In the previous blog Over the counter transactions – Liberation or a trap? (Part I) I looked at why over the counter (OTC) transactions alone cannot deliver the digitally enabled financial inclusion many of us are working towards. A later blog in the series will examine the implications of OTC for providers and customers – many of which are negative. All of which begs the question … why are OTC transactions so prevalent in so many markets?
The growth of OTC
When M-PESA launched in Kenya, Safaricom made strenuous efforts to stamp out any form of OTC transactions. Agents found to be directly crediting the mobile money accounts of customers were penalized and even discontinued. M-PESA did this to protect its precious P2P revenue (which yields the lion’s share of profit particularly at the start-up phase) and to maximize the use M-PESA wallets (which were the gateway to a growing range of additional payment services).
In Uganda and Tanzania MTN, Vodafone, Airtel, and Tigo all sought to replicate Safaricom’s approach and to eradicate, or at least minimize OTC transactions. Despite this, the recent Agent Network Accelerator (ANA) surveys in these two countries suggest that OTC is growing – with 30% of agents in Uganda and 23% of agents in Tanzania admit to offering “money transfer” or OTC transactions. And a small sample survey of agents in peri-urban Kampala suggested that around 50% of their transactions were OTC.
In his excellent blog, “The Paradox of Calling Mobile Money ‘Mobile’ in Asia”, Brad Jones highlights how the larger Asian deployments are all dependent to a greater or lesser extent on OTC transactions. Brad reports that 90% of WING’s transactions in Cambodia, 70% of EasyPaisa’s transactions in Pakistan and 50% of bKash’s transactions in Bangladesh are OTC.
So what is driving this?
Providers: OTC transactions can kick-start providers’ digital financial services (DFS), allowing them to achieve scale and transaction volume quickly, without the challenges and costs of incentivizing agents to open wallets for customers. See Beware the OTC Trap.
Agents: In Bangladesh and Uganda agents charge customers an extra, unofficial amount for OTC transactions despite receiving a commission from the providers. This means that the agent is earning twice (from the customer and the provider). In markets, such as urban India as well as Pakistan, where each agent is offering the services of many providers, the agents send the money using the provider that offers the best commission, rather than the provider preferred by the customer. Furthermore, OTC transactions are quick to perform, and agents do not have to spend their precious time registering wallets which may also eventually be used to dispense with their services to buy airtime and/or conduct transactions such as remittances and payments. OTC transactions are thus, in many cases, the lifeblood of agent networks – in the words of Brad Jones, “Whilst all operators are keen to migrate customers to mobile wallets over time, the ability to reward their agent network with transaction volume and income from OTC transactions means that the agent network will continue to be far more important than the mobile channel in emerging markets in Asia for the next few years.”
Customers: The popularity of OTC transactions lies in the benefits they offer – particularly for the poorer segments of society. A recent study conducted by MicroSave in Bangladesh showed that 85% of the respondents who use mobile money had not registered their own accounts. The reasons for this were that people (42% of whom are illiterate in Bangladesh) find it difficult to navigate the transaction menu, which is either informal Bengali or in the English language and thus prefer to take help from a trusted agent. The recent Bangladesh ANA study conducted by The Helix highlights another important reason for OTC: people lack acceptable KYC documentation. OTC also offers some protection against inadvertently sending the money to the wrong number – the sender can call the receiver to confirm the money has been received before paying the agent. Some experts have suggested that customers prefer to remain unregistered and use OTC so that, in the absence of interoperable systems, they are not locked into using services from one provider.