Solving the financial exclusion problem is good for telcos

Steve Polsky / Juvo
15 Jun 2018

The number of unique mobile subscribers in the Asia Pacific (APAC) region is set to grow at an aggressive pace. By 2020, China and India will account for half of all new mobile subscribers added to the world. By that same year, according to that same report, there will be 3.1 billion unique mobile subscribers.

The demand for smartphones will grow in parallel. Across the world, smartphones bring a level of convenience to accessing digital services. In some parts of the world, mobile devices are the only option for accessing the internet.

The challenge is that cash based societies tend to experience high rates of corruption, which makes interests rates high. No matter how much someone wants a smartphone, the process of obtaining one would be financially unfeasible.

In India, for example, where over half of the population lives in multidimensional poverty, the average priced smartphone can cost up to 16% of income for low-income groups.

For all of these reasons, smartphone penetration rates will drop to a median of 37% in the developing world. Existing pathways to smartphone ownership are weak compared to the rising demand for smartphone access.

In two years’ time, the telecommunications sector can expect to see SIM connections reach 5.1 billion. Every one of these individuals who should be using a smartphone—but isn’t—represents an opportunity cost for telcos. Lack of smartphone adoption holds back the delivery of digital products and services that have the potential to bring new revenue streams to companies that have been long-struggling.

What’s important for MNOs to recognize is that smartphone adoption forecasts aren’t set in stone. Companies like Samsung are actively working to change smartphone adoption projections among populations that lack access to credit. Here’s how:

Aligning business interest with business sense

Increased smartphone adoption makes business sense for MNOs. But they don’t make personal sense for everyday people in cash-based societies. According to the GSMA, 64% of basic feature phone owners worldwide cited handset costs as the top barrier for smartphone ownership.

To deconstruct and engineer a solution to this challenge, consider the mechanics driving the problem. The average smartphone costs between $100-$200 in cash based societies. This threshold prices out underbanked yet creditworthy populations. Even if they want smartphones, they don’t have the financial resources to make a responsible purchase.

This gridlock hurts the bottom lines of mobile network operators around the world. Research has found that making smartphones affordable and accessible drives a significant increase in average revenue per user (ARPU). Prepaid users are more likely to model the behavior of subscribers. From engaging with social media to digesting streaming content, people can engage with communications providers in more ways beyond a basic, prepaid SIM—the norm of connectivity in most cash-based societies.

Telcos can’t wait in a holding pattern, expecting credit systems in developing regions to change. Communications giants risk failure rates. To outsmart existing behavioral economic forces in the open market, companies need to take an active role in offering handset financing options.

Building financial inclusion pathways

The United Nations explains that financial inclusion is the enabler for seven out of 17 sustainable development goals. Because of the vast networks of infrastructure that they own, MNOs have a major role in building financial inclusion pathways to smartphone ownership. The process begins by building user identities, from the ground up. Envision a pathway that begins with small airtime credit extensions.

  • Users request airtime credit extensions through their phones rather than needing to walk to minute top-off locations.
  • Continued airtime credit extensions create loyalty, causing prepaid SIM users to emulate the behaviors of post-paid users.
  • Over time, through game mechanics of walking users up a pathway to financial inclusion, MNOs collect more data.
  • Payback rates build up to credit scoring models.
  • Telcos can use machine learning techniques to reduce likelihood of credit risk and default.

What starts with a small credit extension for a dollar or two, that represents an extra day or two of phone service coverage, builds up to more credit for more services. People in cash-based societies become eligible for services beyond credit extensions. MNOs create pathways to smartphone adoption. Companies like Samsung can participate along the way, getting their devices in the hands of more people with lower risks.

Prepaid users begin imitating the behaviors of postpaid subscribers, creating open doors for MNOs to offer more services.

Pursuing what’s unprecedented

Smartphone financing has the potential to improve telcos’ bottom lines while also bridging an access-to-information and services gap that exists around the world. In an increasingly saturated market, smartphone financing could be the key point of differentiation for MNOs in competitive markets, where people are switching between SIMs.

Offer people something of value, a goal to work towards, and a pathway for achieving that goal. Build user identity profiles as alternatives to western systems for credit. Find users who are strong candidates for smartphones. Offer them more, helpful services.

Outsmart the challenges that financial inclusion barriers pose.

Steve Polsky is CEO of mobile financial inclusion startup Juvo

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