Hasan, while returning on his way from work goes to a mobile money agent, tells him the mobile number of his mother back in his village and hands over Rs.3000 cash. The agent using his own mobile sends the money instantly and confirm to Hasan. Hasan informs her mother on call and be on his way to home. This is what we call an Over-the-counter (OTC) transaction. Hasan does not have to worry about entering the mobile numbers, amount and PIN anywhere and completely relies on the Agent for the transaction. He often does not know about the service provider which facilitates the transfer. An average agent employs the services of at least 3 money transfer service providers and more often than not, is free to choose among them to actuate the transfer.
As opposed to OTC, wallet transactions are those where customer uses his own mobile money account on his mobile device to make the transactions. The customer has to ensure the required amount is available in the wallet, and enter all the details for completing the transaction. The upside is that the customer can do this transaction 24*7 at his own convenience and does not have to visit any agent or depend on agent’s liquidity.
OTC transfers are the widespread phenomenon in Pakistan’s mobile banking services industry, which processes 64 million transactions, worth $2 billion in the last quarter of 2014 (see table). OTC constitutes of 91% of the total transactions and hence is a major contributor in the revenue of the Service providers. But as it happens with OTC, the big chunk of the revenue goes to channel commission to agents, distributors and cash executives. With the absence of direct customer interaction, the operators are unable to track customer behavior, cross-sell, offering more products and generate loyalty through analytics etc.
Easypaisa the largest mobile banking service provider by market share in Pakistan is gearing up for converting these OTC transactions to wallet transaction through various measures. The result of these measures were reflected in statistics for December quarter of last year where out of 64 millions, share of m-wallet transactions were 6 million (9%). This is a whopping 22% jump over the previous quarter in terms of number of transactions and 26% increase in value. While there is a lot of ground to cover, this is a very significant indicator of transition from OTC transactions to wallets. This increase was largely catalyzed by Easypaisa as it incentivized its customers by waiving off fees on m-wallet to m-wallet transfers coupled with other valued added services. The road to sustained migration from OTC to wallets is challenging and it is worthwhile to understand the OTC model in depth and its success factors.
| Customer transaction Analysis – OTC Vs M-Wallets (Oct-Dec 2014) | ||||||
| Type of Transactions | OTC | Wallet | ||||
| Volume of Txns (millions) | Value of Txns ($ millions) | Avg. txn ($) | Volume of Txns (millions) | Value of Txns ($ millions) | Avg. txn ($) | |
| Fund Transfers | 27.9 | 1210.5 | 43.4 | 0.6 | 21.3 | 35.6 |
| Bulk payments | 2.6 | 107.0 | 41.2 | 1.3 | 55.6 | 42.8 |
| Cash Deposit and Withdrawal | 2.2 | 89.0 | 40.4 | 3.7 | 134.6 | 36.4 |
| Bill Payments | 23.5 | 316.2 | 13.5 | 0.5 | 10.6 | 21.2 |
| Top – ups | 0.6 | 1.1 | 1.8 | 3.5 | 1.8 | 0.5 |
| Loan disbursements/repayments | 0.75 | 21.6 | 28.8 | 0 | 0.0 | 0.0 |
| Others | 0.35 | 31.0 | 88.7 | 0.06 | 24.7 | 411.6 |
| Total | 57.9 | 1776.4 | NA | 9.66 | 248.6 | NA |
Source: State Bank of Pakistan quarterly newsletter
Why OTC transactions are a hit with customers?
From the customer’s perspective, OTC provides the most frictionless way of conducting transactions and offers a lot of convenience. This is especially applicable to a large section of population which is un-banked and prefers agent-assisted transaction. This segment of the population feels insecure conducting financial transactions themselves and is unsure of using technology. They prefer to rely on an Agent to conduct transactions on their behalf with little extra cost and time. Operators finds it difficult to maintain profitability because the OTC-only segment increasingly faces competition as new entrants offers low prices to gain markets customer loyalty is largely absent. That said, OTC is a permanent and integral part of any mobile money business and is there to stay.
Measures to accelerate migration from OTC to Wallet transactions
Easy paisa is the leading mobile money operator in Pakistan with 54% share in overall volume of transactions has taken several steps to increase wallet transactions including completely waiving off the fees on wallet transactions. However, the overall thought process revolves around following points:
- Even through OTC, try to capture as much as data possible without increasing the friction. This will require special training to Agents on the type of data sought. The mobile money operators then derive meaningful information from the data and aim to create targeted offers by way of customer segmentation. Collected data should be used to gain insights into socio-economic status, behaviors and preferences which will allow the operator to segment and offer targeted products. This will provide the operator with the ability to retain customers and cross-sell other financial services.
- Build an ecosystem of merchants and service providers that acts as the tipping point for mass adoption of e-wallets. Lack of ‘sufficient’ number of acceptance points severely limits the use of e-wallets.
- Aggressively explore on-boarding online merchants and integrate seamlessly to provide convenience and frictionless experience.
- Tying up with NGOs for aid distribution, MFIs for loan and repayments and with companies for salary transfers have proven to be effective tool to engage customer on a regular basis
- Introduce products to increase customer stickiness for e.g. Offer savings account with insurance and credit availability.
- Run promotional schemes around festivals (e.g. free p2p transfer through, offer bonus talktime etc). Data shows increase in frequency of transactions with reduced transaction size for wallets which indicates frequent customer engagement.
- Continue these promotions until they have reached critical mass required for network effects to fully take over and sustain the momentum
I would like to offer a small caveat here. Though I have tried to generalize the recommendations made above but as we are well aware; local demographics, regulations, and other socio-economic factors play a huge role in wide spread adoption of mobile money. Thus, careful considerations must be applied to make these recommendations work in selected geographies.
Since this case study is based on Mobile money is Pakistan, let me highlight a major factor enabling adoption of wallet transactions. In Pakistan customer account opening is done using centralized biometric verification which warrants installation of necessary fingerprint capture devices at agent locations. Fingerprint verification for account opening is done with National Database and Registration Authority (NADRA) and is charged significantly. This has deterred agents and operators and results in only 15% of the agents able to open m-wallet accounts and perform m-wallet transactions at their locations. But now with NADRA reducing the verification cost to Rs. 10 (10 US cents) for account opening, number of agent for account opening and performing m-wallet transactions have increased to 22%. Easypaisa agents alone grew significantly to 25% from 2% over a quarter.
