Wednesday, April 20, 2011

Final Report - Mobile Money in Haiti: Potentials and Challenges

In November 2010, Digicel and Voilá both made mobile money services publicly available in Haiti. Building upon our previous research on domestic remittances and financial practices, we returned to Haiti from December to April to identify mobile money’s potentials and challenges given the specific characteristics of the mobile money services offered and the needs of the Haitian population. This report presents our analysis of how the new mobile money services fit into Haiti's existing socioeconomic environment, and how customers are adapting and using the services. We identify six key insights and make recommendations for the development of mobile money in Haiti.

Insights for now:

  • Me2me transactions have emerged as an important use of mobile money services. A broad spectrum of Haitians is attracted by the ability to store money and withdraw it at different geographical locations. It helps allay problems concerning security, inaccessible infrastructure, and uncertainties that Haitians face in their daily lives.
  • Customer experience is a crucial part of why mobile money is a viable and attractive alternative to existing financial services. Fast service, reliability, informality, security, trust, and accessibility are areas in which mobile money can hold an edge over banks and transfer houses. To maximize this edge, mobile money services should be distinct from those offered by other financial institutions.
  • Who is an agent? Branding and service provision need to be consistent to ensure repeat business and the growth of a customer base. There is currently wide variation in the kinds of mobile money outlets in operation and the ways they deliver their services. Outlets may need to be incentivized to provide consistency of service.

Insights for the long term:

  • Trade may well make up a greater percentage of P2P transactions than domestic remittances (gifts or loans). Use of mobile money for trade is feasible because mobile phone service covers most trade routes adequately. The primary limiting factor in this use will be the wallet size permitted by each mobile money provider.
  • Horizontal and vertical integration across Haitian geography, society, and financial landscapes will facilitate mobile money's ability to contribute to both commerce and socioeconomic development.
  • Achieving scale across Haiti could be facilitated by adapting providers' local level initiatives (matching customers with mobile money outlets) to create projects that work with existing flows of money across the country.

We are optimistic about mobile money’s future in Haiti and feel that this is a promising opportunity to contribute to achieving socioeconomic development goals. Maximising mobile banking’s potentials will require ongoing dedication, creativity and cooperation between players in the private and public sectors, especially taking into consideration emerging uses of mobile money among different sectors of the Haitian population. Over the next few years we will be watching how mobile

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--Photo #1: Winner of the Haiti Mobile Money Initiative: Digicel's TchoTcho Mobile, by Erin B. Taylor, 2011.

Tuesday, April 12, 2011

Me2Me transactions: Customer adaptation of m-banking for personal use

Mobile banking is commonly conceived of as a way for people to send money to each other (P2P) or to save money for a specific financial goal. However, we have found that the most common use of m-banking among early customers in Haiti is to store cash for a short period of time. Indeed, customers are registering for m-banking precisely for this purpose. Why are these 'Me2Me' transactions so popular, and how will they shape the future of mobile money?

Last year when we conducted research on domestic remittances and financial practices in Haiti, we found that security and accessibility were major issues for customers using both formal and informal financial systems. For the ten percent of Haitians who use formal banks, security is an issue because customers are concerned about being robbed upon leaving a bank or an ATM. Without a bank account, people must storemoney in their homes or carry it with them, and run the risk of being robbed.

M-banking allows customers to reduce risk through combining the benefits of security and accessibility. As Dr. Baptiste highlighted in a previous blog, customers can avoid being robbed of their paycheck by depositing their money at an m-banking outlet, travelling across town, and withdrawing it again near their home. Withdrawing money at an m-banking outlet is less risky than withdrawing money from an ATM or a bank because m-banking services are combined with other businesses, making it unclear to the observer whether that customer withdrew money or made a purchase. On the issue of accessibility, m-banking outlets can be far more accessible and reliable than banks, making them a viable alternative to a savings account. In all of these cases, customers decided that they would rather pay a fee to withdraw their own money than to run the risk of carrying their money around with them.

Another important issue that makes m-banking desirable for a broad spectrum of Haitians is the unpredictability of daily life. In a country where the infrastructure often does not work, and political or environmental crises regularly disrupt daily life, it makes sense to diversify all kinds of practices. That is to say, Haitians need backups, whether of electricity sources (generators, torches, candles), methods of communication (maintaining mobile phones with more than one carrier), or social networks (never depend upon just one person to get something done).

It appears that Haitians are using m-banking in a similar manner: to complement existing systems rather than replace them. It is different enough to formal banks or informal money storage to make it an effective way of mitigating risk. If a bank's system is out or a protest prevents a customer from travelling to their bank, they may still be able to go into the flower shop next door and withdraw cash. Rather than store all of one's money under one's mattress or in a savings box, Haitians may keep some at hand but deposit a portion in their m-banking account.

The unpredictability of everyday life may prove to be a significant incentive preventing Haitians from trusting their entire savings to m-banking. For example, when the banking system went down during the earthquake of the 12th January, 2010, having cash on hand was a major advantage. The mobile phone system also went down, but it came back online long before the banks. If mobile banking had existed at that time, customers would have been able to access their accounts again after a short amount of time, so long as there was sufficient cash available. Thus Me2Me transactions make sense as everyday backups and as insurance against graver catastrophes.

What lessons can we take from these insights? First, marketing the benefits of Me2Me may help build up m-banking's customer base. People are enthusiastic about promoting their own security and smoothing out their daily financial practices through providing backups and forms of insurance. Second, customer use of m-banking as a backup could be converted into savings practices. Rather than withdrawing their money within days, customers with some surplus income and trust in their m-banking provider could be incentivised to build up their balance, such as through awarding bonus airtime. A customer's savings record could then be used to apply for a loan or life insurance. If Me2Me transactions are approached in this way – as a personal bank account rather than just a better way to conduct P2P transactions – then m-banking could well achieve the goal touted by many development agencies of banking the unbanked. Me2Me transactions have the potential to play an important role in providing stability, security, and confidence in unstable markets.

-- Erin B. Taylor

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-- Photo #1: Money boxes for sale in Port-au-Prince's iron market. Photo by Erin B. Taylor.

-- Photo #2: T-Cash sign painted on a wall in PĂ©tionville. Photo by Erin B. Taylor.

-- Photo #3: La Coquille, a restaurant and TchoTcho Mobile outlet. Photo by Erin B. Taylor.

Monday, April 4, 2011

Cash for fish: potential applications of mobile banking on Haiti's southern trade route

Marigot is a small, leafy fishing village on Haiti's south coast whose size belies its importance on a land/sea trade route stretching from the Dominican Republic to Port-au-Prince. Twice per week, on Tuesdays and Saturday mornings, a fleet of small wooden boats arrives in Marigot from the border town of Anse-a-Pitres and the coastal town of Belle Anse. These boats come laden with salami, flour, coconuts, and bundles of used clothes from the Dominican town of Pedernales. Approximately fifty fishermen from Belle Anse and Anse-a-Pitres send coolers full of conch, fish and lobster to be sold in the market along with the catches of Marigot's two hundred resident fisherman. When the boats arrive at four am, they unpack their cargo and set up a market on the shore.

This trade route and market is longstanding and robust, but it suffers from a cash flow problem that prevents traders from increasing the size of their businesses and presents security risks. Fishermen find no shortage of buyers, who travel from Port-au-Prince to Marigot the night before to be first on the shore when market begins. But buyers purchase on credit (from multiple sellers) because they do not have the cash to pay until they sell the fish in the Port-au-Prince neighbourhood of Martissant. We interviewed the head of a Marigot fishing co-operative, Vitho Jouissance, who said that he did not know of a single case in which a buyer paid for his purchases up-front. Fisherman only receive their money when the buyers return to Marigot three or four days later for the next market. The used clothing trade operates in a similar manner, but sellers generally only extend credit to larger buyers or people they know well.
Three or four days until payment might not seem like much of a delay, but profit margins in the fishing industry–and, indeed, the entire town–are tight. Until they are paid for their catch, fisherman can't pay for the fuel they bought on credit or buy more to go fishing again. The entire town experiences a knock-on effect because fishermen must also purchase their household supplies on credit. Buyers are much better off because they can use their surplus cash for a few days before they have to repay the fishermen. But upon returning to Marigot they face the security issue of carrying from 20,00 to 40,000 gourdes (US$500-1000) with them. One fisherman told us that the risk of carrying cash sometimes serves as an excuse for delaying payment. He said that sometimes buyers will pay for their entire purchase the first time they buy; pay half the second time, and the third time they will claim to have been robbed while travelling over the mountain. So, even if robbery remains merely a threat, it can damage trade and profit in the fishing industry.
Mobile banking provides obvious benefits in this situation. If there were agents in the major towns along the entire trade route (in Port-au-Prince, Jacmel, Marigot, Belle Anse, and Anse-a-Pitres) then buyers could send money directly to the fisherman on the same day that they bought the fish. Fishermen could then pay their bills and immediately start fishing again. Money would not have to undergo the risk of crossing the mountains; nor would it have to travel back to Belle Anse and Anse-a-Pitres on open wooden boats that occasionally sink.
There are technical limits to how the fishing industry can use mobile banking in its current form. TchoTcho Mobile's maximum transaction size of 10,000 gourdes (US$250) and monthly transaction limit of 60,000 gourdes (US$1500) means that fish buyers could not use the service to pay all their sellers. In fact, the smallest buyer could only pay for 40% of his purchases using mobile money, and the largest seller could pay just 20%. With T-cash, these limits are 2500 gourdes using the mini-wallet. This problem could be partially mitigated by a buyer signing up for multiple mobile money services. One option would be for the fishing cooperatives to insist that payments to fishermen who live the farthest away are prioritised (it takes an extra day for money to arrive to Anse-a-Pitres).
Mobile money's wallet size does not present a problem for the majority of small traders who inhabit the region, such as the many peasant women who travel down from the mountains to the market to sell plantains, beans and corn. Jacmel's artists could receive their pay directly from Port-au-Prince. Rapid payment would allow small traders and merchants around the towns to pay their debts and buy more stock. Customers, knowing that they can receive money quickly from other parts of the country, might have more confidence and buy more than they normally would. And families who currently conduct money transfers by boat could rest assured that their relatives are receiving their money quickly and safely. A simple piece of already-existing technology could greatly enhance the prosperity of the towns along this trade route.
--Erin B. Taylor

--Photo #1: Weighing fish in Marigot's market. Photo by Erin B. Taylor.
--Photo #2: Esky of fish destined for Port-au-Prince. Photo by Erin B. Taylor.
--Photo #3: Carrying commodities off the boats. Photo by Erin B. Taylor.
--Photo #4: Unpacking the boats from Anse-a-Pitres. Photo by Erin B. Taylor.
--Photo #5: Sorting through used clothes from Pedernales.Photo by Erin B. Taylor.