Opportunities in the Ghanaian Payments Market
Adelaide is a young Ghanaian trader specializing in vegetables from neighboring Burkina Faso. As she sets out on her journey from Accra in the south to the dusty northern border to buy tomatoes that she can sell back in the city, she carries the equivalent of $6,500 in cash on her person. The problem, she explains, is that she has to leave so early the banks are not yet open. She is well aware of the risks: 65% of Ghanaians feel that carrying money when travelling has become more risky and Adelaide has heard of other traders being robbed. Like the vast majority of her countrymen, she owns a cell phone and is well aware of mobile money, but she doesn’t use it. Instead her main security precautions are to keep her travel dates secret, never journey during the night and go in a group with other traders.
Mobile money or other branchless banking services could ease the risk on people like Adelaide substantially. Yet despite there being three MNOs, one government institution and one independent branchless banking deployment in the market, with two dozen partner banks, thousands of agents and millions in sunk marketing spend between them since 2009, the total active user base is less than 200,000 and all deployments are struggling for break even. Does this mean branchless banking is not going to work in the Ghanaian market? A recent piece of research CGAP commissioned from Bankable Frontiers Associates suggests that it should, as we will outline in two posts on the subject.
This household level survey was conducted in November 2011 in urban and peri-urban areas of Ghana for a sample of 1,003 respondents. High income neighborhoods were excluded, as the main objective was to learn about the money movements of lower and middle income Ghanaians. It is thus not nationally representative, and particularly the exclusion of rural areas from the sample should be borne in mind when interpreting the data.
Our results indicate that the fundamental market conditions for mobile money services in Ghana are not bad and that there is reason to question some of the negative assertions that are sometimes made. First, “send money home” does appear to be a valid proposition also in Ghana. Faced with the lack of takeup of mobile money transfer services, some observers have questioned whether the domestic remittance product that proved so successful in Kenya might not work in Ghana due to differences in family structures and migration patterns. The survey provides some evidence to the contrary, showing that every month 50% of urban and peri-urban households send money to friends and family, while 35% send money for business purposes. Our very cursory market sizing estimate hints that the combined value of these two domestic remittance markets may approach $4bn yearly, which is clearly a market worth pursuing.
Second, people are more open to electronic receipts than they are given credit for. More than 90% of urban and peri-urban Ghanaians pay bills and school fees, both of which can require substantial time or effort to pay in person and therefore a good potential target for branchless banking products. Most service providers in Ghana however believe that while POS based solutions can be deployed to serve this market, phone based options are not viable since people demand physical receipts for the payments they make. Our survey indicates that there is this strongly held belief may be inaccurate: over 40% of respondents indicate they would find an SMS receipt sufficient for payment of utility bills and school fees.
The study also finds that 96% of respondent households contain at least one cell phone and 64% have SIM cards from multiple networks. Very interestingly, 66% of primary income earners have already used it to send airtime to someone. This is an indication that lack of trust or technological savvy do not pose obstacles as significant as is sometimes assumed. Since the actions of sending airtime and sending electronic money are functionally identical, the leap for these consumers to transition to mobile money wallets should be a small one.
Our data further show that of the 56% of respondents that have used a commercial bank for money transfer and bill payments in the past year, 11% do not actually have any bank account. These consumers of payment services thus constitute a sizeable group of potential converts to mobile money or other branchless banking methods.
Above the line marketing has not translated into high usage of mobile money. Awareness is high but usage is low
Despite these encouraging findings, selling the branchless banking proposition to end users is not necessarily straightforward. The three MNOs offering mobile money products have spent millions on marketing for several years without seeing significant takeup. Our survey confirms that this effort has paid off in one sense, but failed in another. An impressive 90% of urban and peri-urban households across Ghana are now aware of mobile money, with some variation across the three products available. Yet only a modest 17% have actually tried any of the services and user activity rates are in the low single digits for all providers.
If basic market conditions are good and the value proposition corresponds well to customer pain points, as we will argue in the next post, why the great divergence between awareness and uptake? Our research yielded one result that may provide a useful insight for understanding and closing the gap. The vast majority of respondents stated that they are made aware of new payment methods through above the line marketing, notably TV and radio spots. But the methods that they actually use, they learned of either from friends and family (80%) or the person they needed to transact with—virtually no one learned of the method they use from ATL advertising. Our data do not permit a deeper exploration of the reasons underlying this striking pattern, but it seems plausible to surmise that trust plays a significant role here: people are skeptical of advertisement but place faith in the choices of their peers. This hypothesis also resonates well with our results on customer pain points and preferences, which will be explored next week.
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Comments
Interesting post. Here’s the
Interesting post. Here’s the idea it generated for me:
Instead of following the Kenyan advertising model showing people sending money home, maybe a more effective marketing strategy would show people teaching others how to use it. There is no need to focus on how sending money saves time, money, is more safe etc, the focus could be on how “cool” it is to use. I imagine an ad with a cosmopolitan guy representing success showing his farmer uncle or younger brother all of the great stuff he can do with mobile money. One year later you show the farmer or uncle brother looking as cool as his original teacher.
Perceived coolness often just trumps value in the advertising world.
Hello, I work in the AusAID
Hello, I work in the AusAID Mining for Development Section and used to work in AusAID’s program on Financial Services for the Poor.
I am interested in how this Ghana example illustrates potential opportunities for mining company Corporate Social Responsibility partnership with programs for financial inclusion and social protection.
If mining companies could provide small funding direct to the mobile phones of poor people living near the mine, it would have spillover benefits for transparency, democracy, small and medium enterprise growth and social licence to operate.
I do not know if any mining CSR programs have explored this use of innovative methods for mobile banking, and would welcome advice on whether CGAP or other financial inclusion agencies have comment on it, including whether a foundation funder such as a mine or its development fund could provide impetus for broad uptake of mobile banking.
Thanks for posting Peter,
Thanks for posting Peter, this is very interesting.
How did you calculate that the business and household money transfers amount to $4bn? And what exactly do you mean? Do you mean that the domestic volume of remittance cash in Ghana is $4bn? Seems very high.
There may be a hidden assumption in your logic around a small leap from electronic transfer of airtime to electronic wallets. With electronic transfers of airtime, the user has immediate gratification: they have a phone with units and can make calls. I think this is why it has caught on—it is immediately intuitive why the transaction would happen (someone needs units, you send it, they get it immediately, they use it immediately).
With electronic transfers of cash, at the moment the receiver can’t use this cash unless they physically move to a mobile money location which can convert it into physical cash. Or the network effect needs to strengthen and we move closer to a cashless Africa where you can pay for purchases immediately via mobile wallets.
It’s a small step and leap to make, but represents a big problem: many of the advertised mobile money merchants I have come across in Ghana no longer offer the service because they don’t have the cash flow to support it. These merchants are typically small provision stores.
I wonder what would happen if the Government of Ghana started paying salaried civil servants via mobile money? Many of these civil servants have the disposable income to make large purchases, and many of them own and operate small businesses on the side, so you hit both consumer and business at the same time.
In my experience, I’ve found Ghanaians quite responsive to advertisement. For instance, if a business starts advertising on the radio, it can be perceived as very prestigious and add brand value to your product. I’m not sure I agree with your hypothesis around advertising skepticism. It may be a case of separating the customer segments: there are those who will respond to advertising, and then word-of-mouth can take over. And I agree with Mike that sometimes perceived coolness trumps everything (e.g. cigarettes).
Look forward to next week’s pain points analysis!
Hi and thanks for commenting,
Hi and thanks for commenting,
Robert, I am not aware of mobile money being used for CSR in that way, though it is in some ways a corollary of shifting government cash transfers onto electronic channels – which is seen by many as potentially important support to building the volumes required to make the business case work. In the case of a mine, I would think the more interesting opportunity would be for the company to actually pay its employees part of their salaries over mobile money.
Wayne, the amounts are extrapolations on the basis of amounts reported by our respondents. They are only very indicative, but as a ballpark measure they should be accurate. The important thing to point out is that this includes not only traditional remittances but also various forms of payments for things like home improvement or micro businesses. With this in mind, we think the figure is fairly believable as an order-of-magnitude estimate.
You can see the details on slides 6-7 in the powerpoint deck which is linked in the second paragraph of the post, but part of the reason it is high is that transfers are frequent: 40% of households send money to friends and family 1-3 times per month and 60% do so to business associates 1-3 times per month. Many small, frequent payments – should be a fertile market for mobile money!
On airtime, what makes this significant is that for the sender it is functionally no different than sending money: you convert cash for electronic value and ensure sufficient balance, then scroll through a menu, select the recipient, type the amount, enter a pin code. For all intents and purposes identical. So the high ratios of airtime sending we observed effectively dispels the argument that the technological element of mobile money is a hurdle – clearly it is not, and that is the point we are making.
As you point out, however, for the *recipient* you cannot draw the same kind of parallels between airtime and mobile money – and indeed here the lack of merchants and cash out points is a major hurdle. There is a significant catch-22 here which is familiar from most countries, in that you need both customers and merchants to adopt at scale – but neither has a compelling reason to do so until the other one has already done so. As mentioned above, having governments help build these volumes by shifting their payments onto mobile money and similar services is seen by many as a worthwhile and perhaps essential public policy intervention.
On advertising, I think the numbers speak for themselves: with nearly universal awareness but low takeup, clearly people have not responded to the advertising. One may always argue that this is about getting the right messaging and we do encourage the providers to experiment with their ATL marketing, for instance with more straight comparisons with popular services. But if you fail to hook people with the first three years of ATL, it seems fair to assume that more of it is not going to be the game changer everyone is looking for. Don’t you agree?
Glad you enjoyed the piece, hope the second part was equally interesting!
I am a student and owner of a
I am a student and owner of a micro-finance service. I really appreciate this research work and it is exactly the situation in Ghana. Ghanaians use mobile services a lot and most of to a larger extent welcomed the Idea brought by MTN and other telecommunication networks as well as a nationally managed platform. And we watched to see them accomplish financial inclusion so as to reduce the cost of providing micro-finance services. When mobile money services get widely patronised, the mobilization of repayments get cheaper. This will have a ripple effect of reducing the interest rates that we charge as micro-finance operators.
But the situation is getting worrying as the patronage of these finely designed products slow and almost increasing at a decreasing rate.
The problem exactly is that the services of these providers are not reliable at all. When monies are send for withdrawal, clients have to queue for a very long period before they are attended to.
Many of the times too, the network is purported to have slowed and other flimsy excuses that are not tolerable in the 21st century.
I personally had an experience, I send money to a client through one of the platforms on a Friday morning, and as at around 4pm, my client called to tell me that the operators are saying there is a low network so they can not make the payment. Mean while, she needed the money for a transaction over the following day morning.I had to make sure she gets another disbursement so as to facilitate her transaction because she is such a valuable customer. Amazingly, this money slept in the account until Monday— A LOT OF INCONVINIENCE
These are very bitter lessons some of us learn as a result of nice product not having the necessary attention
In Ghana, people patronise services based on recommendations from others. so my client also advice she will not take money through such a medium any more.
I feel that these products are perfect but the caliber of personnel who execute it are not right. Here finance brains are key
I have a lot of recommendations for these companies but cannot outlay all on this platform.
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