NB Financial Health
Leveraging Loyalty: How m.Paani is mobilizing BoP consumer behavior for social good – Part 4 of our Digital Finance Plus series
Editor’s note: This is the fourth post in our series on Digital Finance Plus. Published in collaboration with CGAP, the series explores the ways that digital finance is being utilized to help provide basic, essential services to the BoP. Discover more in part one, part two, part three, and part five of this week-long series.
Most of us are familiar with the concept of “loyalty programs.” Whether they take the form of frequent flyer miles or rewards points on a credit card, they’re a common, mutually beneficial way for companies to build relationships with their customers. m.Paani leverages digital finance tools to take this concept in a new direction.
Based in Mumbai, m.Paani is a mobile rewards program that seeks to empower households at the bottom of the pyramid by connecting their positive commercial and social behaviors to points that can be redeemed for life-changing rewards. This creates a sustainable source of development financing through aligning commercial and social interests in a manner that does not depend on pre-existing capital at the household level.
Leveraging the value of loyalty
Commercially, m.Paani operates a coalition loyalty model. Our members are BoP households that are rewarded with m.Paani points for their loyalty to our partner companies (who range from mobile network operators to local Kirana, or ”mom and pop” shops). This loyalty entails members buying goods or services from an m.Paani partner’s business. When these transactions are conducted digitally for products like mobile talk time, points are issued automatically. But for member transactions in physical goods that aren’t conducted via digital channels, m.Paani relies on partner businesses to use our simple mobile interface to rapidly and easily assign loyalty points to a member. Our partners, who also fund these points, benefit from an improved and engaged customer base that drives increased profits. Our members benefit from earning points that can be redeemed, through the m.Paani program, for rewards that deliver social impact. And since they are leveraging their existing spending, members avoid incremental expenditure that would place a burden on household finances (for instance, the interest and principle repayment associated with traditional financing mechanisms).
Our members are additionally rewarded for positive social behaviors. These behaviors include auditing mobile-based classes (“m.Classes”) that impart critical knowledge across an array of areas, as well as demonstrating tangible, positive behaviors. Examples include using water purification or taking out an insurance policy, just to name a few. Partners – including non-profit organizations that use our incentive system to drive learning outcomes and behaviors compatible with their missions – once again fund these points.
But m.Paani points aren’t redeemed for traditional rewards such as cash, consumer goods or mobile talk time. Our rewards portfolio has been developed as a result of extensive research into the BoP communities where we work. They include physical and digital rewards focused on skills development, health and education, such as English classes, health care discounts with a network of medical providers offering special rates, and educational children’s’ books. m.Paani’s alpha pilot found that these rewards are substantially more desirable than typical cash or discount-based rewards offered by loyalty programs. This provides our rewards with the dual benefit of being superior solutions to existing loyalty strategies in the BoP space, while also having a clear social impact.
Overcoming the challenges of serving the Indian BoP
As a social enterprise, m.Paani sees profitability as a means to an end, and we focus on solving core business challenges through social impact. Succeeding on both the social and business fronts in India is a daunting challenge. The Indian BoP lacks access to the knowledge, skills and quality services required to achieve higher levels of income and a better standard of living. This lack of access includes areas such as health care, where perceptions of poor public health services in India have led 69 percent of the urban population to choose private health care. This is despite private inpatient treatment costing an average of 217 percent of monthly BoP household expenditures in cases of illness. Elsewhere, in areas such as employability, 80 percent of the Indian population does not speak English – even while fluency has been demonstrated to increase income by up to 34 percent. So providing BoP households with the resources to access opportunities is essential in improving livelihoods.
From a commercial standpoint, the BoP in India presents businesses with a tremendous commercial opportunity and yet simultaneously a challenge. Annual Indian BoP expenditure has in the past been estimated at 84.8 percent of overall Indian household spending. Yet two broad challenges face businesses in addressing this segment. Firstly, businesses seeking to target this market segment have traditionally done so through price competition, recognizing that price is a key determinant of spending decisions amongst BoP households. However, this has often resulted in a race to the bottom in prices, reducing profitability and failing to generate brand loyalty amidst competition. A key example can be found in the Indian mobile network sector, where prepaid rates are among the lowest in the world, yet customer retention remains a challenge. Secondly, the size and variety of the BoP segment means that a “one size fits all” approach of traditional marketing has limited efficacy. m.Paani’s platform seeks to address this through a loyalty program specifically designed around the BoP.
The m.Paani platform harnesses the inherent value in the BoP consumer segment, and channels this value back into these very same households in the form of social rewards. In addition to being a fiscally sustainable solution, it also eschews a top-down approach to development by allowing members to self-select those rewards that have the most impact on their livelihoods given their specific circumstances. This member-driven solution enables m.Paani to overcome otherwise inevitable information asymmetries and provide highly efficient and customized social impact. m.Paani’s focus on the rewards side is simply to ensure that the rewards portfolio is comprehensive and remains responsive to the needs of our members. Our real strength comes from our focus on understanding the Indian BoP segment, and how to design incentive structures around this understanding.
4 tips for designing BoP-focused digital finance solutions
Designing a digital finance product or service for the BoP market requires a number of key considerations.
Firstly, there is a need to deploy low-cost technology that minimizes the financial burden on members while remaining scalable. As in other areas of digital finance, mobile-based solutions have demonstrated their supremacy in this respect. With a mobile penetration rate of over 70 percent in India and very low prepaid call and SMS rates, mobile is an unparalleled (if not the only) medium through which to effectively reach out to the Indian BoP. However, for any mobile solution to be attractive to the BoP, it must minimize the upfront and ongoing costs to users. m.Paani has designed a platform that minimizes the mobile spend required by our members, ensuring that participation in the program is virtually zero-cost (other than the cost of a small number of outgoing text messages from our members).
Secondly, any mobile solution must be sensitive to the specific mobile preferences and habits of its users. While basic feature phones (and thereby voice and SMS) constitute the dominant mobile medium amongst the BoP, this landscape is becoming more nuanced. With low-cost smartphones coming to market in India (there are a plethora of Android-enabled smartphones retailing for under $60), and a younger generation of mobile customers seeking access to data-related services like social media, a holistic and flexible approach to various mediums is essential.
Thirdly, when seeking to build a service around payments, cash remains king. Efficient payment-related services must develop innovative solutions to processing electronic transactions – cash or otherwise – in an environment where 90 percent of payments occur in cash. This involves designing an efficient user experience and user interface that does not place a burden on the parties involved (businesses and members).
Finally, think local. While ambitions of scale may push one towards thinking and thereby designing for a national product, amongst the BoP a local understanding is essential, as much commercial and social behavior occurs on a localized level. Additionally, certain groups, such as women, conduct much of their lives within their localities. While mobile technology promises national access, it cannot come at the expense of this understanding of local dynamics.
Gustaf Ericson is responsible for business development and data & analytics at m.Paani.