up in South Africa, entered the mobile banking market in 2004. With the mobile phone penetration rate almost hundred per cent in South Africa due to operators that offered low-cost handsets and pre-paid services, the company thought it would be a “noble and viable business model in bringing banking to the poor.”

What actually happened was far from the aim. One, consumers did not take to the subscription model offered, as the poor are averse to paying for services they may not use. Second, the project ran into regulatory roadblocks as the South African Government allowed only licensed banks to take deposits, and that too at a hefty fee of around $34 million. When the start-up looked around for a suitable partner, the top-tier banks turned them down. They were then forced to turn to a second-tier bank, and the case study shows that even by 2009 WIZZIT could not make any profits. However, Kenya's M-PESA was luckier. Launched by mobile operator Safaricom (along with Vodafone), the initiative was initially built as a financial service for the poor, and a money-transfer application for microfinance organisations to collect loan payments.

M-Pesa's strategy

But soon after launching the service in 2007, the company realised that customers were not interested in it. What they wanted was a means to transfer money home. So, M-PESA quickly repositioned its service with the slogan, ‘Send Money Home,' turning the venture into a success.

The repositioning was done after a thorough probe into what customers really wanted. In Kenya, such as in India, a majority of the population lives in rural areas, but the banks and the jobs are situated in the cities. While in India many use the postal money order or friends and relatives to send money to their villages, in Kenya workers would seal their wages in an envelope and pay a courier to send it to the village, which meant paying for bus fare and loss of a workday.

When M-PESA realised that money transfer is what customers needed, it created a distribution channel by using local kirana stores as franchisee agents for the company, to enable customers to transfer and receive money conveniently.

At the push of a button

To transfer money, the customer had to hand over the money to the agent, plus a transfer fee. Through a computerised process, secured by passwords and PINs, the agent would transfer the payment to the customer's phone. The customer would then simply press ‘send' for it to reach the family member. The family member on the other end would then go to the agent in the village and cash the money from the phone.

As Prof. Rangan's case study points out, companies need to intimately know their target consumers and take the trouble to understand what they are looking for. By January 2010, M-PESA's efforts had paid off. It had acquired some nine million customers and more than $600 billion has been transferred through the service, garnering revenues of about $100 million.

Published on June 25, 2011

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