The first blog in this series Over The Counter Transactions – Liberation Or A Trap? (Part I) highlighted that over the counter (OTC) transactions alone cannot deliver the digitally enabled financial inclusion many of us are working towards. The second Over The Counter Transactions – Liberation Or A Trap? (Part II)  noted that despite this OTC transactions have been growing rapidly and offer benefits for providers, customers and especially agents. This blog looks at the not inconsiderable draw backs of OTC-based operations for providers and customers … concluding that value proposition for agents means that they are unlikely to promote wallet-based alternatives, thus blocking perhaps the most important sales channel for these offerings.

So What’s Not To Like About OTC?

Providers: While it is a short term expedient (see Beware the OTC Trap), OTC causes significant problems for providers. As highlighted in the customers’ and agents’ perspectives in Over The Counter Transactions – Liberation Or A Trap? (Part II), the freedom afforded by OTC-based systems means that there is no customer (or often times agent) loyalty. Indeed, in Pakistan, providers are now facing a situation where, in order to promote use of their system over those of their competitors, they are paying agents as much as 110% of the commission received from the customers making the transaction. Yes, you read that right, and I did not make one of my usual typos, “110% of the commission received from the customers making the transaction” … other providers find themselves having to offer incentive awards such as fridges, air conditioners and even trips to perform Haj to their high performing agents.

The lack of a wallet also limits options for providers to offer additional products and services. Absent wallets, providers are largely unable to develop the digital ecosystem, thus stranding them in a cash intense environment with the inevitable attendant liquidity management problems. Furthermore, OTC transactions reduce providers’ income - MicroSave estimates that OTC transactions are cost the Ugandan providers around $220 million in lost revenue in 2013 (assuming that all transactions made OTC would have been made on a wallet-based P2P basis). And this amount is rising with the number of mobile money users. OTC transactions are also illegal under most central banks’ regulations, and so providing the services remains a significant regulatory risk. And as providers in Pakistan and elsewhere have found out, once customers are used to OTC, it is very difficult to get them (or indeed agents) to register and use wallets.

“An OTC business can breakeven and yield modest margins, but it is vulnerable to getting stuck in a high-growth remittance phase, where it is difficult to improve overall profitability. In some cases, profitability may actually decrease with agent commission wars between different providers.

 Almazán Mireya and Nicolas Vonthron, “Mobile Money Profitability: A Digital Ecosystem to Drive Healthy Margins” , GSMA-Mobile Money for the Unbanked, November 2014.

Agents: As highlighted above, agents benefit enormously from OTC transactions, which crown agents as the kings of “agent money” systems. There is little not to love about OTC for agents, with one important exception – they are more likely to fall victim to fraud when using their own phones to conduct transactions. See Survival of the Fittest: The Evolution of Frauds in Uganda’s Mobile Money Market (Part-I) for a discussion of this.

Customers: OTC transactions are very often linked with agents charging customers additional fees above the “on the board” price. Furthermore OTC transactions raise more customer protection issues as they are more prone to fraud, and can be used to avoid KYC/AML requirements in environments where identification is not required. But, in many ways, the most dangerous aspect of the OTC trap is that it leaves customers only able to send remittances and to make basic payments. Trapped in a low equilibrium “financial inclusion” without access to the savings, credit or insurance services that you and I depend on, and take for granted.

So What To Do?

We should examine this in the context of two broad market segments – those that are functionally literate and those that are not. For those that are functionally literate, providers should apply Safaricom’s approach and insist that all users register and use the wallets that will eventually allow them to access a much broader range of services (thus yielding higher revenues for the providers).

Regulators need to introduce tiered KYC requirements that allow poor people to register (and start to use) wallets easily and Governments need to route all G2P payments through digital channels – whether cards or mobile wallets.

For those that are illiterate, I suspect that we need to look much more carefully at two options immediately, and another in the long run. Right now we need to look again at whether USSD strings (of numbers of course) are in fact relatively easy (or at least feasible) for illiterate people to use. When MicroSave looked at this briefly in India in 2010, we concluded that this indeed the case with Eko’s carefully simplified system. We also need to see if advances in voice recognition technology will allow the use of interactive voice recognition to allow illiterate people to navigate transaction menus. When this was tried in India 2-3 years ago it was not tremendously successful – the ambient noises in crowded housing or markets made it very frustrating and error-prone. In the future, as smart phones are rolled out and allow better graphic user interfaces, we need to look at using these to guide illiterate people to make transactions.

And, in the interim of course, we should not forget that in many cases trusted agents (or trusted relatives) can (and indeed do) help illiterate customers use their wallets to make transactions. The agent navigates the menu until the transaction is to be confirmed and the PIN is to be entered … whereupon he hands the customer’s phone back to allow the customer to confirm and complete the transaction.

Of course, all of this also requires providers to develop and rollout products that add real value to the end customers, thus pulling them to register and set up their own wallets. Without real customer value proposition, the lure of the OTC trap will continue. 

  1. Great insights Graham,

    situation likely to improve as % of literate population increases e.g. in Kenya. Government introduced free primary education 11 years ago, if only it can succeed in making it compulsory!

  2. I very much like this triad of thoughtful blogs. I particularly liked the first blog for its plain-speaking take on how the use of mobile money payment services is being wrongly touted as ‘financial inclusion’ (see also Perhaps we could go one better and claim to have reached near-perfect financial inclusion already, by counting up the number of people who use that other popular payment system, currency…?

    However, in rightly focusing on the lack of intermediary financial services (savings, credit, & insurance) Graham talks mostly about providers and agents. What he doesn’t say much about is what users themselves are doing to make mobile money a useful way to save and borrow. 42% of mobile money users send money to others and 46% receive money from others (see the table in the first blog). We don’t know what fraction of all that money is being used to receive or repay informal loans, or to place money into safe-keeping with others or to retrieve it, or to make savings and loan clubs much easier to manage. Judging from my own very small sample of casual enquiries (in Kenya and Bangladesh) it might be quite a significant fraction. If so, it may be that users are ahead of the curve, finding their own ways to make mobile money into a financially inclusive service. While we wait for the mobile money industry to invest in formal intermediary services, OTC at least offers users a way to upgrade their informal tools.


    • Thanks so much for a very thoughtful and thought-provoking response Stuart … and this clearly raises a series of additional questions that we all would do well to consider. I am intrigued!


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