Tuesday, December 13, 2005

Opportunity in Services for Under-served Markets

When Muriel F. Siebert was banking commissioner for the State of New York she came to realize that the poor pay excessive amounts of money for subpar financial services. Her Personal Finance Program which was developed by the Muriel Siebert Foundation, was the result of that insight. It is a high school curriculum in personal finance that has since become mandatory in the State of New York, and hopefully will be adopted by many other states as well. A link to the program can be found by clicking on the title of this entry.

The thoughts that inspired this book, are also the business case for better financial services for under-served markets. Any smart company that truly has for a business objective to make money providing better financial services could use the notion of education and better consumer information to build a business plan, for the need for basic financial education does not end at high school.

And marketing financial services to under-served markets should be easy with todays technology. Too many providers seem to make their money by misinforming people about financial matters, and getting them into as much debt as possible. They are mostly in the legal loansharking business, including rent-to-own furniture, payday loans, "refund anticipation loans," credit cards, and other forms of "sub-prime lending." Buyer beware seems to be the adage. The opportunity may be in educating the buyer, and providing real solutions.

However, in looking at the alternative of making money on financial services, there is a tremendous opportunity for companies who pull these needs together and provide an easy way to service them. Via the net, no doubt. Looking at the habits of people in under-served markets, there are check-cashers, bill payers, money transmitters, and loan-sharks, some legal, some not. Each and everyone of these over-priced services offers an opportunity for better service at a lower price and can be marketed through effective use of INFORMATION. Education in effective use of these services could be and should be the driver of changing the existing order of business.

Experience proves again and again that people will learn to use effective services overnight. I have experienced that first hand in the phone card business in the mid nineties, when in short order with the appearance of discount phone cards we educated the public to use prepaid phonecards. The big phone companies could not sell a phone card for all their massive advertising budgets, for they had the wrong cards (60 cents/minute) and targeted the wrong people and therefore had to sell expensively in a vain attempt to create the perception of a need. With discount cards all we needed was a handful of $2 cards to give away and simple posters with the rates. A week later people were standing in line for the cards. Presently the success of cellphone-based payment gateways in some of the developing world prove again that effective services will be adopted at the speed of light. Such a payment service when launched by the Philippine post office was overwhelmed when it was still in beta deployment.

The message is clear, effective communication will sell worthwhile products that fill real needs. In those cases guerilla marketing is the order of business. Neighbors telling each other will do the rest. The delivery vehicle for such services definitely is the Internet or future cell (or Voip!) phone services, and the Internet café model may well have a revival, even in the form of kiosks at convenience stores and rest stops. Education is easy. Would you rather send money with Western Union for $10 or with your cellphone for $5, or even $2? People will get that very quickly. In other cases the information maybe more intricate to represent, such as the interest rates on rent-to-own furniture, where people pay $3,000 for that $500 sofa, but the basic logic is always the same. Integration can happen around strong authentication and security, providing meaningful Personal Computing, and he ability to manage one's finances effectively, bypassing a lot of expensive infrastructure (check cashers etc.) and instead perhaps having an Internet kiosk based on a cheap thin client architecture at a convenience store or a coffee shop. Squash the thought of personal computers for everyone. Personal computING for everyone is the motto, and shared infrastructure is what makes cost efficiencies possible.

As in so many cases, the regulatory environment actually creates new business opportunities. The basic business process of money transfer is very problematic, because of today's Know Your Customer requirements. But if strong authentication is built into a cell phone, KYC requirements can be met on a one time basis at enrollment of each new customer. Once that step is done, the rest of the business process is easy. The same goes for other on-line authentication mechanisms.

There are endless possibilities, once the fundamental on-line identity problems are resolved in a satisfactory way. Tontines, Mutual Guarantee Associations, Community Money all potentially become easier to manage, administer and control. Insights from the microfinance industry show the power of these institutions. See for example:

From a macroeconomic standpoint providing more capable and more fluid financial infrastructures, including certain forms that are self-managed at a community level are better than most forms of aid, and should tremendously help economic resilience and development. Opportunity beckons for all concerned.

Copyright © 2005 Rogier F. van Vlissingen. All rights reserved.

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