Last month the Mobile Money for the Unbanked group at GSMA released their state of the industry report for 2013. They’ve been collecting data on mobile money since 2010 so a more complete picture of changes in the industry is starting to emerge, and this year for the first time they’ve added other mobile money products like insurance, credit and savings, which make up a growing piece of the mobile money pie. Though we try to keep up on what’s new in mobile money, some of the findings surprised us.
We hear that people these days are into quizzes (admit it, you already know which Game of Thrones character you are). Now get out your pencil and paper to tally up your scores, and see how much you really know about the global mobile money industry . . .
Read MoreHere on the FAI blog we’ve written many posts on the shortcomings of financial literacy training programs, both in the US and abroad. When I came across a study from the World Bank’s Development Research Group evaluating a vocational training and entrepreneurship program in Malawi, I was prepared to add this to the stack of mounting evidence of training programs that show little to no effect on business development and personal finance and move on. But in this case, the study focuses on the gendered differences of participation in the training course, not just whether or not it was effective at facilitating new business activity.
Like previous research, the Malawi study found no effects on self-employment*, but it did find significant differences in satisfaction and self-esteem between women and men after taking part in the program. The authors (Cho et al.) comment, “these differences are explained by both the conditions under which women participate in training, as well as gender differences in the training experience" . . .
Read MoreLately I've been noticing a lot of writing about innovation inanely citing Steve Jobs (“People don't know what they want until you show it to them”) and/or Henry Ford (“If I had asked people what they wanted, they would have said faster horses.”) quotations about customers not knowing what they want. An example last week, in an otherwise reasonable piece about how to measure economic progress, caused my frustration to boil over.
I think this perspective on innovation rears its head a lot when it comes to financial services for poor households which is concerning because it is 90% (at least) dead wrong.
Let’s start with the Ford quotation. First, it’s apocryphal . . .
Read MoreNo consumer likes overdraft fees. Overdraft fees are often unexpected, expensive, and in some cases undeserved. What’s more, they can wreak financial havoc on households living on a low-income.
But the larger issue is not the fees themselves. It’s the lack of transparency surrounding them and the widespread consumer distrust that results.
Edelman is a PR firm that surveys people around the world to create an annual Trust Barometer (among other things), which gauges levels of trust in different institutions. In 2012 it found that only 41% of respondents in the U.S. trust banks – which, by the way, were at the bottom of the list right along with financial services. The year’s ratings on banks are second-worst only to 2011, when they hit a low of 25% . . .
Read MoreGlobal remittance flows command a rightfully growing amount of attention. Recently Pew published a visualization of World Bank data on international remittances that helps show the scale and corridors of transfers. Of note, FAI’s Alicia Brindisi has been writing about south-to-south remittances and the huge market they represent.
Remittance flows are, of course, primarily driven by migration patterns. The largest country-to-country corridors for remittances—from the US to Mexico ($22 billion in 2012), from the UAE to India ($17 billion) and from India to Bangladesh ($7 billion) for instance—match the flow of migrants. In the US to Mexico corridor, remittance flows fell during the Great Recession as there was a net outflow of Mexican migrants. Curiously though, while migrant flows have returned to pre-recession levels, remittances have not. Meanwhile major banks, which had invested in providing remittance services to that corridor, are cutting back services . . .
Read MoreMobile money supporters often tout the benefits of using transfer services to facilitate remittances. Many users are migrants who made the financial investment to live in a Western country and send financial resources back home. But that is only part of the story. According to a 2010 UN report , the number of South-to-South migrants (73 million) in 2010 was only slightly less than South-to-North migrants (74 million) worldwide. In Africa, one-tenth of remittances come from within the continent, and South Africa (a destination country) sees most of its remittances flow to neighboring countries. Where the people go, the money follows. The World Bank estimates the value of South-to-South remittances between $17.5 billion and $55.4 billion, or in other terms, 9 to 30% of all remittance traffic to developing countries.
Sending these payments is not cheap – the average global money transfer fee is 9% while the average fee to send funds within South-South corridors is 12% . . .
Read MoreIn Kenya, 70 percent of long distance payments from one individual to another are made electronically. Seventy percent of payments from governments and businesses to individuals are also made electronically. From 2006 to 2009 when M-Pesa—the Kenyan mobile instrument for all these payments—was expanding, the total number of person-to-person electronic transactions shot up rapidly, by 215 percent.
What would happen if the rest of Sub-Saharan Africa looked like Kenya? A just out from McKinsey, based on Gallup data funded by the Gates Foundation, looks into that future scenario.
The focus of the report is the opportunity for potential payment providers to earn more revenue (estimated at 2 percent of transaction volume). Projections show revenues from electronic payments across the continent would grow 50 percent, to $15-$16 billion a year. This news comes with something of a puzzle. With the opportunity so large, why have most other countries not followed in Kenya’s footsteps?
Read MoreThere’s a nice post on payday loans by New School professor Lisa Servon on the New Yorker Currency blog this week. She tells the story of Azlinah Tambu, a single mother in Oakland, CA who took out a series of payday loans, knowing she wouldn’t be able to pay them back on time and will end up repaying far more than she borrows. There’s no question Tambu is as informed a consumer of these types of loans as you could find: she has worked as a teller for a payday lender. In relating Tambu’s struggle to repay, Servon makes two really important and related points.
First, current debates focus too much on the need for regulation to curb the abusive practices of payday lenders rather than seeking to understand the financial lives and motives of the people taking out these loans, despite their high cost . . .
Read MoreToday The New York Times features a perspective from Shaila Dewan on the importance of credit and saving in the lives of the poor. Dewan highlights that life without credit can be expensive and severly limiting in terms of accessing housing and other services or dealing with emergencies. She also notes that savings and credit are interconnected and quotes FAI's Jonathan Morduch on his own observations of the relationship between this activities from his research in Bangladesh . . .
Read MoreThe Taylors overdraft their checking account every two weeks, on purpose.
As described in a recent issue brief published by the U.S. Financial Diaries, the Taylor family’s income level varies significantly from month to month. Sometimes it’s not enough to cover all of their expenses. So, they opened an account at a bank with a simple overdraft fee structure: One $35 charge per overdraft, no daily fees, and an allowance of up to $500 at a time. Since the Taylors typically make only one large cash withdrawal per paycheck – the entire amount of pay – this bank would charge them at most one $35 overdraft fee each cycle, if they happen to need more cash than the amount of that week’s direct deposit.
The Taylors use overdrafts as another household might swipe a credit card or take out a payday loan. Since their credit history eliminates the card option and they are already tied up with a payday lender, over-drafting becomes another logical – and probably more convenient – place for them to turn to stay on top of their bills. It’s clear that the family responded to and relies on their new bank's transparent behavior. They saw its fee policy, understood how they could manage it, and became a customer . . .
Read More“Wow, the consumer knows about that?”
This was essentially how a banker responded when I told him the story of a woman I interviewed for the US Financial Diaries study. The participant – we’ll call her Jenna – was charged four $32 overdraft fees in the same day ($128 total, if you’re counting). Jenna explained to me that if her bank had processed her transactions in the order she had made them, there would only have been one charge. Instead, the bank posted her largest purchase first, which was enough to take her account balance below $0. That triggered the initial $32 fee, and then three smaller debit card swipes she’d made earlier in the day each prompted fees as well . . .
Read MoreImagine you enter a shoe store that is having a sale – buy any pair of shoes, get a second pair for free. Sounds like a great deal, right? Now imagine that same store had an offer to take 50% off any two pairs of shoes. Even though you are spending the exact same amount for the same two products, perhaps you react differently to the two offers. Perhaps there is something about removing “free” from the offer that might make you feel like you’re not getting as good of a deal. And how would you pay for these shoes – with cash? Credit card? Mobile wallet balance? Does it even matter? Research shows that people perceive $1 in mobile money differently than $1 in cash, and that these different perceptions DO influence spending habits.
The process of mentally separating different forms of money and assigning value to them, keeping track of potential costs and benefits to transactions, and categorizing expenses into buckets like “food” and “healthcare” is called mental accounting . . .
Read MoreMy month-long experiment of surviving on cash only is at an end. One question I had hoped to answer was whether switching to purely cash transactions would cause me to spend less. To find out, I took three months of transaction data from last summer from Mint.com. After removing spending anomalies like an unusually large student loan payment and an airplane ticket, I averaged the expenses for this time period in a number of categories like “entertainment” and “groceries.” I compared the three-month averages with my one month of cash spending during Sorry, Cash Only.
I suspected that the numbers would reveal that I spent less during my cash month. Existing research shows that convenience, reduction of barriers to spending, and even perception of credit all contribute to higher spending with credit cards. However, I wasn’t prepared for how much less I spent . . .
Read MoreHow would you describe a savings account where your money is occasionally stolen, eaten by mice, or washed away by floods? Merchants in Dharavi, the largest slum in Asia, describe it as “safe.”
That’s what Deepti KC and Mudita Tiwari found when they interviewed sellers, suppliers and buyers in Dharavi, home to 5,000 informal businesses that create goods worth more than 600 million dollars a year, in the heart of Mumbai.
Far from being poor peddlers of trinkets, the sellers of Dharavi—particularly those who make relatively expensive leather goods—routinely move thousands of dollars in a single day. They have sophisticated financial lives, often including formal bank accounts, and many have smart phones. KC and Tiwari—like many researchers studying financial inclusion in the developing world—posit that increasing take up of digital transactions “is essential to achieving inclusive financial growth in India” . . .
Read MoreOne of the issues we follow closely at FAI is the rapidly expanding use of mobile money in the developing world. As Jean Lee recently noted, a growing body of research on mobile money has a lot to say about its potential to smooth risks and facilitate transfer programs.
In the interest of keeping a finger on the pulse of the latest results from the field, FAI's Managing Director Timothy Ogden and Deputy Managing Director Laura Freschi recently attended IMTFI's Fifth Annual Conference for Funded Researchers . . .
Read MoreAt a recent Microfinance Club of New York event with Michael Joseph, the former CEO of Safaricom in Kenya and now the Director of Mobile Money for Vodafone, Joseph cited regulatory barriers as the principal reason that mobile money has not taken off in India, the largest market in the world and his current project. A new paper from Eva Gutierrez and Sandeep Singh at the World Bank confirms his intuition, finding evidence for the importance of regulation for mobile money usage by combining the World Bank’s Global Findex database with cross-country variation in regulatory regimes.
The authors argue that both regulatory certainty — stability in regulation — and regulatory openness — policies that favor the introduction of new technologies — are necessary for mobile money adoption. They construct an index of regulatory favorability towards mobile money and look at the relationship between their index and actual end user behavior using the Global Findex to track outcomes for 35 countries, finding that overall, regulation is a significant factor in explaining mobile money usage among both the banked and unbanked . . .
Read MoreMost of NYU’s development economists are on leave this year (Raquel, Debraj, and Hunt: your colleagues miss you). The regular doctoral sequence and development seminar are on hold for the year. Students walk the halls unsure who to ask about the right way to parameterize intra-village treatment heterogeneity when doing power calculations. Bill Easterly and Yaw Nyarko are holding the fort, though, and they pulled off a standing-room-only annual Development Research Institute conference on Friday, November 15. It was a reminder of what makes NYU such an interesting place to study development.
Takeaways: The history of European settlement made more difference than we thought to global patterns of growth (and still does) . . .
Read MoreLast Friday marked the halfway mark in my experiment to only use cash for 30 days. I still have a few weeks to go but I wanted to reflect on some of the major insights I’ve gained so far.
Increased Anxiety and Insecurity – Going into this month, I expected to feel an increased sense of worry around personal theft. However, I live in a relatively safe neighborhood, the cash under my proverbial mattress is decently secure, and never carry huge sums of cash on me so the threat of theft is not what has been causing anxiety. What has is the realization that dealing in cash means operating without a safety net. Having multiple payment options is not only convenient but functions as a form of personal insurance. If there is an emergency, if I do not correctly plan my financial day, if I forget cash at home, I am out of luck. (Of course, I realize that these feelings would be amplified if I also had the additional pressure of low income, which is one of the biggest distinctions between this project and the realities of the unbanked.)
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