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WHAT WORKS: PRODEM FFP'S MULTILINGUAL SMART ATMS FOR
MICROFINANCE
EXECUTIVE SUMMARY
PRODEM Private Financial Fund (PRODEM FFP) is a regulated,
privately held financial fund constituted in Bolivia in 1999,
with more than a decade of prior experience as one of the
first and most successful non-profit microfinance organizations
in Bolivia. PRODEM FFP has a history of continuous innovation,
and has gained the trust of the communities in which it operates
by providing high-quality customer service. However, many
of its target customers are illiterate, speak only the native
languages of Quechua or Aymara, and have no familiarity with
Personal Identification Numbers (PINs) or other aspects of
modern financial services. Moreover, the rural communities
in which they predominantly live often lack reliable telecommunications
infrastructure. Nonetheless, PRODEM FFP has developed a strong
competitive advantage in serving these bottom-of-the-pyramid
customers by developing solutions based on proprietary technology
that lowers costs, better meets existing customers’
needs, and makes its services accessible to new customers.
BUSINESS MODEL
PRODEM FFP targets low-income communities and the entrepreneurs
and micro- to medium-size enterprises that constitute Bolivia’s
informal economy, offering a wide range of savings, credit,
and money transfer services. Its 65-branch network is the
largest in the country and spans both urban and, especially,
rural areas.
To expand its market and improve its services, PRODEM FFP
has sought to deploy new technology-based products and systems.
Finding that existing solutions were either costly or unworkable
in its market, PRODEM FFP decided to build its own—focusing
on molding a product to fit its customers’ needs and
lifestyles, rather than attempting to mold its customers to
fit existing products and technology. The resulting solution
employs smart cards and digital fingerprint recognition technology,
now implemented in all PRODEM FFP branch offices and Smart
ATMs, as well as stand-alone, voice-driven Smart ATMs in local
languages with color-coded touch screens.
Combining smart cards with digital fingerprint recognition
allows PRODEM FFP to offer secure access to Smart ATMs even
in the most remote areas of Bolivia. The smart card stores
the customer’s relevant information including name,
account number, account balance, five most recent transactions,
and digital fingerprint. When customers approach a PRODEM
FFP Smart ATM, they receive audio instructions in Spanish,
Quechua, and Aymara and then are given the option to select
a language in which to proceed. Customers are instructed to
insert their smart card and place their finger on the fingerprint
recognition device installed in all PRODEM FFP Smart ATMs.
The system reads the smart card and matches each customer’s
fingerprint with the image stored on the card to authorize
transactions. The touch screen display is color-coded to ensure
that the customer can follow the verbal instructions (blue
button for withdrawals, yellow for account inquiries). The
customer can input the amount of the desired withdrawal and
the Smart ATM will disburse the cash and debit the amount
stored on the smart card.
PRODEM FFP’s Smart ATM design not only takes the customer’s
ethnicity into account and is easy for virtually all Bolivians
to use, but it also broadens the company’s market. Pilot
tests showed that the Smart ATMs attracted both rural customers,
who cannot normally come to a branch during business hours,
as well as more affluent urban customers. In addition, since
the customer’s account balance is stored in the smart
card, it is not necessary for the Smart ATM to connect to
the Internet in order to complete a transaction, a feature
of the system that is essential for ATMs to be useful in the
many parts of rural Bolivia that lack the technical infrastructure
for a wide-reaching, online network. The Smart ATMs are also
cost-effective; they are assembled in Bolivia with both proprietary
technology and commercially-available components and cost
PRODEM FFP about US$18,000 (139,140 bolivianos [BOB]) each—less
than half the price of a traditional ATM with more limited
functionality. In addition to initial savings, PRODEM FFP’s
Smart ATMs also offer lower transaction costs than its branch
office operations, which have higher staff and overhead costs.
The cost of the Smart ATM machines is kept low is by keeping
the system relatively simple, while still meeting the customers’
most important need of having 24-hour access to their money.
The ability to deposit money is less urgent for customers
so this was not designed into the current system. Depositing
funds is a more complex process than disbursing withdrawals,
since the system would need to accept bills in all denominations.
By only providing withdrawal and account inquiry services,
the system only needs to manage US$20 and BOB100 bills. Notwithstanding,
PRODEM FFP and its technology partners have already started
planning the next version of the Smart ATM that may include
the ability to accept deposits.
The smart cards can be used at any PRODEM FFP branch to withdraw
or deposit funds, without filling out a deposit slip or withdrawal
form—a significant advantage for customers who cannot
read or write. Since digital images of customers’ fingerprints
are stored in PRODEM FFP’s customer service system,
customers can also “sign their name” by making
ink impressions with their fingers. This system has the added
advantage of enhancing security for both PRODEM FFP and the
customer by ensuring that only the account holder can complete
a transaction. In effect, fingerprint recognition replaces
a 4-digit PIN with the equivalent of a 300-digit PIN, creating
a biometric identity.
A PRODEM FFP smart card savings account has a US$7 (BOB 54)
annual fee and no transaction fees. While the account can
be denominated in US dollars, bolivianos, or both, the annual
fee is paid in dollars. Customers seem to like the perceived
security, ease of access to their money, and status of having
a smart card. As of July 2003, more than 40,000 PRODEM FFP
smart card accounts had been opened. In fact, PRODEM FFP’s
smart card customer accounts have exceeded expectations since
2001, with total smart card accounts expected to reach 50,000
by the end of 2003. Table 1 below shows the projected and
actual smart card accounts for the past three years.
Table 1. Number of PRODEM FFP Smart Card Savings Accounts
(1)
2000 |
2001 |
2002 |
Projected |
Actual |
Projected |
Actual |
Projected |
Actual
(As of August 2002) |
| 10,000 |
15,000 |
30,000 |
37,000 |
50,000 |
48,000 |
DEVELOPMENT BENEFIT
Access to credit and other financial services is critical
to micro-enterprise formation, job creation, and increased
incomes in the informal economy. The PRODEM FFP solution breaks
a number of paradigms often associated with microfinance,
demonstrating how these services can be provided efficiently
even in poor, rural communities with inadequate telecommunications
infrastructure. Moreover, the PRODEM FFP solution respects
and empowers indigenous communities, overcoming the problem
of illiteracy and serving customers in multiple languages.
Finally, because the PRODEM FFP solution is low-cost and profitable,
it is also potentially scalable and replicable in other developing
regions. Indeed, PRODEM FFP itself is exploring expansion
to other Latin American markets, and its technology partner
has been approached about licensing its technology in Africa
and Asia.
KEY LESSONS
By looking at the low-income market objectively and logically,
PRODEM FFP has demonstrated the vast opportunity that this
market represents. Key lessons include:
• Business principles can be applied to bottom-of-the-pyramid
markets. PRODEM FFP’s business strategy, for example,
followed conventional models—first understanding customers’
needs and what they can pay, and then designing a product
that meets those needs at that price.
• Neither quality nor profit needs to be sacrificed
to serve low-income communities. With modern technology, PRODEM
FFP was able to deploy a system that provides its customers
with superior service at a lower cost than conventional solutions.
• Rural, low-income communities are both willing and
capable of using high-tech services as long as they serve
their needs, as the rapid acceptance of PRODEM FFP’s
smart cards and Smart ATMs show.
End Notes:
1. Source: E-mail from Eduardo Bazoberry, CEO of PRODEM FFP
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