Subscribe

Freemium model priceless in Africa

Many people are excluded from operating in the financial mainstream simply because they do not understand the services they can engage with.

Nnamdi Oranye
By Nnamdi Oranye, Telecommunications, financial and technology consultant.
Johannesburg, 27 Aug 2014

People who are outside of the network of financial inclusion are limited in their ability to buy and pay for items using all the banking enablers of the modern world. But, their exclusion doesn't stop at commercial capability and efficiency; those who are financially excluded are also held back by their lack of access to forward-thinking financial services like investments and insurance.

There are many reasons for this, and the fact that money is in short supply is only the beginning. The other reasons the financially excluded don't buy products that will improve their lives in the long term, is they do not have access to easily do so, and they do not have historical understanding of the ways in which they would benefit.

In the case of financial services, familiarity doesn't breed contempt; it brings comfort and confidence. So how then to introduce these products to an unsophisticated audience that doesn't believe they have a need for them, simply because they have never used them and benefited from them before? The solution is simple: take a service they already use and are comfortable with, and bundle a more advanced service with it, for free.

Ghana shows the way

This is a concept known as providing a "freemium", and has enjoyed exceptional success in building the insurance market in Ghana. Burials in Ghana, as in most countries in Africa, tend to be large and expensive. While burying a loved one properly can be expensive, few families are able to make financial plans for this, and rely on the support of their communities to cover the costs.

Tigo, a Ghanaian network operator, took a chance on the freemium concept. It offered free Tigo Family Care insurance for every voice customer who met a threshold of airtime use each month - and gave them the opportunity to double their cover for a fee of US$0.68 per month. Even better, the cover increased each time more airtime was purchased, which meant during peak travel times - when the highest call volumes were reached - the highest life cover was also achieved by customers.

All that's necessary to make this happen is an application programme interface (API) to connect the network operator's system to the insurance underwriter's system. The network operator will already have the customers' details and access to their finances, and as they opt in to the product, the API will transmit the information back to the underwriter.

The opt-in takes place on the USSD screen that pops up when the customer purchases airtime, and a "yes" response automatically triggers the 30-day cover. In Tigo's case, this API solution was provided by a company called MicroEnsure, which is making inroads into the micro insurance market all over Africa.

This model introduces users to the product so they become familiar with the process and the benefits, and will ultimately start paying premiums themselves. For a solution that's relatively easy to implement, the service provider and the insurance company get a massive return in terms of people entering into the financial services market.

Freemium provides the incentive by piggybacking off stuff that people are already doing and delivering additional benefits.

Tigo Family Care generates no direct income for Tigo, but it reduces churn and increases airtime purchases, as well as creating a potential future market for the insurance product. Tigo's bold move paid off. A year after launch, 55% of Tigo's 489 000 insurance subscribers had signed up to the paying plan and the share is on the increase. The freemium concept created a new market for Tigo.

Applying the model elsewhere

This is a simple - but applicable and compelling - instance of a broader concept that's being used the world over to drive adoption. Any service that is provided for free, but requires a fee to upgrade to the full version, is leveraging freemium principles. So Dropbox, Gmail or Skype are all success stories of creating a market by providing a free service, educating users about the benefits, and then charging them for better or more advanced services.

But, when the notion is turned to financial inclusion, it becomes especially powerful. It solves the problem of why so many mobile money projects fail - the technology is built, but no one wants to use it. There's no real incentive. Freemium provides the incentive by piggybacking off stuff that people are already doing and delivering additional benefits.

This could be achieved in SA, for instance, by linking a monthly eWallet payment to a domestic worker to insurance coverage, when she withdraws her salary from an ATM. This would have the double impact of introducing her to the benefits of eWallet while simultaneously gaining her insurance coverage.

The unlikely alliance between airtime and insurance in Ghana teaches a lesson to the financial products community in Africa: opportunity comes through innovation and forward-thinking. This model can be replicated across the continent and financial services markets. All that has to be considered are the trusted services to be leveraged.

Share