Varying rates of digital adoption across send and receive-sides impact payment-flows

Very simplistically put, payment is the movement of money from A to B.

And the world is becoming increasingly comfortable with money flow going digital. Whether its a consumer paying another consumer (P2P) or consumer paying a merchant (P2M) or business paying its vendors/suppliers (B2B) – the levels of digitization of these use-cases is very impressive.

But, what happens when the speed of digital adoption is very different at point A vs point B.

What does that mean for the digitization opportunities, challenges and product related nuances for the send and the receive side.

Let’s take domestic remittances as an example. In most of S Asia be it India, Bangladesh, Nepal – many blue collared workers send their monthly wages/salaries back home to their families/dependents.

These blue-collared workers are typically operating in urban or semi-urban areas and hence are exposed to an inherently more digitally savvy ecosystem. These workers have access to affordable smartphones, low cost reliable data-connectivity and also have multiple opportunities for assisted-on-boarding for any digital solution. Think of 4-5 workers staying in a house and one young digitally savvy showing others how to use the smartphone for voice or video chatting.

Their families (the receive side of this payment flow) on the other hand, may not have a similar eco-system. The data connectivity may be poor, opportunities for learning from others may not exist etc etc.

It might be safe to assume, that the digital adoption by the send side is expected to be much faster than the receive side.

And if that really happens, what does it mean?

Historically, domestic remittances was an agent assisted business. Remittance providers had extensive agent networks for cash-in and cash-out. Because the old flow has been :

  1. Worker gets the salary (most probably in cash)
  2. Goes to the remittance point (an agent outlet)
  3. Shares details of the recipient, validates himself and pays the amount (in cash)
  4. The recipient gets notified (usually on SMS) and
  5. Goes to a nearest cash-out-point for withdrawing cash. Or if it was a transfer to her bank account, would go to an ATM/branch for cash withdrawal.

Let’s look at what all is changing:

  • Many workers will start getting salaries into accounts/wallets/prepaid cards
  • Workers are digitally savvy now, comfortable doing transactions on mobile.
  • Some may start using their mobile wallets, cards for merchant payments – because in their locations (urban mostly) there are merchants accepting digital payments.
  • Many will not want to stand in line or physically visit an outlet to send money.

And this will mean that many mobile-originated un-assisted remittance origination services will flourish. All vying for this big base of consumers who are just becoming digitally savvy, just becoming comfortable enough to send their hard earned money digitally.

On the other hand, the receive side looks much the same as older times:

  • Even if the family in the village gets money digitally, they cannot spend it digitally.
  • ATMs may not be efficient for banks, so local shopkeepers are best way to withdraw cash.
  • And since this shopkeeper has been the usual cash-out point, one may see little value in changing how the remitted money comes in

Again, to make things really simple, lets assume that there are two distinct profiles on either side.

  • Send side – 1. Cash-first, feature phone user and 2. Digital first smart phone user
  • Receive side – A. Cash heavy spender and B. Digital spender.

And let’s assume that digital adoption is process of migration from the first profile to latter of a large enough pool of consumers. This would give us the usual 2X2 matrix. Here’s a quick visual model of what all this means –

Varying pace of digital adoption in the remittance use-case
Domestic Remittance : Varying pace of digital adoption

While this may be an oversimplified assessment, the bigger point I am making is the following:

  • For most transactions (not just in payments) , its a human at either ends. These individuals may have different environments, motivations, behavior and hence
  • The rate of digital adoption at both the ends may vary drastically
  • And this opens up a world of interesting opportunities as the use-case undergoes a fundamental change – bottlenecks will shift, old assumptions fail, new business models will need to emerge
  • And it in in these times that disruption works best. The incumbents may be too committed to the old model and the new players may have just timed it right.

Uber and Free Market Economics

Uber has changed the way we travel within cities. On a recent trip to Jaipur, the first thing I did on reaching the city, was to top-up my PayTm wallet to get going on Uber. (yeah no card-on-file yet 🙂 )

Uber Free Market Economics
Uber Jaipur

And over the next 3 days I took more than 12 rides across the Pink city. Here are some of the interesting observations I had:

  • Jaipur is really a small city – Only one ride was over Rs 100/-. All others barely crossed the Rs 75/- mark. Given the distances are not too much, the per ride fare is expected to be low. This is a critical point because the supply-demand balance can be easily titlted in a small-population. Also the per ride metrics are sensitive to even the slightest changes.
  • Free market economies tend to be cyclical – Almost all the drivers I spoke to talked about the good old times they have had, driving around as Uber cabs upto almost 6 months back. It seems back then Uber was super aggressive in signing up cabbies and were paying as high as Rs 1800/- per day. Guaranteed. This came down to 1600, 1400 and now is at 1200/-. And its all because of the immensely huge supply. Most cabbies now complained of getting too few rides on a daily basis. Add to that the low average per ride fare and it is clear that this city needs volume of rides to be high. Or to quickly reach an optimal sweet-spot of supply and demand match. As the word of tough times (for the cabbies) is spreading,  fewer are joining and many who had joined Uber are reportedly quitting it. Some can’t even pay their loan EMIs.
  • There is no consistency of vehicle experience – I got from a Nano to an Innova under UberGo. Firstly, UberGo is where most customers go, hence even cabbies are registering themselves as UberGo. So you are better off choosing an UberGo. The Innova guy said that he wasnt getting any rides so he switched from UberX to Uber Go. Also it seems you make the same per ride across both categories. Hence UberGo seemed a logical preference. The Nano guy was proud of his decision, he claimed that he would recover his investment much faster. And thats true. I think this is a classic example of how the market evolves when its close to a free market.
  • Drivers understand and give importance to rider feedback – I have never seen so much sensitivity from an Uber Driver towards the feedback/rating. To have been able to crack this is really commendable on Uber’s part. The drivers have strong appreciation for this feedback being utilized for giving them ride bookings. Again, there might not be a completely transparent system but the fact that information and feedback is flowing across the supply and demand side, is strong enough motivator to influence decisions.
  • Locals are avoiding taking own vehicles – Lot of areas constantly face bad traffic due to construction activities. Parking is a challenge. Most of my local friends have either started using an Ola or Uber over self-drive or are seriously considering to do so. Atleast till the fares are this low !

Update:

And back in Delhi.

  • There was a surge charge of 1.9X due to high demand and unmatched supply I guess. This allowed UberX  guys to also pick up UberGo customers without formally registering into the UberGo. Complete reverse of what’s happening in Jaipur. I guess Delhi customers prefer the more spacious UberX and there is sufficient demand therein.
  • The first cabbie who picked my request, called me and asked me where I need to go (instead of asking me where to pick me up from), and hearing my destination – declined. Just put the phone down and on my Uber screen I was back at fresh request. No way to even go and give feedback on this bloke ! So I guess Delhi cabbies have a hack to the feedback-driving-behaviour loop also. Land of Jugaad !!

How much should we pay

Amazing little discussion today, which brought forth the consumer perception about pricing.

A guy walks upto the apartment across the road & offers to remove the bee-nest. He gets the job for a small sum of money (not sure how much) and the deal says, he will get to keep the honey also. He comes over to our place to ask for a bucket (to collect the honey).

Beehive HoneyDad gives him the bucket- he is back in 15 minutes with almost 20 litres of fresh pure honey. Wants to sell it to us & the neighbors & call it a day.

Bargaining starts & I watch as his would-be-customers negotiate for the right price. They want a steep discount coz they know he has already made a neat sum by removing the bee-nest . The market rate is Rs 200/- per litre & they are not willing to pay more than Rs 80/- (more than 50% discount) !

Once the deal is closed, I try to understand their logic of asking for such a steep discount. I thought its the fact that this guy is not really in a market with too many customers, so given his limited options he can best sell to those who know the honey is fresh etc. But they stick to their logic, that since the man made some money (mind you- none of them know how much he made. That is if he made any money at all) by removing the nest, he has not invested time & energy in rearing those bees.

How do they know that when they pay Rs 200/- in the market, the guy selling it has actually worked harder than this chap. Do they want to reward labor or pay the price thats right for fresh honey? It seems as consumers our satisfaction levels are dependent on the margins our suppliers have . Is this why we have advertisements & neat packaging options- so that our mind can somehow stop doing the margin calculations & be happy with the purchase.

Funny how the human mind behaves.