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Where’s the money in mobile money?

By Gemma Ware in Cape Town
Posted on Monday, 1 February 2010 13:58

Phone companies, banks and independent

businesses are rushing into the mobile money market, but without

user-friendly systems, the race to the top may lead to casualties

Hailed as life-changing, levelling and leap-frogging, mobile money transfers have earned instant success with unbanked African populations taking new steps towards financial literacy. Since the pioneering launch of M-PESA by ?Kenyan operator Safaricom in 2007, mobile money services have been gathering momentum across the continent.

Amidst cut-throat competition, African mobile operators are battling for a shrinking pool of new customers with less money to spend. Moves to outsource capital-intensive ?fibre-optic networks and to share infrastructure (see page 66), are freeing up operators to focus on what they can do best – manage relationships with their customers. Pressure to keep ?existing customers loyal has made mobile money into an ?essential value-added service.

Retaining customers?

Chris Gabriel, Zain’s chief executive for Africa, told The Africa Report that the company has 10m customers able to use its ZAP transfer service and over one million regularly using it. “Yes, it’s profitable. Yes, it will make revenue, but it’s the stickiness and retention that we see as the greater value of ZAP, rather than the revenue it will make.” More conservative is Marc Rennard, Africa and Middle East director of Orange Telecom, which launched the Orange Money service in Côte d’Ivoire in December 2008 with plans to roll out the service across the rest of its network by 2011. He said he has “yet to see the revolution in this domain”.

Birgitta Cederstrom, project manager for African ICT at consultants Frost & Sullivan in South Africa, said that while operators tended to downplay the value of mobile banking, ‘m-commerce’ was always presented as a key growth opportunity in their strategy meetings. “This is really a big money-spinner if they get it right,” she said.

Throughout 2010, mobile operators, banks and independent providers will be jostling to secure their model as the dominant one. Mobile operators insist they have no ambitions to become banks, put off by the regulatory hurdles. But while regulation of mobile money remains a grey area around the world, services are encroaching on the realm of traditional banking. Coca Cola is using Zain’s ZAP to pay its distributors, while M-PESA is being used by plantation owners to pay casual wages and by the government to make benefit payments to widows and orphans.

INTERVIEW: Michael Joseph
Chief executive officer, Safaricom, Kenya

The Africa Report: The remittances market presents a new
opportunity for mobile banking. You launched the international
M-PESA transfer service in October – how has it gone??

Michael Joseph: It’s gone slowly. It will never be a big market
for us. Domestically, we are moving $10m a day in Kenya. The
economic success of M-PESA will always be through the volumes
of transactions that we’re doing. International remittances will
not get that scale, but it will certainly help make M-PESA better
and entrench M-PESA around the world. We’ve only launched it from
the UK now, and we’ll shortly launch it from other countries as well.

Did you have any regulatory issues to overcome??

Our philosophy has always been to treat the regulator, or treat
M-PESA, as if it was a regulated product, although there are no
regulations published yet. In Kenya, it took quite a long time before
the regulator was happy with what we were doing, particularly
on the record keeping.

Have you had much hostility from the banks there? ?

At one point a year ago, they wanted to close us down. They
went to the finance ministry, and there was a lot of pressure
for us to be closed down. But you know, when you’re trying to
close down a product, which at that time had 6m customers, it’s
quite challenging. But now, a lot of the banks are embracing us,
particularly the smaller banks who are now M-PESA partners.
You can move money from your M-PESA account to your bank
account very easily and vice versa. So the banks are joining
us now because they can’t beat us.

What profits have you made from M-PESA??

Right now we’re looking at a margin of about 20%. So it is
making a profit, but it’s not our intentionthat M-PESA is a huge
profit-making business. This is a product that makes customers
loyal to us, that builds our brand and therefore adds value to us
in other ways than pure profit.

Lessons from the Philippines, a global leader in mobile banking, shows savings as the biggest untapped market. A study in June 2009 by the Consultative Group to Assist the Poor and the GSM Association found that one in 10 unbanked mobile-money users already stored $31 in their mobile wallet and were eager for additional savings products. The Mobile Money Market Sizing Study projected the global number of people without a bank account but with a mobile phone would grow from 1bn to 1.7bn by 2012. And remittances by mobile phone are likely to take off in 2010. Western Union has been proactive in securing transfer partners – signing agreements with seven mobile operators since 2007, including Zain, Safaricom and Egypt’s Orascom. It launched a UK-Kenya transfer service with Safaricom in October and plans to launch international transfers through Zain’s ZAP and Western Union agents in 2010.

Bring on the banks?

While operator-led mobile money has penetrated the space left vacant by traditional banking models, banks realise they cannot afford to be left behind. South Africa’s FNB says that it adds between 2,000-4,000 mobile banking customers a day and expects 70%-80% of its 5m customers to have mobile accounts within three years. A million people ?currently use FNB’s service to check balances and buy lottery tickets and phone credit.

FNB’s services are attracting the new and previously unbanked. Half of registrations are from new customers, and 60% of customers earn less than R100,000 ($13,700) a year. The biggest opportunity for banks is the cost reduction – a transaction made by mobile costs FNB one-tenth of what it would if it were done in a branch.

Attention from global ICT companies should help to create safer, simpler transfer systems. Nokia plans to launch Nokia Money in early 2010 with Obopay, a US firm also working with Grameen Solutions on its ‘Bank a Billion’ initiative. Paypal launched Paypal X in November 2009, allowing third-party developers access to its platform and the potential to use its system for m-commerce.

It will be the search for simplicity which sorts out who gets left behind. The market leaders will be those banks, mobile operators and independent platforms that succeed in educating customers on how to use mobile transfers and that provide security for their services. Nobody wants to carry around four different types of currency, and it is the same with mobile money: multiple credit accounts with your operator, your bank and your local pharmacy will need to be compatible in order to survive.

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