EcoCash exposes banks’ inflexibility

RECENT disclosure by a league of Zimbabwean bankers that close to 80% of banking clients earn less than US$800 a month suggests our bankers’ business mindset may be out of step with the needs of customers.

The Human Capital Telescope with Brett Chulu

This revelation surfaced in reaction to a quasi-decree by the Reserve Bank of Zimbabwe (RBZ) instructing bankers to slash both bank charges and interest rates.

Bankers went on to urge the apex bank to extend the diktat on bank charges to Mobile Money Transfer (MMT) services such as NetOne’s One Wallet and Econet’s EcoCash.

Bankers argued MMT services were banking services and thus excluding these from the apex bank’s edict would result in a lopsided playing field, tilted in favour of MMT operators.

At the heart of this business argument is a strategic Human Resources (HR) issue—organisational mindset. Organisational mindset is critical to the future of a business in that it determines how a business frames environmental changes into opportunities and threats.

Fatal mindset
With four fifths of Zimbabweans earning less than US$800, their disposable income must be little.

Under such a scenario, sound business strategy entails removing complexity from banking processes to simplify both service and cost structure. Ironically, banks are maintaining the legacy of glitz and glamour that could have appealed to yesteryear’s banking clientele who had a comparatively stronger financial wherewithal.

Banks have been innovative and continue to be so. However, the genre of innovation banks having been pursuing is one that is aimed at improving existing products, adding to operational complexity and cost. Marginal thinking, in which bankers aim to differentiate their banks by going a step further than their rivals, has sucked bankers into a cycle of add-ons which, when summed, may appeal to their few wealthy clients.

The result? -The majority of banking customers are being over-served and burdened with add-ons that exceed their primary banking needs. The result may be competitive parity but not competitive advantage.

In racing to maintain traditional banking ambience, bankers are overshooting the simple banking requirements the majority of their customers are yearning for. The loser in this race is the low-end customer, who has to fund part of this frenzied race to sameness.
Bankers’ competitive intelligence, like in many businesses, is often founded on a wrong premise; they define their competition wrongly.

By defining competition as being another bank, bankers choose a strategic lens that is ineffective. A better strategic lens focuses more on jobs-to-be-done for customers than on a rival’s marginal improvements on existing offerings. Jobs-to-be-done not being served by banks are their most potent competitors. Customers do not care if a non- banker is able to satisfy a job-to-be-done.

This is what is happening in our evolving Zimbabwean financial landscape; customers are hiring non-banking entities to do jobs traditional banks are failing to satisfy.

Out-of-industry innovators
One such job-to-be-done banks have been failing to address well is “someone needs money urgently, can you help me get it to them?”  Someone who needs this kind of job-to-be-done is prepared to pay. Traditional banks can do this job, but they first tie a customer to hire them for another job which he or she is not interested in. The problem with this approach is that the bank wants to be paid for an extra job in order to do the actual job the customer wants. It’s a no-brainer who customers will hire, given a choice between a service-provider who can do the primary job and those who force them to first contract for an avoidable service.
An MMT service such as EcoCash is able to do the job “someone needs money urgently, can you help me get it to them?” better than traditional means such as hiring a member of a bus crew or  someone with a bank account to get the money to a beneficiary.  What makes an MMT service like EcoCash appear like a threat to established banks is that it is, to a large extent, a disruptive innovation. A disruptive innovation, according to Clayton Christensen, the proponent of the model, enables people with less skill and wealth to access a service that was previously restricted to experts and the moneyed. Typically, the less skilled and less wealthy are to be found in two market segments. The first group occupies the low-end of an existing market while the second group consists of individuals who are not considered to be an incumbent’s market.
Accompanying marketing communications gave the impression EcoCash, when it was introduced, was targeted at those individuals not considered to be banking customers. In that regard, EcoCash would not be a direct threat to banks. In fact, Econet’s most senior executive in Zimbabwe, Douglas Mboweni, is on record insisting that EcoCash would not be a threat to banks as it would get money circulating informally into the mainstream financial system. Depicted this way, EcoCash would be complementor and not a competitor to banks. What was overlooked in this characterisation is that EcoCash’s value proposition would appeal to both non-banking customers and the incumbent banks’ low-end market. That should have been foreseen, given that 80% of banking customers earn less than US$800. It is the current banking business mindset that led bankers to perhaps underestimate the potential threat of EcoCash to banks’ transaction income streams. Instead of segmenting customers according to jobs-to-be-done, bankers segment according to demographics and wealth. Therein lies their strategic blunder. Savvy MMT operators segment customers according to jobs-to-be-done and thus their services are inherently positioned to attract the customers of traditional banks with low disposable incomes, and that is more than half the existing customers of banks.
The apex bank’s edict on lowering bank charges only served to bring to the surface the risk of transaction income loss that was already underway in a more dramatic fashion.  For some banks MMT operators are complementors. Organisational mindset explains the difference.

Reflect on it
In what ways is your bank over-serving you?
Chulu is a strategic HR consultant who has worked with both listed and unlisted companies. — brettchulu@consultant.com.

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