Features

XXI.2 March + April 2014
Page: 48
Digital Citation

Simplifying payments in emerging markets


Authors:
Lucia Terrenghi, Benedict Davies, Ethan Eismann

Cash-based economies present systemic problems for emerging market nations wishing to advance the levels of prosperity and opportunity for their citizens. These problems range from a lack of regulation and accountability (making it easy for corruption to flourish) to the cost of securely manufacturing, storing, transporting, and exchanging money. In addition, cash reliance in emerging markets is exacerbated by the challenges facing citizens wishing to open bank accounts. The World Bank [1] estimates there are 2.5 billion people without a bank account, over half of which are living in developing countries. This statistic is attributed to factors including poor electrical and communication infrastructure, which has hampered the establishment of reliable payment networks; geographical constraints, specifically the number of people who are widely distributed across large rural areas; and generally low or fluctuating income levels, which make people less attractive customers to financial institutions.

While the aforementioned factors have hindered the transition away from a cash-based economy, the phenomenal growth in mobile device usage, coupled with the development of Internet and mobile network infrastructure, has generated significant opportunity for innovative e-payment solutions. Although relatively recent arrivals on the financial scene, peer-to-peer (P2P) mobile payment services like M-Pesa [2] have proven successful by reducing the costs and risks associated with physically delivering funds. The fact that such forms of payment do not require a bank account, the ownership of expensive devices, high levels of literacy and technical understanding, and a fixed location and power supply unlock new potential for financial inclusion and—potentially—for economic growth.

Insights

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Within this context, our work aims at developing technology to simplify payments in emerging markets, lowering access barriers to financial information and services, and facilitating their transition to cashless economies.

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Here, we report on our work on BebaPay, a payment solution developed by Google currently used in Kenya to pay for public transportation and in the Philippines to pay on university campuses. Building on our experience and insights, we derive design principles for mobile payments in emerging markets and discuss the potential impact of innovation in this area on financial inclusion and economic growth.

User Needs for Payment Systems

Related literature has modeled the requirements for adoption of mobile payments in theoretical frameworks (e.g., [3,4]) to guide design. Other work has taken a more ethnographic standpoint, observing how people in developing countries handle money, payments, and banking in various contexts to derive design lessons [5,6]. Medhi et al., in particular, highlight variances in the adoption and usage of mobile banking services by individuals with low levels of literacy and income in different countries and suggest possible explanations for this [6].

Similarly to that approach, the User Experience team at Google researched business and consumer attitudes toward payments in countries including Brazil, Mexico, Peru, Kenya, and the Philippines. Our research utilized focus groups and detailed interviews with individuals in urban areas to gain insight into participant behaviors and needs, and to solicit feedback and get validation on our design direction. In particular, we have focused on exploring micropayments, such as for food and transportation, which constitute the majority of people’s daily transactions. In addition to recognizing many of the variations identified by Medhi et al., throughout our research we have observed a set of consistent foundational patterns:

Convenience, control, and safety as motivations to adopt a form of payment. In our research we asked businesses and consumers about their reasons for adopting one form of payment over another. Convenience, control, and safety emerged as the main motivations for both groups.

For businesses, convenience means accelerating transactions in order to complete more purchases—for example, executing transactions that are for the exact purchase price to avoid having to give change, or in the case of SMS-based systems like M-Pesa [2], avoiding network latency issues or credit card processing.

For consumers, convenience means being able to reduce the time and overhead involved in making a purchase. This could include factors such as spending less time in lines or avoiding the inconvenience of having to carry large amounts of low-value coins and notes.

For a business, control means having visibility of earnings, fees, and expenses. Businesses in emerging markets heavily rely on analog, manual accounting. Accordingly, business owners are concerned that all sales are reported diligently and accurately. Consumers, on the other hand, are concerned with keeping track of their expenses and how much money they have at their disposal.

For both groups, safety means feeling confident when carrying and handling money. Less critical, but still strong, are concerns about fraud and scams that are more frequent (or at least perceived as such) with cashless forms of payments such as credit cards and mobile payments.

Physical touch for reassurance. Cash-based economies rely on paper: paper notes, reports, handwritten inventories, and bills. This results in large volumes of paper that need to be archived and maintained for recordkeeping purposes. Switching from paper-based records of transactions to automated, digital ones is both appealing and a cause for concern. While the labor- and time-saving benefits are clear, such a switch creates issues around the long-term storage and retrieval of information.

Simplicity for real inclusion. When presenting research participants with scenarios for novel forms of payment in emerging markets, mention was often made of the importance of education when introducing new technologies. While this is no doubt also true for mature markets, technical competency and literacy are lower in emerging markets.

Pattern visualization. The ability to view and analyze historical transactions is widely perceived as valuable by both businesses and customers. While paper can be used to keep track of incoming and outgoing payments, it is not an effective tool for visualizing patterns.

Mobile payments to keep connected. People in urban areas or who are living abroad often send money to their extended families as a way to keep connected and contribute to costs associated with education and major illness. These payments can result in significant fees to execute the transaction and dispense the cash (a good overview of the different mechanics is presented by Kumar et al. [3]). The possibility of reducing those costs through mobile payment is highly valued.

Bebapay: A Mobile Payment System

Building on the aforementioned set of foundational patterns, Google has developed BebaPay, an electronic money service for emerging markets. The first deployment of BebaPay is in Nairobi, Kenya, where bus passengers are using it to pay their fares, and in Manila, Philippines, where students and staff are using it to pay at cafeterias and bookshops on campus.

BebaPay users create an account to which they can add funds at banks via tellers or using mobile money services such as M-Pesa. The current balance in their account can be spent using a BebaPay payment card equipped with near field communication (NFC) technology.

BebaPay merchants allow their customers to pay for goods and services by tapping their card on a device using the Android mobile operating system that is also NFC-enabled (the cheapest currently cost approximately $100 in Kenya). An app on the device deducts the charged amount from the total stored on the card and communicates the new balance to the user’s BebaPay account.

Each transaction triggers an SMS notification to the card owner, which details the payment and the user’s updated account balance. A full purchase history, including time and location of transactions, is available to the user through their BebaPay account. Similarly, merchants can keep track of the transactions that have been completed with each Android device, making the accurate and transparent tracking of sales easily accomplished.

BebaPay works even when the merchant’s device is not connected to the Internet, as the transactions are stored locally on both the payment card and device. When the device has Internet access, the local records are synchronized and the relevant account balances are updated.

The BebaPay system consists of three main interfaces: the BebaPay app on Android NFC devices used by cashiers to accept payments; the merchant website, used to track sales and device utilization; and the BebaPay website, used by consumers to monitor purchase history.

Design Principles for Mobile Payments

The lessons from the development of BebaPay can be distilled into the following overarching design principles:

Predicate new mental models on those that already exist. When designing for new cashless forms of payments, there are significant opportunities to promote the formation of mental models based on behaviors and routines that are already familiar to users.

Bus drivers in Nairobi normally separate different denominations of cash between fingers to make giving change easier, relying on muscle memory. Building on that observation, we designed the BebaPay app so that fixed amounts can be charged with a single tap. Similarly, while the use of a plastic card is new for many in emerging markets, the physical handover of a token that represents value, like a ticket or money, is something people are familiar with. With BebaPay the only difference is that the card remains the property of the passenger and merely needs to make contact with the driver’s phone to deliver the payment.

Embrace and augment physicality. Payment solutions that remove the physicality and instant exchange of value and goods (typical of cash and paper receipts) need to find new ways in which they can reinforce confidence between the merchant and the purchaser. At the outset, merchants are likely to accept cash in tandem with other forms of payments. Designers need to provide solutions that reconcile payments across multiple transaction channels during this transition period.

With BebaPay, we realized the automated sales reports to merchants would require more information about transactions to facilitate this functionality. Similarly, the ability to easily track and visualize sales patterns creates clear opportunities for businesses in terms of control, transparency, and planning.

Further, the BebaPay consumers we interviewed reacted positively to the ability to track the location and value of transactions and clearly appreciated the benefit of this over cash.

Design for a diverse community of stakeholders. A payment system encompasses a diversity of stakeholders who have different roles and goals and who access the system via different interfaces and devices. With BebaPay, the app running on Android devices is used by cashiers to accept payments; the business website is used by transportation companies and university merchants to track their sales; and the BebaPay consumer site is used by cardholders to review their transactions. When designing a payments system, we should consider what device those in different roles are most likely to use given their particular context and constraints. Stakeholders have different (and at times conflicting) goals, but for a payment system to function and be successful, it needs to sufficiently address them. The cost and affordability of hardware, the availability and need for connectivity, the location of usage, and the degree of privacy required are all factors that will influence device choices. A further challenge in emerging markets is that the level of technical understanding and literacy among users can be extremely broad.

Designers need to ensure that the overall user experience is coherent, usable by a diverse community of stakeholders across different interfaces, affordable, and relevant to the social and physical context in which the system is used.

It was with this in mind that we designed the combination of a card (which can be distributed for free) and the requirement for nothing more complex than a basic SMS-enabled phone to register for the service and receive receipts. For businesses, our assumption is that the value provided by the system will justify the acquisition of an Android device, especially given that it can also be used for other purposes of value to the business.

Put trust and privacy control at the center of the experience. Providing a reliable and easy mechanism for people to monitor their outgoing expenditure has tremendous value for those on low or fluctuating incomes. Relatively simple mechanisms such as sending receipts for purchases via SMS or providing a Web interface that shows where and when a purchase was made make this a practical reality. In addition, not having to carry and handle cash in public allows people—especially more vulnerable groups, such as the young, the elderly, or women—to feel more secure.

Designers working on mobile payments have an opportunity to foster a sense of trust in the product by incorporating adequate levels of permission control within it. For example, on BebaPay, business owners can decide which staff members have access to sales reports.


When designing a payments system, we should consider what device those in different roles are most likely to use given their particular context and constraints.


Appreciate the importance of speed and latency. Both the seller and the purchaser wish to see the transaction occur as quickly as possible. Any unnecessary or unexpected lag in the mobile purchase journey risks a range of repercussions, from frustration and inconvenience to the potential loss of revenue.

While infrastructure conditions in many emerging markets make variable service levels of power and connectivity inevitable, there are still opportunities for designers to mitigate the impact of these in the overall experience, for example, by including a degree of offline processing and a background synchronization capability.

In the design of BebaPay, the card can store information. This means that, for example, a person can make a purchase using their card from a merchant who does not currently have connectivity and the updated balance will be stored on the card. Although they will not receive the SMS receipt for the purchase or be able to see a record of the transaction online until the merchant has uploaded the transaction details, they are free to continue to use the card at another point of sale, as the card itself carries the updated balance.

Discussion

Here we have presented our insights on user requirements for the adoption of mobile payments in emerging markets, contributing both the business and consumer perspectives. Building on those, we have described the design of the BebaPay product and suggested design implications that can inform the design of future systems.

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We believe there is a high potential for designing novel mobile payment experiences in emerging markets that create value by cutting costs, increasing accuracy and transparency, and improving budgeting. There are undoubtedly some very specific constraints that need to be acknowledged and overcome, but there are also some significant design opportunities brought about by the rapid growth of mobile technology in these regions. In order to create sustainable and impactful products, designers and stakeholders need to carefully assess how the mobile payment system they are offering fits the specific context and understand the value it provides to people.

Recently there have been interesting developments around the convergence of social networks, payments, and P2P solutions in mature markets. Google, for example, has recently launched a “Send money by Gmail” feature. Such systems aim to harness the power of social relationships and empower financial exchanges by treating money as a facet of communication, something that can be exchanged as readily as a comment on the weather or an update on the progress of a child. We believe that there are even greater opportunities in emerging markets for introducing such cashless P2P transactions that can be more efficiently, cost-effectively, and accurately exchanged, secured, and monitored. This, we hope, will improve people’s access to financial information and services, and eventually foster financial inclusion and economic growth for all.

References

1. Demirguc-Kunt, A. and Klapper, L. Measuring Financial Inclusion The Global Findex Database. Policy Research Working Paper. The World Bank Development Research Group Finance and Private Sector Development Team. April 2012; http://wwwwds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2012/04/19/000158349_20120419083611/Rendered/PDF/WPS6025.pdf

2. Hughes, N. and Lonie, S. MPESA: Mobile money for the “unbanked” turning cellphones into 24-Hour tellers in Kenya. In Innovations: Technology, Governance, Globalization 2 (12). MIT Press, 2007, 63–81.

3. Balan, R., Ramasubbu, N., Prakobphol, K., Christin, N., and Hong, J. MFerio: The design and evaluation of a peer-to-peer mobile payment system. Proc. MobiSys ‘09. 2009, 291–304.

4. Chen, L. A model of consumer acceptance of mobile payment. Int. J. Mobile Communications 6, 1 (2008), 33–52.

5. Kumar, D., Martin, D., and O’Neill, J. The times they are a-changin’: Mobile payments in India. Proc. of CHI ‘11. ACM, 2011, 1413–1422.

6. Medhi, I. Ratan, A., and Toyama, K. Mobile-banking adoption and usage by low-literate, low-income users in the developing world. Proc. of IDGD 2009. Springer, 2009, 485–494.

Authors

Lucia Terrenghi is a designer working at Google on mobile payments for emerging markets. Prior to Google she worked at Vodafone R&D investigating interaction techniques for multi-display environments. She holds a Ph.D. in human-computer interaction from the University of Munich. luciat@google.com

Benedict Davies is a designer working at Google on emerging market products. Prior to Google he worked at Samsung designing interfaces for mobile and wireless devices and at Hutchison 3G on the design of services and handsets for the launch of the U.K.‘s first 3G network. bendavies@google.com

Ethan Eismann is a designer at Google managing the user experience for commerce products, including payments, offers, and shopping. Prior to Google he worked at Adobe managing the design of tools and applications for designers. esimann@google.com

Copyright held by Google, Inc.

The Digital Library is published by the Association for Computing Machinery. Copyright © 2014 ACM, Inc.

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