Taking Digital Solutions to the Underprivileged
On the last day of June 2012, I was surprised to find Yusuf working late in the evening. This was back in Bangladesh, and Yusuf was the custodian of our apartment. At the end of every month, he would make an exhausting 3-hour journey back to the village where his family lived. His motivations were more pragmatic than sentimental — he needed to hand over money to his wife and children for their living expenses.
This may sound implausible now, but money transfer was a major headache for low-income groups back then. Over 70% of Bangladesh had little access to banking, fund transfer through postal service took many days, and finding a carrier to deliver money was risky. So, on that evening, I was naturally curious to hear why he had not left for home yet. Yusuf all smiles and said he had already ‘bKash’ed the money to his family.
At that time, I knew little about bKash apart from the fact that it was this new Mobile Financial Service (MFS) company rapidly gaining popularity. I was still skeptical — how could Yusuf, who knows zero English and uses a $40 mobile handset, possibly use digital payments? Brimming with enthusiasm, Yusuf then made a little demonstration, and I was thoroughly impressed with the simplicity.
bKash, like other MFS pioneers in East Africa, were leveraging the USSD (Unstructured Supplementary Service Data) codes for transactions. Users needed to type certain codes like *606#, followed by transaction amount and recipient’s mobile number, in order to send money. Senders did not need to type any text (e.g. names) or have smartphones/internet. Propelled by positive user experience and outstanding value proposition, bKash has grown to acquire an astonishingly large subscriber base of over 36 million users today.
Their success may help understand how a technology company can prosper in developing countries with a large low-income population bases. While many may shun this segment, there is genuine positive impact (and money) to be made here. Back in 2004, CK Prahlad popularized the idea of how this demographic, dubbed the Bottom of the Pyramid, can provide substantial value for business.
In my opinion, digital businesses face three major questions before deciding to enter this space. These can be categorized along the lines of profitability, underlying infrastructure, and value proposition.
Question 1: Can we make money from this market?
The short answer — Yes!
Margins are certainly going to be thin when targeting the less affluent segments. Further, most of these consumers are highly price sensitive and unwilling to pay unless there is significant value. Understandably, these factors may deter many companies.
However, the immensely high number of customers more than makes up for the lower margin. Roughly half of the world’s population (around 3.5 billion) — mostly in developing countries — are still poor or vulnerable to poverty. Products suited to their needs therefore have immense business potential.
Unsurprisingly, many companies offering digital and/or traditional products already understand this. An unfortunate example is the tobacco industry. WHO estimates that around 80% of the world’s 1.1 billion smokers live in low- and middle-income countries. Big tobacco have long realized this and focused on the fast growing low-income consumers for years.
Technology companies have also successfully monetized from this market. One of the biggest success stories is M-Pesa, the Kenyan mobile payment company often credited with first taking digital payments to the underprivileged. Their revenue in FY 2019 topped $700 million and grew 19.2% from previous year, clearly highlighting the money to be made from these consumers.
Question 2: Is the underlying infrastructure for our product ready?
For most products today, this means access to reliable internet. I remember asking the CEO of Bangladesh’s leading eCommerce platform back in 2017 why their presence in rural areas was minimal. He lamented the lack of fast, affordable internet connections in areas outside of large cities. Images of products would take minutes to load in some cases, resulting in the customers losing patience with eCommerce.
Promisingly, things seem to be improving on this front all over the world. The most obvious example is from India, where Reliance Jio entered the market in 2016 and completely transformed the landscape. Offering speedy 4G connections at rates as low as 4¢ per GB (down from close to $3/GB charged by competitors before), Jio made internet accessible to millions.
Another infrastructural challenge for companies is receiving money from customers. In the absence of bank accounts and credit cards, the poor have historically relied on cash for payments. But managing cash is costly and increases probability of non-payment — something particularly challenging for eCommerce. Widespread adoption of mobile payments, however, have made things much easier. Ecommerce is booming in rural China, and the country’s 86% mobile payment penetration has drastically improved sales collection for the sellers.
Question 3: Does our product add genuine value while being easy to use?
This, ultimately, is the holy grail for digital companies. The bottom of the pyramid will be more interested in products that directly improve their quality of life. As it stands, there are plenty of ways technology-based products can do that. Twiga, one of Africa’s leading startups, acts as an online marketplace between farmers and small vendors. Their solution allows farmers to receive higher prices while reducing post-harvest losses, and the company raised an additional $30M funding last year. Myriad other aspects of daily lives of the masses remain ripe for digital disruption.
Simplicity remains the key for adoption. Companies need to realize that many assumptions associated with more affluent customer segments do not hold true for low-income customers. Most of these customers do not speak English, do not possess laptops/desktops, and are often not reachable through traditional media. The likes of bKash initially thrived not through flashy smartphone apps, but by having plain USSD based commands that were easy for customers to understand. Other success stories in the low-income market share very similar traits.
Summing it all up, promise of large untapped markets coupled with rapidly improving infrastructure should attract more and more disruptive technology companies to serve the underprivileged. Now let’s see if this actually happens!
