‘Banks and telcos will play vital role in achieving financial inclusion strategy’

Dr Olayinka David-West

Dr Olayinka David-West is an information systems (IS) professional with over two decades experience in the Nigerian Information Technology industry. She is currently a senior fellow in the Operations, Information Systems and Marketing Division of Lagos Business School (LBS). She is also academic director at both the LBS and Enterprise Development Centre (EDC). In this interview with BENJAMIN ALADE, she spoke on the launch of its recent report titled, ‘Customer Segmentation Framework’ by the Sustainable and Inclusive Digital Financial Services initiative (SIDFS) of the institution proffering solutions to financial inclusion challenges.

What prompted your research into the Customer Segmentation Framework?

In the course of conducting research work on digital financial services and financial inclusion, we identified the lack of appropriate products and services as one of the major inhibitors facing the adoption of formal financial services.

We discovered that the products available like utility payments (power, DSTv, etc.) were not relevant to a majority of the unbanked who don’t have cable TV nor electricity meters.

This gap between the products/services being offered and the needs of the consumers warranted better understanding.

To date, only demographic profiles of the unbanked have been available.

Our State of the Market Reports produced demographic profiles of the unbanked and under-banked from existing secondary data.

However, the demographic information does not provide an in-depth understanding of the unbanked, especially their habits which would determine purchase (adoption) intentions.

Given that the unbanked are a relatively unknown demographic to the financial services industry, closing this knowledge gap is essential for financial inclusion.

For providers to offer the appropriate products and services to the unbanked, they require access to data; they need insights into the lifestyles, habits, and challenges of their target market. Unearthing this kind of data would require significant investment.

As a non-partisan stakeholder in the ecosystem with a mandate to provide an evidence-base for reducing the barriers to financial inclusion, this gap provided an opportunity for in-depth investigation.

What are the benefits of the Customer Segmentation Framework? How and why do you think the presentation of the customers’ personas is a necessary approach for driving financial inclusion?

As mentioned earlier, we are grasping at straws without the right data.

And this has been the story; let’s work with what we know and hope the unknown will find their level.

The Customer Segmentation Framework presents a new way of thinking about financial service consumers.

It is a deeper dive into their psychographics and behavioral profiles, unearthing unique insights into their everyday lives, challenges and aspirations.

The customer segmentation framework is a tool to aid financial services providers in their provision of financial products and services as well as policy-makers and development agencies in the oversight of financial inclusion initiatives.

For providers, the framework enhances product strategies and design efforts; improves the design and targeting of marketing initiatives and improves customer loyalty.

Also, policymakers and regulators can use the framework to enhance the selection of beneficiaries for welfare programmes as well as appropriately tailor interventions.

What makes the Customer Segmentation Framework unique is that it presents a view of those marginalised or excluded from the ecosystem — the underserved, under-banked and unbanked.

Why do you think these research reports are useful in pushing forward the financial inclusion agenda?

Financial inclusion is a development agenda, and any development agenda not backed up with adequate evidence will have limited success.

These reports are the products of intense and rigorous research and thus, can be used to inform strategic decision making, budgeting and planning.

What are the key takeaways for FSPs and government from this report and what approach should financial inclusion efforts take, going forward?

One major takeaway from this report is the fact that homogeneity does not exist among financial service consumers.

Their lives are diverse, and this feeds into the kinds of financial products and services they need.

For FSPs, this framework will inform the future of product design as well as marketing communication strategies, enabling FSPs to achieve product-market fit for their diverse consumer base.

The takeaway of the report shows that the industry needs to move away from a one-size-fits-all approach of designing and delivering financial services to a more granular system of customized financial services, from the nature of the service being offered to the delivery mechanisms.

For government, the report helps to highlight many of the inhibitors facing the different Personas.

This will help inform the nature and format of interventions that government can design, and also the delivery mechanisms of such interventions.

It also gives government the opportunity to understand the consumers it is trying to bring into the formal financial system and how best these consumers can be protected without making it difficult for providers to serve them.

There are reports that mobile money operators are reluctant to invest in rural areas due to perceived poor return on investment.

How do we bridge this gap to ensure that the rural communities which are mostly financially excluded are not left behind?

The reluctance of providers to venture into rural and remote regions of the country is not a unique situation.

It is common in other developing countries as well. Providing mobile money services is a business first, therefore, providers need a sustainable business case.

If the numbers don’t add up, they will not venture out to these areas.

In our 2017 State of the Market Report, we proposed some policy interventions to support rural locations.

First and foremost, tax holidays and other special considerations would go a long way in motivating these providers to these neglected areas.

Second, access to the Universal Service Provision Fund (a special fund established by the federal government to facilitate universal access to information and communication technologies in rural, un-served and under-served areas in Nigeria) would help lessen the capital requirement of providing telecoms services in these areas.

We are currently conducting another in-depth study on the economics of providing cash-in cash-out (CICO) services.

The objective of this study is to provide the evidence regarding the economics of mobile money services, where CICO transactions make up about 85 per cent of the agent’s business.

This body of work will guide providers in building operational strategies for extensive agent networks.

Kenya’s financial inclusion rate has been on an upward trend, rising from 59 per cent in 2013 to 75 per cent in 2017, what lessons can Nigeria take from Kenya? What are the factors stopping Nigeria from attaining the same level of success recorded in Kenya?

Globally, Kenya is the poster child for mobile money and financial inclusion. The country’s journey has been the subject of many research papers, and news features.

The key to Kenya’s success relied on several unique factors.

One, mobile money was launched during a period when the regulatory environment was still relaxed and therefore, was conducive for innovation to thrive.

Two, M-Pesa was launched by the dominant telco in Kenya and was able to piggyback on the already existing network of airtime distributors, thus eliminating the need to build out an extensive distribution network.

Three, it was at a time when lots of people had been displaced due to the post-election violence forcing many people to relocate to the rural areas.

There were remittances from the cities to those back home (rural areas) where banking infrastructure was lacking.

So, the widespread adoption was driven by a number of factors.

Nigeria’s situation is a bit different. Even though we can learn from Kenya’s journey, our success still lies in our ability to write our own narrative based on our contextual factors.

The biggest lesson for us here is while technology is exportable, its adoption is not.

In Nigeria, we need to play to our strengths while tailoring the technology to meet our own diverse needs.

For example, Kenya’s dominant use case for M-Pesa was “send money home” because urban workers have dependents residing in the rural areas.

What’s our use case? Let’s remember that having a bank account is not an end in itself, but let’s build a use case on how financial services can ease tensions in existing industry value chains. This approach calls for innovation and collaboration!

Earlier in the year, it was reported that the Central Bank of Nigeria said that the target of 80% inclusion by 2020 is unattainable; from the results of your findings, is this correct? And what is the expected timeline to attain this target?

The goal of 80 per cent by 2020 seems somewhat unattainable.

However, the results of this current report do not speak to the measurements of access to finance. EFinA conducts that body of work and their next version is due for release later this year.

It has been a recurring debate on who should drive mobile money adoption – banks, telcos or hybrid, what’s your take on this? Drawing from global and regional realities, which model will best suit Nigeria’s ambitions?

First, let’s not forget that we already have independent parties licensed to provide mobile money services; however, we are yet to scale to meet our nationwide requirements.

On the issue of the debate, our focus need not be on the regulatory regime but on the best way to reach the under-banked and unbanked and have them adopt and utilise financial services.

Let’s remember that the problem we are trying to address is a development one.

The decision on who is best suited to address the problem should be objective taking all the criteria and alternatives into consideration.

One thing that’s certain is that both banks and telcos will play a role in this space – the bank will always hold the deposits, while the telcos will still provide the infrastructure.

The debate on who plays the other roles in the value chain – e-money issuer, payment service provider and agent network manager – should be based on competencies and capabilities.

How do your activities in SIDFS contribute to meeting the 80% inclusion target of the National Financial Inclusion Strategy?

The Sustainable and Inclusive Digital Financial Services (SIDFS) initiative of the Lagos Business School was established in 2015 as a research and advocacy initiative to catalyse financial inclusion.

We do this by one, enhancing the evidence-base for DFS; two, advocate and support market-enabling policy; and three, develop DFS capacity within the ecosystem.

Since inception, the SIDFS initiative has produced two State of the Market Reports highlighting the supply, demand, and policy issues relating to financial inclusion and DFS.

In the first year, we developed consumer profiles of the unbanked and explored sustainable business models for digital financial services.

In the second year, the initiative addressed market-enabling policies for DFS and provided stakeholder recommendations for reform of policy, legislation and regulation.

It also deep-dived into consumer profiling based on gender to highlight the gender dynamics of financial exclusion in Nigeria.

The initiative has also produced six economic papers revolving around the nexus between financial inclusion and key macroeconomic variables such as job creation, fiscal policy, income and economic growth and others.

It has also presented several papers in conferences, published book chapters and contributed to journals, not just to contribute to the discourse of financial inclusion but provide evidence that drives product innovation and policy.

All these outputs are enabling ecosystem collaboration, development and progress in more practical ways which will bring the country closer to the attainment of financial inclusion targets.

SIDFS is a friend of the financial services ecosystem, and we have been able to bring stakeholders to a roundtable to advance a common course.

What role does the banking industry and Fintechs need to play in the success of the national financial inclusion strategy?

As an industry, we need to take more risks and innovate. The under-banked, unbanked and those in the rural areas are undoubtedly more difficult to serve.

But they are a viable market if only we are willing to take the risk commonly associated with ventures.

The present trend of new apps (for smartphone users), as well as new payments systems, are still targeting the already banked.

Hence as opposed to entering the blue ocean, we are swimming in a saturated red ocean.

Fintechs have the ideas and agility while the banking industry has the mandate.

Hence, under the auspices of the industry, let’s pay attention to the challenge using innovative solutions like hackathons or even digital labs that can work on such problems.

What advice do you have for government and regulatory bodies to accelerate financial inclusion rates?

This financial inclusion story need not haunt us as a nation; we need to test and learn different approaches; learn to fail, but fail fast!

What are the impacts of the CBN’s Shared Agent Network Expansion Facilities (SANEF) initiative?

The SANEF initiative is a very much welcome initiative. A strong agent network is critical to the delivery of financial services at the last mile to consumers, especially those in remote regions.

It is still too early to tell what impact the SANEF initiative has had/is having because it yet to scale.

But we need SANEF – it just has to get its strategy right.

Much has been said on the importance of establishing agent networks as SANEF seeks to do.

How difficult is it and how have other countries approached it?

In the absence of bank branches in every locality, agent networks are channels that bridge the gap, offering DFS delivery at the last mile, especially in rural and remote areas.

In reality, the viability of bank branches in every locality is not feasible for reasons such as sustainability, security and others.

Hence, the need for low-cost face-to-face alternatives such as agent networks are fundamental to the delivery of financial services to all Nigerians.

The difficulty associated with an agent network is beyond establishing the agent service point, but also requires careful management to ensure these service points can continue transacting and remain open for business.

The agent economics issues are being addressed in the CICO study we are currently working on.

Depending on the constraints associated with agent networks, different countries have adopted operating models for the agent networks.

Again, there’s no magic bullet or prescription to these challenges.

A better understanding of the local context will guide the delivery of sustainable solutions.

Notwithstanding, countries such as Kenya, and more recently, Ghana have leveraged on existing distribution networks (which in many cases is the telco airtime distribution network).

Bangladesh, on the other hand, has built a vibrant shared agent network through strong collaboration and commitment from all ecosystem actors.

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