Weird Wealth Creation ideas - Mobile Money

post by MarcSerna · 2020-10-25T17:45:15.315Z · EA · GW · 9 comments

Contents

  Background
  Interventions.
  Intervention 2: 
  Con:
  Intervention 3:
  Con: 
  Intervention 4:
  Intervention 5: 
  Cons: 
  Intervention 6: 
  Contribute to more research
  Perspectives of funding 
  Positive: 
  General Implications for development and humanitarian interventions
None
9 comments

I have an interest in exploring neglected and "strange" opportunities for growth in developing settings. This one is the most recent one occupying my mind, I would appreciate a comment about which one of the "possible interventions" seems more interesting / impactful.

Background

Access to Mobile Money might have direct implications in poverty reduction. Because most of the developing world is not banked, mobile money is reaching many households as the first opportunity to obtain all the benefits of traditional finance, with almost no entry level costs. So whatever benefits a household gets from financial services (keeping money safe, making savings easier by restricting availability of cash, motivating one to save, saving transport costs when doing payments, giving out or receiving money) they get them from a mobile money account. 

There is some research about the issue. One study is displayed in Innovations for Poverty Action, and also here´s a broader analysis of research on Mobile Money. 

https://www.poverty-action.org/study/long-term-effects-access-mobile-money-kenya 

In the study, which is one of the most conclusive so far, they found a moderate effect in poverty reduction in Kenya that could be related to the expansion of Mobile Money. They observed different areas of Kenya between 2008 and 2014, and found that in those areas that had greater access to mobile money:

Interventions.

So let´s assume the research is sound. I read it some weeks back and it got me thinking about possible interventions that would capitalize on this effect.

Intervention 1: Create mobile money accounts for poor people, speeding up the process of adoption of Mobile Money. This would be really cheap, it costs between nothing and 2 $ to create an account. If someone is interested on playing with these numbers, I could make a rough budget for 1,000, 10,000, 100,000 and 1,000,000 dollars. 

Cons: 1) It might be costly to move and coordinate with villages without Mobile Money (which are generally remote), or to find people without Mobile money in urban settings, it requires targeting, transport costs, and it is not that attractive, if you want to distribute food in a cheap way, you can give out thousands of tons in a matter of hours, but "mobile money accounts" are something that most people already have, and that does not derive any immediate positive effect... we are looking at a fairly small and slow growth process, so we need to be mindful of this, we might outweight the benefits by spending too much on logistics. 

2) It seems as if we are taking over the work of the company in promoting their business for them. Also, some mobile money companies must be worse than others, so we should be careful in extrapolating conclusions. These considerations apply to the other options.

Intervention 2: 

Creating mobile money accounts for poor people and giving out a small cash transfer (7$-17$). This  justifies better the resources previously invested in targeting (finding people without these accounts) and makes it more likely unbanked people to report themselves. 

Con:

It makes the process significantly more expensive

It also has potentials for fraud.

Intervention 3:

A Research and advocacy with mobile money companies for easier entry level restrictions, or tailored promotion to the extreme poor, to facilitate access to accounts for the unbanked. This is the least costly. 

Con: 

It is not clear there are actually very high restrictions, it seems there are just logistical considerations, and companies are already doing their best at reaching more people, as it is in their best interest.

Intervention 4:

Create mobile money accounts for refugees /Internally Displaced Persons who have lost their National Identification Cards. This is not just paying for a service, but following-up on the person’s documentation, making sure an ID is retrieved or created, and then topping it up by buying a SIM card, registering it, creating an account, and if necessary buying a phone. (In Cameroon, this whole package would cost roughly 50$).

Cons: 

Again, it is getting more expensive.

This is also much more complicated for refugees. IDPs are citizens of the country and most of the times they already have the phone account, making the transition very easy and cheap for them. 

Intervention 5: 

Supporting individuals living in extreme poverty to become entrepreneurs and create a mobile money booth in an underserved community. These services often spread with individual operators who are entrepreneurs, and many of them are also living in poverty or slightly above. Training extreme poor individuals and deploying them in communities without Mobile Money should have much more direct impact in two directions: First, the person supported will move from unemployment to a very profitable venture, that family is fairly likely to come out of poverty. Second, other people in the village are likely to use more mobile money if they can cash in and out easily, so effectively you would be bringing banking services to small villages (150 to 2,000 persons) that did not have them before and might not have had it for 6 months to 10 years without the intervention. This could be measurable as indirect impact. 

Cons: 

This is more expensive, by several order of magnitude, than simply creating an account. Creating an account costs between nothing and 2 dollars, this involves setting up a small “box”, providing some capital so the business can work, buying a phone, training… we would be talking of at 100 to 400 USD per beneficiary. 

Intervention 6: 

Contribute to more research

It seems most research is captured here https://www.annualreviews.org/doi/10.1146/annurev-economics-063016-103638. So the body of evidence might be insufficient. It would be interesting to replicate the studies in other contexts within the developing world, and to have a strong evaluation and research arm on any of the above mentioned possible interventions. 

I find particularly challenging the fact that no progress was made with men, if we follow the “science” so far, we it won’t be efficient in any of the programs above to target men, but this seems counterintuitive (eg. Not supporting a disabled IDP without an ID on creating his account, because he won’t take proper advantage of the mobile money seems counterintuitive, the theoretical benefits are many) I would prefer to look at families, prioritize females within the families, use female-headed as a scoring criteria, but not stop working with men altogether.

Note that in Africa, most households would be male-headed, so when the study looked at the “female-headed” the sample size became much smaller, and random variance more important. There could also be a particular effect in female-headed households for some reason. 

 

Perspectives of funding 

Negative: Nobody would fund any of this. The effect is too small; it might not be observable under traditional funding cycles (6 months – 2 years). The only one that seems ready for funding under the current environment is Intervention 5, we could get a traditional development actor to fund it, maybe 4 in a crisis setting, as a protection service. But the first option, which could be more impactful because it´s scale, would have a really hard time in getting any funding from traditional sources. 

Positive: 

The fact that it is connected to a company opens up opportunities for profitable Corporate Social Responsibility. In that context, something that was a bad idea (using development funds to promote the profit of a private corporation), becomes much more attractive (using profits of a company to fight poverty).  There could be a synergy somewhere, it is possible some areas remain unbanked because they are just slightly unprofitable, but if they are “colonized” they become profitable in the long run, so a company might be interested in helping an NGO bring banking to these areas under a CSR grant, and reaping the benefits 10 or 15 years after. I am willing to explore this in the Cameroonian context by submitting a concept note to the https://mtn.cm/foundation/projects/submit-a-project/

 

General Implications for development and humanitarian interventions

Please comment! Feel free to criticize the ideas. Most importantly, drop your opinion about which of these different interventions seems more impactful and necessary, even an extremely short comment would be greatefuly appreciated. 

 

Thank you for reading!

9 comments

Comments sorted by top scores.

comment by Ben_Kuhn · 2020-10-26T13:37:46.847Z · EA(p) · GW(p)

Hey Marc, cool that you're thinking about this!

I work for Wave, we build mobile money systems in Senegal, Cote d'Ivoire, and hopefully soon other countries. Here are some thoughts on these interventions based on Wave's experience:

Interventions 1-2 (creating accounts): I think for most people that don't use mobile money, in countries where mobile money is available, "not having an account" is not the main blocker. It's more likely to be something like

  • They don't live near enough to an agent
  • Mobile money charges fees that is too high given the typical amounts the person wants to send
  • They don't trust the service
  • They don't trust the agent they live near
  • They can't read, so it's hard for them to use the app (they would have to memorize the UI)

Intervention 3 (lower restrictions): In countries that don't have a way of using mobile money without an ID, that's an extremely valuable thing to advocate for. Also, at least for Wave, our users constantly ask for higher transaction limits than the central bank allows us to give them. Both of these policies are probably at least somewhat based on FUD spread by established players (banks?) that don't want mobile money to succeed. However, you're probably right that mobile money companies already have the best incentive to accomplish this change; it's also hard to get the ear of a central bank as a random foreigner. But there may be something interesting in this space.

Intervention 4 (accounts for ID-less people): this is interesting, although I believe that at least in WAEMU, it's already possible to use mobile money without an ID with low transaction limits (you can receive at most ~$400/mo). Still, a lot of people want to send/receive more than that, and helping people with paperwork to get a replacement ID is likely to be very helpful in other ways too :)

Intervention 5 (starting agencies): In Wave's experience, better access to agents is the #1 driver of mobile money growth (at least until a system is so big it hits geographic saturation here). Most mobile money systems also end up working with third-party providers of agent services because they don't have the organizational capacity to manage a huge number of agents themselves. There's probably room for an org that's a third-party agent network focused on the poorest areas in a given country which would otherwise be last on the mobile money system's priority list for expansion.

Intervention 6 (more research): We've found good research on other mobile money systems to be hard to come by, but incredibly useful, even just basics like "here is how M-Pesa expanded over time" or "here are some statistics on ZAAD" (these help us a lot with our own expansion strategy). Although the type of research we want is probably somewhat different from the type of research that would be most useful to other consumers of mobile money research.

I would also add another:

Intervention 7—build a better mobile money system: 

  1. Despite the fact that M-Pesa started in 2008, mobile money in most other countries in sub-Saharan Africa is kind of crap by comparison (much more expensive, worse service, smaller agent network, etc.) because most telecoms have not even been able to copycat M-Pesa effectively. By executing better, you can speed up the adoption of mobile money.
  2. Mobile money systems have network effects, meaning that it is somewhat path-dependent which one "wins the market" in a country. Most current mobile money systems that win are the ones offered by monopoly telecoms, so they end up both charging a lot themselves, and also entrenching the telecom's monopoly. If you were to, say, start an EA mobile money system that wasn't telco-affiliated, and preferred to lower prices rather than raise them at scale, you could generate a lot more surplus.

If anyone is excited about that, Wave is hiring for many roles, especially engineers—you can contact me here or at ben@wave.com :)

Replies from: MarcSerna
comment by MarcSerna · 2020-10-26T18:53:56.552Z · EA(p) · GW(p)

Thank you for this extremely informative response. This was way beyond my expectations!

Replies from: MarcSerna
comment by MarcSerna · 2020-10-27T08:09:14.293Z · EA(p) · GW(p)

These are my most important takes:

1) Informed, low cost advocacy to improve Mobile Money services for the poor and extreme poor might be impactful. This is something my organisation can explore in Cameroon. 

2)Most people who don't have an account, in environments where Mobile Money is available, don't need it or don´t feel they need it. Could it be because they are in fact too poor for it? If this is the case it could be a useful indicator for targeting in cash transfer and humanitarian programs. 

3) Lastly, supporting agents to become agents might be the most promising, I got the same feedback from a fellow development worker.

However, I was thinking of a traditional development project, we map out places, find poor people, help them set up Mobile Money booths and give them capital to start, while Brian's reply seems to be about a profit-making venture acting  as a sort of middle men facilitating the process. Which approach is more interesting?

comment by Linch · 2020-10-26T00:34:14.278Z · EA(p) · GW(p)

(Haven't read this article yet). Have you looked into Wave? They're an EA-affliated startup that's trying to expand mobile money into more locations. (My understanding is that it's the same team that created Sendwave)

Replies from: Linch, MarcSerna
comment by Linch · 2020-10-27T15:19:25.175Z · EA(p) · GW(p)

Why was this comment downvoted? 

comment by MarcSerna · 2020-10-26T09:35:35.738Z · EA(p) · GW(p)

Wave is really amazing, but if I am not getting it wrong, their focus is sending money from abroad to the country in a much cheaper way. But my main concern in this post is stepping up electronic money within country. I think it would be interesting to also promote the expansion of Wave into untouched territory for similar reasons than the ones above (they create wealth for people in developing countries). But note that many of those remittances are sent to people who might not be considered "extreme poor". The extreme poor are less likely to have relatives abroad sending them money, be it with Wave or with MoneyGram or any other company.

Browsing through the website I also see they make deposits and withdrawals for free, which is better than most Mobile Money service providers, and that they provide services  to Orange. Orange has a mobile money service too, so I wonder if they are providing the software to them, rather than competing with them directly. I wish someone could clarify this.

Also, Wave is operating in many countries, but not all.

For the focus of this concept, I am more concerned with providing Mobile Money from the most relevant and fair company available (whoever that is) to areas and people that so far did not have that service, rather than promoting movements from one company to the other which might be more efficient but will have a much smaller effect in poverty reduction. 

 

More info on wave: 

https://www.wave.com/en/

https://80000hours.org/2016/02/doing-good-through-for-profits-lincoln-quirk-and-wave/ 

Replies from: Linch, Ben_Kuhn
comment by Linch · 2020-10-26T10:10:43.139Z · EA(p) · GW(p)

Wave is really amazing, but if I am not getting it wrong, their focus is sending money from abroad to the country in a much cheaper way.

My understanding is that this was the old focus of wave (The remittances part of the company is now rebranded Sendwave). IIUC, the current iteration of Wave is focused on making mobile money more popular.

Replies from: MarcSerna
comment by MarcSerna · 2020-10-26T12:07:48.897Z · EA(p) · GW(p)

That explains the mixing information I got!

It would be great to know more about their current expansion, and how do they approach countries that already have Mobile Money operators. I hope someone can clarify this, the website does not have much information.

comment by Ben_Kuhn · 2020-10-26T13:46:45.174Z · EA(p) · GW(p)

Sorry for the minimalist website :) A couple clarifications:

  • We indeed split our businesses into Sendwave (international money transfer) and Wave (mobile money). Wave.com is the website for the latter.
  • The latter currently operates only in Senegal and Cote d'Ivoire (stay tuned though).
  • In addition to charging no fees for deposits or withdrawals, we charge a flat 1% to send. All in, I believe we're about 80% cheaper than Orange Money for typical transaction sizes.
  • We don't provide services to Orange—if you saw the logo on the website it's just because we let our customers use their Wave balance to purchase Orange airtime.

For the focus of this concept, I am more concerned with providing Mobile Money from the most relevant and fair company available (whoever that is) to areas and people that so far did not have that service, rather than promoting movements from one company to the other which might be more efficient but will have a much smaller effect in poverty reduction. 

This is our goal as well; to quote myself in another comment:

Despite the fact that M-Pesa started in 2008, mobile money in most other countries in sub-Saharan Africa is kind of crap by comparison (much more expensive, worse service, smaller agent network, etc.) because most telecoms have not even been able to copycat M-Pesa effectively. By executing better, you can speed up the adoption of mobile money.

Even Orange (which is fairly widespread in Senegal) has only gotten 25% of their own userbase onto mobile money (source) because they, like most mobile money systems, are executing really badly compared to what's possible. There is a lot of room to make mobile money more accessible even in countries with already-existing mobile money. (Which at this point is nearly all countries AFAIK—it's easy for a telecom to buy an off the shelf mobile money service from something like Ericsson or Huawei—much harder for them to actually execute well on rolling it out.)