Migrating away from cash is intimidating – Stickiness of Cash Part 2

Ask any payment professional, and while they might disagree on what’s the best payment experience, they would all agree that Cash is sticky.

And one of the core reasons for the stickiness of cash is that the migration journey is intimidating for most cash-heavy users.

Too many choices

Here are some of the many questions the cash users who want to migrate away from cash, grapple with:

  • Is it safe to use a card for payments
  • Should I use a separate card for ATM withdrawals and purchases
  • What should I start using – prepaid, debit, credit , mobile wallets
  • If it’s a card, should I go for a basic, gold, platinum or some other variant
  • Should I get a product with shopping benefits or one with fuel? or the one with air-miles
  • Should I take a Visa or a MasterCard or a Rupay
  • I have accounts with multiple banks, whose product do I begin with
  • How do I apply for the card? Can I apply online, or do I go to the bank branch?
  • What is a UPI or IMPS payment? How do I do that? What is the fees on the transactions?

…….And it goes on and on.

The simple fact is that there are way too many products with different features, brands, offers,benefits and form-factors. It is a tough choice to make.

And post demonetization, most banks are  show-casing ALL their products in each of their ads. Leaving it to the consumer to pick and choose.

I have seen Mumbai buses covered with ads, that have all the digital payment instruments from that bank. Not sure if most consumers even know what those mean.

 

The famous Malcolm Gladwell research on choices, happiness and spaghetti sauce also harps on the risk of too many choices.

The migration away from cash, has to be made easier with fewer choices or a recommended path to walk on (recommendation itself coming from a trusted partner).

In the absence of this, most consumers prefer a wait-and-watch stance. And the product(s) with simpler choices and/or more brand-ambassadors will see higher adoption. No wonder, many a millennial adopted the mobile wallets. There were no variants of PayTM, Mobikwik etc.

And this brings us to the other point.

Hurdles in the migration

Ok, so you have a cash-user who is convinced about that one digital payment from your bank. How does she go about getting started?

Do you remember the forms you filled to get your first credit card.

I remember that during my Deal4Loans days, the card application forms used to have almost 50+ fields across some 4-5 stages of the online application for most banks.

While the consumer on-boarding has come a long way in the digital era, it still is complicated for many products/banks. Unless the consumer is really convinced about this migration, why would they jump through so many hoops to get the product.

The access and on-boarding has to be simpler. A convinced consumer should be active on Day 0 if not within Hour 1.

In my opinion, if we are serious about displacing cash, we need to make the transition a simpler choice for the consumers.

What do you think?


This is part 2 in a series of posts where I try to understand why Cash is sticky? What are the some of the obvious things, we may have overlooked in our zeal to digitize payments.

Here’s part 1 , where my humble submission is that Cash is not really the enemy. Atleast not in the eyes of the consumers.

Immediate reactions to the banning of Rs 500 & 1000 notes

As Anshul & I sat listening to the PMs announcement and then all the experts on CNBC, we couldnt help discussing what all must be happening around the country in the next 72 hours.

500-1000-note-banWe are surely living in interesting times.

Managing high denomination notes:

  • All secret saving places in the homes/offices/godowns will be cleaned and reviewed today.
  • Piggy banks of kids will be broken tonight. And parents will have a hard time telling the kids why they cant wait for the kids bday
  •  Many would queue up at petrol pumps to get their cars tank-fulled.
  • People with blackmoney would already be approaching hospital owners and petrol pump owners to help them convert their black money into white.

Getting cash with lower denomination:

  • Ppl would queue up infront of ATMs for withdrawing Rs 400/- . Multiple times. Confirmed.
  • People would watch their cash spends like never before.

Moving away from cash:

  • Payment apps will see a sudden spike in downloads and activation over tonight tomm.
  • Wallets will be topped up. Card activation rates will show a sudden spike, esp on the debit cards
  • Uber and Ola will have a field day as autos & kaali-peeli wont be preferred. Pls expect surge pricing.
  • Most small merchants will see a dip in transactions next 2 days. They will teach themselves how to accept cards.

Banks & Payment Providers

  • Opportunistic Banks would send SMS & emails to customers to activate their debit, credit prepaid cards.
  • The CASA books will see a sudden increase as the rate of deposits will be higher and faster as compared to rate of withdrawals from the account. Few dormant savings accounts may become active.
  • Merchant acquiring teams will suddenly be seeing incoming pull business rather than push.
  • Jandhan account activation rates will be very high.

Ripple Effects

  • Like Future Group, many merchants will be open almost till midnight tonight. Grabbing whatever opportunity that exists in this situation.
  • Zomato & food ordering apps will see a growth in business. Their market share of each partner restaurants overall revenues will increase.
  • COD rules will now need to incorporate not just pincodes but the order amount too. COD may be suspended for the next 2/3 days.
  • Property deals would be on hold till the new norm of the market emerges. Or till enough of the new notes find their way into the parallel economy.
  • Odd jobs at home will be postponed. Big hit to the daily wages skilled earner. They would be forced to ask their clients to deposit money into their Jandhan accounts.

Funny Thoughts

  • Patanjali would need a new theme for their campaigns. Kaala-dhan (black money) story would just not fly
  • Marriage season gifting needs more innovative ideas. Envelopes don’t cut it any more.
  • How will the rich temple trusts manage the shift towards less-cash?

Why is Financial Inclusion important?

Financial Inclusion is a common theme across multiple initiatives both by governments and private sectors across economies. Especially in the developing world, it would be safe to say that Financial Inclusion must be in the top 5 priorities of the respective governments.

But why exactly is Financial Inclusion important ?

 

Financial Inclusion takes an economy towards more equal opportunities

Financial access is a key component towards providing equal opportunities and equal access for growth for various segments of the society. Just like education, nutrition and healthcare access are critical in driving growth of a population, so is access to finance and payment instruments. The Better Than Cash Alliance (Bill & Mellinda Gates Foundation) says in its 2014 report for the Australian Presidency

Studies show that broader access to and participation in the financial system can reduce income inequality, boost job creation, accelerate consumption, increase investments in human capital, and directly help poor people manage risk and absorb financial shocks

And why exactly do we need to work on removing inequality?  As Christine Lagarde (MD, IMF) said in her  June 26, 2014 speech at Mexico, the need for removing inequality goes beyond moral principles. It is a key ingredient for sustainable growth.

Inequality is not just a moral issue—it is a macroeconomic issue. Our research tells us that countries with higher inequality tend to have lower and less durable growth. Inequality chokes the prospects for individuals to realize their full potential and contribute to society. Whether it is through personal experience or empirical evidence, one thing is clear—growth has to be more inclusive, and for this finance has to be more inclusive

Financial Access can increase investments

Whether it is individuals or small/medium firms, access to finance, builds the environment and comfort for savings and investments. This could be because of multiple factors:

  • Access to credit
  • Access to easy, safe, reliable means of savings and investments
  • Triggers and reinforcements (social, system-driven) that induce a culture of saving and/or risk-taking, investing etc

Financial Access provides security/insurance

The impact of negative scenarios is significantly high for those who have no financial security or insurance. The ability of an individual or a community to bounce-back from a calamity is directly related to the access of funds made available during such times of need. Insurance has the other advantage of providing mental peace and a mindset where the poor are not constantly worried about basic sustenance.

Why mobile payments must arrive soon

I try to go walking on most weekdays. And I prefer to do so light – carry just the minimal stuff.

On my way out for a walk yesterday, I stopped by to take some cash along with me – just in case.

And this got me thinking, with my smartphone (& earphones) I do not need so many other things.

I know the time(so that I am in time for that movie), can listen to music while I walk, I can track my work emails (allows me to stay away from my laptop) , I know I can be reached anytime if the need arises(through calls, SMS, messengers etc).

I can track my workout (and its just amazing what all some of the fitness apps can do), click high resolution photos while I am on the move and share it with my friends & family.

But I still need to carry my wallet when I go for my walk. I do so, because I might want to buy fruits on my way back. Or I might get a call from home to pick up some other groceries. Its usually not a planned spend but I want to have the confidence that I have money available to spend when I am out for a walk.

 

I don’t like the feel of the wallet while walking. I would love my phone – which is the digital swiss army life in most our lives – to be able to do that. I would want my phone to give me a sense of financial security too.

Swiss army phone

I know business strategists would say this an isolated and small use case. And I agree. But my point is, its a matter of time. While mobile has brought all these solutions into one gadget, payments cannot stay away for too long.

But then again, its not just me. When my mother goes out for a walk, she carries her phone and a small purse. Does she spend money every day – No. Would she go out without money/purse – No. Would she go out without her phone – No.

M PESA story

What are the things M PESA did right?
  • Clean and focused campaign – “Send Money Home” – focused only on national remittances – something that was done in abundance
  • Transaction fees were the lowest for any mode of money transfer
  • Fees clearly communicated with slabs/displays at agents
  • Differential pricing for customers paying to other customers vs non-customers. This brought in viral effects and drove further registrations
  • Security was the main plank as money transfer was not all that safe
  • Realized that trust resides in timely delivery of SMS receipt. Initial outages or delays created a lot of complaints. mPesa team upgraded the SMSC servers and the menu also
  • Low hurdles to join/sign-up. Any ID proof worked and there wasn’t much KYC done
  • Availability of agents was high. Uncomporable distribution reach.
  • Agents were handpicked, shortlisted after a comprehensive evaluation and then trained sufficiently
  • Agent level liquidity/cash management

Consumer pitches for payment solutions

Any new payment solution seeks to change the consumer behavior in a significant way and hence tries to ride on one or multiple triggers. These triggers are the reasons why a consumer would prefer our payment option over all the others at the moment-of-truth.

I do not want to carry cash/cards/bulky wallet

This feels really safe and secure

I get the best deals at merchants, when I use this option

I earn rewards for most/all of my spends

This is really fast/easy/convenient

The fee structure on this option is most exciting