Five business case insights on mobile money

-by Kabir Kumar & Toru Mino

Today, we share with you a presentation that describes in detail five ways mobile network operators (MNOs) can think about the mobile money business case. MNOs across the globe are investing millions to develop and market mobile money. Estimates claim at least 30 implementations in Africa where MNO-driven financial services are an important part of the financial inclusion landscape. Despite the bets being placed by MNOs, the business case remains uncertain in almost every implementation. 

Last year we surveyed MNOs to assess their expectations of the business case. Since then we have done analysis of two implementations (with the help of Dalberg and a major mobile money service in Africa) and taken a few steps further to understand the relationship between the business case and market structure (with the help of Bankable Frontier Associates). 

Our analysis resulted in the following five insights which are backed by data in the presentation and which we expand on in subsequent posts:

How to think about the overall revenue potential?

1. Mobile money contribution may be small compared to current MNO total revenue but could be important for future revenue growth. We believe few operators will ever meet the high expectations they have for mobile money as reflected in their responses to our survey – direct transaction revenues as 10% of overall operator revenues with three years. However, mobile money may just be the biggest source of overall revenue growth as average customer revenues on voice keep falling.

2. Mobile money success is highly dependent on the size of the MNO’s voice customer base. The vast majority of mobile money customers are likely to come from the pre-existing voice base. Mobile money by itself has not been shown to be a powerful tool for voice customer growth and acquisition, so it is even more important to come in with a large pre-existing customer base. As a result, our basic modeling exercise shows that revenue potential is greatest for the largest MNO in a market, even when it is not the first mover. There are a number of implications from the overall market structure which we describe in the presentation.

What are the most critical business case drivers?

3. Direct profit from mobile money depends on growth in “electronic-only” transactions. While there are other key drivers of direct revenue growth, the most significant driver is ultimately growth in electronic transactions per deposit or cash-in because of a simple combined effect: less use per transaction of cash-in/cash-out at agents (which is the lowest margin earning part of the business) and more use per transaction of the electronic platform (which is the highest margin earning part of the business).

4. There are indirect benefits of mobile money to MNOs, but these only become significant when mobile money reaches scale. MNOs should account for savings from indirect benefits (as others have recommended), especially when the business has “too many mouths to feed” in the value chain, either agents or bank partners or others. However, operators need to realize that these benefits are only significant at scale, which may be 20% of the voice base as active (not just registered) mobile money customers.

How should MNOs think about scale and profitability?

5. To capture long-term profits beyond domestic transfers, mobile money implementations will need to “leave money on the table” in the short term. We want all MNOs to scale in the way M-PESA Kenya has in the last four years, but that is clearly proving to be elusive. MNOs know that the prize is everyday small merchant payments (which is the larger payments market), where they seek to get a foothold with domestic transfers. But pricing schemes that make them competitive in the traditionally expensive domestic transfer market keeps them out of the larger market of merchant payments. If they price lower, they will give up some profits from domestic transfers (“leave money on the table”), but in turn open higher overall gains in the long term, as we illustrate in this presentation

- Kabir Kumar & Toru Mino

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