Thursday, May 23, 2013

Remittances vs. Savings on the Mobile Money Platform (Part 1)

IMTFI fellow Ishita Ghosh (along with her colleague Kartikeya Bajpai) studied the mobile banking partnership between the State Bank of India (SBI) and Eko in the bank-led regulatory environment in India. The following post reflects on her research findings.

Mobile banking as transformational channel in the developing world can bring financial services to the hitherto unbanked populations in regions that are typically unserved by brick-and-mortar bank branches. Ever since M-Pesa’s unprecedented success in fulfilling the need for secure, convenient platforms for remitting money in the Kenyan market, mobile banking iterations in the developing world has been predominantly built and used for remittances, micro-payments, and micro-transfers. As providers and scholars alike think about expanding the available financial suite of services on the mobile backbone, and especially about moving from remittance to savings services, it becomes important to consider the many factors that may drive the development and uptake of different types of services.

The first thing to consider is the regulatory environment within which the mobile banking model is implemented. As far as the telecom operator-led mobile banking model prevalent in African countries is concerned, there is a general drive for telecom operators to enter into unique partnerships with banks and thus connect mobile money users to formal bank accounts. Although instances of using the mobile money “wallet" as a temporary savings or storage device have been recorded in telecom-led mobile banking platforms in Kenya and Uganda, regulators have not permitted telecom operators to leverage these accounts as interest-bearing savings accounts, thereby rendering this collaboration with banks inevitable. In contrast, the bank-led mobile banking model, such as the SBI-Eko partnership in India, is already capacitated to offer formal bank accounts to its users. While telecom-bank partnerships dictate the sharing of all operations, payment instructions, and branding, which may well displace the telecom’s leadership, banks already possess the infrastructure to design and deliver a wide range of financial services and can provide interest-bearing savings accounts without having to disturb any existing headship.

When we consider the nature of remittance and savings services specifically, it is important to remember that while the former tend to be discrete, unidirectional, one-time transactions, the latter are longer-term financial transactions, where money is locked-in with (typically) a penalty on withdrawals to limit them. What we discovered during our appraisal of the SBI-Eko mobile banking service in India is that this is a crucial difference that may form consumer trust in an atypical banking platform such as mobile banking, and therefore drive the uptake of the financial services. 

An Eko agent outlet in New Delhi (photo by the author)

For instance, due to their discrete, one-time nature, remittance services can be easily tested on an alternative platform. We observed such practice in Delhi where users would remit a small amount of money (between 20 and 40 cents) that they could afford to lose, the first time they were using the SBI-Eko service. They would then call their recipients up to confirm that the money had been transferred successfully. If so, users would then begin to trust the service and use the SBI-Eko remittance service again. Sometimes users would use the service based on the successful trial experience of a friend or family member. We met one user in particular who was sending money to his wife in small amounts, but doing so frequently. He did not fully trust the SBI-Eko service provider, because it was a departure from the traditional, brick-and-mortar banks, despite having successfully sent money many times over. He reasoned that the smaller quantum of remitted money was a loss he could afford to bear, in case a given transaction did not complete. Therefore, we discovered that users were putting the remittance service on trial directly, or they were depending on the successful trials of their friends or family members. In some cases, the outcome of a preliminary trial determined the service’s continued patronage, whereas in other cases the discrete nature of the remittance service permitted the testing of the service even on a sustained basis.

Savings services, on the other hand, inherently do not allow users to put the service on a quick trial - at least, not without sufficient risk to their savings. Therefore, when such an option is lacking, users tend to trust atypical channels such as mobile banking for savings transactions, if they trust the partner bank (users were almost never aware of Eko’s brand). We also observed that in a few instances users signed up for savings services when they trusted the agent directly. In general, users tend to be less obliging of any breakdown in the completion of a savings services, when compared to remittance services, since this would entail the potential loss of a larger chunk of money.

In fact, we discovered during our fieldwork that users exhibited dissimilar expectations from remittance and savings products. We observed such behavior in Patna where a collapse in the back-end handling of savings accounts led to a severe erosion of confidence in the Eko-SBI savings product. Due to an operational glitch, all activity had been suspended temporarily on the newly opened savings accounts. When savings customers first realized this, they instantly panicked, and any reassurance provided by the agents or Eko’s representatives was disregarded. As soon as their accounts were reinstated, most customers immediately withdrew all their savings and ceased to transact with their savings accounts. Unsurprisingly, this severely impacted the reputation of the SBI-Eko savings product in Patna. Interestingly, however, customers still trusted the SBI-Eko remittance service. In fact, customers continued to return to the remittance service despite frequent server downtime and other network snags. This example demonstrates a complex picture of how users may trust and consider the same service provider in different ways according to the financial service in use. It also indicates that providers must especially focus on providing seamless savings services, as any failure adversely impacts the reputation and thus the subsequent uptake and activity on these accounts.

To conclude, we want to point out that, despite these important differences in their temporal spans and in the possibility of testing them, remittance and savings services may not be in practice completely divergent. As a migrant in Delhi, who was originally from Bihar, told us, “I send what I save to my family.” It begs the question: does this count as a remittance or savings practice? Typically, this difference is recorded on the provider’s end based on the service platform used to complete them. But remittance and savings services demonstrate some inherent affordances that can collapse any disparities between them, if provisionally. For instance, we met one user in Delhi who sent money to his wife in Bihar 2-4 times a month on average. However, instead of using the SBI-Eko remittance service to transfer money to his wife’s account, he was actually depositing money into his own savings account at a lesser fee. He had left his ATM card (and the PIN) with his wife back in Bihar, who could now go to the nearest ATM machine and withdraw money directly. We met another user in Delhi, who had a regular savings account that was registered in the state of Madhya Pradesh. He was therefore incurring a severe liability for making deposits out-of-state. To prevent the fee, he was using the remittance service to send money into his savings account at a lower cost. He then used his ATM card to withdraw money from the many ATM machines around the city. These examples demonstrate that users may use the savings service as a remittance service, and vice versa. This is something that providers and scholars must remain mindful of while designing financial products and services for unbanked and under-banked populations.

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