European Microfinance Week 2015

PRESENTATIONS

Marie-Sophie TAR opened the session by noting that it was organised by the e-MFP Digital Innovations for Financial Empowerment Action Group. Tar emphasized that affordable access to basic services such as power, water and education is key to sustainable development. In this regard, Digital Finance Plus (DF+) is an innovative approach in the field which creates a link between access to basic services and digital finance. She invited the audience to explore the integration of DF+ into their own activities and businesses, subsequently introducing the very diverse panel of experts.

Michel HANOUCH, firstly introduced the work of CGAP on branchless banking, which is divided into three areas: 1) building up the inclusive payment ecosystem; 2) adding other financial services to foundational blocks and increasing knowledge; and 3) using these rails to solve real-life problems such as access to energy, clean water and education – which was the origin of DF+. Hanouch mentioned that two high level hypotheses are being tested in DF+: 1) whether Digital Financial Services (DFS) has transformational potential in terms of the reach, affordability, efficiency and transparency in the provision of essential services such as energy, education and water; and 2) whether these services would enable people to adopt a broad range DFS. In terms of the adoption of DFS this could have two components, i) whether the link to DFS incentivizes users of these essential services to register for and use mobile money and ii) whether the data generated by digital payments for essential services would help build credit profiles and open opportunities for additional products. Hanouch explained that energy was the first sector to be looked at, mostly due to the high number of people who still lack access to energy (around 1.1 billion) or to reliable energy. In pay-as-you-go (PAYG) solar systems, the costs of connection amount to USD 125-250, in contrast to USD 1,000-2,000 per household in traditional grids. In addition, the model uses consumer financing to achieve affordability, while the customer pre-pays for energy days via mobile money. In relation to the two hypotheses, it has been generally observed that: 1) the model does not scale without customer-wallet digital payments; and 2) off-grid service provision is driving uptake of digital financial services; there is a trust element created between the customer and provider.

Hanouch also talked about the DF+ readiness study, a framework developed in cooperation with McKinsey which addresses various aspects such as the telecom infrastructure, the adoption and outreach of digital financial services, the role of government and regulation, and the main players and challenges to improve the delivery of services. To end his presentation, Hanouch mentioned that CGAP is moving from energy to other services such as water and education, which will serve as a basis to test their hypotheses.

Helene SMERTNIK, replacing Arunjay Katakam, presented DF+ from the perspective of a Mobile Network Operator (MNO). To frame her presentation, Smertnik reminded the audience that digital finance is not an end in itself, but a means to target services such as education, health and other utilities. She specifically highlighted the Mobile for Development Utilities Programme, which leverages mobile technology and infrastructure to improve access to basic energy, water and sanitation services. Smertnik emphasized that mobile access extends beyond the reach of the actual infrastructure, positioning it as a unique catalyst, helping to increase access to these services. She also clarified that the programme focuses on mobile bill payments which can be done in two ways: 1) over-the-counter; and 2) mobile wallet. From the perspective of MNOs, services can be provided in three ways: 1) pre-set; 2) customized, which requires more trust and investment; 3) shared Application Program Interfaces (APIs), which is currently an ambition rather than a widespread practice. According to Smertnik, the upscaling of mobile bill payment depends on a few variables, such as the maturity of mobile financial services and network operators, as well as the connectivity level. In general, mobile bill payment can be seen as an enabler for the customer, thus eliminating upfront cost of equipment and contributing to new revenues for entrepreneurs, to energy savings and generally higher quality of life.

Paul MUGAMBI brought in the perspective of the end client to the panel, providing practical insights to the facilitation of access to utility services. After pointing out that the creation of digital finance has produced a platform that enables people to innovate services, Mugambi divided his presentation into four specific pay-as-you-go services: 1) Electricity: Mugambi highlighted the role of pre-payment in electricity, explaining that clients are used to consuming in small bites and end up being more careful about their expenditures when this system is used. The pre-payment system for electricity also enables the client to pay from any location by using mobile money. However, the system requires new equipment and consumer education. Mugambi also explained that the client must have some liquidity in order to pay for electricity in advance. 2) Solar energy: Mugambi classified two pay-as-you-go models: ‘pay to own’, where the client slowly pays for the ownership of the equipment and ‘solar as a service’, where the client pre-pays for energy days via mobile money. 3) Water: Mugambi explained that water management presents a number of challenges in revenue collection and reporting. In an automated service solution, the client is able to load money into a smart card which is linked to the amount of water they can collect. When presented to the machine, the smart card will send money to a central account. 4) Education: In a service resembling Amazon, clients can lease books in tailored bites, which can lower the costs down to between 50 and 70 percent when compared to purchasing. The system works according to two models, where either the parents pre-pay for their children or governments/schools pre-pay for students.

DISCUSSION

The first discussion point revolved around the high costs of bill payment services in small transactions, and how to negotiate such costs with providers. Mugambi acknowledged that costs have indeed been too high, but noted that some providers have managed to negotiate a subsidised rate. He further clarified that these providers launched products in partnership with the MNOs, which translated into better rates for end users. Smertnik also pointed out that the costs will depend on the volume of services offered, and that GSMA is working with operators regarding the transaction fee.

On a related point, a technology provider from the audience revealed that, in addition to high transaction costs, a lot of time is spent to operate the Virtual Private Network (VPN) connection. He called for more advocacy before MNOs consider the use of APIs. Smertnik responded by acknowledging that opening APIs represents a risk for operators. GSMA is doing as much advocacy as it can in this direction. Hanouch explained that MNOs are keen to figure out a strategy to open their APIs, and that he is indeed starting to see more interest from the industry. The next discussion point concerned the models used to facilitate access to solar energy and education. Mugambi explained that solar energy replaced kerosene in remote areas, and there is a possibility to develop larger solar systems over time. He also clarified that the micropayment of books allows for flexibility and eliminates the financial burden of buying a book, and that a client can rent a book if they want. Regarding intellectual property rights, Mugambi explained that the revenue is shared with publishers who supply the content.