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

Visit Erin B. Taylor's blog

-- 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.

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