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.

Cash is not the enemy – Stickiness of Cash Part 1

Why is cash so sticky in our society?

Many of us have argued for the need to build convenience, security and ubiquity for digital payments. And then cash would start receding. No debate there.

But we forget that as individuals our brains are wired to go back to cues that are triggered at the sub-conscious level. We are not always the rational individuals economists would have us to be. Our decisions are influenced more by emotions.

CASH IS NOT THE ENEMY

To appeal at the emotional level, we need either a villain or a hero.

While bankers and payment professionals would disagree with me, but for most Indians cash is NOT the enemy. Consider this:

  • The currency carries images of Mahatma Gandhi, of the National Emblem and now of Mangalyaan etc. These are symbols of national pride. We are wired to feel proud to hold a piece of paper with these images on it.
  • We have traditionally celebrated an auspicious occasion with gifting loved ones with money. This association of gifting currency with happy moments is also tough to break anytime soon. Again deeply rooted positive connect.
  • When the Prime Minister announced the ban of old currency notes, the villain being chased was corruption. Not cash. So we never really took the storyline that cash is bad.

I don’t think any country would even want to walk down the path of trying to build a negative connotation with its currency.

Hence a story where cash is the villain may not work. We need something else to pitch Digital Payments at an emotional level.


This is part 1 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 2 , wherein I talk about why its a tough journey moving away from cash – too many choices and a hurdle-ridden on-boarding process.

The real eCommerce revolution

Indian ecommerce

Had an interesting conversation with an investor friend yesterday, who is really active in the start-up/seed stage. We were talking about the many niche plays that are coming up with the well funded steep growth we are witnessing in the ecommerce industry.

While there is no doubt, that Indians have started buying/shopping/ordering online and in a big way, what can also not be debated is the uniqueness of the Indian model, which throws up its own set of challenges. Lets look at a few of them:

  • Almost 70% of our ecommerce transactions areCash-on-Delivery (COD)
  • Many big portals have seen return-rates upwards of 30%
  • Current ecommerce growth is happening predominantly from tier 2 and tier 3 towns

What all of this translates into, is some serious logistics issues namely, collecting payments from COD customers, inbound logistics for returned goods and finally having an efficient distribution network, which is spread out really far and wide.

A few interesting plays are being introduced in the Indian economy

  • Players like Chhotu.in who are focusing only on ecommerce logistics including cash collection. This company has a simple pitch that it will help reduce the return rates and also ensure higher efficiency on the COD segment.
  • Niche players who are focusing only on the cash management for COD piece. One such player is riding on the positioning that it will enable ecommerce players to get sales proceeds into their accounts within x days. A payment guarantee that allows the ecommerce player to do what it does best- focus on demand generation and driving transactions.

If these challenges are very unique to our economy, it could mean the difference between the success of a local experienced player vs the success of a global ecommerce giant like Amazon.com.

 

Exciting future for payments

Had an interesting conversation over the weekend with the office caretaker- a young late 20’s chap who has his wife and kids back home in Nepal. He told me very excitedly how he managed to send across money to them in Nepal through a new option wherein the credit was showing in his Nepalese account the very next day.

Mobile wallet
Mobile Wallets are here

The few interesting things that really stood out were

  • He transferred all of Rs7000/- in one go. He didnt feel like testing the process as he was told about this option by a close friend. Referrals generate high sense of security and comfort
  • He was given a secure PIN and this gave him immense confidence about the process being secure. Though he had to ask his friend to SMS the same to his better half back in Nepal.
  • He was happy to pay a transaction fee of Rs100/- for an almost immediate confirmation of credit in the recipient account. Customers will pay decent amount as fees for specific features/benefits
  • He hasn’t heard about Western Union etc and went straight to this PNB branch in Connaught Place for his remittance.
  • He also talked about an option where money can be credited almost immediately (mobile based process) and was sure that this would be a great option to use during times of emergency. This gave him a lot of comfort knowing that his family would have access to immediate funds even when he is miles apart.

The above in my opinion is a clear indication of the kind of adoption payment instruments would see in the huge currently untapped market. While brand building will be a tough one, the player who invests early in training/educating users how to use this securely would see a huge advantage. I hope my friends in the Mobile Payments industry are listening and are as excited as I am.