Driving Social Inclusion - Daniel Levites, Principal at Ernst & Young
Driving Social Inclusion: Innovative Solutions for the Underserved at SC Johnson Graduate School
On April 24th, The Emerging Markets Institute and the Cornell Latin America Student Society organized a discussion panel with the theme Driving Social Inclusion: Innovative Solutions for the Underserved at SC Johnson Graduate School. This event displayed some key projects and products that are engaging both BoP communities abroad and low-income communities domestically. Daniel Levites, a Principal from Ernst Young in Brazil, discussed his project designing mobile cash transfer programs for the poor in Brazil.
Daniel Levites is specialized in retail banking and payments, with more than 20 years of experience in multinational and world-class banks and 10 years in consultancy. Among several topics discussed in the panel, Daniel Levites shared some key-experiences and facts about a cash transfer program based on digital platforms:
· MOTIVATION - Financial inclusion is a hot topic in Brazil – not only for the financial system, but also for the government since it has brought workers to join the formal economy and increased tax collection significantly.
· MARKET SIZE - Currently there are 47 million (out of 130) Brazilian workers without a banking account. The strong use of cash is rooted in tax evasion practices, high volume of small transitions, government’s failure to empower citizens and resistant consumer behavior (low-income workers perceive bank account and credit cards as a “luxury service”). The cost of unnecessary small transactions accounts approximately for 0.5% to 1.5% of Brazil’s GDP
· TELECOM INDUSTRY - The most part of these workers, however, possesses cellphones lines, fundamental in establishing a successful mobile payment system. Brazil has 247 million active SIM cards from which 82% are pre-paid lines and 56% of these belong to consumers without a bank account. The presence of four large mobile service providers (Telefónica, Claro, Portugal Telecom and Telecom Italia) also makes the telecommunications industry in Brazil very competitive - a business landscape that has favored the development of robust wireless networks in large metropolitan areas.
· IMPLEMENTATION - It is very complex to implement cash transfer products that use mobile platforms, especially because different organizations must orchestrate several interconnected processes. The coordination involves, for instance, cellphone carriers, banks, government entities, payment companies, mobile platform developers and credit card companies. More than just working together, these organizations must combine capabilities and then launch a product that can leverage everything that they have done so far.
· FUNCTIONALITY - Despite the complexity that permeates this operation, the functionality of the product is relatively simple for the end user. With the card or a cellphone, the client can make payments, recharge pre-paid cellphones, make B2B transactions and have access to individual customer care. The product is designed not only for individuals, but also for very small merchants. To reach these consumers, bank branches and wireless retail stores work as the main sales and recharge channels for this product.
· BENCHMARK - Similar products exist in the United States, but in different formats. For example, American express offers in a product called BlueBird that does not request credit review from the customer and provides similar benefits. The implementation of the cash transfer program in Brazil, however, was not based in any specific model from a different country.
· SUSTAINABILITY OF INVESTMENTS - One of the main challenges of this project was to generate of short-term results, typically required in emerging markets to assure ongoing investments. Similar initiatives have failed over the past 10 years in other countries in Latin America because of the discontinuation of investments, instrumental in measuring effective success of the programs.
· PRIORITIZATION - In order to obtain short-term returns, all the companies involved in the program defined a commercial strategy based on a very extensive database and detailed metrics. Target regions were prioritized based on: concentration of families with lower income levels, cellphone coverage, distribution channel reach and demographic density per city. Starting the program with the most potential clusters was also
· CONSUMER BEHAVIOR - Although the go-to-market strategy was clearly defined, convincing low-income workers and merchants to use this product was not an easy task. The sales force in bank branches and wireless retail stores worked hard to “educate” this consumer. Arguing that the card was an accessible product was accessible, safer and easier payment method was the main challenge of the sales force.
· GOVERNMENT - It was also important to convince the government about the benefits of this project. If the government brings more people to the formal economy, tax collection increases, tax evasion decreases and money laundry become a less frequent practice. Having the right discussions with the government was important to prevent bureaucracy and more taxes from being obstacles.
· SOCIAL - It was also important to explain to government entities how this product could reduce social tension. There is an opportunity, for instance, to bring Bolsa Familia to be credited in this card. (Bolsa Familia is a social welfare program that assures a minimal wage to the poorest families in Brazil). This initiative would be an additional marketing strategy to convince low-income consumers that they can have access to this product.
· TAXATION - As next steps, banks and cards associations are now negotiating with the central bank new models that would allow less taxation on this product, but assuring a higher absolute amount of taxes collected.
· CREDIT OFFER - Credit offer will potentially be a next step of this project, although credit is not the primary objective of the program. More educational policies about personal finance are necessary prior to offering credit lines, since recent credit offers in Latin America failed precisely because consumers did not know how to manage it.