Zambia’s digital transformation will fail without all customers being king

After over a decade of mobile money, customer literacy of digital finance products and services remains low. Are DFS market players failing customers?

Abigail is 24 years old and living in Chainda, Lusaka with her parents. She does odd jobs for her income and supports the family by contributing to some of the bills, including electricity. While she uses mobile money to top up her phone credit, Abigail is reluctant to pay for electricity using her phone as she fears she may be overcharged or she may make a mistake and misdirect money. “Agents charge K5 (US$0.4) to buy electricity. If there are no extra costs, I’d prefer to pay with my mobile money.”

Grace is a widow and vegetable vendor. She has a smartphone but uses cash to pay for her water and electricity because she doesn’t know how to make mobile money payments.

These are just two examples of customers who are unaware that they can pay utilities using mobile money or do not trust this payment modality. Why is this? Especially in a country with a relatively high mobile phone penetration of 83 percent?

Owning a device does not equal using services available

Most utility providers in Zambia have adopted digital channels to receive payments, however customers’ usage of these channels remains a challenge. This can be attributed to customers’ low overall literacy levels, customers not having the technical skill to use a digital method, or not knowing the benefits of the digital payment channels. According to the Bank of Zambia FinScope 2020 Zambia Survey report, only 23.6 percent of the adult population is financially literate, and merely 16.2 percent of adult females and 21.4 percent of adults in rural areas are financially literate. These low levels of financial literacy have resulted in the low uptake of formal financial services by the adult population.

The 2021 FinDex Report indicated that 24 percent of adults aged 15 years and above owned a financial institution account, which includes mobile money accounts, and of these people, 10 percent use mobile money or an online service to make payments and purchases.

In the State of the Digital Financial Services (DFS) Market 2018 Report, customer dormancy was reported to be 70 percent, indicating low usage of existing mobile money accounts. Customer dormancy was attributed to several factors including low literacy of the target populations and low product awareness.

These data indicate low usage of DFS accounts among customers in Zambia. It can be argued that customer education levels are too low to allow the uptake of a wide variety of digital finance products in Zambia, especially among low-income users. Despite widespread efforts on the availability of digital financial services, mobile network operators (MNOs) and other providers have yet to adequately educate users on products and use cases and thus increase uptake of services (and consequently collections for utilities, for example), increase product awareness and build trust in digital financial services. Excluding this demographic from critical services will mean they remain excluded from additional digital products and services and the wider digital economy that is growing in Zambia.

But usage slowly picking up

The past three years, however, has seen an increase in the use of digital financial services, which was bolstered during the COVID-19 pandemic when incentives such as the zero rate of mobile money transfer for specific amounts were introduced by mobile network operators.

According to the FinScope 2020, mobile money uptake increased in 2020 to 58.4 percent, up from 14 percent in 2015. However, those who used these services were most likely to be urban-based, female, aged 16 – 35 years, had attained between grade 10 to 12 level of education, were salaried workers or dependants of salaried workers and were from households in the lower-to-higher incomes ranging from a mean of ZMW826 (US$52) to ZMW2879 (US$180) per month.

Last-mile customers are not prioritized

A scoping visit by a UNCDF team to three peri-urban neighborhoods in three provinces (Lusaka, Central, and Copperbelt) reinforced that those who use mobile money services are not peri-urban, low-income users, with lower-level education. Respondents in the focus-group discussions and key-informant interviews, who were majority youth, women and low-income Zambians, did not have knowledge of all digital payment methods for their utilities and a small number of them did not use mobile money at all.

Customers interviewed indicated that they would use the digital services if they knew about them and if they knew how to make the digital payment. Addressing these two needs would increase awareness and improve literacy at this customer level.

Typically, MNOs conduct extensive training of agents and merchants at on-boarding and product-awareness activities are conducted continually on-ground to drive usage. MNOs also conduct awareness drives for new products being introduced on the market and various payment methods that the companies offer.

According to John Mutobo, the Digital Channels Manager at FINCA Zambia, “The most important reasons for training the agent and customers is that the training helps them make correct decisions regarding financial matters. Further, most of the customers and agents in rural areas have a low savings culture, therefore, these trainings help them change their savings behavior and build more assets. Additionally, training the agents on financial literacy help them to ably handle financial matters on behalf of the bank and help transfer the knowledge to the customers because they are directly in contact with the target market than the bank.”

Agents are a critical touch-point for customers and play a key role in customer education alongside the public and digital financial service providers, but they may not be the most effective channel. Customer education takes time – time required to serve other customers; educating customers to perform transactions independently will eventually result in a loss of their overall commission, as customers will not cash out but, transfer the money from their wallet directly to the provider. Therefore, agents might not be incentivized enough to educate customers. The market needs to find a way of alleviating this loss for agents so they can continue serving subscribers to maintain the usage and demand of digital services.

Many business models focus on agents and merchants, rather than subscribers, especially those from low-income groups, as that is how the distribution of digital financial services is built — on an agent network. If we really want Abigail and Grace to start using their mobile money wallet for payments, providers can direct more effort to educate customers, show customers how to execute transactions, and help them gain trust in the payment platform.

Bridging the gaps

Alongside the private sector in Zambia, the Ministry of Finance is implementing the National Financial Education Strategy 2019 – 2024 on personal finance education through the school curriculum, entrepreneurship programmes and the private sector. However, this strategy does not address the digital component, which has become more prominent in recent years.

Training in digital financial literacy is key to bridging these knowledge gaps. Many stakeholders acknowledge this and have made efforts to bridge the financial literacy and digital literacy gaps. Financial Sector Deepening Zambia (FSDZ) recently re-launched a DFS radio drama called Bank Yako Yako to scale up financial education for DFS through radio in all of Zambia’s ten provinces. Further, the partnership between UN Capital Development Fund (UNCDF) and Viamo aims to do — to provide awareness and training in digital financial literacy for 30,000 women and youth via Interactive Voice Response (IVR) and a WhatsApp chatbot for those who have smartphones. Customers that better understand the availability and usage of services can nudge low-income customers to transact and participate in the digital economy.

The UNCDF and Viamo partnership will address this information and training gap by using mobile-based and in-person trainings. Currently, 75 percent of the population in Zambia have mobile subscription — higher than radio or television ownership, which stand at 57 and 37 percent respectively, according to Zambia Information and Communication Authority (ZICTA). Viamo will leverage a combination of interactive voice response (IVR), WhatsApp channels, and in-person training solutions for customers and staff of utility services.

There are other such interventions on the market and they must be sustained or taken up by mobile money providers to ensure low-income customers are not excluded.

Jointly prioritize customer education

Owning a mobile money account does not necessarily mean the subscriber will use it, however, with better knowledge of what one can do with the account, its use is likely to increase. As the number of digitally-literate people grows, more users will have the confidence and ability to transact on digital platforms – beyond bill payments. These users will be brought into the growing digital economy that is transforming the country. Zambia has made significant strides on its path to digital transformation over the past few years. Progress is particularly evident in digital infrastructure, digital financial services, and digital platforms, while more significant gaps remain in digital skills and digital entrepreneurship. Addressing these gaps, especially the inclusion of last-mile customers, remains a key priority for UNCDF in pursuit of achieving the SDGs. Despite individual efforts from various industry stakeholders, more coordinated and rigorous efforts are needed to boost customer awareness and literacy of digital financial products.