Carol is the former senior vice president of digital channels and technology at Acicon.

Carol Caruso

Blog Post

[caption id="attachment_20448" align="alignright" width="330"]<img class="wp-image-20448" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/01/peru-photo-1.jpg" alt="" width="330" height="220" /> Isidro Medina Zapana, weaver, client of Accion partner Credinka in Peru[/caption]

Peru’s pursuit of financial inclusion has set a standard, helping Peru capture the top ranking in the Economist Intelligence Unit’s <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/global-microscope">Microscope</a> for the last eight years. Accion’s <a href="http://www.accion.org/content/channels-technology">Channels &amp; Technology</a> team, an advisory practice within Accion focused on digital financial services (DFS), recently returned from Lima, where we saw firsthand the exciting promise of digital payments in Peru.

Enabling Legislation

Innovations in financial technology are important to promoting financial inclusion, and the Peruvian government has passed critical legislation and regulations that enable developers to design and launch new products.

With almost <a href="http://www.centerforfinancialinclusion.org/fi2020/mapping-the-invisible-market/inclusion-visualizer">80 percent</a> of Peruvians lacking access to a bank account, it’s clear why Peru’s government has committed so many resources to advancing financial inclusion. The government has launched diverse interventions in the past five years, and in August 2015 published a <a href="http://www.mef.gob.pe/contenidos/archivos-descarga/ENIF.pdf">National Strategy for Financial Inclusion</a> that outlines a more coordinated and cohesive approach to an issue that affects millions of Peruvians. The new strategy <a href="http://www.worldbank.org/en/news/feature/2015/08/05/peru-launches-national-financial-inclusion-strategy-to-expand-financial-inclusion">aims</a> to provide access and responsible usage of a transaction account to at least 75 percent of adults by 2021.

The National Strategy’s focus on digital payments could bring about even greater impact, particularly in the harder to reach areas of Peru. Despite the fact that 80 percent of Peruvians are financially excluded, roughly 65 percent have mobile phones. Recognizing this, the National Strategy focuses on connecting those who have phones to financial services through digital payments adapted to the needs of the population.  Even as recent as last month, the Bank Superintendent provided new electronic money issuer licenses to three service providers: G-Money, Servitebca, and Jupiter.  This type of market stimulation is great news for Peruvian consumers and the payments ecosystem.

Mobile Banking in Peru Today

Despite regulatory prompting and mobile phone proliferation, mobile banking has yet to take off in Peru.  A few <a href="http://www.movilion.com/billetera-movil-en-peru-los-casos-de-scotiabank-gmoney-wanda-y-monet/">early attempts</a> were <a href="http://www.telesemana.com/blog/2014/03/18/telefonica-cerro-su-servicio-de-pagos-moviles-wanda/#sthash.g86wnMNu.dpuf">unsuccessful</a>, including Billetera Móvil, a mobile wallet offered by Scotiabank, and Wanda, an initiative launched by MasterCard in partnership with Telefónica.

There is a lot to learn, not only from these early local deployments but also from best practices and lessons from other global offerings. These learnings can be applied in Peru to drive active usage, which remains a challenge in many countries: at the end of 2014 the global average for active usage on a 30-day basis was only 22.4 percent <a href="http://www.gsma.com/mobilefordevelopment/adoption-of-mobile-money-how-has-the-adoption-of-mobile-money-evolved-in-2014">according to the GSMA.</a>

Peru boasts several new offerings, including a mobile money solution launched in 2015 called <a href="http://www.tudineromovil.pe/">Tu Dinero Móvil</a>, a joint venture between MasterCard and Telefónica, which operates the network Movistar. The service is currently targeted at clients in markets outside Lima, such as Arequipa, and will continue to be rolled-out throughout 2016 along with aggressive above-the-line marketing. Though the service only operates on Movistar, it will work on the older feature phones that many of Peru’s unbanked use. It also comes with a companion pre-paid card which customers can use at a variety of merchants. This is relevant in today’s Peru where merchants are still very POS-terminal-focused, as they are in many Latin American countries.

But what many Peruvians -- and the rest of the world -- are currently watching is the recent (December 15th) launch of <a href="http://mibim.pe/">BiM</a>, the first fully interoperable national payments platform, focused on driving financial inclusion by extending services to Peru’s unbanked, and offering accessibility to even the oldest <a href="http://www.cnet.com/news/the-411-feature-phones-vs-smartphones/">feature phones</a>. As the lessons from nearly 10 years of mobile payment platforms operating globally show, <a href="http://www.fi2020progressreport.org/technology/">interoperability</a> is key*.

Designing BiM: Interoperability 

For Peru, interoperability has manifested through a rare collaboration between the country’s financial institutions, government, telcos, and other players, who jointly established a new service provider called <a href="http://pagosdigitalesperuanos.pe/">Peruvian Digital Payments</a> (PDP) in July 2015. The Association of Banks of Peru (ASBANC), together with many of its member banks and electronic money issuers, are all co-owners of PDP.

<img class="alignright wp-image-20451" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/01/peru-photo-21.png" alt="" width="330" height="250" />PDP, in turn, developed BiM, which is a shared infrastructure for mobile payments. Unlike many closed-looped systems that prevent clients from easily sending money across platforms, this collaborative approach, often referred to as Modelo Perú, should allow optimal, interoperable customer convenience, competitive product offerings, and hopefully in turn, affordable fees.  ASBANC spent several years mapping out the strategy, planning, and building consensus among its stakeholders before launching the project -- no easy feat.

The main goal for PDP is to drive registration by the unbanked who have phones but not accounts – but how this will be verified is unclear. In the first phase, customers can access the service as a subscriber of Movistar, Claro, or Entel mobile service.  The participating financial institutions are listed as options on the menu for customers to select, and to register for BiM, a client must choose a bank on the menu, and then conduct their transactions within that bank’s offerings.  Banks will differentiate themselves via their product and service offerings. We hope that the bank-switching process will be seamless, to allow clients the choice of services that meet their needs.  The (soft) launch included 9 participating financial service entities, such as BCP, G Money, <a href="http://www.financiero.com.pe/BanPer/BIM.aspx?idmenu=1090">Banco Financiero</a>, and Credinka, with another 17 planning to go live in Phase 2, scheduled for the second quarter of 2016.

[caption id="attachment_20453" align="alignright" width="330"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/01/peru-photo-3.jpg"><img class="wp-image-20453" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/01/peru-photo-3.jpg" alt="" width="330" height="151" /></a> BiM Customer Brochure[/caption]

In its initial phase, BiM subscribers can use the service to cash-in/cash-out, check account balances, conduct person-to-person transfers, and top-up their mobile phone airtime. Customers should also be able to use over 10,000 points of service, mostly at financial institutions and agents throughout the country, thanks to the interoperable design. According to our recent discussions with Miguel Arce, Commercial Head of PDP, they are planning to rollout new services over the next 18 months, including ATM integration, deposits, utilities, and merchant payments. BiM may even explore transportation payments in future phases.

These are certainly the type of value-added services that could lead to broader adoption, and we look forward to seeing these various phases and additional services go live. Overall, PDP aims to reach 5 million people in 5 years – and hopefully a large percentage of active users among them.

Designing BiM: Customer-Centricity

PDP has designed a creative, robust mass marketing campaign that should hit the streets in February to drive customer registration; participating banks are then free to follow with their own mass marketing campaigns.  We hope that the upcoming marketing campaign makes a clear, compelling case for Peruvians to use BiM: in a nascent digital market, it’s important to prioritize client education and focus on BiM’s benefits and value, rather than solely on how to use the system.

[caption id="attachment_20454" align="alignright" width="330"]<img class="wp-image-20454" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/01/peru-photo-4.jpg" alt="" width="330" height="220" /> Pilot training. Photo credit Proyecto Capital[/caption]

BiM’s success in enrolling more unbanked customers will depend on how customer-centric the services turn out to be. The service must meet customers’ expectations, and must be easy to use. One of the best ways to create a product that meets those requirements is to first gather customer input, and that’s just what PDP is doing: in September 2015, PDP <a href="http://proyectocapital.org/es/noticias/todas-las-noticias/828-mujeres-emprendedoras-empiezan-a-usar-bim-en-piloto-de-modelo-peru.html">conducted focus groups</a> that let participants practice enrolling, cashing in and out, making P2P money transfers, and verifying transactions through the service. Focus group findings showed that users were most interested in BiM’s time savings, convenience, and secure money management. PDP has been trying to integrate those findings into BiM’s system design; for example, they’ve used simpler language on the menu and easy navigation to choose between options.

How Peru’s Financial Institutions can use BiM 

Accion’s <a href="https://www.accion.org/content/channels-technology/resources">Channels &amp; Technology</a> team traveled to Peru to help one of our microfinance-bank partners plan how to best leverage digital financial services, including the new BiM platform.

We are excited by BiM’s potential. It promises revolutionary access for clients. To leverage this access effectively, financial institutions will need to consider defining innovative products that ride on those channels and ensure active usage, instead of solely copying and pasting the current product set. Participating in interoperable services such as BiM – where the end-client will have the option to choose among offerings – requires financial service providers to focus more than ever on understanding clients, their needs, and their behaviors – and to work hard to design offerings that respond to that demand.

Savings deposits and loan repayments should be a standard feature, but more innovative offerings are critical to respond to customer demand, differentiate one service from its competitors, and ensure a return on investment.  For example, new mobile-only savings products using balances to extend credit against, or flexible insurance products based upon mobile-savings balances could be explored to increase adoption.

We are eager to see how BiM and other digital payment solutions in Peru unfold in 2016 and impact customers and their lives. We are equally curious to see how the pricing is perceived and which services will drive active usage-- will it be the usual airtime top-up? Or will other services like goal based savings or micro-insurance drive interest?  And most exciting, will the interoperable nature of the BiM platform successfully drive all sides of the digital ecosystem….?

*CFI’s Financial Inclusion 2020 <a href="http://www.fi2020progressreport.org/technology/">Progress Report on Technology</a> breaks down what interoperability should look like.

Have you read?

<a href="http://cfi-blog.org/2013/12/17/defining-the-path-to-financial-inclusion-in-peru/">Defining the Path to Financial Inclusion in Peru</a>

<a href="http://cfi-blog.org/2014/09/08/emerging-themes-in-responsible-digital-finance/">Emerging Themes in Responsible Digital Finance</a>

<a href="http://cfi-blog.org/2015/07/24/perus-national-financial-inclusion-strategy-charts-new-path/">Peru's National Financial Inclusion Strategy Charts New Path</a>

Digital Financial Inclusion in Peru; A Promising Trend to Watch

<a href="http://content.accion.org/wp-content/uploads/2019/01/Digital-Field-Applications-Case-Study.pdf"><img class="alignright wp-image-19289" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/09/dfa-case-study.png" alt="" width="275" height="358" /></a>Providing micro financial services is often a costly endeavor. As practiced in most places today, it involves many manual processes which limit the potential for scaling up and expose vulnerability to poor service, errors, and fraud. Furthermore, as telco operators and fintech companies bring services to customers through new distribution mechanisms, microfinance banks (MFBs) need to explore innovative ways to competitively deliver their services. Hence, it is promising to see a rise in the use of tablets, smartphones, and other devices housing applications that digitize field operations. Digital field applications (DFAs) offer MFBs a way to take advantage of technology to solve some of these challenges. Globally MFBs have deployed DFAs in a wide variety of ways. For example, loan officers equipped with DFAs can process loan applications and answer client inquiries in the field, eliminating paper forms, digitizing data, and saving time and money for organizations and their clients. Bringing financial services out to clients can achieve a much-needed personal touch and can even increase the richness of the client interaction. For example, client education and consumer protection awareness can be more effective when digital messages are delivered by a field staff member. DFAs can also improve credit operations. When assessing loan applications and risks, field officers can operate more efficiently if digitally equipped.

In order for MFBs to successfully leverage these tools, both for their and their clients’ benefit, they must understand their business case, and incorporate best practices for implementation that have been derived from lessons learned by others. There is no shortage of pilots that have been halted due to challenges arising from lack of experience and understanding - despite hardware availability or subsidies.

With this in mind, <a href="https://www.accion.org/content/channels-technology">Accion’s Channels &amp; Technology group</a> have published a case study aiming to provide some clarity on the impact of DFA use by examining the business case, implementation process, and effects for three MFBs: Ujjivan Financial Services in India, Musoni Kenya, and Opportunity Bank Serbia (OBS). Our <a href="http://content.accion.org/wp-content/uploads/2019/01/Digital-Field-Applications-Case-Study.pdf">case study</a> presents a consolidated review of the findings from the three MFBs, with an accompanying Excel-based business case <a href="http://content.accion.org/wp-content/uploads/2019/01/Excel-Based-Business-Case-Toolkit.xlsx">toolkit</a>, available for MFBs to examine the potential impact a DFA might have on their business. Individual cases presenting the findings from each institution are also available – <a href="http://content.accion.org/wp-content/uploads/2018/09/Microfinance-Bank-Case-Studies-Ujjivan-India.pdf">here</a>, <a href="http://content.accion.org/wp-content/uploads/2018/09/Microfinance-Bank-Case-Studies-Musoni-Kenya.pdf">here</a>, and <a href="http://content.accion.org/wp-content/uploads/2018/09/Microfinance-Bank-Case-Studies-Opportunity-Bank-Siberia.pdf">here</a>.

DFAs Are a Sound Investment

When we analyzed the business case – reviewing capital and operational expenditures, cost savings, and revenues earned – we concluded that an MFB could reasonably expect to achieve breakeven between 12 to 24 months after implementing a DFA. Furthermore, although the primary motivation for implementing DFAs was in most cases to improve loan processing efficiency, all three institutions experienced a variety of benefits that went well beyond their core objective.

Key results included:
<ul>
 	<li>Average loan officer case load increased by 134 percent at Ujjivan</li>
 	<li>Loan application turnaround time (TAT) decreased from 72 to 6 hours at Musoni</li>
 	<li>A new digital credit scorecard delivered a credit-decision in the field for 80 percent of targeted loans at OBS</li>
</ul>
Additionally, the institutions realized a range of adjacent benefits, including enhanced credit scoring and Social Performance Monitoring (SPM) capabilities, improved enforcement of controls and policies, and a reputation as market innovators.

During the study we also explored client impact and found that clients benefited from increased convenience due to a faster loan application process with fewer KYC documents required, or were notified more quickly if they were not qualified.

Lessons Learned

In studying which elements were essential for successful implementation, strong change management capability was crucial. Several key activities emerged as best practices:
<ul>
 	<li>A clear understanding of the institution’s requirements coupled with strategic business process reengineering ensured the solution was designed optimally to meet their needs.</li>
 	<li>Close cooperation between MFB staff and the solution provider during planning and piloting also proved critical for successful integration and take-up, as testing with end-users revealed pain points that could be redesigned to enhance usability. Furthermore, this collaborative approach helped cultivate project champions among internal staff, an important part of organizational change management.</li>
 	<li>All three MFBs approved contextually appropriate modifications to their DFA solutions, rather than opting for out-of-the-box functionality. For example, the decision to operate in offline mode required robust back-end integration, data storage, and CBS security, but allowed loan officers to perform certain functions in areas of low connectivity.</li>
</ul>
Overall, results from the case study were very promising, and we hope that more studies will compliment these findings. Equally important is to hear from a wider set of MFBs about their use of DFAs, and the related impact, challenges, and lessons learned.

If you have DFA experience, please share your thoughts in the comments section below and join the conversation!

Have you read?

<a href="http://cfi-blog.org/2015/04/10/digital-financial-inclusion-in-india-taking-off-in-2015/">Digital Financial Inclusion in India - Taking Off in 2015</a>

<a href="http://cfi-blog.org/2015/04/29/putting-users-in-control-of-their-digital-identity/">Putting Users in Control of Their (Digital) Identity</a>

<a href="http://cfi-blog.org/2014/09/22/adopting-digital-financial-services-in-guatemala/">Adopting Digital Financial Services in Guatemala</a>

Carol Caruso

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