Q&A: Why Do Innovative Payment Systems Matter? NetHope’s Hamilton McNutt Explains
The mobile payments hype did not start with Apple Pay. In fact, international development organizations have been long promoting the use of mobile money to increase access to financial services by low-income communities, making money transactions more transparent and secure.
We met with Hamilton McNutt, an expert on innovative payment technologies for development, to get his insight on trends in mobile payments. Hamilton is a program manager for the NetHope Payment Innovations Team, created under a cooperative agreement with USAID known as the Global Broadband and Innovations Program.
What is NetHope and why there was a need for the Payment Innovations Team?
NetHope is a member organization and has 43 members now, all NGOs. The idea of NetHope was to help NGOs to collaborate and aggregate demand around specific technologies, so it really started off as a deals-and-discounts shop for NGOs to come together and say “we need licenses for Microsoft Office”, and then we’d go and deal to get discounts for them. Then ICT4D movement took off and as ICT became more relevant in actual programs NetHope shifted its focus to get more involved in broadband expansion and applications, such as mobile payments.
The Payment Innovation Team blossomed out of the partnership between USAID and NetHope. We filled the USAID’s need to learn more about digital payment technologies. I’d say, in the early days it was more of the donor pushing the idea of digital payments. And now most NGOs that we speak to say, “We see the benefits to all this. The donor push is certainly an incentive but this is also something we internalized ourselves.” It is nice to hear.
What personal experience led you to NetHope and non-cash payment systems?
I’ve always been interested in digital payments and how they transform not only the lives of individual users but also small and medium businesses. For example, I worked for a couple of eco lodges in Bolivia. They would charge $100 a night and sometimes tourists wouldn’t have enough cash and they would leave. So I did a baseline and showed how much business was lost on these tourists walking out. In the end of it I said, “This month you’ve lost XXX amount of dollars in business,” and finally convinced them to get a credit card machine.
This is when I started to be interested in digital payment technologies, but I really started to get into mobile payments three years ago when I joined the NetHope Payment Innovations Team. And because it’s such a nascent sector—seven or eight years old—I’m still learning every day.
Why do innovative payment technologies matter? Why not stick with the old ways of doing it and using cash?
Well, I think there are several very typical reasons for why cash is a problem. It’s not a secure way to exchange and transfer funds – that’s one reason everybody gives. It lacks transparency and is costly. There are a few studies that say that digital payments are more expensive, but those studies don’t track the long run return on the use of these technologies. This is such a new field—it’s hard to get that sort of data, as with any transition there will be starting costs associated with it. I think from the operational viewpoint of an organization, whenever cash needs to move around it is slow. It hampers an organization’s ability to scale and hit the numbers that they promised to their donors.
For recipients it is a great way to diversify the ways they store money: you have your mattress, your jar, and your phone now. It’s a more secure way. Privacy is another benefit at times, especially for women. And it’s a really nice social connector for people as well. In the States we have VenMo, which has the feed, so you can see what your friends are doing with the money; it tells the story. It is similar with mobile payments in developing countries—if you follow the funds, its just a really big map of that persons social and business networks.
Interesting thought! People usually think the opposite, that digitizing payments makes people less connected…
I don’t think it’s going to completely replace face-to-face interactions, but it can complement it. For example in microfinance the face-to-face meetings between the people and loan officers are important and should in no way be replaced, but I think there is a way to streamline the repayment process, make it cheaper and maybe the savings could be transferred to the clients by lowering the interest rates.
What is there beyond P2P money transfers?
The latest GSMA global money snapshot report that came out in February stated that bulk payments are the fastest growing product for mobile money and we’re seeing increasing demand for it from the organizations that we work with, too.
It has been interesting that while there is this increase in demand for bulk payment systems, the supply is not quite meeting it yet. This is where companies like Beyonic and other third-party providers come in. These companies are aggregators that developed bulk payments platforms which allow to make mobile payments across multiple mobile operators in the country. These aggregators are very focused on their customers’ needs. At the same time the larger operators, especially mobile network operators, cannot dedicate resources to figuring out a good quality bulk payment product for someone, because it’s not a primary revenue driver for their business.
What should organizations consider in bulk mobile payments?
We did a toolkit on the transition from cash to electronic payments called “Journey from Cash to Electronic Payments,” based on lessons learned. I suggest looking at things like: What are the internal controls around the payment system? Can people be assigned different authorities to do different things? What does transaction reporting look like? I want it to be as close to a bank statement as possible in terms of what I get back, so I want a transaction number, I want to know how much it was, recipient names, what my balance is, etc. Some products even offer you how much your withdrawal fee will be, so you can add money if you don’t want the recipient to pay the withdrawal fee—that’s a very popular feature. Security is another issue, security and data privacy. Big concern for people is how the money is kept. There is also a need for offering training for both staff and the recipients. So, what’s the customer service like? What’s the service agreement look like?
What are the top complaints from organizations in regards to bulk mobile payments?
If money goes to the wrong phone number it’s hard to get it back. Mobile money platforms have not taken responsibility for it yet. So if you send it to the wrong person, you’re pretty much on your own. That’s an issue.
Manual data entry is also a problem for the same reason because it’s hard to make sure that everything is correct.
Another complaint is making sure everyone is registered to the right platform because you may not have everybody necessarily on the same mobile network. The lack of interoperability is painful for the bulk payment systems. If you pay to 500 people, they will usually reflect how the market is segmented: 20 percent here, 20 percent there. So that’s a major issue. Then you have to go to each of the network operators in your market and establish a contractual relationship. Aggregators like Beyonic are doing that for you. They have pre-existing relationships with the mobile network operators and are able to push mobile money across all of them and guarantee mobile money delivery. So that’s a nice fix.
Then why do organizations choose to try bulk mobile payments?
People love the fact that they don’t have to spend the money to send a finance manager to the field to manage the cash. They can do everything centrally from headquarters and have more control over the payment. It enables them to streamline and scale. It’s a better business practice. Makes life easier… when it works! When it does not people hate it, and sometimes even go back to using the cash.
In a lot of the cases security, transparency, and safety of staff outweigh the upfront cost and time, so these are usually the key drivers why people switch and stick with bulk mobile payments.
Any last comment about mobile money?
The interesting fact is that developing countries are so ahead of us in the mobile payments space. In the majority of cases an organization’s country office is ready, but it takes six months to get permission from headquarters. That’s in some organizations. In others you’ll see a top-down approach. But a lot of times it’s the field driving the conversation.