While mobile banking solutions in emerging countries are proliferating rapidly, not all have the necessary ingredients for success. Three critical factors have been identified for mobile banking deployment to succeed: a good agent network, a product tailored to customer need and a company that is committed and willing to stay the course.

On-the-Ground Agents the Cornerstone of Mobile Banking in Emerging Markets

To date, over 100 mobile-money setups have been rolled out in emerging markets, at least 84 of them during the past three years. But only a handful of these deployments have reached a sustainable scale, points out management consulting firm McKinsey and Company.  Research published in a McKinsey report this year identifies three factors for getting these services to catch on with customers. First, close attention must be paid to managing the agent network. The research findings indicate that this should be done in three ways. Firstly the mobile banking provider should grow its customer base and the network in tandem, making sure there are enough agents to help customers use the system comfortably but not engage too many agents. For example Safaricom in Kenya was careful to match the expansion of its agent network to customer-base growth and thus ensure a steady 1,000 transactions per month for each agent. Secondly, you have to “understand agent economics and risk, as the business case for agents is not that simple,” says McKinsey. Thirdly, the company should only enrol agents who have the right skills and dedication and must then be prepared to provide them with continuous training as it is the agent’s job not only to train the customer but also to inspire trust in the system.

A compelling product offering

The second key factor is that the company must have a compelling product offering. A product is judged to be a commercial success if it generates two to two-and-a-half transactions per month per customer, as M-Pesa in Kenya does. But simply copying the M-Pesa model is not the way to go, says McKinsey, who advocate finding a ‘killer app’ by conducting a detailed customer-needs assessment that maps current behaviour and crucial needs (“pain points”) so as to be able to come up with a new service tailored to need. Then, as poor marketing is one of the key barriers to adoption,the new service should be promoted through both above-the-line – advertising in TV, magazines, etc. – and below-the-line marketing, i.e. non-media approaches such as face-to-face sales. The McKinsey report states that out of a sample of 184 people, 66 had an open mind on mobile money services, 12 intended to try them, and only 2-3 people actually used them frequently. Basically the company needs to choose the right moment to diversify the product offering and avoid deluging the customer with too many different products.  And this means the company must have “a vision of what it hopes to be known for.”

A committed company

The third and final factor is the commitment of the company. The McKinsey research suggests that even successful deployments require three to five years to attain profitability, a waiting period which “may strain corporate commitment,” warns the management consultancy. Even with significant up-front investments, a company will still need to be patient and wait for “impact at scale.” From what the researchers have seen so far, mobile money tends to become profitable only after it begins to “go viral” and enjoy the benefits of network effects. And that requires time for people to become comfortable with and trust the system.  For example, while $30 million were invested in M-Pesa (Kenya) and $25m in Vodacom (Tanzania), numerous other deployments in the last few years have “attempted to get off the ground with less than $1 million, only to find themselves unable to gain traction,” points out the McKinsey report.