Innovation looks very different depending on where you are in the world. In the United States, now when someone sends you a check you can lodge it with your bank by taking a picture of it on your cell phone. In the UK, now all you need is someone’s mobile number to make a transfer (P2P or C2B) from your bank account to theirs (something we will be covering in a future Mondato Insight). Viewed from East Africa, however, the former probably looks like a ridiculous way to send money, and the latter looks decidedly unremarkable. Yet, for many in the region, being a mobile money subscriber could well be the catalyst that provides them with access for the first time to clean water on a regular and easily-accessible basis, something the British and Americans, of course, take for granted. In East Africa, where the MFS ecosystem is most developed, stakeholders have been asking the question “What next?” The Consultative Group to Assist the Poor (CGAP), a financial inclusion think tank based at the World Bank, have suggested that the answer is what they are calling “Digital Finance Plus” (DF+).

It is a matter of debate whether the enthusiastic adoption of M-PESA by Kenyans was a spur that encouraged other mobile-based services in Kenya, or whether the same underlying factors drove Kenyans to embrace mobile money along with other mobile-based services (though if you are a stakeholder trying to bring mobile money to scale in another market, it is a debate that is much more than merely academic). Either way, whether you are an urban worker paying for your* matatu* bus-fare with a smart-card (topped-up via mobile money) which the conductor uses an NFC-enabled phone to read, or a banana farmer receiving real-time information on market prices in Nairobi and Mombasa, mobile phones have reduced costs, improved efficiency and made life easier.

For most of those at the very bottom of the pyramid (BOP), while cell phone technology may have transformed how they transact financially, for most the fundamentals of life remain unaltered. The next stage in MFS evolution will be to change that reality. DF+ is an umbrella term for using mobile money platforms to enable access where it otherwise might not take place to basic services like electricity and water (see CGAP’s own explanation below). DF+, as a new use case for mobile money, sees access to mobile financial services not as an end in itself, but rather as a means to an end. And that is how it should be, for ultimately customers want access to MFS not so they can have transferable stored-value on an MNO-based payments system, but so they can light a bulb so their daughter can do her homework. The MFS element is embedded in and facilitates a transaction that the customer needs and wants to make, irrespective of whether they have access to mobile money or not.

As Ignacio Mas, Senior Research Fellow at the Said Business School at the University of Oxford observed:
“Mobile money has often been likened to a network of digital rails through which a variety of financial and payment services can be delivered. Much of the burgeoning literature over the last seven years has focused on how to build the rails (…) and the marketing and profitability analysis of basic mobile money propositions. Yet for mobile money to deliver on its promise, it needs to prove that it is capable of supporting a wide variety of products and use cases… And by underpinning a wider range of essential socio-economic activities going on in a country, mobile money providers can gain a much higher level of impact, durability and goodwill.”

DF+ is what is emerging as the delivery on that promise. We spoke to Camilo Tellez, financial sector specialist at CGAP, who told us that digital finance encompasses any financial service provided over a digital platform, encompassing mobile or card-based technologies or over-the-counter service provision with an MFS component (such as mobile loans, insurance or savings). DF+ on the other hand “is the provision of basic services to people at the bottom of the pyramid though DF. It is an evolution in the types of services that can be provided through the mobile money channel.” Mr. Tellez sees the great potential of DF+ in allowing “new business models to emerge leveraging digital finance platforms, and it helps the providers, whether they are MNOs or banks, to increase the use cases for MFS, to extend the reach of these services into rural areas, and to provide a more holistic product offering that meets the needs of their customers.”

Mobisol is a German-based company that provides solar energy panels to homes in Tanzania, Kenya and Ghana, and is one of 55 companies that CGAP has identified as being engaged in the DF+ space. Its solar panels are paid for using mobile money in 36 monthly installments. Using a mobile money payment platform also means that multiple parties can make co-payments as part of the installment plan, a facility that can be very important in economies where internal remittances are an important element. Demand clearly exists for this and similar products: in just under 18 months the company has installed over 3,000 systems, and recently announced their first successful installation in Rwanda. For Thomas Duveau, Head of Business Development at Mobisol, DF+ is “the normality of commercial transactions for those at the Bottom of the Pyramid” that will empower them and allow them “to bypass traditional banking relationships just as mobile phones bypassed landlines.”

Access to water is another obvious and much-needed use case. Grundfos Lifelink is an example of a market leader seeing the opportunity to integrate MFS into its product to support what were previously unsustainable community water pumps. Users of the service can transfer credit from their mobile money wallet to a smart card or fob in a closed-payment system. This reduces corruption and ensures the price paid by the consumer is fixed and predictable, better enabling financial planning. Smart monitoring of the system allows for better maintenance and a more reliable service, which helps drive customer use. Grundfos anticipates that this model will permit the proliferation of economically viable and reliable small-scale water providers over the next five years.

For the GSMA, such projects come under their ‘Mobile Enabled Community Services’ (MECS) program, and just last week they released their annual report. Innovation in these areas exists right across the developing world, and it is not necessarily confined to areas where MFS has taken a firm root. Products/projects providing pay-as-you-go access to energy are dominant, with water service delivery still at a much more nascent stage of development, but the report shows that MNOs are developing more flexible approaches in their dealings with innovators who are attempting to use mobile technology to facilitate access to essential community services.

While the addressable market for mobile-enabled water and energy access is huge (estimated by MECS at 262 million and 643 million people respectively) and the outlook is positive, the relative immaturity of DF+ water-service provision in comparison to energy provision demonstrates that challenges still exist. Customer education and the availability of appropriately qualified and trained staff remains an acute issue, particularly in rural areas where access to the services is most needed. Nonetheless Klara Lindner, Product and Service Developer at Mobisol, believes that DF+ enterprises have the potential to “stall the rural exodus”, thereby creating a virtuous circle of education and development for rural populations. It is also obvious that where BOP consumers become accustomed to paying for essential goods or services through MFS channels, there is a strong likelihood that they will be open to other use cases based on mobile money platforms such as retail transactions, or, to look at it through their eyes, to use mobile money to pay for other things they want.

Envisioning mobile money as a set of rails is a good metaphor, but is one which perhaps observes the ecosystem from the perspective of the provider rather than that of the customer. For BOP customers in particular, seeing financial and payment services coming down the tracks to them is not a priority; what they want to see coming their way is access to water or the ability to charge their mobile phone at home. In this light, and with the burgeoning development of DF+, in emerging markets the metaphor may need a little reworking: Just as the railroads opened up new frontiers and connected formerly isolated communities to the modern economy via the telegraph, digital finance is opening up new frontiers in bringing essential services to formerly unserved or underserved communities, via mobile money. For BOP customers and entrepreneurs alike, that has got to be a Plus.

©Mondato 2014. Mondato is a boutique management consultancy specializing in strategic, commercial and operational support for the Mobile Financial Services (MFS) industry. With an unparalleled team of dedicated MFS professionals and a global network of industry contacts, Mondato has the depth of experience to provide high-impact, hands-on support for clients across the MFS ecosystem, including service providers, banks, telcos, technology firms, merchants and investors. Our weekly newsletters are the go-to source of news and analysis in the MFS industry.

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