Creating an Enabling Environment for DFS at the Last Mile
How can we improve the delivery of DFS to end consumers?
Nigeria’s digital revolution, evident in high mobile phone penetration levels, has not impacted the adoption of mobile and other digital financial services (DFS), such as mobile money, that aim to address financial inclusion. Financial exclusion remains high with over 40 million adults without access to financial services of any kind.
Since the inception of mobile money, adoption among the under-banked and unbanked has been infinitesimal. Ironically, early adopters of mobile money were the banked in society. Thus, proof of the hypothesis that DFS and other mobile-based financial services will enhance access to financial services is still pending.
With the year 2020 fast approaching and Nigeria’s commitment to 20 percent financial exclusion, the question on everyone’s mind is “how can we change this?”
In the course of our research into the Nigerian DFS ecosystem, we took one step back and asked an even more focused question: How can we improve the delivery of DFS at the last mile?
We got the ecosystem experts together in a location for two days to debate the various challenges facing the DFS ecosystem, particularly at the last mile. The proposed solutions, in the form of recommendations, involve building agent networks, improving awareness as well as enhancing consumer research. Here are some facts and recommendations we discovered:
Agents and Agent Networks
DFS delivery at the last mile, especially in rural and remote areas, depends mostly on the reach and quality of agent networks. Consequently, the quality of any agent network is its value proposition, i.e. the products/services that agent delivers to the consumer. According to the Helix Institute, the value proposition of every agent network “determines the network’s optimal size, growth rate, geographical placement, agent demographics, and the level of training and support that agents receive. It is the foundation upon which all strategic operations are built.”
Unfortunately, our agents are more or less akin to limited human ATMs. They are not empowered to offer other financial services like pensions and micro-insurance, etc. This single-use situation presents a missed opportunity. Empowered agents who can provide a broad spectrum of financial services at the last mile will significantly improve the quality of our agent network, upgrade its value proposition and position the ecosystem to experience significant inclusion.
This resolution dovetails into another problem ignored by many ecosystem actors: the role of culture in the adoption of financial services. For instance, Islam prohibits usury, and the Fulani Herdsmen are not so enthusiastic about banking in general. Thus, financial inclusion strategies should integrate and not ignore our cultural context when creating relevant products and services. In an incredibly diverse country like Nigeria with our multiple tribes and ethnic groups, there is a myriad of financial services that can be created and offered to address cultural factors.
Recommendations
1. Pension and insurance regulators, PENCOM and NAICOM, should review existing policies governing the retail of pension and insurance services through agents. To ease the transition and enhance agency attractiveness, a consolidated implementation framework that would enable them to offer these other financial services will be necessary.
2. Agents should be licensed to represent all financial institutions. If we couple this with a market-led approach to pricing financial services (subject to regulation), prices would race to the bottom, and more people will be able to afford financial services. It will be necessary to issue a guideline on defining a unified interface for agents serving multiple operators.
3. Institute instant settlement of risk-free transactions for agents. This process would require a review of the CBN transaction settlement framework.
4. As for culture, it would be helpful to have policies that:
a. Provide alternative products and services that recognise religious and cultural beliefs.
b. Promote alternative and culturally-sensitive distribution channels (using peers as agents).
c. Provide tax incentives to encourage the development and deployment of products that are culturally suitable especially in rural locations.
DFS Awareness and Understanding
Our article last week examined financial literacy and its influence on demand for and use of financial services. Despite several marketing campaigns and efforts by mobile money operators, the awareness and adoption of mobile financial services remain low. Addressing the agent network issues is only one part of the equation, the second being the education of consumers to encourage them to make use of the agents. However, when consumers are unaware, we will deploy agents in vain. Thus, how can we further increase awareness and understanding among consumers?
Recommendations
1. Promote DFS through embedded content in Nigerian movies as a useful non-advertorial mechanism.
2. Execute exclusive radio campaigns with financial inclusion programmes.
3. Use N-Power beneficiaries as champions of financial inclusion messaging to the unbanked.
4. Digitise payment of government salaries, National Youth Service Corps (NYSC) allowances, payments associated with the Social Investment Programmes (SIPs) and mandate their settlement through alternate digital channels like mobile money. This initiative will require amendments to government payments guidelines.
5. Similar to the creation of the Universal Service Provision Fund (USPF), all deposit money banks (DMBs) should set up a Financial Inclusion Fund which would be for the sole purpose of supporting financial inclusion projects and campaigns with a regional/national ecosystem approach.
Consumer Research and Insights
The importance of research in driving financial inclusion at the last mile cannot be downplayed. Studies to examine financial inclusion help identify ecosystem gaps, be they knowledge, institutional, demand or supply-side gaps. Research investigations also highlight constraints and inhibitors to DFS penetration and adoption while offering an evidence base for concocting the best strategies to reach consumers. Despite current efforts such as the work of EFInA and ours at the Sustainable and Inclusive Digital Financial Services, there is still a dearth of knowledge and insights into consumer behaviour and habits at the bottom of the pyramid.
Recommendations
The Financial Services Regulation Coordinating Committee (FSRCC) should be tasked to create a research and development framework which would increase the quantity and depth of research on financial inclusion, especially in rural and remote areas. The research guideline should cover funding as well as making data public and available for relevant stakeholders to use.
