Beyond Cash on Delivery: Magic of Mobile Payments for Retail Merchants

Discovering the 10 SKUs that touch our lives daily.

Anybody who is works or manages a retail business would have SKUs as the corner stone of their life. Stock Keeping Units (SKUs) that touch our daily lives and can embed themselves in our lifestyle determines the marketeer’s success. Depending on the nature of the business, every retailer has an assortment of articles specific to a particular business. While creating newer SKUs to serve new market segments, sometimes a lot of us never realize that their SKUs are the food chain of another 10 SKUs that take are accepted by all the Pakistani’s irrespective of their education, age or income group.

If you have not been able to figure them out yet, let me share some more clues. Unlike other branded SKUs that adorn our daily lives and are flaunted, these are kept under maximum security. The excess of them are not stored or stacked in closets but kept in safe vaults. Yes, these are the 10 SKUs of the national currency; Pakistan Rupee.

Over the years, the financial services industry has been able to introduce multiple payment products to position them to fill the need of Security and Convenience. Introduction of plastic debit and credit cards has been positioned to be able to transfer monetary value of payments instead of utilizing paper currency notes. Globally it has been seen that the value transfers instead of currency transfer generates better economic impact.

In Pakistan, cash continues to be the king. While it remains to be most widely accepted mode of payments, the cash based economy is creating its own set of challenges to create a parallel cash based economy without any trails. Just to put some numbers behind the facts, according to State Bank of Pakistan, the cash in circulation amounts to 1.8 trillion, whereas the total bank deposits with all commercial banks is 6.5 trillion. This ratio of about 30% remains as one of the highest in our region.

Financial Innovation in Pakistan over past 5 years and the road ahead

Pakistan has been recognized globally in the past 5 years for its success in two key financial services areas i.e. increase in the overseas worker remittances (home remittances) through banking channels and big stride in mobile financial services. The home remittances have doubled from $6Bln to $12 Bln and the revolutionary offerings in the Mobile financial services space by EasyPaisa and UBL Omni. Now that new players like Mobilink, Zong, BankAlfalah, Habib Bank have joined the club, many more financial institutions are on-course to play their part in the new wave of Mobile financial services.

Traditionally financial institutions have been using the brick and mortar approach of distributing their financial products through the branches. The high infrastructure and operating costs involved in putting up branches have restricted the banks to increase a nationwide footprint of bank branches. Thus a mere 10,000 bank branch network has been created over the 65 years of Pakistan’s history.

Leveraging from the Franchise model in the Retail Space

Franchising has been a popular strategy in the retail sector to increase the distribution reach through partner networks, however banks had not been able to unleash the power of extending beyond their owned branch network. This had resulted into a financial exclusion of 80% of the Pakistanis with no access to formal financial services. State Bank of Pakistan in consultation with the industry players, introduced Branchless Banking Regulation in 2008 which spurred the growth of a workable model of distribution of financial products and services through a distribution network or commonly known as Agent network.

Hyper growth in the Mobile Financial Services Arena

In a market which has more than 120 million mobile phone subscribers and 30 million banked customers, the opportunity to equip every SIM with a bank account was an opportunity that was targeted by the cellular operators.

After the introduction of the Branchless Banking Regulations in 2008, telecom operators who had access to a robust Sales and distribution network of franchisees and airtime reselling agents capitalized to convert such agents quickly for delivering mobile financial services. Over the past 5 years the branchless banking agents have crossed past 100,000 serving more than 200,000 customers daily.

Mobile Financial Services and Retail Purchase

The typical products right now in the market are domestic money transfer and utility bill payments, the new wave of embedding mobile payments in the retail can already be felt.

Unfortunately there is not a lot of published behavioral research globally on the payment mode choices of the customers. What motivates the customer to pay via plastic versus cash? Is it really the security and convenience features that financial institutions globally position as the key advantages? If this is the case, would the plastic have the same adoption rate in Pakistan as in the west? We foresee that there is tremendous opportunity to gradually enable Pakistan as a Cash-Lite economy gradually. The ever so pervasive mobile phones with Pakistani customers can definitely play a role in there.

The Value proposition of Mobile Payments can be unleashed if the current Unbanked customers and banked customers can reap the benefits of innovation. There should be minimal reliance on a perceived notion of ‘person sitting in a couch and paying conveniently”. The mobile payments would also touch the customers which can go to a nearby banking agent/retail shop and get the payment transaction completed with his assistance while he still pays cash. The current success of Bill payments using Kiryana stores in Pakistan follows a similar process.

Opportunities for Retail Merchants

Let me present to you readily available three key opportunities for Retail Merchants.

  1. Remote Purchase using Branchless Banking Agents
  2. While merchants & businesses, continuously strive to expanding the customer touch points by opening new stores, they overlook the opportunity of leveraging the branchless banking agent network to originate new sale orders for themselves.

    With a selection of the retail agents (now available to initiate orders against a commission) and equipping them with a shopping catalogue , these retailers can originate new remote orders for products. They will collect the cash from the customer and utilize their mobile accounts to pay merchants electronically in their bank accounts. All that is needed then is to fulfill order for customers.

  3. Monetize the Social media and Internet
  4. Market stats indicate that customers are 71% more likely to purchase based on social media referrals. Unfortunately 99% of the Internet purchases have been constricted by Cash on Delivery model. The inherent risks of customer refusing the merchandize or security concerns have been faced by the merchants regularly limiting their appetite for Internet sales.

    While merchants invest heavily on capturing Facebook likes, monetizing their investments to generate actual sales is now possible.

    After booking an inventory online on Internet or a Facebook store, the consumer can utilize the branchless banking agent network to pay for the products against the invoice number. Upon electronic receipt of funds the goods are shipped to the customer.

  5. Enabling a In-store Digital Payments Experience
  6. With the cash receipts from the sales proceed merchants are challenged with disposing the cash with your banks. Enabling the customers to pay yourselves directly into their bank account can reduce the risks associated with cash in till and save the bank interest cost that bear for an overnight cash to value conversion cycle. Based on interest on become a part of mobile financial services agent they can participate in the distribution of the financial services by vending cash and also generating commission revenues.

    For all who want to branch out into the world of online retail and the consideration about payment- collection-mode is keeping you back, then this is the way to go about it. The idea is that customers buy online, pay via their mobile wallets through retail agents, and have the products delivered to their location.

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