Solve First, Build Second In Financial Inclusion

Sounds obvious, doesn’t it: If you want any new product or service to succeed, the chances that it will are increased if there is a problem to be solved.

In a discussion about the most recent Financial Inclusion Tracker, powered by Mozido, MPD CEO Karen Webster and David Luther, CMO & EVP of Business Development at Mozido, talked about that notion in the context of making investments in markets where financial inclusion is the problem at the highest level, but other pain points that ladder up to it may present opportunities to enter those markets and gain a foothold – and consumer trust.

To implement that strategy, of course, first you have to be able to identify a need and a market in need. As the conversation revealed, there are plenty of those in countries throughout the world.

 KW:  There are a couple of things we observed in the most recent edition of the Financial Inclusion Tracker that I’d like to explore.

The first is an interesting take that the Omidyar Network has on investing in  financial inclusion, and where they see the greatest opportunity to put capital at work for those that are trying to solve the problem.

They take kind of a dual approach: They invest in advocacy to try to gather momentum around policy changes needed to move things forward, then they invest in innovators that are trying to solve the problem. A lot of those investments, though, are in infrastructure — core aspects of problems in country that almost have to be put in place before applications can be deployed.

What’s your thought on that approach? And, given that Mozido invests a lot of capital in this area, what is the company doing?

DL:  I haven’t seen that unique approach; I’ve more seen it done as two separate tracks.

We followed some of what the Gates Foundation and World Bank is doing around that first track: how they can affect positive regulation for financial inclusion, how they can do surveys on what’s actually working in financial inclusion and how it can be replicated other places in the world.

The second track is more what we focus on: How can we follow that investment in regulatory improvement in figuring out really what can be replicated that’s working? How can we put that into practice with commercial engagement that has more mass adoption?

I haven’t seen a company doing both. I think it makes a lot of sense if you have the financial model to do so, because then commercial companies can follow suit.

KW:  Advocacy is important to persuading regulators and bankers — different players in country — to adopt common principles in moving things forward. But it can be a very long and tedious process, often an opaque one. Investing in innovators — while it can still take a while — seems more tangible.

DL:  We’ve kind of done that more directly, in terms of the central banks — but it takes a lot of time, as you said.

In Jamaica, it took us two years working with the central bank to get regulatory approval to do mobile payments and mobile financial services. 16 people applied, and we were the only ones that got it. So you have to work very closely with them, and basically help them write some of the regulations sometimes.

KW:  Let’s talk a little bit about the country focus. We’ve talked before about how Mozido is very focused in Africa, and has made an acquisition there that is moving the mobile money agenda forward.

But a lot of the emphasis is moving to India, in particular because of some of the regulatory relaxation that is happening related to the distribution of payment licenses. Is that why you think India has become such a hotbed for financial inclusion activities?

DL:  I think India has a experienced a confluence of events that make it ripe for financial inclusion.

One of them you mentioned — that the political and regulatory climate is actually promoting financial inclusion. It’s putting in new regulations that allow things like the payments bank, which will allow merchant locations to be cash-in/cash-out locations — essentially mini bank branches. If you don’t have that, you probably are not going to be successful in mass adoption of mobile banking and mobile payments. But that’s only one of the factors.

Another factor is that they have a large adoption of mobile phones moving to smartphones. People have the means, now — the channel — to access these financial services through mobile.

The last factor is the investment in that market in general. Again, the government has made it very pleasant for outsiders, now, to come and invest into India. So you’re seeing large investments into the country, many of which are being applied to mobile and some of which are being applied to financial inclusion.

We’ve been working on a number of initiatives in India. We’ll hopefully be able to announce one soon that will be targeted at mass adoption of not only financial services but lifestyle services that they can use from the same application. We actually believe that you need an application that people are using every day to get traction. It may be for other things — like buying movie tickets and transportation tickets — not just financial inclusion.

KW:  Mobile banking certainly is one of those activities that is now more widely available because of mobile phones, and adoption is really on the rise. I found this statistic both encouraging and surprising: 25 percent of the world’s population, over the next four years, will in fact adopt mobile banking services. That’s a lot of people.

Do you think that’s a real possibility? And, if so, doesn’t that suggest that that’s a pretty critical mass of people to move the financial inclusion agenda forward?

DL:  Yes, I think it is possible. I think it will happen only with some changes in the environment and the climate that we just spoke about.

I’ve seen some stats that said, “The 2.5 billion people that were unbanked is now down to 2 billion.” But I don’t really think those are true, meaningful statistics.

A lot of what happened initially in India, for instance, is there was a big movement to actually provide bank accounts to a lot of unbanked people. But most of them have no balances and most of the branches are miles away from the people that need them. So they’re essentially not being used; they got people to sign up for something that isn’t very useful to them.

It needs that network — like there is in Indonesia — of locations out in the many rural areas (and, in Indonesia’s case specifically, the many islands that they have) including in an interoperable service that people can access. They still need to cash-in/cash-out, and perhaps places to pick up items that they order. As it moves to mobile, you still need this physical location, at least in the interim, as some of the business will be through cash.

I think it’s very probable that mobile has reached a tipping point, and that it will reach at least 25 percent, if not more, in the next four years.

KW:  I know that the ecosystem that Mozido has created and is continuing to add to around the world to address this particular opportunity is vast. What are you working on? What kinds of things do you think we should be paying attention to?

DL:  One of the things that we’re trying to do is get more mass adoption of payments through mobile, and that may take a different form in different markets. We might find a single pain point to address in a market and then add additional services; so we can grow the services, but initially we solve a problem.

In Africa, initially, in the first country we went into — which is Zimbabwe — they had moved from post-paid electricity to prepaid. And literally, the people would have to go to a physical location with cash to buy more electricity and get a four-digit code, and go back to their home to get more electricity turned on.

Just by mobilizing that, and allowing them to put some money on a mobile account, if you will — not a true bank account — and then use it for initially topping up electricity, and getting the four-digit code texted to them so that they can immediately turn on their electricity…that solves a real pain point. Then we’re able to branch out into person-to-person payments, other utility payments, person-to-merchant payments, and so on. We’ve got a 10-country plan to expand in Africa.

In China, it’s something different. They had a real problem of Chinese citizens not being able to buy goods from outside the country. So we bought PayEase, which allowed cross-border payments so that Chinese citizens could shop either a browser on their computer — but, more and more often, on a mobile phone — and they could buy Apple goods, Nike, and so on. There are about 1,500 brands, now, to which we facilitate the payment for from Chinese citizens. That will expand to additional services for those consumers — for example, TradeEase, which allows Chinese citizens to buy goods from Russia and vice versa.

One more example in India — and it’s alluded to in the tracker this month — is we’re allowing people without credit cards and bank accounts to put some money on a mobile account, and then participate in some of the popular commerce sites there like Flipkart. That opens up a vast amount of eCommerce opportunities to the citizens, and also to the merchants that want to capture those sales.

KW:  You make a simple but often overlooked point: Find the pain, solve for it, use that as your hook into a market, and build from there.

DL:  If you start with a pain point, it’s also sticky. So we’re not going into markets and giving away a dollar for doing something on our mobile app; we’re trying not to do things that way because people move from one mobile app to another just to get the promotion.

We try to make it something that’s valuable to them without having to compensate them monetarily. In the long run, that’s the right way to do it.

To download the September 2015 edition of the Financial Inclusion Tracker, click here.

To download the full version of the podcast, click here.