The ‘Uberification’ of Financial Inclusion: What’s Possible?

What Uber is achieving in the transportation sector is fascinating for most of us. Some are angered by the approach (surge pricing) and the implications for regulated businesses, but most seem intrigued. At CGAP, we want to understand what Uber and other socially interactive business models could mean for financial inclusion. 

Leveraging social supply and demand in real time

This is arguably the foundation of Uber’s business model – leveraging existing underutilized social capacity to meet the transport needs of society, by matching supply and demand in real time.

How can the same logic be applied to financial inclusion challenges? Admittedly, the fact that there is cash involved adds risk to the transaction. But in the same way as companies like Uber and Airbnb leverage user feedback to manage the not-insignificant risks of their businesses, similar mechanisms could come into play for financial inclusion.

As an example of a use case, why not call on local communities to address the cash shortages of remote agents? With the right rules in place to manage risk, and appropriate incentives to encourage the behavior, perhaps a financial service provider could leverage the attributes of digital channels (location intelligence, real time interactions, data) to manage the supply and demand for cash. Instead of paying to transport cash to agents, or bearing the cost of illiquid, ill-equipped agents, why not incentivize customers to solve the problem directly?

Here’s how it would work. The agent would effectively be the Uber customer calling for a taxi (cash in this instance), and the community members would be the Uber drivers that only switch on their ‘cash provider’ app when they have surplus cash (savings under the mattress, windfall from rotating savings club, wages, surplus from harvest season etc). If the agent is willing to pay for cash, immediately-underemployed community members might be inclined to deliver small amounts of cash within minutes. As with Uber, there might be some ‘surge pricing’ at high demand times when providers or agents are willing to pay extra (e.g. when social grants get paid). Could this type of socially interactive business model help with the distribution challenge?

While perhaps more risky, an agent might also alert customers to e-money shortages (cash surpluses). However additional risk mitigation might be required here. For example, the agent might choose to only alert individuals in his/her social network so as to avoid theft.

Reducing unknowns and managing risks

What is the financial inclusion equivalent question of “how long will my taxi take to arrive”? Uber removes the anxiety and unknowns by showing customers the answer, updating the information, and even giving eager customers the opportunity to verify the information (the driver’s name and mobile number).

We know mobile money customers want to know their balance – before, during and after every interaction. What other information would reduce customers’ anxiety? Perhaps money transfer customers want to know – visually and in real-time -  if mom has received and used the money. Or would it help to show how far the closest agent to mom is before the transaction, and whether the agent currently has the liquidity to cash out? Let’s take things further. Will the agent rip mom off - have past customers given him or her high ratings? Will he or she surcharge? Will he or she require a purchase to make a withdrawal? Uber’s rating system tries to answer the taxi-equivalent of some of these questions by providing immediate feedback on drivers (and customers), thereby incentivizing enhanced customer and driver experiences.

Simplifying the user interface

As smartphones penetrate even low-income communities, creating intuitive user interfaces that require no more than 2-3 touches will become an increasingly relevant opportunity. An intuitive 2-touch user experience for low-income, low-literate customers could be the difference between failed transactions and 70% inactive customer rates, versus mass take-up, increased usage and network-effect driven exponential growth.

Offering customers choice

How do we give customers choice without complicating things, and without sacrificing the 2-touch transaction? With Uber, the basic choice is whether you are price sensitive or not – UberX vs UberBlack (basic car vs luxury).  The first step would be to identify the choices financial service customers think are critical. For example, service could differentiate the price of transactions completed face-to-face versus those moving money over distance – one being inherently more valuable than the other. Over time other options and services could be experimented with, gradually expecting more of customers without losing the simplicity.

What else?

The digital finance frontiers initiative at CGAP has the exciting job of identifying sources of innovation, and working with providers to drive experimentation in the highest potential and most effective ways. We expect the financial services sector to continue innovating around socially interactive business models – moving to a world where the excess supply of labor creates an independent but socially-monitored and connected workforce that could sign up and train new customers, exchange cash for electronic value (with agents and eventually with other customers), and provide input on the credit worthiness of social connections.

If you have other ideas on how socially interactive business models could be applied to advance financial inclusion, please leave us a comment.