September 22, 2011 in Center for Financial Inclusion | Tags: Financial
Inclusion, Mobile Money
Posted by Beth Rhyne
When 35 experts come together to talk about how to achieve financial
inclusion, one area of common agreement turns out to be the importance
of trust.
On Monday I participated in a conversation organized by Visa and The
Atlantic magazine as a side event to the Clinton Global Initiative. The
conversation included microfinance providers, researchers, diplomats,
journalists, donors, and technology providers. A discussion among so
many people of diverse perspectives is anything but linear, even with
excellent facilitation by Steve Clemons, Editor-in-Chief of
AtlanticLIVE. I had to pay close attention as the talk sped around the
table. As I listened, I was struck by how often the remarks turned on
the theme of trust.
At issue was this question: Why is the take-off of cell phone banking
moving so slowly? There are dozens of mobile banking pilots around the
world, but only a handful have reached scale. Visa itself is making a
big bet on mobile payments with its recent purchase of Fundamo, a mobile
banking platform based in South Africa.
A number of answers to the question involve trust.
Low-income people in low-income countries who are excluded from
mainstream financial services rely instead on informal systems – like
rotating savings and credit societies, moneykeepers, and truck drivers
who carry money from place to place. Some people argue that trust is the
key to these informal systems because the participants know each other,
speak the same language, and can follow up directly if anything goes
wrong. Others believe that informal systems are in fact not very
trustworthy, and hypothesize that people will change behavior as soon as
they gain sufficient trust in more formal systems.
For clients, trust involves confidence that transactions will take place
as intended. This confidence is particularly important for electronic
transactions: think of feeding money into an ATM and trusting that it
will be properly recorded to your account. It also involves trust in the
provider as a fair player, with no hidden fees and prices perceived as fair.
How can formal providers gain enough client trust to cause clients to
shift, especially when working with electronic payments? Having a
trusted brand may be an asset. Visa, for example, is trusted by card
users for its reliability. Will that brand value transfer to new clients
who have never used a Visa card? Maybe microfinance institutions (MFIs)
can help increase the comfort levels of their clients with new
transaction channels. MFIs have direct personal relationships with
clients. They could construct settings in which clients could test out
new technologies for themselves.
It is interesting to observe how quickly people have taken to cell
phones for communications, possibly because for a phone call, trust is
established the moment you hear the other person's voice on the line,
and because the device can be tested without significant risk to the
client, which is not often the case where money is involved. Younger
people are more likely to have already become comfortable with
electronic devices, but that trust does not necessarily carry over to
financial institutions. Some discussants noted that banks are not among
the most-trusted companies.
Trust enters the picture at the regulatory level, too. Regulators must
be able to trust the providers they license to operate safely and
according to standards, with adequate safeguards to the funds in their
care. Financial services providers argue that they have more effective
mechanisms for clearing and settlement, fraud control and problem
resolution than telecoms companies, because the telecoms companies have
not previously confronted those problems. This is an argument used by
financial institutions in favor of regulations for cell phone banking
that require partnerships with financial institutions – that financial
institutions can be more trusted to handle financial transactions and
ultimately financial intermediation responsibly.
Trust came up in the conversation in one other way. For providers that
promote themselves as socially responsible, their investors and even
employees need to trust that the company is serious about achieving a
worthwhile social bottom line.
When the evening ended, I thought back fondly to Pancho Otero, the
founder of Prodem and first CEO of BancoSol. He liked to say that in
microfinance, trust resides in the eye-to-eye contact between loan
officers and their clients. It's a romantic view, but it holds a certain
amount of truth.
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CARLOS ANI - SEEDFINANCE Corporation - http://www.seedfinance.net
Email: carlosani@seedfinance.net
Landline Phones: +63495010127 and +63495762924
Cellphone: +639152919580
DEVJOBS - http://www.devjobsmail.com
PHILDEVFINANCE - http://phildevfinance.posterous.com
CONSULTING - http://www.carlosani.com
My News Clippings - http://www.myclipps.posterous.com
Family website: http://www.anifamily.net
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