MobileActive.org

Editor's note: This post is co-authored by Lisa Kienzle, Olga Morawczynski and Ali Ndiwalana of Grameen Foundation and Ignacio Mas. Mobile money can provide a safe and affordable means of offering the poor in developing countries access to formal savings products and services. In this post, the authors introduce and user-test one concept of savings: deferred payments over mobile money. 

Grameen Foundation’s AppLab Money believes that mobile money is essentially a liquidity-management platform. Put differently, it could be described as LiFi: Conncting people to an electronic payment system via their mobile phones that provides Liquidity with Fidelity. What does it take to turn mobile money systems into a full-fledged savings platform? A full savings proposition would address these additional key elements:

• Mechanisms to help people link their savings vehicles to particular savings purposes or spending goals
• Incentives and discipline mechanisms to help customers set money aside into their savings vehicle(s), or “discipline in"
• Incentive and discipline mechanisms to help people keep money in their savings vehicle(s) once it is saved, or “discipline out.”

The challenge is how to optimize the mobile money environment by adding these sorts of features without making mobile money so complex and unwieldy that it is difficult or impossible to manage on simple mobile phones. 

As one way of meeting this challenge, Ignacio Mas and Colin Mayer proposed a mobile savings system that is a deferred payment scheme. This would enable individuals to set a savings goal, earmark a date by which to achieve the goal and contribute to that goal by paying money to themselves. Each time they make such a transfer, that cash is locked away in the system. When the earmarked date arrives, the money is sent back to the saver, along with an SMS confirming the savings goal (type and amount) and noting the amount saved toward that goal.

From the customer’s point of view, presenting savings as future payments to oneself has two advantages:

• Payments seem more purposeful than savings;
• Savings can be made through the same user interface that mobile money customers use for payments today (it only requires adding an optional field for the date of effectiveness of a payment).

When we discussed this concept with Richard Mwami, head of Public Access and Mobile Money at MTN Uganda, he called these “Me2Me payments” – in contrast to the more standard P2P payments, or even sharing airtime or credit between mobile phone users called Me2U.

Grameen Foundation’s AppLab Money tested these concepts in western Uganda. We conducted nine focus groups in mostly rural areas around Fort Portal to test a set of options around the central concept of deferred payments as savings. Because we focused the discussion on the usefulness of the service rather than on specific implementation options, we did not have any prototypes or other props to show them how it might actually look and operate in practice.

What were the user reactions to the deferred-payment model in the context of their current financial management practices and spending goals?  We found all groups grasping the concept of Me2Me payments very quickly: If I can send money to others, why not send it to myself? They saw the benefits of being able to “park” money for specific purposes, and having that money re-appear at relevant dates.

On the other hand, in general, their financial management seemed to be less explicitly goal-driven than much of the literature suggests. Users had a notion of explicit goals, the principal one being paying for school fees at the beginning of each school term. But the goals are often aspirational and without a clear timeline – things like buying a motorcycle, a ”permanent” house, a plot of land. Moreover, users seem to operate under a system of “rolling goals”: “I’m saving for a bicycle, but I may change my mind and buy a cow instead,” or “I might apply the funds in the event of a funeral or an illness at home.” There are goals, but there seems to be little earmarking of funds against the goals.

In fact, spending decisions seem to be driven by the size of the savings pot, rather than the other way around. The overall savings pot is often fragmented across a portfolio of savings vehicles (for example, a range of livestock – chicken, goat, pig, cow). The variety seems to be driven more by a diversification of risk and liquidity profiles than by assigning different vehicles to specific objectives.

This looser concept of goals leads to several implications for the design of a savings model based on deferred payments. First, ensuring there are liquidity options on saved amounts is important, because users’ goals might shift, given that they are subject to unexpected events. Second, school fees could be a useful prototypical use case to drive marketing, much like ”send money home” was used to drive the notion of P2P payments in Kenya. Third, future payment dates to oneself must be flexible enough to enable the user to indicate dates that are future financial decision points, rather than when certain payments are planned. Thus, I might push money to April 1 simply so that I don’t have to think about how to use that money until then; on April 1, I might decide to do something with the money, or simply roll it over to, say, July 1.

In fact, we were surprised how useful people found the deferred or Me2Me payments concept, despite them having few clear time-bound spending or financial goals in mind. Can a tool that provides them with more-effective management of goals lead them to articulate their goals more deliberately? Isn’t that what financial education is all about?

Image: Courtesy of Grameen AppLab Money/Ignacio Mas