Total Telecom met with Luciano Ramos, group CTO for Cable and Wireless, and Steve Polsky, founder and CEO of financial access firm Juvo, to discuss how the provision of small scale credit is revolutionising the way telcos do business throughout the Caribbean and Latin America

All across the developing world, telcos are facing the same quandary: how do you reduce churn and cultivate brand loyalty in markets with very low Average Return Per User (ARPU)?

By some estimates, 77 per cent of global mobile phone users do so on a pre-paid basis. While pre-paid margins are significantly healthier than post-paid rates, both in terms of per minute voice call charges and per Mb data consumption, the relationship between customer and operator is fleeting, with customers being able to switch with consummate ease between pay as you go providers. 

Nowhere is this problem more evident than in the Caribbean, where extremely low ARPU and low brand loyalty are creating a real headache for operators. 

"For us – 95% of our customer base is pre-paid. We operate across the whole of the Caribbean and Central America. It’s all related to the local economy of the region and how people spend their money," said Luciano Ramos, group CTO at Cable and Wireless Communications. 

"A good example is Jamaica – extremely low average income per capita, GDP is very small, and people get paid on a weekly basis. Sometimes people will be getting paid more than once a week. People make their financial decisions on that basis – when they get paid $5, for example, for a one-off job, they decide at that point ‘should I spend one or two dollars on my phone?’. That’s why this culture of pre-pay exists in this part of the world – because it gives people the ability to consume as they have the ability to pay for it." 

The question for telcos operating in this region, is how do they develop a meaningful relationship with the customer that encourages brand fidelity and allows them to gradually edge up their ARPU?  


Finding the next billion credit worthy customers 

In order to cultivate profitable relationships with their pre-paid customers, telcos need to be able to create credit profiles for them. 

Operators are now starting to work with companies like Juvo, to begin building those credit relationships with their customers. In the Caribbean and Latin America, Juvo is partnering with Cable and Wireless to deliver the FlowLend facility – a small credit facility for pre-paid mobile phone customers, initially loaning as little as $1 or $2 of mobile phone credit over a 24-48 hour period. 

"We help to change an anonymous SIM relationship to one based on identity. And you can use that as a leverage point to walk consumers up the path to all kinds of financial services.  The way to get there [from a telecoms point of view] is to partner very closely with mobile operators like we are doing with Cable and Wireless," said Steve Polsky, founder and CEO of Juvo. 

"We work together with operators to address this large pre-paid customer base, and with FlowLend we make small credit extensions. It’s fascinating to see how small these credit extensions are at the beginning – they can be as little as a dollar or two dollars – but for the individual that could represent additional cell phone service for a day or two. It’s very meaningful from that perspective," he added. 

This is a convenient service for customers who are operating in a largely cash based economy. While customers in the UK or Europe might simply top up online using a debit or credit card, this option is not necessarily open to people in less developed markets. 

"Credit card penetration is very low in these markets. It’s much more of a cash economy. All the things that you take for granted in Europe and the US [overdrafts, debit cards, online banking transactions] do not exist in these markets," said Ramos. 

So, a small loan of $1 or $2 credit is extremely convenient for the customer – but what is in it for the operator? Ramos says that the FlowLend initiative is already bearing serious financial fruit for his company and he believes that it will continue to do so. By providing these short term credit extensions, telcos are encouraging the customer to continue to use their services, rather than those of their competitors, the next time they top up. 

"We have done something like 9 million transactions like this so far this year. We have loaned $25 million. For us this is revenue that we might not have otherwise received. It’s great for ARPU growth and it’s great for churn reduction," he said. 


Looking to the future 

Through the FlowLend scheme, Juvo creates an identity profile for every pre-paid customer. As that customer continues to make on time repayments of their credit, they progress up the scale unlocking more benefits – namely larger loan amounts and longer repayment periods. In addition to this, they simultaneously boost their credit score with the telco.  

"We walk the consumer up the path from bronze status, to silver, to gold to diamond. Progressively they unlock more and more capabilities and more credit. Effectively that allows them to graduate from being pre-paid customers to become post-paid customers," explained Polsky. 

This is a huge benefit to the telco, as it opens up a myriad of possibilities for future upselling and ARPU growth, as well as dramatically increasing brand loyalty. 

"Using this type of solution allows us to create an individual credit profile for each of our customers. So, you create this credit profile, each month increasing the customer’s credit worthiness and eventually this pre-paid customer can become a post-paid customer. That is what you want. You want your customer base to be a post-paid base," explained Ramos. 

"It’s win-win. You can create a post-paid package with all the consumer benefit of pre-paid.  I can tell you that pre-paid margins are way better than post-paid margins – so if you can take a pre-paid customer and get him to have a post-paid relationship, it’s the best of both worlds," he added. 

In addition to turning a pre-paid user into a post-paid subscriber, developing this credit relationship also allows telcos to upgrade their customers to become smart phone users, with all the benefits that that entails. 

"In order to get that next billion users onto smartphones, you have to go down into that pre-paid base. It’s extremely hard to do that, with anonymous, faceless users. You need credit-worthy users to do it and this approach lets us do that," explained Polsky. 

"Smartphone users on average have 30 per cent higher ARPU than non-smart phone users. Once you start using data, you end up using more and more of it," he added.  

Finally, building a credit profile for its pre-paid customer base allows telcos to pursue the Holy Grail of the telecoms sector – signing customers up for quad-play services on long term contracts. 

"There is a big switch in the industry towards quad-play – fixed line and mobile convergence. The big challenge is how do users consume and pay for these services. It’s difficult to do with a pre-paid customer base. However, it is now possible to build that credit relationship with the customer with the FlowLend solution, allowing you to sign them up for quad-play services. Operators are transforming themselves and moving towards digital. For us, this is an intrinsic part of the process of moving towards digitalisation. 

"One of the biggest problems for operators in this industry is churn. By signing people up to quad-play services you can help to reduce that churn rate significantly," said Ramos.  


Friday Review – 09/03/2018