LAO PDR EXPOSURE VISIT TO UGANDA: CUSTOMER...

LAO PDR EXPOSURE VISIT TO UGANDA:

CUSTOMER CENTRIC PRODUCT DEVELOPMENT

KEY LEARNINGS REPORT

18th – 22nd January 2016

Kampala, Uganda

Customer Centric Product Development Key Learning Report 2

Table of Contents

INTRODUCTION ............................................................................................................................. 1

OVERVIEW OF EXTERNAL CONSIDERATIONS FOR DFS ........................................................ 2

Key learning examples of Regulation and Business Models ....................................................... 2

Key Learning examples of Country Infrastructure Conditions ................................................... 3

Key Learning examples of socio economic conditions ................................................................ 3

OVERVIEW OF INTERNAL CONSIDERATIONS FOR DFS ......................................................... 3

Key learning examples of Institutional Readiness ...................................................................... 4

Key Learning examples of the Value Proposition for Customers ............................................... 4

DFS ECOSYSTEM AND OPERATING MODELS ........................................................................... 5

Key learning examples of Bank DFS Management Policy .......................................................... 6

Key learning examples of Telco DFS Management Policy .......................................................... 6

CUSTOMER CENTRIC PRODUCT DEVELOPMENT ....................................................................7

Key learning examples of Product Development Process ........................................................... 8

Key Learning examples of Pricing Strategies ............................................................................. 11

FRAUD AND RISK MANAGEMENT ............................................................................................ 11

Key Learning examples of Fraud & Risk Management .............................................................. 12

ANNEXURES ................................................................................................................................. 13

Sheila Okiro of MicroSave presents about the Product Development Process


List of Tables

Table 1 DFS Customer Offering and Value Proposition ................................................................. 4 Table 2: Basic Pricing Methods ..................................................................................................... 15

Delia Dean of MicroSave (r) with MTN Master Agent discussing the review of Agent records


Delia Dean of MicroSave (standing left) discussing the range of products offered by MTN - Uganda’s leading MNO

List of Figures

Figure 1 Digital Financial Services Ecosystem ............................................................................... 5 Figure 2: Customer Segmentation Criteria ..................................................................................... 9 Figure 3: Pricing Strategies ............................................................................................................10 Figure 4: Pricing Methods ............................................................................................................. 11 Figure 5 DFS stakeholder Value Proposition ................................................................................ 13 Figure 6: Systematic Project Based Approach to Product Development ...................................... 13 Figure 7: Customer Value Proposition for Product Development ................................................. 14 Figure 8: User Centered Design Tools ........................................................................................... 14 Figure 9: Pricing Strategy Application Framework ....................................................................... 15 Figure 10: Overview of Impact of Fraud ........................................................................................ 16


INTRODUCTION

From 18-22 January, 2016, 8 delegates from Laos, representing Banks, MNOs, and the Bank of

the Lao PDR visited Uganda on an exposure visit with a mission to learn about one of the most

developed DFS ecosystems in the world.

The specific objective of the exposure visit was to build the knowledge and technical capacity of

Lao DFS providers about the importance of human centered product development.

Specifically to help the participants to thoroughly understand the product development cycle

from idea creation to design, implementation and product delivery – always

keeping in mind their local context and target customer segment. Uganda was selected

as the destination for this exposure visit due to its well developed and growing DFS ecosystem

that supports a diverse range of innovative customer –centric products.

The week-long event was structured to combine classroom learning of theory and discussion of

product development and meetings with those local partners who are active in the development

and roll-out of innovative DFS products.

Meetings were conducted with Banks (Centenary Bank, Equity Bank, and Stanbic Bank) MNOs

(MTN and Airtel) as well as technology partners, aggregators, and Master Agents.

The goals of the Exposure visit were:

To train the Lao delegates on the process to develop different DFS products based on the customer needs and preferences and also to develop product development action plans.

To provide an in-depth understanding of the conceptual and practical issues involved in DFS product development.

Expose participants to the product development process through meeting and discussion with providers of DFS services.

Equip participants with a framework and/or roadmap for developing customer centric products.

Provide participants with an in-depth and practical understanding of how products can be designed and implemented so as to not just provide basic CICO(Cash In Cash Out) services but to promote livelihoods, increase financial inclusion, and achieve developmental outcomes.

Expose participants to understand a range of product possibilities now available, lessons learned about leading product practices, and insights gained.

This report is intended to summarize the key takeaways from the exposure visit and reinforce the most important elements of customer centric product development.


OVERVIEW OF EXTERNAL CONSIDERATIONS FOR DFS

1. Assess the Regulatory Environment

Regulations

1. Regulations are directed towards the primary players in the DFS ecosystem i.e.

Commercial Banks and MNOs. When third party operators partner with Banks and MNOs

they are also governed by the regulations of their partners.

2. Key regulations for Commercial Banks and MNOs typically cover the following:

a. Mobile Banking and Mobile Money.

b. Payment Systems.

c. Consumer and Data Protection.

d. KYC and AML requirements.

e. Taxation considerations.

Regulation Impact Areas

a. Business Model

b. Business Continuity

c. Products and Services

d. Technology

e. Partnership Choices

f. Marketing and Communication

g. Risk Management and Consumer Protection

Key learning examples of Regulation and Business Models

a. Uganda uses a bank led model and MNOs partner with Banks to provide DFS services.

MTN Uganda has partnered with Stanbic Bank to offer their mobile money

services. In this partnership Stanbic Bank holds the trust account while MTN owns the

customer and facilitates the issuance of e-money.

b. Kenya allows Telco (Safaricom, Airtel), Bank (Equity, Co-operative) and Third Party

Models (MobiKash) to operate independently and even to collaborate (Equity and Airtel

for the Equity MVNO service (Mobile Virtual Network Operator).

c. Consumer Protection is mandated in the regulation and is evidenced through mandatory

visible display of product/service fees at Agent outlet. A call center and other

recourse for customers to address grievances is also required.

2. Understand the Prevailing Country Infrastructure Conditions and its effect on

DFS.

Key Infrastructure Considerations

a. Mobile Penetration and Market Share.

b. Mobile network coverage and connectivity.

c. Power availability.


d. Road network availability and access to rural and remote areas

Importance of Country Infrastructure

a. All of the above infrastructure conditions play an important role in starting and

managing the deployment of DFS

b. Existing technology infrastructure can enable low cost technology based payment

systems- but the absence of transport infrastructure may erode those costs savings.

Key Learning Examples of Country Infrastructure Conditions

a. High mobile penetration and network coverage are key foundations to a thriving DFS

market. MTN has the highest penetration in the Uganda and this has helped them

introduce and scale their mobile money offering. MTN also has the highest number of

active mobile money users.

b. Centenary Bank has a large customer base of more than 1 million active accounts 73%

of which are card linked. These factors are favorable for their DFS roll-out based on POS.

c. Availability of power is a basic consideration for Agency Banking roll out in Uganda (where

as little as 15% of the population has access to electricity). For this reason agents will

typically be found in town centers and activity hubs which have a source of power.

3. Understand the socio-economic conditions affecting DFS

Key Factors to Assess

a. Literacy and technology proficiency

b. Financial Access

c. Social norms and Value Systems

Key Learning Examples of socio economic conditions

a. The DFS products rolled out in Uganda by both Banks and MNOs predominantly use

basic handsets with the primary access being USSD. e.g. (*123#).

b. Poor penetration of traditional banking services results in limited financial access to

millions of people especially those in rural areas. Uganda’s economy is largely rural and

agricultural and therefore Uganda can readily see the benefits from DFS.

OVERVIEW OF INTERNAL CONSIDERATIONS FOR DFS

1. Determine Institutional Readiness

a. Strategy and execution capability

b. Product and marketing

c. Partnership and Delivery Channels

d. Fraud and Risk Management


e. IT Management

f. Agent Management

g. Customer Service and Operations

Key learning examples of Institutional Readiness

a. Equity Bank Uganda in preparing for Agency Banking is borrowing the technology

used in their parent company and augmenting this with biometrics to address the local

context - specifically the challenge of a lack of a national identification system.

b. Centenary Bank recognizing their technological shortcomings opted to partner with

four different providers. As a result, their mobile banking has disparate systems integrated

that are providing a seamless service i.e. USSD from one aggregator, core mobile platform

provider, aggregator who interfaces with both Telco and the mobile platform provider.

c. Aggregators. Pegasus demonstrated that they supply their technological services to

various players e.g. connecting the MNOs and Banks to the utility companies and other

billers.

2. Assessment of Customer Demand and Determination of Customer Value

Proposition

DFS CUSTOMER OFFERING AND VALUE PROPOSITION

DFS CUSTOMER CATEGORY

PRODUCT OFFERING VALUE PROPOSITION

Retail Consumer Airtime top-up Money transfer Bill payments Deposits-cash, electronic cash

withdrawals

Convenience Lower transaction cost Increased security Ease of use

Agents Airtime top-up Money transfer Bill payments Deposits-cash, electronic Cash withdrawals Retail financial services

Convenience Lower transaction costs Increased security Increased revenue Increased foot traffic Record management

Disbursing Entities Electronic disbursements Bill payment Bill confirmation Loan repayments

Convenience Lower transaction costs Increased security Increased efficiency Greater reach

Table 1 DFS Customer Offering and Value Proposition

Key Learning example of the Value Proposition for Customers

a. Equity Bank highlighted its value proposition for Agency Banking in their ability to settle

Agent transactions in real time as well as having an experienced team in place to support the


Agency Business model. Their advanced technology and use of biometrics added to the value

proposition for Agents.

DFS ECOSYSTEM AND OPERATING MODELS

1. Ideal Components

a. Connectivity

b. Cash in/Cash Out Networks

c. Customer Authentication

d. Virtual Accounts

e. Payment Platform

f. Common Business Rules and Technical Standards

Digital Financial Services Ecosystem

Figure 1 Digital Financial Services Ecosystem

2. DFS Operating Models

Types of Models

a. Bank Led Model


b. Telco Led Model

c. Third Party Led Model

Some Effects of Provider Positioning

a. Bank – Led

i. Bank will likely use a “hub and spoke model” leveraging branch infrastructure

to manage agents in a geographical proximity.

ii. Bank will want to use MNOs as delivery channels to garner access to their client

base, but will be reluctant to do so if they feel they will then not be able to

control the channel.

iii. Will likely try to use its own financial infrastructure to manage float and will

be less likely to involve other financial institutions. Holding the trust account

can be an additional

Key learning examples of Bank DFS Management Policy

a. Centenary Bank provides agency services within their existing branches.

Management is within the Banks’ existing infrastructure.

b. Equity Bank has assembled an in-house team to support the Agency Banking

model. A core team will sit at the Headquarters with representation at branches

spread across the country to support growth and management of the network.

This is a hub and spoke approach both from a team management and agent

outlet management perspective.

c. Equity and Co-operative Bank in Kenya have bank-led wallets and

manage the float internally. Customer funds are already protected under

Central Bank of Kenya regulations.

b. Telco – Led

i. It is very likely to put itself in the delivery channel category, ensuring the ability

to influence the channel, and is very likely to not place other MNOs in the

delivery channel.

ii. Is very likely to build the delivery channel on its existing GSM distribution

network, reaching scale quickly

iii. Will likely use an array of financial institutions for Trust Account hosting and

liquidity management, and may eventually bring them in as channels

themselves.

Key learning examples of Telco DFS Management Policy

a. Airtel assumes a hybridized agent management approach. Master Agents are

recruited and managed by the Telco. The Master agents then have the

responsibility of recruiting and managing the atomized agents. This includes

training them and assisting them with float management.


b. MNOs by regulation cannot host customer deposits and need to partner with

commercial Banks for this function. This applies in both the Kenyan and

Ugandan markets.

c. Third Party – Led

i. It will try and partner with all banks and telecoms to offer customers the most

interconnected system with as many options as possible.

CUSTOMER CENTRIC PRODUCT DEVELOPMENT

1 Product Development Process

a. Evaluation and Preparation

i. Analyze the institutional capacity and “readiness” to undertake product development ii. Assemble the multi-disciplinary product development team, including a “product

champion”

b. Market Research

i. Define the research objective or issue. ii. Extract and analyze secondary market data.

iii. Analyze institution-based information, financial information/client results from Consultative groups, feedback from frontline staff, competition analysis, etc.

iv. Plan and undertake primary market research.

c. Concept/Prototype Design

i.Define initial product concept ii.Map out operational logistics and processes (including MIS and personnel functions)

iii.Undertake cost analysis and revenue projections to complete initial financial analysis of a product.

iv.Verify legal and regulatory compliance v.On the basis of the above plus client feedback sessions, refine the product concept into a

Product prototype in clear, concise, client language vi.Finalize prototype for final quantitative prototype testing or pilot testing, according to

The risk/cost nature of the product

d. Pilot Testing

i. Define objectives to be measured and monitored during pilot test, primarily based on

financial projections ii. Establish parameters of pilot test through the pilot test protocol, including sample size,

location, duration, periodic evaluation dates, etc.


iii. Prepare for pilot test, install and test systems, draft procedures manuals, develop marketing materials, train staff, etc.

iv. Monitor and evaluate pilot test results v. Complete recommendation letter documenting the results of the pilot test, comparison

with projections, lessons learned, finalized systems/procedures manuals, etc. and the initial plans for the roll out

e. Product Launch and Rollout

i. Manage transfer of product prototype into mainstream operations ii. Define objectives to be measured and monitored during roll out based on financial

projections iii. Establish parameters of rollout through the rollout protocol including schedule,

location, tracking, budget, process iv. Prepare for rollout, install and test systems, finalize procedures manuals, develop

marketing materials, train staff etc. v. Monitor and evaluate rollout process and results

Key learning examples of Product Development Process

a. Airtel in developing their Airtel Weza savings product went through a detailed pre

and post development process. To define the product features they did primary

research through interviews and focus group discussions. They also made use of paper

prototypes in product conceptualization. This process may appear long but the result

is a rewarding product that resonates with customers.

b. Airtel miss stepped with their football ticketing product. They commenced the

product development without proper research and realized later that the product did

not have a compelling value proposition. The product had been offered before so a

product analysis both in terms of features and performance would have been beneficial

if done earlier.

c. MTN has a market research team tasked with scanning the environment for business

opportunities.

d. MTN has a rigorous post roll-out function that closely monitors the performance of

every product. The post roll-out monitoring assists with product refinement or roll

back. The monitoring goes on for a three month period.

e. MTN as rule of thumb emphasizes below the line (BTL) marketing approach for new

product launches. This allows for closer interaction with customers and enhances the

education/learning process. This approach also allows them to make any needed

changes to the products before they fully pick up in the market.

2 Product Design and Differentiation

a. Market and Consumer Research & Insights

b. Customer Segmentation. This is the classifying of existing/potential clients in groups

with similar characteristics. Segmentation helps to:


i. Identify opportunities for future business development

ii. Increase your product strategy and pricing options

iii. Achieve more effective outreach

Customer segmentation Criteria

Figure 2: Customer Segmentation Criteria

c. User Centered Design

i. This is giving attention to the needs, wants, and behaviors of the target customer

in designing solutions

ii. It helps ensure products meet real needs and thus have greater chances of

success from the start.

3 Product Pricing

a. Key Considerations in DFS Product Pricing

i. Internal Considerations:

Business Objective

Product Evolution

ii. External Considerations:

Partnerships

Regulation

iii. Fundamental Considerations

Cost

Competition

Value


b. Focus of Pricing Strategy

Figure 3: Pricing Strategies

Cost Focused Pricing:

Establish costs related to the product.

Determine an acceptable margin to add to the product cost.

Competition Focused Pricing:

Do competitor analysis and look at both formal and informal offerings

Use the market intelligence available and information gathered from market

research

Value Focused Pricing:

Identify and understand customer pain points with current solutions available

Understand ability and willingness to pay

Calibrate price to mimic this

c. Pricing Methods

Below are the four basic methods of pricing applied in DFS often in combination for

different aspects of their offering.


Figure 4: Pricing Methods

Key Learning examples of Pricing Strategies

a. Agency banking fees for customers are based on a tiered basis as seen at the Master

Agents and agent outlets for Airtel and MTN.

b. Agent, Master Agent and Super Agent commissions are based on a percentage basis as

seen at Airtel and MTN.

FRAUD AND RISK MANAGEMENT

1. Definition of DFS Fraud

This is intentional & deliberate action undertaken by any player in the DFS ecosystem aimed at

deriving gain, and/or denying other players revenue and/or damaging the reputation of the

other stakeholders.

2. Fraud Mitigation in Product Development

a. Ensure Customer Protection and Support

i. Apply client protection principles

ii. Provide financial education/financial consumer awareness

iii. Provide ccustomer service/ grievance redress

iv. Compensate victims of fraud in cases when customer was not at fault

v. Standardise branding and information posters

b. Deploy Control Systems

i. DFS channels monitoring

ii. Agent supervision and monitoring

iii. Mystery shopping and compliance management

iv. Daily reconciliation of accounts

v. Periodic process review security certification (ensuring IT security)

vi. Exemplary punishment for perpetrators of fraud

vii. Business rules such as authority limits, transaction limits, reconciliation policies,

four-eye principle

c. Enable The Organization and its People to Fight Fraud


i. Implement third party management / governance policies (technology provider,

3rd party agent networks, brand managers and so on)

ii. Preferably have a dedicated fraud/compliance team

iii. Implement a Fraud and Risk management programme

iv. Institute leadership, management and staff responsibilities in relation to

governance, security, monitoring and fraud risk mitigation

v. Provide staff performance incentives and disincentives

vi. Establish an Agent network strategy and management policy

vii. Constant product development

viii. Provide Whistle blower hotlines and incentives

d. Use Enabling Technologies

i. Evolution of biometrics

ii. Migration to cloud environment

iii. Greater centralisation of transaction management, data storage and security

iv. Online and real-time transaction processing

v. Adopt new security standards and schemes (combination biometrics, 3D secure)

vi. Use of analytics for pattern identification, identifying suspicious transactions

Key Learning examples of Fraud & Risk Management

a. The Master Agents demonstrated their digital/on screen monitoring of agents at

the outlets. This is used to assess the levels of operation and availability of e-money.

This helps in managing business risk through proactive distribution of liquidity and

also identifying inactive or sluggish outlets that can then be targeted for further

training or discontinuation.

b. Airtel has a full time Head of Compliance within the business whose primary role is

to monitor operations across the different strategic business units and ensure they

are working within policy and regulation.

c. Equity Bank intends to make use of biometrics for its Agency Banking to counter

the risk of fraud.


ANNEXURES

1. DFS Stakeholder Value Proposition

Figure 5 DFS stakeholder Value Proposition

2. Key Principles for DFS Product Development

Figure 6: Systematic Project Based Approach to Product Development


3. Identifying the Right Customer Value Proposition

Figure 7: Customer Value Proposition for Product Development

Customer Centric Design Tools

Figure 8: Customer Centric Design Tools


4. Pricing Basics and Application Framework

Review of Basic Pricing Methods

Table 2: Basic Pricing Methods

Pricing Strategy Application Framework

Figure 9: Pricing Strategy Application Framework


5. Overview of Impact of Fraud

Figure 10: Overview of Impact of Fraud

LAO PDR EXPOSURE VISIT TO UGANDA: CUSTOMER...

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