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International business assignment 8
- 1. Principles for BoP MarketInnovation Kelly Poppe-Gale September, 2012 Page 2
- 2. Overview • Mobile Money Transfer Industry • BOP Classification and Demographics • BOP Opportunity • Market for Mobile Money Services • Models for MMS partnerships • Kenya • Afghanistan • Phillippines • 12 Principles for BOP Innovation Page 3
- 3. Mobile Money TransferIndustry • Reaching the Unbanked • Technology Dependent Banking
- 4. BoP Consumers • Population of 4 billion • They are brand conscious • They are value conscious • A higher percentage of money is spent on luxury goods • They do not own their homes or real estate and therefore do not invest money there • 85% of residents of one city in India own television sets, blenders, and gas stoves Page 5
- 5. Why BoP Marketsfor MMT? • Consumers are: – connecting and networking – Readily accepting of advanced technology • Only 4% penetration of existing companies Page 6
- 6. Safaricom and M-PESA • Only MNO in Kenya at launch • Vodaphone owned 40% • Targeted the Unbanked • Population was technologically prepared • Kenyan Government does not require bank accounts
- 7. M-PESA Success Factors •Simplicity • Immediate functionality • Differentiated fee structure
- 8. Vodaphone, Roshan and M-Paisa • Roshan was leading MNO in Afghanistan • Targeted Microfinance Loans Market • Low Literacy • High Consumer education needs Page 9
- 9. USAID/Microenterprise Access to BankingServices (MABS) - Philippines • Smart Communications • Globe Telecom • Targeted large population of rural banks
- 10. Recurring Considerations • Importance of trust in agents • Volatile market conditions • Need for education of consumers Page 11
- 11. Regulatory Considerations • CustomerDue Diligence (CDD) • Know Your Customer (KYC) • Anti-Money Laundering (AML)
- 12. 12 Principles ofInnovation 1. Create a new price- performance envelope • Free accesses to the platform • Subscription • Flat fee • Tiered transaction basis. Page 13
- 13. 2. Offer Hybridsolutions • Match existing structures for similar services • Offer options when possible 3. Design scalable solutions for ease of adaptation in similar BOP markets
- 14. 4. Reduce Resource Intensity 5. Design Products for Functionality 6. Develop a logistics Infrastructure 7. Deskill work
- 15. Principles of Innovation 8. Inform Customers about product usage – Transactions – Fees 9. Design products for durability and reliability 10.Research heterogeneity of the population
- 16. Principles of Innovation 11.Developlow cost distribution methods 12.Use a systems approach; design platform for ease of new feature introduction
- 17. Market Factors • Literacy •% consumers with Bank Accounts • Competition • Agent Network Development • Availability of Technology • Current Business Practices
- 18. Potential New Players GrameenBank Obopay Nokia
- 19. Recommendations • Complete a cultural analysis of market • Determine Government Requirements • Study consumer behavior • Adopt best model Page 20
- 20. Conclusions • Choose partners carefully • Best model currently is that of Safaricom in Kenya • Modify for market conditions and adopt best practices from other models
- 21. References Mas, I., &Ng'weno, A. (2010). Three keys to M-PESA's success: Branding, channel management and pricing. Journal of Payments Strategy & Systems, 4(4), 352-370. Mas, I., & Radcliffe, D. (2011). Scaling mobile money. Journal of Payments Strategy & Systems, 5(3), 298-315. Merritt, C. (2011). Mobile money transfer services: The next phase in the evolution of person-to-person payments. Journal Of Payments Strategy & Systems, 5(2), 143-160. De Sousa, S. (2010). The role of payment systems in reaching the unbanked. Journal Of Payments Strategy & Systems, 4(2), 145-155. Jack, W., Suri, T., & Townsend, R. (2010). Monetary Theory and Electronic Money: Reflections on the Kenyan Experience. Economic Quarterly (10697225), 96(1), 83-122. Abdalla, S. (2011). Stock market development and economic growth in Sudan (1995-2009): Evidence from Granger Causality Test. Journal of Business Studies Quarterly, 3(2), 93-105. Boşcor, D. D., & Brătucu, G. G. (2010). Base-of-the-pyramid global strategy. Bulletin Of The Transilvania University Of Brasov. Series V: Economic Sciences, 311-16. Majumder, M. (2012). A Critical Approach in Understanding Bottom of the Pyramid Propositions. Journal of Management & Public Policy, 3(2), 18-25. Prahalad, C. K. (2005). The Fortune at the Bottom of the Pyramid. Wharton School Publishing, Upper Saddle River, NJ.
- 22. References Griffin, R. W.,& Pustay, M. W. (2010). International Business. 6th Ed. Upper Saddle River, NJ. International Finance Corporation, (n.d.) M-money channel distribution case – Afghanistan. World Bank Group. Retrieved September 27, 2012, from: http://www.ifc.org/ifcext/gfm.nsf/AttachmentsByTitle/Tool6.9.CaseStudy-M- PaisaAfghanistan/$FILE/Tool+6.9.+Case+Study+-+M-Paisa+Afghanistan.pdf
Editor's Notes
- #3 Finding the best business model for a Mobile Network Operation (MNO) when launching Mobile Payment Technology (MMT) should carefully consider many factors. In additional to basic demographics of markets and existing competitors alternate models should be considered based on the type of opportunity. In addition to the model there is also the consideration of availability of good partners and government requirements. The following presentation will introduce some available models used in developing countries as well as suggestions for a process to follow from investigation to implementation.
- #4 First a brief overview of the mobile money transfer industry will be discussed. Next the specifics about BOP opportunities are broken down into classifications and measurement of the opportunity. Why a BOP opportunity is right for the MMT industry is also considered. Following the major examples of MMT programs in developing countries we will walk through the suggested 12 principles to consider when introducing innovation in BOP countries. Finally a list of factors to consider and some concluding recommendations are offered.
- #5 De Sousa (2010) reported on the movement of technology and thus the mobile money transfer industry through the upper tiers of the pyramid to the current focus on the remaining bottom segment. Within this base of the pyramid lies the largest population and although the poorest segment it still represents the greatest opportunity. A contradiction to this opinion is that of Jack, Suri, and Townsend (2010) which states that the mobile money transfer industry is still in its infancy in the US and other factors have lead this industry to the BOP and developing countries. Jack, Suri, and Townsend (2010) discussed the demand for mobile money transfer services by the unbanked to avoid the high cost transaction fees associated with sending cash through alternate nonbank services. Merritt (2011) reported that the growth of person to person payments will continue to assist in the evolution of the MMT industry both in the developed and developing world.
- #6 As Multinational Corporations (MNCs) investigate opportunities many are choosing to enter Base of Pyramid countries. How is it that millions of people, living on $1 or less per day are able not only to afford but also desire mobile technology? It is about the enhancement to quality of life and business opportunity.Bottom of Pyramid (BoP) opportunities take special considerations. Firms investing in BoP opportunities must be very cost focused and use resources efficiently (Prahalad & Prahalad, 2005). Contrary to many assumptions consumers in BoP markets are brand and value conscious. Since they do not invest in their homes or the infrastructure surrounding them they are left with a greater percentage of income for consumer products.
- #7 Mobile phones have reduced transportation costs and time to market for many rural Africans. A short phone call can now eliminate a trip to town to check on shipments. Also families tend to share phones to reduce the cost per family. Cell phones have grown well beyond the status symbol to a means of promoting economic development.Mobile technology is a means of connecting people that might not otherwise have the option for years. Cellular technology is far outpacing traditional land line infrastructure development. Electricity has not even reached many of the areas that can now benefit from mobile communications. Most towers are run by diesel generators.
- #8 M-pesaallows for money to be stored on the cell phone account and transferred to other users. The payment model of Safaricoms M-pesa will allow for quick conversion of customers to buyers or sellers since there will be no requirement to open a bank account. The Obopay system will require users to open an account before transactions can be processed. Much of the population lives in rural areas that would take time and effort to do this. M-pesa could become the order winner for much of the population.M-Pesa benefited from closely tying itself to Safaricom. Safaricom had a strong corporate image. Commitment by top management to initiative has also been critical in sustaining competitive advantage.
- #9 Following some intensive research Safaricom landed on a simple marketing message for representing their service; “Send Money Home”. The fee structure was kept simple and success came through being a fast, easy way to get money where you need it.By design any M-PESA customer could send money to a non-registered user on any network. This initiative allowed for immediate use of the system. Other options requiring the ability to only send to other registered users requires too much time to build the user network.Fee structures were set to have lower fees for sending money to other registered users thus creating a desire to register. M-PESA price structure provided incentives for both consumers and stores (Mas & Ng’weno, 2010).Mas and Radcliffe (2011) reported on the success of the M-PESA program in Kenya as evidenced by greater than 50% of the adult population utilizing the services.
- #10 The International Finance Corporation (IFC), a World Bank Group member organization published the following details of the Rosha-Vodaphone M-Paisa program.Roshan, the top Mobile Network Organization (MNO) and Vodaphone formed an alliance in 2006 to serve the Afghanistan market for mobile money transfers.A profit share model using the Vodaphone platform previously developed for Kenyan market was negotiated. The initiative was called M-Paisa reflecting the local translation of PESA to Paisa or in English, cash.Roshan and Vodaphone jointly registered, Mobile Service Development Afghanistan, as a holding company to act as the trustee for funds held in the M-Paisa system.Microfinance customers were targeted and loans were arranged through a partnership with First Microfinance Bank of Afghanistan (FMFB-A)
- #11 The MABS program in the Philippines differs from the model in Kenya and Afghanistan. Here the banks are the primary contact points with the consumer and two MNO partners exist. USAID was the driving force behind this initiative and partnered with the Rurall Bankers Association of the Phillipines.
- #12 Led to the development of intensive training programs by Safaricom which were outsourced due to the lack of resources.In developing countries it is not uncommon for agent locations to be robbed or fall within a war zone. In Afghanistan Vodaphone and Roshan were under constant threat of the Taliban destroying their cell towers. Planning for these situations and developing procedures will help to serve customers better and assure that the payments reach their destinations.
- #13 Developing countries often have a higher risk of terrorism as well as an increased risk of corruption. MMT companies working through agents must assure that the agents are following all of the procedures they set for prevention of corrupt activities such as money laundering.Banks and financial institutions are subject to federal legislation governing controls for establishing accounts to avoid money laundering. These requirements must be considered in industries serving as intermediaries and especially creating accounts for the processing of payments.
- #14 Prahalad and Prahalad (2005) outlined a set of principles that when used together represent the philosophical building blocks of innovation when working in BOP markets. The following several slides will review these principles and reference the MMT market and how these principles can be applied.The first principle of creating a new price-performance envelope is consistent with adaptation strategies for market entry. There is no one size fits all structure for all markets. Companies most often fail due to their reluctance to change pricing to fit market needs. Within a BOP opportunity it is important that the volume and long term development be the driving factors in setting the price.Safaricom uses a tiered fee structure based on the amount of money transferred.
- #15 Hybrid solutions should be focused on blending existing infrastructures with the advanced and evolving technologies. Old technologies will not offer solutions to BOP problems.Many BOP countries are not only culturally diverse but often include multiple languages therefore solutions offered must be transportalbe as well as scalable. To gain scale design solutions for ease of adaptation in other BOP markets.
- #16 Product development must focus on reducing resource use regardless of the product or industry. This includes packaging but also how the product is used by the consumer. Product design modifications may be needed to eliminate the use of paper instructions or requests for certain tools for assembly. Functionality of the product must be reviewed over the entire process. The MMT market will mainly take into consideration how transactions are completed and the logic to consumers of the steps required. How intuitive something is or the number of steps in the western/developed countries may not work in BOP markets. Also the technology in which these application will be access varies greatly.Developing a logistical infrastructure will more than likely require an extensive analysis of available partner networks. Since it would not be cost effective to own locations for deposits strong partners are needed. What types of industries have the coverage necessary. How many partners will need to be established in order to reach the geographic territory?Deskilling the work due to the lack of not only skilled labor but also infrastructure. For mobile technology dependent on up time it is important to educated the consumer on the likelihood of down time and set expectations based on historical data. Agents should also be giving pictorial tools to guide customers through steps to make transactions. Lower literacy rates will increase the need to offer recognizable transaction icons.
- #17 Customers need more education in BOP markets. When introducing a completely new technology consumers not only need training on how to conduct each transaction but also on how the service and fees work. Durability and reliability of MMT becomes connected to the hardware. Fewer steps in the transaction means less time draining the battery of the device. Also taking into consideration the most prominent device for the location will help to keep the required key strokes or data entry simpler for the user.With first time users in BOP markets keeping it simple is a must to assure adoption of services. Consistency in partner companies as agents is one area that could be offered. If a particular company is partnering at one location but not another that could lead to customer dissatisfaction. A strategy for branding and signage need to be established and communicated to consumers.
- #18 Cost structures that are a percentage of the amount of money transferred open the door to competition as economies progress. Low cost distribution might be an opportunity to set flat fees and gain larger transactions and bigger customers. Looking at the operational systems and how the money is transferred from agents to financial institutions for deposit is another opportunity for cost reductions.Ongoing communication with customers must be innovative as well. Often the primary driving force behind the need for innovation is cost reduction to allow for profitability and entry into BOP markets, but we can see through these principles it is not only costs from the obvious contributors but also those associated with disposal, education, service and retention.
- #19 Higher literacy rates will make for an easier adoption of SMS for transactions. Not being able to read does not negate the relevance of the service, it just means that additional education and resources will be required to assure market penetration.Kenya has a higher literacy rate than Afghanistan and may have led to the higher adoption rate of M-PESA services.The establishment of trustworthy agents is vital to the success of a new program. Individuals must place their cash with agents and trust the money will show up in their accounts. It is important to locate partners that have good customer service skills and perceived as reputable and honest by consumers.Local business practices, in the case of Kenya, included groups of borrowers that would meet, pay loan payments to group representative who would then travel a considerable distance to a bank to make payments on behalf of all the group members. Any environment that is includes such a distance between lender and borrower and inefficient use of resources is a good candidate for MMT.
- #20 Grameen Bank and California based Obopay have both announced a mission to affect the BOP through introduction of MMT services. These companies could be potential partners. Nokia has also made notable investment in partnerships furthering the development of comprehensive solutions.
- #21 The global design must consider integration of; area knowledge, product knowledge, and functional knowledge (Griffin & Pustay, 2010). It is through this design that the firm will allocate resources, assign tasks to employees, communicate rules, procedures, and employee expectations (Griffin & Pustay, 2010).Using an area design will allow the firm to design activities around specific regions of the world. When entering a BoP opportunity it is important that traditional strategies are not forced into a non-traditional market. Within this area design having a global customer design and thus creating a mixed design will allow for divisional focus on business/corporate customers vs. individuals.Bangladesh is one of the poorest countries in the world. The majority of their population is rural and the literacy rate is among the lowest in the world. Surprisingly there is a rapidly growing market for mobile phones which are used not only to communicate with family but primarily as a means of earning an income, getting an education, and receiving information.