Long Live the Feature Phone!
Long live the feature phone: what it means for digital financial services
By Jake Kendall and Arunjay Katakam
In the last decade, mobile phone penetration has created a digital finance revolution in Africa and South Asia. Mobile money gives users a basic wallet and a growing list of services — including money transfer, payments, credit and even limited forms insurance — all over basic or feature phones (i.e. non-smartphones). However, access to mobile money services has been largely restricted by mobile network operators (MNOs), who have not made it easy for 3rd parties to connect to the primary access channels (SIM tool-kit, USSD and SMS) on which these services operate.
Recently, smartphones have proved to be a game changer for digital financial services (DFS) and have opened the floodgates for innovative products and services which do not rely on these access channels. However, those without smartphones have been left behind — in emerging markets, this is often most of the adult population.[1]
At the same time, feature phones have started to make a comeback, with increased units being shipped for the first time in several years. Growth in emerging markets has been especially impressive: In Africa, feature phone shipments surged 32 percent year-over-year in the second quarter of 2016, while smartphone shipments declined by 5.2 percent.[2] This comeback has largely been driven by a new breed of manufacturers who are building affordable and durable feature phones with capabilities such as LTE data connections, email and web, and text to speech combined with long battery lives (lasting up to one month standby time). For many consumers, these new feature phones are seen as a greater value than low-end smartphones, which have fragile screens, limited camera resolution, and batteries that barely last one day (and at higher price points).
With this surge in demand, it is safe to say that feature phones are here to stay, and a sizeable proportion of low-income individuals will continue to use feature phones for the foreseeable future.
A good example of these newer feature phones is the Jio-phone which has 4G capabilities as well as voice recognition, video streaming, VoLTE calling, wifi, GPS, Bluetooth, NFC, flashlight, radio, email, internet, and many other features normally associated with a smartphone — all for a refundable security deposit of Rs 1,500 for three years (less than $25).
A few challenges
While this new generation of feature phones are impressive in many ways, they still lack in a few key dimensions.
Complexity created by fragmentation
Probably the most critical limitation is that feature phones do not have an open app store like smartphones. This dramatically limits the ability of 3rd party developers to create new apps and features that can be deployed on these phones.
At present, the feature phone landscape is quite broad: there are more than 1,348 models available from 76 manufacturers. These phones run on a myriad of operating systems including several proprietary ones making it very difficult to write apps for these phones as each app would have to be recoded and customized for each phone. Facebook zero and WhatsApp are among the few players who make an effort to write apps for these phones and both of these players have walked back their feature phone strategy in the past year due in some part to the complexity of deploying across so many versions.
User experience (UX)
The UX on a feature phone vs. a smartphone are as different as chalk and cheese. Most notable is the larger touch screen input which allows free form user expression by touch as well as typing via on screen keyboards.
User data and identification
The phone and user data that developers have access to is also very limited on feature phones. The only inputs available are simple things like MSISDN (phone number) or IMEI (device iD) making it challenging to identify a unique user. Further, there is no standard set of data that is available (as there is on Android or iOS for example) contributing to the fragmentation effect above.
The opportunity
Given over a billion adults will not be adopting a smartphone anytime soon, there is a real need to provide digital financial solutions to this group. Despite the technical challenges outlined above, we believe there is an opportunity to leverage these phones with very simple apps that will work within the more limited data and user experience available and which will be simple enough that porting them across the numerous versions will be possible.
One way to do this is to build a simple native payment app for 4–5 of the major feature phone manufacturers. These apps would look and behave in an identical manner, ensuring that users who change phones don’t have to re-learn how to use the app and with 4–5 of the top makers on board, you would reach a major percentage of the population.
The app could have a simple menu with five features:
1. Send
2. Receive
3. Pay (merchant or bill)
4. Check balance
5. Change PIN
Whilst there are over 168 million active users of mobile money [3] on a feature phone (via USSD), the use cases are limited. Person-to-person transfers and airtime top-ups continue to dominate. Building a native app on a feature phone could allow use of Audio QR or use of the camera to scan a QR code for a merchant payment (something that is currently not possible on USSD, where customers have to enter the merchant number manually — which is slow and error prone). With a system like the UPI in India integrated to the back end, an app of this kind could allow millions to have direct digital access to bank accounts or mobile wallets with just a few clicks. Additionally, a very rudimentary financial app store could be created to allow third parties to plug in an add innovative features to the wallet.
Beyond a native app strategy, there are also lots of creative ways that low end phones can be used to support financial services. For example, Pula and Pezesha from the DFS Lab portfolio both reach clients with low end phones to deliver farmer insurance and small enterprise credit respectively. You can learn more about them here and here.
Conclusion
No doubt, deploying to feature phones is a hard problem to solve, but one that will make a difference to the lives of hundreds of millions of people for whom they will be the main connection to the digital world.
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[1] http://www.pewglobal.org/2016/02/22/smartphone-ownership-and-internet-usage-continues-to-climb-in-emerging-economies/
[2] https://www.techcentral.co.za/africa-still-hot-for-feature-phones/68795/ and the trend is continuing, YoY, the feature phone market was up 11.5%. Feature phones still constitute a significant 62.2% share of the total mobile phone market (from 56% the year before) as they adequately address the needs of African consumers that have limited purchasing power and require a reliable long-lasting mode of communication, particularly those in rural areas. https://idc-cema.com/eng/about-idc/press-center/65709-africa-s-smartphone-market-declines-despite-strong-performance-of-region-s-biggest-markets
