Saturday, April 27, 2013

Unburdening Phone Menus in Mobile Money

Disruptive innovation typically occurs when market outsiders conceive of a service with a radically simplified user experience, offer it at a much lower total cost, and –crucially— incorporate an order-of-magnitude improvement in one key dimension that really matters to the mass market. It’s a good enough service, with a wow factor. Meanwhile, established players engage in a proliferation of features and pricing plans that only appeal to larger, more sophisticated users, who happen to be the customers they listen to more closely. As Clayton Christensen emphasizes in The Innovator’s Dilemma and subsequent writings, the disruptive service is often so basic that established players don’t even see it as competition, giving it plenty of room to grow – until it’s too late. 

This plot fits perfectly with the development of mobile money, and especially Safaricom’s M-PESA service in Kenya. Mobile money reduces banking services to a bare-bones store of value and means of payment function, and blows away banks in terms of sheer retail footprint.

It is natural and entirely desirable for mobile money players, once established, to seek to improve and broaden their offering, adding features that appeal to their better customers. This comes at the cost of higher product complexity and, eventually, a more expensive service for ordinary users. They become incumbents, opening the possibility of history repeating itself.

On the complexity point, take a look at the M-PESA menu. You can now send money to a phone number (P2P), pay bills (send money to a corporate), buy airtime (where Safaricom itself is the biller), buy goods (pay a store bill on the spot rather than at the end of the month), withdraw cash (pay a store in return for taking cash rather than goods), and send money to your own bank account (M-Shwari or M-KESHO). The only difference between these is who you are sending money to and why. They are use cases around a basic money transfer capability.

Mobile phone user interfaces have tended to productize the use cases: the menu directly exposes a variety of things you can do, such as the above list. It reminds people of what they can do each time they look at the service phone menu, and advertisements for use cases can incorporate a call-to-action linked to a specific item on the menu.

On the other hand, a user interface built around a product logic has the drawback of appearing to customers like each of these use cases is something new and different, needing to be explored and understood separately. Menus first get long, then nested, eventually burying the lesser known use cases. Service categories and names seem increasingly arbitrary and confusing in customers’ minds. Menus need to be updated frequently to fit new services in, disrupting customers’ sense of familiarity with the service. All this can constitute a barrier to customer experimentation: many people will stick to what they know (largely, P2P) and ignore the rest.

An alternative is for the phone menu to expose the basic functions rather than the use cases of the service. Let’s call them send money, get money and view balance. Under send money, to identify the recipient you could enter indistinctly a phone number, a biller or merchant code, an agent code, a bank account number – or you can access a menu of pre-defined destinations (your own bank account number, frequent billers, buying airtime from the operator, etc.) In all cases you are then asked to enter the value of the transaction, and an optional description for the transaction. How the latter is precisely worded might differ based on who you are sending money to: it might say ‘your purpose’ for basic P2P, cash withdrawal, or  transfer to your own bank account; ‘your account number’ for bill payment; ‘for which phone’ for airtime purchase; etc. Having captured these three standards bits of information, the user interface then displays the full intended transaction, including the applicable charge (since different amounts and use cases might incur different charges), and asks the customer to confirm it by typing in his or her PIN.

With this approach, the phone menu remains simple, short and stable. Two steps in the menu protocol are skipped (selecting the service, and confirming the transaction which we have combined with entering the PIN), making transactions faster. Because there is only one send money option and all transaction types work the same way, customers feel they have to learn the mechanics of sending money only once. Different use cases can still be advertised, but they would be promoted as one more reason to send money rather a new service that needs to be discovered and understood separately.

Similarly, the get money function would offer a standard way of getting electronic money from various sources, and could conceivably incorporate a loan feature (i.e. get money from the provider, as with M-Shwari), pulling money from your own bank account, and possibly requesting a cash deposit from the agent (which would achieve electronic rather than offline authentication of the depositor, thereby eliminating the risk of P2P bypass and improving KYC compliance).
When you want to promote many diverse use cases, should you differentiate them into products through the user interface (like an รก la carte menu in a restaurant) at the risk of creating overly long menus, or should you consolidate them into a minimum set of distinct functionalities (like in a Swiss army knife) at the risk of not expressing the use cases explicitly? The question is ultimately an empirical one: which one will stimulate more usage? I am not sure what the right answer is, but I do think it’s worth asking. I don’t get the sense that this has been given due attention either by operators (who are merely replicating established formulas) or researchers.

The user interface logic needs to be looked at with a long-term perspective, since mobile money use cases and functionalities can be expected to grow quite substantially, and legacy practices will become more and more of a burden with time and success. (Do you remember when your operating system fit in a floppy disk?) Mobile money operators need to give serious thought to how to future-proof their user interface strategy.

- Ignacio Mas

Ignacio is an independent consultant in mobile money and branchless banking and has previously been  Senior Advisor in the Financial Services for the Poor program at the Bill & Melinda Gates Foundation and at the Technology Program at CGAP. Previously he was Director of Global Business Strategy at Vodafone Group, Executive Vice President of Marketing and Account Management at DoCoMo interTouch, and Senior Manager responsible for telecoms investments in Europe for Intel Capital.

He has undergraduate degrees in maths and economics from MIT and a PhD in economics from Harvard University. He has also been Adjunct Professor at the Booth School of Business at the University of Chicago.

Thursday, April 4, 2013

Indonesia’s Mobile Money Moons Align

In the fourth most populated nation on the planet over half of the 270 million people are under 30 years old. Ambitious, entrepreneurial with strong family values, we are seeing the emergence of a middle class in Indonesia that exemplifies the unique family bonds that bind people of many ethnic backgrounds together across the most beautiful archipelago on Earth.

Indonesia is the regions only member of the G20 and is a unique, diverse culture and market that leads ASEAN with a rich and independent heritage. An economy that has ridden the tsunami of the global financial crisis of 2008, Indonesia has emerged as one of the strongest economies in the world today with a GDP of over US$800 billion. Yet, Indonesia still has approximately one hundred million people who cannot, or do not, access financial services of any kind across this vast and diverse economy.

Both regulation and innovation are alive and well in Indonesia. Innovation through banks, mobile network operators and handset manufacturers such as Blackberry, aims to reverse this ‘financially excluded’ trend. Bank Indonesia has enabled the players, albeit it cautiously over the years, and is about to release guidelines built on input and learning from Indonesia and around the world that will allow the latest innovations to build upon the ecosystems that have been built up over the years.

Innovations from microfinance players such as Bank Sinar’s pilot in Bali to numerous mobile payment start-ups such as mSaku, mobile money services such as T-Cash, Dompetku and XL Tunai to regional banks such as BPR KS. Many of these players have more advanced mobile banking ‘apps’ than many international banks around the world. Innovative solutions such as cardless withdrawals at ATMS - a relatively new concept in Europe and elsewhere - have been commonplace in Indonesia for years. Many of the ‘new’ mobile financial products around the world are business as usual here in Indonesia! Bank Indonesia has cautiously allowed innovation and now it looks like the pieces are beginning to fall into place.

Mobile phones and mobile broadbands’ explosive growth is enabling more and more of these solutions across all spectrums of the economy and financial services. Increasingly, we see financial Inclusion at the heart of this innovation and this will continue to grow with the help of the office of the President of the Republic of Indonesia, Susilo Bambang Yudhoyono and his commitments under the G20 Financial Inclusion ‘Peer Learning Program’ and the launch of the G2012 Mexico Financial Inclusion Challenge: Innovative Solutions for Unlocking Access.

Immediately, following this announcement in June last year Indonesia hosted the first “ASEAN Financial Inclusion Summit” where the Minister of Finance, Pak Agus D.W. Martowardojo delivered in his speech that ASEAN countries need to position financial inclusion front of center on the national agenda. Indonesia may be about to the benefit from this growth, which will help lay the foundation of payments for the next 20 years.

An example is Bank Sinar in Bali who launched “Sinar Sip” a mobile banking solution designed for the under-banked in this market.  Another recent deployment is led by Bank Andara, Indonesia’s first wholesale microfinance bank. “Andara Link” is a unique deployment of Visa technology that has enabled thousands of microfinance branches across Indonesia to pay bills and send and receive remittance and other mobile payments. m-Saku is a local mobile payments platform set up by Indonesian developers and Visa. It allows Visa cardholders to top up their mobile phone, anytime, anywhere 24/7. ( Blackberry has just announced its intention to enter the fray with Permata Bank. Its ‘Blackberry money transfer’ is bound to generate interest and visibility, but can it stem the Samsung tide?

The Mobile Network Operators have launched mobile money services over the past four years and whilst e-money regulation is in place, mobile money still faces regulatory hurdles and branchless banking restrictions currently require strict “Know Your Customer” rules to be followed. Whilst a growing number of banks & mobile operators deliver bank grade security, reliability and connection to the various networks, the operators have yet to get the chance to really address the technical and regulatory issues imposed upon the industry. These “closed loop” deployments have been allowed to test the waters but have not been empowered to achieve scale, even though they have so far been ‘accepted’ by the consumer.  

The industry has been preparing for this amazing opportunity to deliver to the unique needs of the unbanked and under-banked consumers in developing countries. Timing is everything and after the last year I have spent travelling to Indonesia I am excited at Bank Indonesia’s Deputy Governor, Pungky Wibowo announcement that Bank Indonesia (BI) will soon issue its long-awaited guideline for branchless banking. The guidelines once issued, will be reviewed in December to determine whether or not it can be fully applied as a Bank Indonesia regulation. The focus will be ‘security, technology, risk management and other related issues’. Once the guideline is issued, BI have said that the prospective branchless banking operators would have to register their services to have their readiness assessed by the regulator.

The time is right. Established players, domestic and international are coming together to enable the banks, mobile operators and consumers the opportunity to partake in a mobile and interoperable ecosystem that has been tried and tested globally over many years. New mobile-based solution will continue to offer the benefits of closed-loop payments (cash-in/out, person to person transfers, bill payment) while at the same time providing consumers a payment account that offers global acceptance and standards of security & reliability that will ensure mobile financial services are “future proofed”.

Bank Indonesia has consulted widely and has taken input from its world class local and international partners, researched global references cases and combined this with local knowledge and listened to consumer demand. Serious investment is required to allow the regulatory framework to evolve towards branchless banking and BI and Indonesia’s government has put in the necessary work to do so. The provision of Branchless Banking services by banks and mobile operators will allow non-banks to accept consumer’s deposits to their mobile money and mobile bank accounts. By deploying this proven technology under appropriate supervision, every city, town and village across the country can be brought into the financial ecosystem.  Bank Indonesia, which has so successfully managed the economy throughout the GFC, is working hard to combine the success stories and regulatory lessons of mobile money in Kenya, Brazil and Mexico to deliver regulations for the complex Indonesian market place and this is no mean feat.

The respective moons of regulation, technology, financial inclusion and consumer demand are aligning in this market. Indonesia will continue to see inclusive mobile financial solutions being developed that will bring the unbanked into a rapidly developing mobile financial services ecosystem. A financially included Indonesia is the future and it is happening now. 

- Stephen Breen

Stephen Breen is a guest blogger on Mobile Money Asia and is one of the most passionate leaders in Mobile Money today laying the foundations for the industry in Asia Pacific. His passion for financial inclusion saw him develop products that helped reduce the cost of inbound international remittance to the South Pacific from c.30% to 5%*. He is now following his passion for Mobile Money with a global payments company based in Singapore.

Follow Stephen on Twitter: @stephenrbreen