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EcoCashSave a disruptor to banks

THREE months ago I made a presentation to the senior management of a well-known brand in Zimbabwe (not Econet) on how disruptive innovation could possibly impact on their industry.

The Human Capital Telescope Brett Chulu

As part of the presentation, I picked EcoCash, among others, as a real life example of the operation of the disruptive innovation phenomena in a Zimbabwean setting.

In that presentation, I asked the audience to look beyond this year and watch as more and more innovations on the EcoCash platform are unleashed to disrupt banks.

Barely three months after that presentation, Econet has launched a game-changing product in the form of savings account, operated entirely from a mobile phone.

This article looks at what is called the sustaining innovation stage in the disruptive innovation model. Here is the main point; disruptive innovation is not an event. It is a process that begins with simple applications that appeal to the masses of undemanding customers, later progressing to add more functionality that appeal to the more moneyed segments of society.

That’s very useful information for any business leader whose business is attacked by a single disruptive event. What comes after the inaugural disruptive event, sustaining innovations that go after your most prized customers is the real bad news.

EcoCash’s disruptive progress
To assist those who are encountering the concept of disruptive innovation for the first time, a disruptive innovation is a product or service that enables masses who at one time denied access due to a product or service were being either too expensive or too complex to be used by the majority of people.

Thus a disruptive innovation either lowers the price point of a service/product and/or eliminates the complexity associated with accessing or using the product/service. How that is achieved is through reducing or eliminating unnecessary standards or functionalities such that only the most basic features of a product or service are made available.

However, as time progresses, the initial innovation incrementally adds functionalities while maintaining a low price point relative to existing products and services in its industry or adjacent industries. This stage is called the sustaining innovation stage.

With time, sustaining innovations meet the minimum expectations of more demanding customers from a functionality viewpoint. When these highly demanding potential customers see that their minimum functionality expectations are being met at a lower price point, they ditch their old service providers for the new product/service.

When this happens, in disruptive innovation language, we say the new product has disrupted the old product. The new product that does this is called a disruptor. An important pattern should be highlighted; a disruption first establishes itself in the masses before sweeping towards the smaller high spending segments using sustaining innovations.

EcoCash, from its very inception, had all the hallmarks of a disruptive innovation written all over it. Here is the history of EcoCash’s progress as a disruptor.

In 2011, EcoCash was launched with just only one functionality; the ability to allow sending and receiving of small amounts of money through a mobile phone. Sending and receiving money, prior to the entry of the then new-kid-on-the-block (EcoCash), was arguably the preserve of banks and bus drivers with banks catering for large amounts and bus drivers being small value courier.

Our interest in this discussion is centred on EcoCash and banks. High bank charges (including the ongoing cost of maintaining a bank account) and the complexity of the process of opening a bank account has seen less than 900 000 people operating a formal bank account in Zimbabwe.

Compared with the economically active population from the 12 million Zimbabweans, the banking scenario presents a classic case of the masses not accessing a service.

EcoCash, at its inception, addressed the pain points that had been denied millions of Zimbabweans from using the formal banking system for money transfers. EcoCash allowed small value transfers from a mobile phone without the need of going through complex account opening process and having to bear ongoing account maintenance fees. After-hours service and a wide EcoCash agent network combined to enhance convenience.

It comes as no surprise that in its first year of operation, EcoCash surpassed 1 million registered subscribers.

As would be expected, a disruptive innovator seeks to earn higher margins resident upmarket. It would have been very, very naïve for banking strategists to think EcoCash would end with mobile money transfers. In 2013, EcoCash added more functionality by introducing Dstv payments on the EcoCash platform.

Almost simultaneously, Econet announced that salary payments could be distributed through EcoCash via Paynet. The Paynet-Econet integration marked the beginning of a strategy that is always to be anticipated in disruptive innovation. Integrating separate service modules to improve a disruption’s capabilities to meet the performance expectations of customers upmarket is a well-known strategic move.

Those who have been following the EcoCash-banks debacle, would know that it is during this phase when EcoCash transitioned from being a modular or stand-alone service partially prompting that some banking executives to call for closer regulatory oversight of mobile money transfers.

This missed the point, in my opinion. The grander picture of EcoCash’s evolutionary strategy was missed. Econet had acquired a bank, TN Bank, now Steward Bank. Econet’s senior executives such as Douglas Mboweni were making clear statements that they wanted to introduce what they call more ‘use cases’.

For those who understand disruptive innovation, introducing more ‘use cases’ was an unambiguous signal that Econet would be looking to moving EcoCash into the sustaining innovation stage.

That could only mean EcoCash would be moving from modularity to integration. The purchase of a bank by Econet was more about advancing a disruptive innovation strategy to it next logical stage that of a pre-emptive strategy to be ready to address foreseeable regulatory requirements when EcoCash would make forays into the heart of actual banking.
Thus when Econet made an announcement that EcoCash could now be used as a savings account; it came as a no surprise at all, as we had anticipated this development, given that EcoCash is a disruptive innovation. The savings accounts are backed by Steward Bank, with the EcoCash platform providing the user interface. As would be expected, EcoCash extended its disruptive enablers to EcoCashSave by removing complexity to make it very easy to open a “savings account”. A person simply opts into the savings account opening account menu straight from a mobile phone. Econet have also low-balled banks by promising to give interest on savings for funds kept in the mobile savings account over a 30-day period.
It was long overdue. As the disruptive innovation model would predict, more disruptors to banks will be unleashed.

Reflect on it
Banking executives in Zimbabwe need to acquaint themselves with the disruptive innovation model to help them predict how disruptors will charge after their markets. The bad news is that EcoCash is the most visible disruptor to banks; there are other disruptors to contend with.
Chulu is a strategic HR consultant pioneering innovative HR practices in both listed and unlisted companies. — brettchulu@consultant.com

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