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Customers should have tools and an offline network that enable them to connect to an online financial services platform in an affordable way. They should also respond to a fundamental requirement: legally exist.
Tools
Mobile ownership is widespread among most markets — from 82% in Mexico and 87% in the Philippines to a staggering 93% in Nigeria — and they can be great tools to distribute financial services, as the 270+ mobile money services currently live globally show.
Smartphones in their turn present an opportunity to increase the scope of services offered and improve user experience. Their penetration vary massively across emerging economies though, and is much lower — say, 45% in Venezuela or only 4% in Uganda.
To tackle this issue, a hybrid model could be built. Simple transactions could still be SMS-based, while more complex operations would require access to a smartphone or tablet that the offline network would provide.
As smartphone adoption picks up — it is set to reach 63% of the population of emerging economies in 2020 — the need (and cost) to provide hardware to the offline network will gradually decrease. The migration from an O2O model to a purely (or mostly) online will improve its economics, which will, in turn, attract more competitors, which will contribute to a more efficient market and reasonable pricing for customers in the long run.
Offline network
In cash intensive markets, a network of offline agents is necessary to build the interface between the physical and digital worlds. Banks can be part of the network but, in most markets, sufficient capillarity will only be achieved with non-banks’ support.
Emerging markets showcase several success cases of effective offline networks. M-Pesa, with its >100k cash-in/cash-out agent network (mostly composed of airtime resellers), is a good example. Ayannah from the Philippines has built software to enable >7k retail outlets to become “multi-product” agents, selling dental and health insurance, but also airtime and online game pins.
Governments have a key role to play to enable other successful offline networks to flourish, by reviewing regulations that might limit the role of non-banks in the distribution of financial products, while maintaining adequate levels of risk management and oversight. Companies should provide their agents with a minimum level of financial literacy as part of their agency force onboarding process to ensure customer protection and transparency on product features and pricing.
Whereas offline networks will remain essential in the coming years, their importance is likely to decrease over time as transactions increasingly migrate from cash-based to electronic, naturally (as economies develop and formalize) or forcefully (as governments implement demonetization plans, such as the recent case in India shows).
Connectivity
Tools and networks are only relevant when interconnected. Adequate mobile network coverage, speed and capacity to cope with increasing data traffic are fundamental.

Today, mobile internet penetration in developing countries is lower than the mobile subscription rate (44% vs. 59%). This difference is explained by two factors: coverage and affordability (discussed later on).
Unfortunately, there is often little incentive for network operators to extend coverage beyond what we see today — building infrastructure might be uneconomical, especially in sparsely populated rural areas. Luckily, governments might frequently turn an impracticable investment into a profitable one:
- Introducing flexible standards of service could decrease network deployment costs;
- Promoting shared infrastructure would spread the network deployment investments among operators and decrease its burden to each individual player. Additionally, it could decrease ongoing operational costs;
- Allowing operators to participate in the provision of financial services could add new revenue streams (see the Safaricom example below), potentially increasing customer lifetime value thus adding incentives to build the necessary infrastructure.

Source: Safaricom Limited H1FY17 Results Presentation, 2016.
The good news is that even in the worst case scenario, providing mobile money is still possible: where internet coverage lacks and operators do not offer financial products, USSD coupled with SIM overlay technology can be used by banks to provide SMS-based, operator-agnostic financial services. Among success cases, one stands up by its scale: China’s F-Road, which has 4.3 million customers in rural areas, processes 32 million transactions per month and partners with 1,100 financial institutions.
Eventually, adding another element of connectivity could increase the efficiency of the ecosystem: an interoperable payments system.
Properly connecting mobile/e-money players goes beyond building technical infrastructure to allow their systems to exchange information. A functional governance system should guide decision-making and enable effective risk management, and efficient business agreements should create economic incentives for players to participate in the system.
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