What keeps peo­ple from pay­ing with their phones?

Financial Nigeria Magazine - - Contents - By Michiel Wolvers, Daniel Wal­dron

Ever since M-Pesa caught the world's at­ten­tion in 2007, East Africa has been ground cen­tral for com­pa­nies of­fer­ing ser­vices that can be paid for us­ing mobile money to the bot­tom of the pyra­mid. Pay-as-you-go (PAYGo) so­lar providers have reached up­wards of 800,000 house­holds in Kenya, Tan­za­nia, and Uganda – mar­kets where cus­tomers are able to re­pay the loans for their so­lar de­vices through mobile money. But what hap­pens when PAYGo prod­ucts are in­tro­duced into mar­kets where few peo­ple are used to mak­ing pay­ments on fea­ture phones (in other words, al­most ev­ery­where else)? CGAP ex­plored this ques­tion by part­ner­ing with PEG Africa, a PAYGo so­lar com­pany op­er­at­ing in West Africa, and Tigo Ghana, the coun­try's se­cond largest mobile net­work op­er­a­tor.

Mobile money in Ghana

Mobile money in Ghana has taken off only in the past few years. Un­til 2015, it was tech­ni­cally il­le­gal for a non­bank to own an e-money plat­form, which left mobile money in the hands of banks that were un­in­ter­ested in, or ill-suited for, the costly task of build­ing up na­tional agent net­works. Once mobile net­work op­er­a­tors were per­mit­ted to of­fer mobile money ser­vices, they ap­plied a strat­egy to reach scale quickly by de­ploy­ing agents and paid min­i­mal at­ten­tion to educating cus­tomers about how to use their ser­vices. This helped cre­ate an over-the-counter mar­ket where agents ef­fec­tively op­er­ate cus­tomer's mobile wal­lets for them. And al­though over­the-counter ser­vice may lead to or com­ple­ment mobile wal­let use, it has no­table draw­backs for some ad­vanced ser­vices. Mobile money pay­ments, the foun­da­tion of PEG's busi­ness model, are one of these ser­vices. As in the M-Kopa Kenyan model, PEG fi­nances the sale of a so­lar home sys­tem, al­low­ing users to pay for the sys­tem over a 12-month pe­riod. Loan re­pay­ments are tied to use, so if a user runs out of pre­paid days, the unit shuts off un­til he or she makes an­other pay­ment. Ideally, cus­tomers pay early and of­ten, their de­vices are never shut off for fail­ure to pay, and they fin­ish re­pay­ing on or ahead of sched­ule. Mobile pay­ments are the key to

mak­ing this hap­pen, as they are the quick­est and cheap­est mode of pay­ment.

Yet in 2016, only 24 per­cent of PEG's pay­ments ar­rived via cus­tomers' own mobile wal­lets. About 76 per­cent of pay­ments were made by cus­tomers through some­one else's mobile wal­let – typ­i­cally, over the counter with mobile money agents or PEG field staff. Re­ly­ing on some­one else's mobile wal­let cre­ates de­lays, higher costs and in­con­ve­nience for the cus­tomer. This re­sults in less light for cus­tomers, longer pay­backs for PEG, and de­creased mobile wal­let use.

In­sights for in­creas­ing mobile money pay­ments

To­gether with PEG, CGAP set out to come up with gen­er­al­iz­able strate­gies to in­crease mobile pay­ments among cus­tomers. The project be­gan with a three-month re­search pe­riod, fol­lowed by a five-month pi­lot phase. Three main learn­ings came out of the ini­tial re­search:

·PEG's cus­tomer base is used to pas­sive pay­ment meth­ods. The Ghana­ian pay­ments sec­tor has been de­signed for user con­ve­nience, and ser­vices providers are of­ten ac­tively in­volved in the pay­ments process. This is not only the case for over-the-counter mobile money, but also for in­for­mal pay­ments schemes. A well-doc­u­mented Ghana­ian ex­am­ple is the susu, a sav­ings scheme whereby a col­lec­tor vis­its cus­tomers ev­ery­day to col­lect de­posits. An­other ex­am­ple is the in­for­mal “lot­tery,” in which par­tic­i­pants buy lotto tick­ets for cash when a seller vis­its them. A fi­nal ex­am­ple is util­i­ties that send pay­ments col­lec­tors to users' homes. When pas­sive pay­ments are com­mon, re­quir­ing cus­tomers to be ac­tively en­gaged in the pay­ments process dis­rupts the sta­tus quo. ·PEG cus­tomers are skep­ti­cal of us­ing mobile money for any­thing be­yond per­son-to-per­son trans­fers. One of the in­her­ent dis­ad­van­tages of an over-the­counter mobile money mar­ket is that, by re­ly­ing on mobile money agents and other providers to make pay­ments, cus­tomers never be­come fa­mil­iar with mobile money tech­nol­ogy. This, in turn, cre­ates op­por­tu­nity for fraud. In fact, 80 per­cent of cus­tomers in­ter­viewed for this re­search re­ported hav­ing to pay ad­di­tional charges on top of op­er­a­tor fees when pay­ing via a mobile money agent, mak­ing them mis­trust­ful and averse to us­ing mobile money. Most cus­tomers, whether pay­ing on their own or with the help of an agent, said that they call PEG ev­ery time they make a pay­ment to con­firm it has been re­ceived. This cre­ates un­nec­es­sary call vol­ume, and break­ing this cy­cle is crit­i­cal for PEG to cre­ate a sus­tain­able busi­ness model. ·Mobile money agents are not a re­li­able pay­ments chan­nel. Re­ly­ing on mobile money agents presents some is­sues. First, agents do not al­ways have suf­fi­cient e-money to ex­change for cash, which forces cus­tomers to search for agents with liq­uid­ity. Se­cond, while agents earn a higher com­mis­sion on mobile money pay­ments than they do for cash-in/cash-out trans­ac­tions, mobile pay­ments are more time-con­sum­ing be­cause they of­ten present com­pli­ca­tions that need to be re­solved by the agent. For in­stance, re­jected pay­ments sent from an agent's mobile money ac­count are re­turned to the agent (not the cus­tomer), so cus­tomers hold agents re­spon­si­ble for re­solv­ing failed pay­ments. Be­cause of these com­pli­ca­tions, some agents choose not to let cus­tomers make pay­ments over the counter. One agent even be­gan to show cus­tomers how to make pay­ments from their own phones af­ter cash-in, for­feit­ing the com­mis­sion but sav­ing time.

What's next?

While PEG ini­tially con­sid­ered over-the­counter pay­ment through agents a vi­able pay­ments chan­nel for cus­tomers un­able to nav­i­gate the phone menu, the field ev­i­dence shows that agents are costly, spo­rad­i­cally avail­able, and of­ten charge added fees. This re­search pro­vides the ra­tio­nale for pi­lot­ing al­ter­na­tive pay­ments meth­ods to re­duce the bar­ri­ers for self­pay­ment.

In a fol­low-up blog post, CGAP ex­plores the in­no­va­tive meth­ods used by PEG to make mobile pay­ments more ac­cept­able (and more com­monly used) by ru­ral cus­tomers in Ghana. The re­sults are ex­cit­ing and show that even in coun­tries where mobile money is un­fa­mil­iar (70 per­cent of PEG's cus­tomers had never used mobile money prior to PEG), the PAYGo busi­ness model can still grow sus­tain­ably. Michiel Wolvers and Daniel Wal­dron are con­sul­tants on a CGAP project for the en­ergy com­po­nent of Digital Fi­nance Plus. CGAP (the Con­sul­ta­tive Group to As­sist the Poor) is a global part­ner­ship of over 30 lead­ing or­ga­ni­za­tions that seek to ad­vance fi­nan­cial in­clu­sion. Source: cgap.org

Mobile money agents are not a re­li­able pay­ments chan­nel.

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