Triple Jump news - Monday, October 17, 2011

Mobile Banking: Why it pays to take your time

OCTOBER 2011 - Mobile banking for microfinance institutions (MFIs): why it pays to take your time!  The reality of mobile banking channels is that they require time to learn valuable insights which can guide full roll-out planning. Carol Caruso, managing director of Triple Jump Advisory Services and also an instructor on mobile banking at the Boulder Microfinance Institute, advises MFIs to prepare before rushing into mobile banking.Triple Jump Advisory Services has been helping MFIs explore and launch mobile banking channels since 2008.

Download this article here.

A mobile banking channel holds much promise for reaching further out to the unbanked and servicing customers in an efficient and cost-savings manner – both for microfinance institutions and for their end customers.  The promise lies in the fact that people carry a mobile phone which allows for ease of reach and use thereby considerably reducing the risks and costs of performing financial services for both the customer and MFIs[i]. What better way to reach people than by means of a tool they carry in their pockets (or at least easily access through a friend or family member)!   And mobile phone subscriptions are growing since people realize that the mobile allows them to circumvent widespread infrastructure constraints, easily share information, thus making markets more efficient, and stimulate and support entrepreneurial vitality.

There are several examples of MFIs using mobile money solutions offered by mobile network operators (MNOs)[ii] as a way to allow their customers to make repayments, deposit savings and also to disburse loans, for example.  There are also financial institutions that have developed their own mobile banking channel, set up their own technical infrastructure and manage their own agent network to service customers.  But just because your competition is doing it, doesn’t necessarily mean it is successful for them or financially viable.

There are a wide variety of factors that can determine the success – or failure – of using a mobile banking channel by an MFI.   There have been a handful of not-so-successful mobile banking launches by financial institutions and that is why we advise that the first step for MFIs should be to perform a thorough Feasibility Study.  We have seen many financial institutions rushing to do mobile banking without thoroughly understanding the options, operational implications, technical and human resource requirements and most importantly, all the costs involved.  Without a well-informed understanding of the options and the costs involved how can an MFI be sure about the chances of success[iii] with the solution it is pursuing? How can all of the costs required be justified?  Because it’s not just about trial and error for the MFI, it’s also about maintaining confidence with and protecting your customers.  If you try a mobile banking channel and it fails, that can highly affect the confidence of your customers in doing business with you.

 

Feasibility Study

Based upon our experience in helping MFIs explore and launch mobile banking channels and from discussions with other MFIs, we suggest the following approach :

MFIs should thoroughly study both the external and internal factors affecting the launch and management of a mobile banking channel in order to develop a more complete understanding, the potential benefits and costs and how it may fit into their business.

 

External Factors include finding answers for questions such as (the list is non-exhaustive):

1. What is the percentage of mobile phone saturation in our country? What % of our customers have a mobile phone or easy access to one?   Are there programs that help unbanked, poor communities gain access to affordable phones?  As an MFI is there a market for offering loans for these assets or a program we can partner with to help increase access to affordable mobile phones?

2. What are the mobile money solutions[iv] on the market, if any, and who is using them?  Is there a mobile money (money transfer/remittances) offering already on the market in our country that we can leverage? If so, how many people use it? Is it successful, growing, affordable for our customers? Does the mobile money system have functionality that is sensible for microfinance services? Should we partner with a mobile network operator (MNO) or another solution provider or build a solution internally? How willing is the MNO to advance their system to reach the unbanked? If we partner with an MNO or other solution provider, what is their market share, is their solution well known and trusted, how does their system work, what are the costs to us and our customers, what is the breadth, depth and health of their agent distribution network? Do they offer services in areas where we have customers[v]?

3. What is the mobile banking regulation in our country and what are the requirements or additional costs for MFIs?  If new regulation is forthcoming how will that affect our plans?

4. What do our customers want? Have we done any focus group work to define customer needs, concerns or desires to use their phone for financial services? How do we address illiteracy to avoid excluding customers? What may be the challenges in getting our customers to adapt this new channel?

 

Internal Factors should include asking question such as:

1. Why do we want to launch a mobile banking channel?  If we believe we can service customers in a less expensive way through this channel and offer them more convenience, have we developed a business plan or at least a strategic planning document drafting our objectives? Will we be able to reach the volume of transaction necessary to make this a viable channel? Have we drafted a business case mapping the costs and benefits involved in launching and offering a mobile banking channel? (This of course will be work in progress as you define each of the cost elements related the external and internal factors). How will this be funded? How will we measure the success of this channel? What key performance indicators (KPIs) can we measure?

2. Does the way in which we structure our products and services currently fit well with using a mobile banking channel? (i.e. loan repayment frequency affects system usage)

3. Is our current IT infrastructure healthy enough? Do we have a well functioning, reliable MIS, do we have enough powerful servers to process the information in a timely manner[vi]? Does our IT team have the time and skills to take on this additional channel (manage vendors, customize and configure the solution, carry out daily maintenance, etc.)  What are the IT costs required?

4. Do we have a person to be responsible for this new channel and a qualified team to put in place and manage a pilot?

5. What are the other Human Resource requirements needed?  Where can we find (non-biased) external experts to assist with analyzing our needs, launching a pilot and doing the full implementation? What kind of staff training program should we create?

6. What are the field procedures and processes that must be re-engineered to consider this new service channel?  What are the new policies and procedures we should consider to protect our customers using this channel?

7. Based upon what criteria do we choose the areas and branches to launch a pilot?

8. What kind of marketing should we do to announce our channel, how much will our partner do (i.e. if partnering with an MNO, is collaboration possible?), how much budget is required?

9. How do we incentivize field officers to help encourage customer adoption?

 

Making a Decision

If an MFI reviews the external factors and discovers that there are no mobile money solutions (basic transfer system by mobile) currently available in their country they then must decide: do we wait for an MNO or service provider to launch one or should we build our own channel and set up an agent network? Obviously there is risk in investing in the creation of an MFI’s own mobile banking channel if perhaps a country-wide mobile money platform will be launched in the near future that the MFI could have leveraged.  This question is one of the highest priorities to answer as it can more quickly help make a Go/No-Go decision.

If the external factors are positive and you have 1) a clear business case with a cost benefit analysis, 2) the funds to launch a pilot (and eventually a full roll-out) and 3) a plan on what is required to prepare your institution to launch and operate this channel, then there is a much higher chance of success.  We also advise that your pilot plan is thorough and focused – for example, targeting only one or two branches, defining your target customers and service and allowing a sufficient period of time for learning and system fine-tuning (i.e. at least 6 -9 months).

 

Learn from your Pilot

The reality of mobile banking channels (like many other channels such as call centers, agents, ATMs, etc.) is that they require time to learn valuable insights which can guide full roll-out planning.  Customer adoption rates will dictate your amount of learning over time. For example, if you launch a pilot allowing customers to send deposits into their savings accounts but the usage is low, it will take longer for you to learn about your customer usage of the channel and how your organization is managing the channel – information required for full rollout planning. Low usage also requires time to study the potential problems. For example, is there a technical problem? Do customers lack confidence to send their savings through their mobile? Do costs (i.e. SMS fees) outweigh benefits (i.e. savings account interest) for making the savings deposits? Are customers unaware of this channel or how to use it (i.e. marketing, field staff training)?

A feasibility study can help you determine if it makes sense and your organization is ready to launch mobile banking.  If it’s a ‘GO’, then remember that it pays to take the time and plan accurately how you will launch and manage your mobile banking channel.  If you plan your Pilot well, give yourself enough time to learn from and react to the pilot results, and craft a smart institution-wide rollout. your customers will appreciate and use this channel. Only then and over time, will you realize cost savings and efficiencies for your business and be able to pass those savings on to your clients.