Suyash Rai of IFMR Finance Foundation interviews Umesh Sachdev, CEO, Uniphore Software Systems about the company and its role in providing voice as a medium of authentication when it comes to enabling financial inclusion.

Tell us about the background on how this company started, and briefly about voice-based technology that is at the core of Uniphore?

It was in 2007 when me and co-founder Ravi Saraogi came to Chennai and joined RTBI. The only dream or vision that we were chasing was how do we use the mobile phone to bridge the digital divide.  From our initial pilot assessments we were convinced that we were going to use voice as a medium of communication.

The initial intent was mainly to gather a list of questions, to identify broad areas for which people were seeking answers. The three broad sectors that we identified were Agriculture, Financial Services and Livelihoods. This gave us an idea as to the verticals that we could start with and we also realised that we had to automate the entire process, that’s when we started dwelling into speech recognition, IVR etc.

When we got into speech recognition we realised that the current system wasn’t perfect for Indian languages and dialects. So we went to IIT and focused on creating a speech engine that was suited to our requirements in partnership with an organisation called Nuance. It was in April 2008 that RTBI decided to incubate us and Uniphore was officially incorporated as a company.

Can you tell us a bit more about your IP and voice biometrics in the area of financial inclusion?

Among the sectors that we focus on, BFSI is one of them and Financial Inclusion is a key area. We discovered during our pilot study that apart from accessibility, authentication was key because it was handling money.

When we met a lot of banks, we realised that the PIN for mobile was not very strong and fundamentally it’s not a strong authentication system, whereas fingerprint was becoming the darling of the industry. However, because it’s biometric, we realised that we were restricting the customer to come to a particular point and do a transaction. He couldn’t do a transaction from his phone. So we worked with IIT and Nuance and came up with an IP that suited Indian voice conditions and demographics which delivers 0 FA [False Acceptance] with about 3% FR [False Rejection] in the field which is primarily acceptable to a lot of banks.

This combined with speech recognition allows us to be able to deploy a complete banking suite on speech, so authentication including transactions, happen in 11 languages today, both at the BC as an assisted model or as a self-service sitting at home making payments etc.

Today the larger deployment in this space covers 50,000 customers acquired in the last eight months. In this, Sub-K is the BC and the 3 banks are Ratnakar, Axis and Syndicate. Citibank is going to be added soon. We are expecting a quantum jump to 7 million enrollments in this fiscal.

Can you give us a sense of the profile of these 50,000 customers in this space?

These are all villagers, hitherto unbanked. These were opened by Sub-K, which is the BC to the 3 banks I had mentioned earlier, doing about 6 to 7 thousand transactions a day.

Based on your 50,000 customers what is latest false acceptance rate and false rejection rate?

False acceptance from day zero has been recorded as zero. As regards false rejections, there has been tremendous learning. When we launched in October these rates were as high as 18 percent and today they are down to 3 percent for the last 3 months. There has been learning on the technology side in terms of how to enroll, how to transact, in which conditions.
So one interesting example that we saw was when one customer had enrolled with a rooster in the background and this mandated him to always authenticate with the rooster in the background! This clearly meant that the BC was not trained enough because ultimately he has to handle the customer.

On an average what is the call duration of a voice transaction?

I think the target initially was to do most transactions within a minute, and am happy to say that most transactions happen within 30-40 seconds. Of course it does involve that initial learning curve.

Are you seeing a lot of customers actually transacting on their own or they come to the BC?

They still come to the BC and there are multiple reasons for this. The BC that we partnered with is not promoting self-service as much because the first attempt is to increase the footfall at the BC. The BC, even though we may decide to incentivise him on self-service transactions, it will take some time for him to not feel threatened by transactions not happening at his doorsteps.

What about the economics of this in terms of transaction charge?

The transaction cost can be viewed in two ways. There is the airtime charge and there is the cost of the using the backend infrastructure that includes voice biometrics, IVR, and which may also include core banking etc.

So the business model that most banks are comfortable to adopt is to charge the customer a fee per transaction and of that fee a portion goes to servicing the transaction – towards the infrastructure, the service provider. On the airtime charges we are trying to work out with the various telecom companies and have been able to successfully cut down the airtime charges for the BC at least for the assisted transaction.

We are, in the future, targeting sub 10 paise per transaction cost; of course volumes will be the largest drivers.

Staying with the financial inclusion issue, can you please reflect on the other technologies presently available for authentication and transactions?

Within mobile there are multiple options, so there is the option of the USSD (Unstructured Supplementary Service Data); there is the option of using application on the phone using GPRS; and the third broad option today is voice. Now, applications on the phone even in urban India have not taken off fairly highly.

USSD is simple enough, we have seen evidence of customers being able to use it easily once trained.  But again it’s a non-biometric authentication that happens on that technology. We are also seeing that there is still a initial adoption curve where the customer needs to be trained to enter digits in English necessarily to be able to complete a transaction.

So the place where we have a strong conviction is that voice allows biometric authentication and that it also allows local language conversation which intuitively is natural to most Indians irrespective of their level of literacy.

So these options exist in the market and I think it is the market that will decide which of the above scales up in the future. Everything co-exists today simply because nobody has reached the number of customers that need to be reached, so the market is absolutely open.

This brings us to the question of UID compatibility?

All the stakeholders realise that going forward mobile phones are going to be key enablers of financial inclusion, so it is left to UIDAI to figure out a strategy to integrate with mobile phones. So while it is good to say that mico-atm is UID compatible, you are still not enabling the mobile customer to transact. So UID is mindful of this fact, as we understand, and we have spoken to them. Voice biometric is also one of their considerations as of today.

What are the key technology changes that you see in this space going forward?

One is that voice technologies are on natural evolution curve; even as we speak the technologies are evolving both on the biometric side and speech recognition side. So biometric, I think the changes will not be as drastic or as visible to us, they will just go on improving the core technologies, making them more resistant to noise and various demographics that we are beginning to experience.

On speech recognition, the next frontier is to move towards open-speech where even a sentence or natural conversation could be deciphered. That is still some distance away in the future.

What are the biggest risks that you see?

Competition from other technologies is a risk, but then, we are not too worried because the market is just too big – let us get to at least 50 percent of the market first and then worry about competition.  Today we are happy that we are not the only ones fighting this battle and the space has relatively opened up, today it’s fairly stable and terms are well laid out for people like us.  So I think we don’t see too many drastic risks in the next 2-3 years.

What are your future plans for Uniphore?

In this sector our immediate challenge is to scale up for the mass usage that we are going to experience this year. So on one hand we are strengthening our customer base with banks and BCs, on the other hand we are aggregating a lot of services on the platform that are relevant to the customer and the BC and can be sold through the same channel without any difference in the way of communication.

Sometimes adversity is the perfect catalyst to invent what was unforeseeable in normal circumstances. The post-election violence in Kenya at the beginning of 2008 prompted a bunch of programmers to create an open-source platform that would collect eyewitness reports of violence sent in by email and text-message and map that information onto a Google Map for everyone to see. What would have otherwise gone unnoticed to the world at large became a visual testimony to the violence.

The platform, Ushahidi – which means “testimony” in Swahili – since then has been deployed for a number of crisis and disaster situations to provide critical and life-saving data during emergencies especially when mobilizing relief and rescue operations as in the case of Haiti or the most recent Christchurch earthquake in New Zealand.

Video: What is the Ushahidi Platform?

As with other areas, being open-source, the potential for its application in the context of rural development and financial inclusion are manifold. For example an organization serving a remote rural population can deploy it to collect and map customer feedback about its product or services on a geographic basis, and effect corrective actions based on the different clusters on the map. Government schemes could be mapped and individuals in villages could be encouraged to report any leakages; a surge of dots over a particular village can guide authorities in pinpointing localities that require attention. In the context of MFIs, those dots could come to visually represent repayments by borrowers or perhaps in the current environment as a feedback against alleged harassment by recovery agents.

While the platform per se is crucial and the ways in which it could be deployed are left to one’s imagination, technology however is just 10 percent of the solution, with the other 90 percent being educating people about the deployment and getting them to submit content.

In a short Q&A with Patrick Meier, Director of Crisis Mapping & New Media, Ushahidi, we discuss the platform and its applications.

From its beginning in early 2008, how has Ushahidi evolved, and with it the whole crowdsourcing phenomenon?

The Ushahidi platform has become easier to use (see Crowdmap.com) [Crowdmap is the easy-to-install, hosted version of Ushahidi - think of it as the equivalent of WordPress.com blogs for WordPress] with more features and functionalities. We have also moved to a plugin architecture, which means that third parties can develop their own apps. This makes the platform a lot more extensible and versatile. The application of crowdscourcing to crisis environments was in large part spearheaded by the Ushahidi platform.

The wisdom of the crowd is what an Ushahidi deployment feeds on. What are the inherent challenges in this and how could they be addressed?

I’m not sure it’s as much the wisdom as the presence of the crowd. The crowd will always outnumber the expert journalist, the expert election monitor, the expert disaster responder. There are tradeoffs, more information, but one of the main challenges is validity of that information. But the more information you do get, the greater the probability that you can triangulate said information, ie, the great the chance that more than one person will report about the same event. That’s why we’ve developed Swift River, to help triangulate and verify crowdsourced information. The Ushahidi platform also allows for multi-media reporting, which allows the crowd to share pictures and video footage of an unfolding situation.

Crisis mapping is what predominantly Ushahidi is associated with – Whether it be for Haiti, Snowmaggaden, Australian Floods, Sudan or the recent Egyptian protests. I am sure there are more areas in which the platform could be deployed than just for crisis situations?

That’s correct, the majority of Ushahidi platform applications are not crisis related. The platform is simply a free and open source tool that facilitates collaborate live mapping. The Ushahidi platform has been used for citizen journalism, local governance, environmental monitoring, ICT4D, etc.

Are there instances where it has been used successfully to track progress of rural projects or to track down the lack of basic services on a geographic basis?

Yes, the Kiirti project in Bangalore.

In the Indian context, where a majority of the population lives in rural India, how can Ushahidi be used for rural development?

We’ve developed an audio mapping component that allows illiterate populations to share what they’re reporting via voice. They can leave short voicemail reports that can then be mapped or transcribed.

How can companies or NGOs operating on the field, especially in remote rural areas, benefit from it and information filtering tools like Swiftriver?

Filtering tools like SwiftRiver are more useful for events that have a lot of main/social media coverage. For remote rural areas, the audio mapping component may make the most sense. Also, one can use FrontlineSMS for offline SMS mapping, ie, you can do on site mapping and then upload the data to the Ushahidi platform.

You have your Crowdmap Check-In service slated for launch at SXSW 2011 which gives individuals and organizations the ability to create their own “Foursquares” or “Gowallas” if you like. What are your expectations from it?

We expect that CI will further lower the barrier to mapping and we thus expect more live maps to be created as well.

Where do you see the project in 2-3 years time? And in general the areas that need to be worked upon when it comes to crowdsourcing information from the field?

It’s hard to say where the project will be in just 1 year because things are moving so fast. I think the area that needs most work on is SwiftRiver, ie, improving our tools to curate and validate crowdsourced information in real time.

About Partick Meier: He is the co-founder of the International Network of Crisis Mappers and previously co-directed Harvard University’s (HHI) Program on Crisis Mapping and Early Warning. He has an MA in International Affairs from Columbia University and is currently pursuing his PhD at the Flectcher School of Law and Diplomacy.

- By Asha Krishnakumar, IFMR Finance Foundation

The Technology Advisory Group for Unique Projects (TAGUP), which was set up by the Ministry of Finance in June 2010 under the chairmanship of UIDAI Chairman, Nandan Nilekani, recently submitted its report to the Government of India.

The Group was set up primarily to provide a framework to address critical issues in the country’s complex Information Technology (IT) systems, particularly in the tax administration and financial governance system that have the potential to accelerate India’s growth.

The Group comprising six experts in the relevant fields – C. B. Bhave, Chairman, SEBI; R. Chandrasekhar, Secretary, DoT; Nachiket Mor, Chairman, IFMR Trust; Dhirendra Swarup, former Chairman, PFRDA; S. S. Khan, former Member, CBDT; and P. R.V. Ramanan, former Member, CBEC – focused on five high-impact Government projects – Goods and Services Tax, Tax Information Network, Expenditure Information Network, National Treasury Management Agency and New Pension System.

Observing similar patterns and challenges across complex projects, the Group has come up with an overall framework to address challenges in complex IT projects in general, and has then applied this framework to review and recommend interventions in the five high-impact projects.

Among the Group’s key recommendations is evolving a set of institutions under the National Information Utilities (NIUs) framework which will work in partnership with the Government. Under the NIU framework, the government will focus on policy formulation and enforcement, while the NIUs (private companies with a public focus) would be responsible to coordinate and implement the projects. The Group has gone into great lengths to identify ways of ensuring coordination, sustainability and continuity of complex projects across various Government departments, at different levels of the Government and various stages of projects. The report provides detailed suggestions on mechanisms to address transparency, accountability and security of IT systems, as also protection of individual privacy and open IT system standards and architecture.

The report has a number of suggestions concerning the banking sector. For example, to enable the reach of Government programmes to all intended beneficiaries, to minimise errors in identifying beneficiaries and to ensure fool-proof ways of authenticating transactions, the report recommends giving top priority to the provision of ubiquitous connectivity and access to bank accounts. And to tide over the problem of establishing identity and address proof while opening bank accounts, it recommends dovetailing efforts with the Aadhaar initiative (UIDAI).

The report recommends a single, holistic, rule-based, platform-oriented system design to reach Government programmes to all intended beneficiaries, as in the case of the core banking system (CBS) which holds all bank accounts in a single platform but can be accessed in a number of ways – bank branch, m-banking, ATM, and debit card. Similarly, to integrate all Government payments with internal processes, the report recommends a uniform banking interface for the Government.

The TAGUP report, which provides a number of examples and case studies from India and the world, can be accessed here.

- By Sameer Segal, Founder & CEO, Artoo

[Artoo Slate is a software solution designed for microfinance field staff that takes the entire process of data collection and loan disbursement online. Sameer has been recognized as one of Asia-Pacific's most promising young social entrepreneurs by the Paragon100 Fellowship. He holds a B Tech from the National Institute of Technology, Karnataka and is a StartingBloc Fellow (MIT Sloan). His passion is inclusive technology, something he discovered during his internship with Ujjivan. He, along with Co-founder of Artoo, Indus Chadha, has developed Artoo Slate which helps microfinance companies cut down on operation costs. He shares with us in this guest blog, how technology can make a difference to microbanking institutions that cater to the bottom of the pyramid.]

The Malegam Report is finally here. At first glance, we were all glad to see how well balanced it appeared. But now we have to begin to make sense of the constraints that it places on MFIs in the short term. In the words of Vijay Mahajan of BASIX: “some provisions are so severe that some MFIs will be facing death by April”.

Indeed, most MFIs must be grappling at the moment with what changes they will need to make to stay alive.

If MFIs need to reduce costs, remove redundancies, and improve efficiencies at all levels, they need to centralize their operations. Centralizing will also help MFIs ensure the quality of the customers they acquire and thereby reduce risks. To centralize operations and still maintain competitive TATs for all customer-centric activities (e.g. customer acquisition, loan disbursement, and repayments) is the hardest part of the puzzle that needs to be cracked. It will be only possible for MFIs to consolidate branches and have their field agents operate over larger geographies (improving borrower to employee ratio) when they can monitor and remotely manage their staff and activities. For that they need technology. 

We believe, however, that this needn’t be a question of the survival of the fittest. It could serve as an opportunity for visionary MFIs, regardless of their size and strength, to re-imagine their operations in a way that, while respecting the RBI’s imminent mandates, dramatically reduces their Operating Expense Ratio (OER) and enables them to remain profitable and survive in the face of the Malegam Report.

At Artoo, we wish to catalyze development through inclusive technology and empowering communication. Our software framework, Artoo Slate, can help MFIs bring down their OERs to meet the RBI’s requirements in a timely manner while enabling them to remain profitable. We believe it has the potential to help MFIs become more productive in helping their customers rise out of poverty. Here’s our take on what the Malegam Report is asking MFIs to do and how we might be able to help.

 Artoo Slate is a software solution that takes the entire process of data collection (under 18 minutes for complete customer acquisition process*) and loan disbursement online (70+% of Loan Applications can be processed in the field on the same day*). It will capture rich data from the field, do away with the back and forth of paper, avoid innumerable delays (reduction in turn-around-time (TAT) from 3+ days to 1 hour*), and drastically reduce expenses (courier, Document Management System Hubs & outsourced data entry). It will allow for easy exchange of data between field staff and backend systems (CBS/MIS) in a way that will reduce time spent (41% of center meetings take under 1 min to update paper work) on customer query clarification and identification and resolution of errors in customer profile and loan application forms. Even while the credit bureau is stabilizing, it will enable MFIs to implement a field credit check upfront for renewal loans based on internal data and assessment. 

Our framework enables field agents to operate remotely and helps distributed MFIs to centralize their operations, while improving their TAT for all customer-centric activities. MFIs can monitor their business on a real time basis: pick up on trends (mass default, political/economic turbulence) as and when they happen directly from the field (defaulter information available instantaneously as compared to 10-15 days lag in previous implementation*). In addition, MFIs can track their social performance on a daily basis.

It is an intuitive interface that has been designed keeping in mind field staff’s educational training and exposure to technology. It will also serve as platform through which MFIs can train (e.g. basic English skills, computer skills, updates on new products and offerings) their field staff on-the-go and monitor them on a real time basis to improve their overall service quality. MFIs can improve their field agent quality and build their capacity, reducing their attrition to short-term focused aggressive competitors.

Artoo Slate, in the hands of the field agent, promises to be a scalable way for the MFI to engage more effectively with their end customers through videos, graphics, and other interactive media (imparting life skills, financial planning, healthcare information, conversational English, etc.) Engaging with the end customer will not only give them a reason to attend center meetings but also allow them to recognize their MFI as a real partner in their struggle to climb out of poverty, giving forward-thinking MFIs an opportunity to differentiate themselves, improving customer loyalty and therefore profitability.

Application

We have been really lucky to pilot our solution, Artoo Slate, at Ujjivan microfinance, and are happy to share the interim results of our pilot here. The pilot covers a branch in urban Bangalore and includes processes of customer acquisition, collections, branch transactions, and field agent training.

By Chandrachudan V and Rajesh E, IFMR Rural Finance

For a business operation, a great deal of what happens on the field is determined by how equipped its field managers are. In our case, our Wealth Managers (WMs) at KGFSs (Pudhuaaru, Sahastradhara, Dhanei) are the primary interface in our endeavour to ensure access to finance.  Complete, continuous and accessible training therefore is a crucial ingredient in sharpening their skills at all times.

While the current training process involves a 24-day induction training and regular schedules of refresher training, this trainer-led effort with a lot of manual intervention provides a lot of challenges especially as it involves a lot of paperwork. To top this, there is no centralised repository that the WM could be directed to in order to stay updated on happenings and changes relating to products offered, processes and our USP of Wealth Management.

To bridge this gap, we hit upon the idea of an online learning management system which would be a one-stop shop for all learning needs featuring – product modules, process modules, Wealth Management modules, e-test and e-certification, storage of all training related information of each employee which later on can be factored into Performance Management of the respective employee.

Importantly this centralized learning environment will ensure consistency among learners, thus promoting web–based training that encourages self and participative learning, thereby, reducing trainer’s intervention for all training programs.

From ideation to fruition, it involved a lot of research in finding a suitable platform that could be customised to suit our training needs. The search was on to finalise a platform that is robust, user-friendly, easily customisable, secured, is being widely used across top companies with proven records and also a platform which is compliant to training standards like SCORM.  After 6 months of research, we decided on “Moodle”- a popular and prominent, free and open-source e-learning software. Moodle’s ease of installation, features and the level of customisation that could be done to it made it a perfect fit for our needs.

Learning Management System Architecture

Customised into 3 local languages (Tamil – Pudhuaaru KGFS; Oriya – Dhanei KGFS; Hindi – Sahastradhara KGFS) and in English, the learning management system would be a comprehensive tool that in its first phase would provide:

•    E – Learning on all products/processes and concepts of Wealth Management
•    E – Certification for all products/processes
•    Scheduling of training programs and maintaining repository of training data
•    Quiz and score management
•    Training dashboard automation: online extraction of training data – employee/geography wise
•    Automated mailer notifications for users
•    Feedback automation with effective reporting
•    Video based training on key aspects for better understanding
•    Internal chat for clarifying queries instantly
•    Discussion forums for knowledge sharing

Customised homepages of KGFSs (Click on image to enlarge)

The system would make it mandatory for the WMs to pass through the different certification programs on the various products, processes and concepts of wealth management. Also the system would update the training manager/CEO of a particular geography with macro and micro level information as regards the training status and the needs of the local staff so that they can evolve their training efforts.

The system will be live soon with the above-mentioned features. Improvisations and enhancements are planned in Phase II that will also include animated learning on all products/processes and concepts of Wealth Management, which will supplement the current modules.

The power of data is in being able to make sense of it. Sometimes however, under the enormity of data, the best of systems can throw a challenge in aiding the right decision. Hence there is a need for a comprehensive visual component to complement existing systems, which would allow the absorption of large amounts of data in a presentable format. Thus is an effort by IFMR Rural Finance team in collaboration with CDF to add a geospatial dimension to the existing MIS.

The new system aims to feed in the enormous amounts of data of KGFS customers and presents their details in a visual format laid across over an interactive Google map. With seamless integration with the existing databases of KGFS, the system would provide real time and most immediate information on the dot.

Some salient features of the Geographic Information System are:

• Ability to perform basic descriptive analysis (count, mean, variance, etc) on the map at the macro level
• Answering queries across various parameters. For eg. Transaction frequency of customers in a particular village, Loan Outstanding (<5K, 5-10K, 10-15, etc.) village-wise, insurance customers with 2 KM radius from branch location, non-customers in hilly regions over X feet above mean sea level, etc.
• Ability to drill down to the customer / transaction level

Being developed with the help of open source tools like Google Maps API, PostGIS and MapServer, the power of the system would be made available to every constituent of KGFS from the Wealth Manager to the CEO. Access to some features would also be made available on the public website of IFMR Rural Finance.

Early snapshot of the system showing the Karambayam Branch Service Area:

Zoomed-in map showing a smaller area

Ajay Karthik and Amit Shah who are involved in the development of the system say, “The visual representation of information on the map is expected to be more intuitive and hence at least one notch above the most powerful MIS. The system will help in providing insights into geographical gaps in the market / service area. It is also expected to help in taking decisions on branch locations, optimisation of distance from HQ / service area from a logistics point of view.”

Watch this space for more updates while the system is being developed.

This is the third of three-part series of blogs titled “Mobile money”. The authors explore and explain all about mobile banking and how it can make a difference to the rural population.

- By Ignacio Mas-Ribo, Deputy Director, Financial Services for the Poor, Bill and Melinda Gates Foundation

It sounds paradoxical, but the success of a mobile money scheme depends on how well it can handle physical cash. This is particularly true if it is aimed at the unbanked, for whom everything happens in cash. They need bridges between the cash economy in which they live today and the electronic money world that they are being wooed into. Those bridges are the retail stores acting as business correspondents (BC). How well those bridges work –how reliably these stores are able to meet customers’ liquidity needs, on-demand, conveniently near where they live and work— will in the end determine how customers judge the convenience and trustworthiness of the mobile money system.

Mobile money doesn’t make the cash problem go away, but it does make it a lot more tractable. BCs pool the cash requirements of the community they serve, and there will be some netting locally as deposits and withdrawals offset each other to some extent.  Moreover, the BC model turns the resulting net cash handling problem into a revenue-making opportunity for local businesses.

The liquidity of the system will depend on three things: (i) how matched customers’ cash in and cash out needs happen to be; (ii) how much support the stores get in managing their liquidity; and (iii) how incentivized the store is to hold an adequate stock of both cash and electronic value at all times.

The degree of cash in/out matching is likely to depend very much on the location of the agent (rural vs urban), by day of month or seasonally (payday, school fee due dates), and even by time of day (market traders cashing out in the mornings to retrieve their working balances and cashing in at the end of the day for safekeeping). In a recent study of 20 agents of M-PESA in Kenya, we found a large diversity of cashflow profiles. Mobile money providers can to some extent affect the overall degree of cashflow matching through appropriate product design and marketing, but that will never be perfect. For instance, we know that rural populations tend to be both net savers and net recipients of remittances; thus, local marketing can stress one or the other service depending on the net cash flows in the region.

An efficient BC channel structure is one which makes working capital available to stores, and provides them with a convenient way to buy and sell electronic money for cash. Typically an aggregator will either set up store routes to collect or deliver cash directly as required, or else will make available one or more bank accounts into which stores can deposit excess cash or which they can draw on if they are short of cash. This cash logistics ecosystem needs to be mapped across the territory – no simple task.

The incentive structure for BCs needs to result in enough reward at the end of each day to justify the extra staff time, working capital balances, security risk and trips to the bank that are involved with the BC business. To get the store to actively promote the service with its customers and maintain adequate liquidity, this is likely to have to be upwards of, say, USD 3 per store per day. If we want the transactions to be cheap enough –say USD 0.05 per transaction—this requires the store to conduct upward of 60 transactions per day. (All these are illustrative figures and will vary by country and location.) In the end, volume is what makes mobile money work, not only at the aggregate scheme level but also at the local, individual store level.

In the early days of a new mobile money system, most transactions are likely to begin and end in cash. Therefore, mobile money is about building a new cash merchant channel; the mobile phone is an instrument that enables the transactions to occur securely through this channel. It’s only later on, once people are used to storing value and paying for goods and services electronically, that the mobile phone becomes a channel in its own right.

In my two previous blog posts in this three-part series on mobile money I stressed the importance of marketing and branding, and the need to define an early use case that will drive an immediate willingness to try in customers’ minds. But that creates a set of customer expectations –on convenience and liquidity— which need to be fulfilled when the customer is at the local store and eager to transact. That’s where sorting out the cash challenge comes in.

[This concludes our three-part series "Mobile Money". Read the first part and second part of this series.]

This is the second of three-part series of blogs titled “Mobile money”. The authors explore and explain all about mobile banking and how it can make a difference to the rural population.

- By Ignacio Mas, Deputy Director and Dan Radcliffe, Program Officer, Financial Services for the Poor, Bill and Melinda Gates Foundation

Many mobile money payment schemes around the globe are treating remote payments and money transfers as the entry point for the unbanked. There is an underlying hypothesis that the need to make payments and transfers will lead people onto transactional savings accounts, and these in turn will lead them to more structured savings and credit products.

There are four main reasons why remote payments and money transfers may be a good way to kick-start a mobile money system. First, because mobile payments are completed in real-time, customers can test the system by calling recipients after sending the money. Trust can be built up experientially rather quickly: “I see that it works, I don’t really need to understand how it works.” Savings and other financial services require building trust over much longer periods of time.

Second, mobile payments address a key pain point of people living in a cash economy. The need for remote payments is often large, whether it is spurred by migrant labor remittances, informal support in networks of friends and family, entrepreneurs’ commercial transactions, or bill payments. And there is a degree of immediacy about the need, since people must make such payments with some regularity, and each such occasion represents an opportunity to try the new service. People need only be convinced to switch from current alternatives rather than to form new financial behaviors. Moreover, the benefit of the new payment mechanism relative to the alternatives (in terms of fees, proximity and convenience, delays in availability of funds at the receiving end, service reliability, etc) is readily apparent to users, which creates a willingness to pay for the new service.

Third, a focus on remote payments allows the mobile money provider to market more intensively among senders, who tend to be richer, more educated and financially aware, and more likely to be urban. This group is more easily addressed by normal marketing channels, and can be counted on to pull their poorer, more rural relatives whom they send money to, into the service. In other words, the provider can direct the marketing dollars to the higher-end customers, and let viral marketing do the job on poorer customer segments.

Finally, servicing customers’ gamut of electronic transactions is a way of capturing relevant information on customers’ habits, which may be useful to subsequently market appropriate products to them and evaluate their credit risk. Tracking payments may be the beginning of creating financial histories for poor people.

Of course, every market is different and what works in one context may not work in another. It’s incumbent upon the scheme operator to conduct market research to understand what service solves such a big pain point that potential customers are willing to try the new system today. In any case, we should not lose sight of the fact that the big opportunity from mobile money schemes is to fulfill people’s broad set of financial needs, not just to effect payments. Mobile money schemes should evolve from handling payments to driving full financial inclusion.

So what is the relevance of money transfers in the Indian context? The Institute for Financial and Management Research (IFMR) and the RBI College for Agricultural Banking recently interviewed 274 domestic migrants and their families along four migration corridors to estimate the total cost (in fees, travel costs to/from the payment outlet, bribes, etc.) of sending and receiving money through India Post, banks, informal hawala networks, and other payment channels. The full report will be published in November 2010. Their preliminary findings suggest that the most common mechanisms used by poor Indians to send and receive money – post offices and informal hawala agents – are also the most expensive – up to seven times more costly than transferring money directly through bank accounts. Giving poor Indian households a safe and convenient way to send and receive money would not only make their lives easier, but could be the “hook” needed to integrate them into the formal financial system.

[Read the first part of this series here.]

Recently our Rural Finance Technology team migrated our legacy core banking system to a new core banking system.

Typically the migration involves three stages: Pre, Intermediate and Actual migration. At the pre-migration stage, a great level of attention went into understanding the data and the various parameters that hold it. At the intermediate stage, a mock-migration under a controlled testing environment was performed to iron out data inconsistencies and error incidents.  The actual migration, that happened over the weekend so that systems are in place when the week starts, happened after the issues encountered at the earlier stage were resolved.

The technology team provided a technical note that detailed the process involved in the migration. You can read the entire document by clicking here. The key takeaways being:

-    Understanding of data structure and account behaviour in legacy and new system is a key to successful migration.
-    It is advisable to always plan for mock drill before actual migration. This has to be accompanied by thorough testing and verification of data post migration.
-    Training should be given to users and they should be educated on account behaviour in the new system for accounts coming from the legacy system
-    Have patience.

This is the first of three-part series of blogs titled “Mobile money”. The authors explore and explain all about mobile banking and how it can make a difference to the rural population.

-By Ignacio Mas-Ribo, Deputy Director, Financial Services for the Poor, Bill and Melinda Gates Foundation

Think about how hard it must be for a poor, undereducated person to get her head around mobile money. She is likely to be new to banking, and may never have used her mobile phone for anything other than talking into.

Now she is told that, to deposit money into this new type of account, she must go along to the corner shop where she buys her rice and cooking oil and which now seems to sport a flash new logo of a bank she may not have heard about, she must give the clerk her phone number and her cash, she must wait to get a text message on her phone, and then she can just walk away. When she wants to retrieve her money, she can just go back there, press buttons on her mobile phone, but this time she must remember a secret code (she needs to prove that the account really is hers), and the store clerk will give her the cash – really, he will!

In positioning a mobile money service with prospective customers, the provider faces four key challenges: explaining what it does, why it’s better than the alternatives, and how it works, all while reassuring them that indeed it can be trusted to work. All this without direct contact with the customer.

This is possible. M-PESA in Kenya signed up 9 million people, or 40% of the adult population, in just three years. (See this paper for an analysis of M-PESA’s success factors.) Here are some emerging lessons from the global experience.

Market the service on the basis of one or two very specific use cases that represent clear pain points in people’s lives (e.g. M-PESA’s “send money home” tagline) and avoid broad “bank in your pocket” or complex Swiss army knife type of propositions. Search not only for a customer need that is large but also immediate.

Customers need to hear the story from the mobile money service provider directly, through fairly pervasive advertising and promotional activities. Once customer interest is piqued, the local shops acting as Business Correspondent (BC) can step in and help them.

Incentivize retail shops acting as BCs amply to ensure they are hungry to promote the service and careful in explaining how it works to new customers. Give them a generous customer registration commission upfront to give them an early source of cashflow, but swap them over to transaction-based commissions over time so that they promote usage and not just registration.

Rather than scattering your BCs randomly through the territory, cluster them in busy locations where people congregate (main street, market square, bus station, road intersection). That will give users a stronger sense of convenience (“I see it wherever I go”) and choice (no lock-in to stores you may not like or trust).

Try to make the customer experience as tangible as possible, for example by having the BCs record transactions in log books. And make sure that it always feels like the same process at any BC outlet. Without consistency in the user experience, customers cannot build up and test their own expectations about the service, and hence cannot develop trust over time.

BCs need to be supported and supervised often. Beyond training, they need ongoing advice on how to optimize their agency business: how much cash and liquidity balances to hold, how to explain and promote the service, new service features. Visit them at least once a month, they’ll appreciate you wanting them to succeed.

Associate with brands that resonate with and are well trusted by the poor, unbanked customer segment. Mobile operators may be particularly useful here, since they already have many of these people as their customers, and it’s a lot easier to cross-sell into an existing customer relationship than to create entirely new ones.

Sure, there’s technology, call center and cash logistics to worry about too in mobile money deployments, but the success or failure will hinge on winning customers’ hearts and minds.