In this week’s episode, we explore the evolution of mobile money. While the dichotomy of digital financial services is typically between telco-led and bank-led services, we explore this evolution from an alternative perspective - mobile money 1.0 as a SIM-led service versus mobile money 2.0 as a device-led service. As M-Pesa and other telco-led services move to an over-the-top model - in which using their service is no longer tied to what network the user is on - a service like PalmPay, which comes pre-installed on all Tecno, Infinix and Itel devices (and which represent over 50% of the devices used on the continent), is going further along the device-led path.

PalmPay, through its strategic partnership with Transsion, the fintech’s lead investor, is actively working to integrate even deeper into the device, beyond pre-installs. As Sofia Zab shared,

We’re working with Transsion to bake PalmPay into the core user experience of every Tecno, Infinix, and Itel handset. So you could say that we’re working towards powering an Apple Pay-like experience for them. We’re also working on ideas like integrating into the keyboard and then also building the PalmPay QR reader into the camera.

While PalmPay and Sofia believe their success is contingent upon much more than these integrations - they are also building out and leveraging an extensive agent network, are focused on broadening the use cases for PalmPay, and are taking an open platform approach to the ecosystem - their device integrations has me thinking about the power of defaults. 

To be sure, defaults are powerful... and valuable. In 2018, Google paid Apple $9 billion to make Google the default search engine on the iPhone. Experts say that number could now be north of $12 billion. And amidst high stakes squabbles between Apple and its developers (namely Epic Games and Basecamp, the company behind the email client Hey) over Apple’s App Store commissions, the implications of such advantageous positions can also have negative implications for the out-group. 

Timothy Asiimwe, a software engineer at the Tanzanian fintech NALA, wrote of their experience in The Bifurcation of Android. For NALA, in particular, their users are subject to a poor user experience due to device defaults that are intended to improve battery life and optimize device performance. 

At NALA, we’ve had first-hand experience of the frustrations caused by such OEM modifications. The number 1 complaint we hear from some of our users is that the app keeps asking them to grant it the accessibility permission.

In order to interact with USSD on behalf of the user, NALA requires permission to run an accessibility service and this is typically requested the first time a user installs the app. However, on some devices (some models of Tecno, Itel, Infinix, Huawei, and Xiaomi), this permission is revoked whenever a user closes the app.

When we dug deeper to understand this behaviour, we were stunned to find out why: on some devices, when a user swipes an app away from the recent apps list, the app is force-stopped instead of just killing the app process.

Whereas there’s no difference, in the eyes of the user, between the two states, the OS handles them very differently. “Force stop” does not only kill the processes of the app but also moves it into the stopped state, where nothing in the app will run again until a user manually starts the app again.

In practice, this means that such an app won’t be able to run any background processing or receive push notifications. Moreover, for security reasons, Android disables all accessibility services for an app that is force-stopped.

This effectively means that NALA users on such devices are asked to grant the app the accessibility permission every time they open the app. As you might imagine, this drives many of our users nuts and some never use the app again.

Let’s explore the power of defaults in further detail.

The default effect

In behavioral economics, there is a concept called “nudging” - design-related mechanisms to influence behavior and/or decisionmaking. The default effect one such mechanism to nudge users into a select and desired decision. 

An example of the default effect at play is opt-in/out scenarios, where whichever option is set as the default generally has a greater outcome. This can apply to something as simple as lead generation, to healthier food options at Disney restaurants, to enrollment in savings plans, to organ donation. 

Often (and particularly in tech) defaults are set by developers or manufacturers with the user’s best interests in mind and with the aim to reduce cognitive load. And it’s precisely the reduction of cognitive effort for users that makes defaults so powerful. 

If an agent is indifferent or conflicted between options, it may involve too much cognitive effort to base a choice on explicit evaluations. In that case, he or she might disregard the evaluations and choose according to the default heuristic instead.

Further, perhaps the switching costs are too high, particularly if users initially start with the default options. This is particularly acute in scenarios where products have baked in network effects that make switching costs even higher as utilization increases, as well. 

Defaults and the implications for mobile financial services

Does our understanding of the power of defaults give us an appropriate expectation for the success, over time, of a fintech like PalmPay? 

On one hand, PalmPay’s distribution advantage may be hard to compete with, particularly in targeting non-consumers who do not yet use digital financial services. On the other hand, perhaps due precisely to high switching costs may the battle over existing consumers be hard-fought. It is, of course, for this very reason that PalmPay is focused on building a product with advantages - beyond distribution and device integration -  that can be utilized widely, which broadly incentivizes users, and that is reliable.

We can see how this has played out in the telco-led mobile money space thus far. In this week’s episode, Chris Williamson, the Head of M-Pesa for Vodacom Group, spoke of M-Pesa’s endeavor to move further towards an open and interoperable platform. Though where there is interoperability, old habits die hard, 

In Tanzania, we launched, four years ago. interoperability with the other mobile money player... we’ve only seen like only about 10% of our P2Ps are going off-net and it’s similar for the other players. And that’s because a lot of people before that were using multiple SIMs.

Chris went on to say,

People need to focus, not just on interoperability, but on actually what value do merchants and consumers get from going digital.

In both the telco-led and device-led scenarios, the opportunity then becomes creating value for merchants. Who is going to give merchants the best reasons to not use cash? Who is going to further enable access to credit and other financial services? And in these chicken and egg scenarios, how will the power of defaults help these companies achieve these aims?

Or, although payments companies benefit greatly from network effects, in targeting non-consumption - and as various players take an open, interoperable, and platform approach - perhaps the solutions to these questions may not be zero-sum at all.

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