Building a Digital Financial Services (DFS) Ecosystem Through Government to People Payments (G2P) Pi
An introduction to a series in which Salton shares his experience of leading a consortium of DFS stakeholders in Sierra Leone, piloting three carefully selected G2P solutions.
Sierra Leone’s Digital Financial Service (DFS) ecosystem, though still under-developed, can no longer be appropriately characterized as nascent given that it has existed in the form of Mobile Money Services for a decade.
Splash, aiming to replicate the success and scale of Safaricom’s Mpesa in Kenya launched in 2009 initially as a remittance service, and actively sought to digitize both humanitarian cash transfer and large employer salary payments. Their launch preceded a better understanding of the challenges of delivering mobile money services, especially one non-telco or bank led; and before studies of Mpesa indicated that its success and scale are mainly the result of conditions and practices not found in Sierra Leone.
For example, Safaricom users already realized that there was value in airtime beyond its conversational utility and exchanged it for products and services by transferring it to other Safaricom users. In effect, airtime became a medium of exchange, i.e. money. Additionally, Safaricom’s marketshare of roughly 70% of mobile subscriptions meant that Mpesa was literally accessible to all of the people who owned mobile phones overnight. The latter also meant that Safaricom had what was effectively a monopoly and thus the incentive to invest massively in their mobile money products.
Hot on the heels of Splash’s launch in Sierra Leone, Zain now Orange - one of Sierra Leone’s big two mobile network operators (MNO) - launched its mobile money offering. Africell’s variant, AfriMoney, was introduced much later in 2016.
Today, Splash by all practical definition no longer exists. OrangeMoney and AfriMoney combine for a mobile money penetration rate of 3.71% (National Strategy for Financial Inclusion 2017–2020) and are deployments stuck in the sub-scale trap which have barely evolved past the primal stage of being predominantly a remittance tool.
As a consequence of these deployments being sub-scale, growth and revenue may not justify continued or increased investment by MNOs especially given competing priorities like a complete switch to 4G, improving network coverage and quality, and planning for 5G - all investments that provide far higher returns. Thus there is a danger that Mobile Money Operations will become a passive rather than active part of MNOs’ Sierra Leone portfolios if conditions remain the same - wherein investment is limited to maintaining a service rather than the achieving and maintaining scale.
The recent launch of Africa’s second sandbox and the Fintech Challenge supported by sector stakeholders like UNCDF, USAID & FSD Africa are evidence that developing the DFS ecosystem is a priority for the regulator and the development sector. Nevertheless, there is still minimal incentive for Sierra Leoneans to transact digitally.
Consumers are aware of mobile money and digital financial services but regularly fail to transverse the customer’s journey to regular use. A quick survey points to the following barriers to adoption: 1) lack of utility of mobile money beyond its application as a remittance pipeline 2) poor agent network and liquidity management especially in rural and quasi-urban environments 3) transacting digitally is inconvenient given its multistep nature, unfriendly user interfaces and connectivity challenges 4) high direct cost of transactions relative to cash.
A consensus exists in the industry that digitization of Government to People Payments (G2P), especially in fragile states like Sierra Leone where the public sector is by some distance the largest employer, can be a relatively easily applied catalyst for DFS adoption. However, research in Zambia and other countries in the SADC region suggests that a blanket approach to simply digitizing payments may have unintended, adverse effects. For example, in Malawi, due to lack of cash-out infrastructure, travel and opportunity costs incurred by digital-payment recipients amounted to more than seven times the amount of their direct account fees and accounted for 15% of their average monthly income.(https://cenfri.org/blog/delivering-on-the-promise-of-digitising-payments-in-zambia/).
Consequently, any attempt at large scale digitization of G2P payments should first aim to solve systemic failures around agent networks and liquidity management.
Additionally, G2P payments are only one type of digital payments. To recognize the full benefits of digitization, we need a broader understanding of how to migrate other types of payments from cash to digital. (https://cenfri.org/blog/delivering-on-the-promise-of-digitising-payments-in-zambia/).
For example, during the Ebola crisis in Sierra Leone, the salaries of 30,000 Ebola response workers were migrated from cash to mobile money. Given that the cash-out cost was borne by the government rather than the workers, they did not incur the same high costs to access their income. However, beyond receiving their payments, almost none used it to transact digitally 80% wholly cashed out within two days of receipt, and less than 5% maintained their mobile wallets after the programme ended.
Even though efficient cash transfer was our primary priority (I headed technology for that programme), we hoped that digitization of salaries would lead to an uptake of DFS and realization of the value of digitization by the target group, but that was not the case.
I am a part of a consortium that includes iDT Labs (FinTech), Africell and AfriMoney (MNO), Sierra Leone Commercial Bank, & ACTB Savings and Loans (MFI) aiming to catalyse the DFS ecosystem through a series of pilots targeting government workers at carefully selected pilot locations and documenting lessons learned. In an environment where collaboration by organizations with overlapping market segments and value propositions is alien, such a consortium is the DFS ecosystem’s first. We aim to solve the challenges and limitations that affect the sector’s development, while forwarding our organization’s specific vision & objectives.
Three pilot cases: 1) Piloting a Remittance Solution 2) Piloting a One-stop Merchant Payment Solution 3) Piloting a micro-savings product, were selected as a result of the “The Financial Lives Survey”, conducted in Sierra Leone in 2017–2018 by the UNCDF. This indicated “that government employees who received their salaries in bank accounts can be encouraged to avail of digital financial services instead of cashing out”. It surveyed how government workers spent their salaries and developed pilot cases aligned with the findings.
Our approach, which will be covered in follow-up posts, revolves around finding practical solutions to the problems of 1) Inadequate Agent Networks & Liquidity Management and 2) The Lack of Utility of Mobile Money. Consequently, key methodologies being employed include:
1. Developing a New Model for Managing Access Point & Liquidity that strengthens both the availability of and ability of access points to meet cash-in and cash out demands of consumers particularly in rural locations. 2. Leverage Credit Scoring Using Digital Trail & the Promise of Improved Access to Credit as a catalyst for mobile money adoption among merchants; not only incentivizing acceptance of digital currency in their exchange with customers but also enabling acceptance by their upstream suppliers. 3. A Platform-based Approach that encourages and enables layering of solutions/effort by other stakeholders; enabling the development of FinTech products, services and creation of value on top of our output.
This article forms the first in a series wherein, as Project Manager of the consortium, I will detail our approach, methodology, challenges, and lessons learned.
It is meant as a knowledge sharing and open-sourcing tool. It is also an effort to crowd-source feedback and opinions from a broader audience that could help Sierra Leone develop MMS’s which will increase financial inclusion and promote economic empowerment.
Salton Massally, co-founder and Chief Technology Officer of iDT Labs, is a self-taught software programmer and entrepreneur who grew up in Freetown. He specializes in the rapidly growing intersection between scalable low-cost technologies and international development challenges. He is a pioneer in the use of cutting-edge technology to drive social change in West Africa. He works closely with leading techies around the globe, including from East Africa, to design open source solutions.
Salton was selected as a Queen’s Young Leader for 2017. The Queen’s Young Leader Award recognises and celebrates exceptional people aged 18-29 from across the Commonwealth, who are taking the lead in their communities and using their skills to transform lives. Winners of this prestigious Award receive a unique package of training, mentoring and networking, including a one-week residential programme in the UK during which they will collect their Award from Her Majesty the Queen. With this support, Award winners will be expected to continue and develop the amazing work they are already doing in their communities.
Salton is recognised as a business leader and tech innovator in the West African region, for his exemplary work at the intersection of technology and social impact in Sierra Leone.