The mobile payment services market, while stagnating in the developed markets amid the abundance of alternatives, is accelerating rapidly in the emerging markets because of the lack of alternatives. The low penetration of banking versus the high and growing mobile penetration leaves a massive opportunity for mobile networks.
The first service was launched as far back as 2000 by Smart Communications in the Philippines, but it was the success of M-Pesa by Vodafone’s Kenya subsidiary Safaricom that really accentuated what is possible with mobile payments (see M-Pesa and Vodafone: mobile payments case study for more detail).
In just over two years since launch in February 2007, M-Pesa has grown massively to reach 6.2 million registered M-Pesa users, accounting for 46% of Safaricom’s 13.4 million mobile customers at the end of March 2009. Growth still continues unabated, with over 11,000 user registrations per day during March 2009. A total of Ksh17.3 billion ($220 million) was transferred in March 2009, to a cumulative total of Ksh135.4 billion ($1.73 billion) since the service was launched.
This has prompted many more emerging market service providers and banks to enter the market in the last year.
Vodafone has plans to replicate the success of M-Pesa across all of its emerging market operations in Africa and Asia . MTN, Zain and Orange have all launched competing services. In fact, the GSMA has told us that more than 100 mobile payment service launches have been launched in emerging markets to date.
We have examined the market opportunity and service provider best-practice strategies in the mobile payments area in a soon to be published report of this topic. One of our key findings is that while there are lots of mobile parts that service providers need to get right, pricing is one of the major factors that determines success or otherwise.
Pricing the key
The pricing structure for mobile payments is one of the key influences of take-up and user behavior. Hence, service providers must include the following issues in their pricing considerations:
- Prices of competing services and substitutes. What are the available alternatives to the target market, and what is their cost? In rural areas of emerging markets the alternatives for money transfer are limited, with informal channels (e.g. bus/taxi drivers) costing up to 15%–25% of the transferred amount, whereas formal channels (e.g. banks, Western Union Money Transfer), while slightly cheaper at 10%-15%, involve a trip to the nearest town to reach an agent
- Target market usage patterns. What are the typical sums that are being transferred? This will vary considerably between the rural users in emerging markets of the Philippines or Kenya versus those in South Africa or Iran. For example, we are aware that the bulk of the M-Pesa transactions in Kenya are between $5 and $20, which is equivalent to the weekly wage for an unskilled Kenyan worker
- Strategic aims for the service. Is the aim to ensure the service is profitable on its own, to boost the rest of the business by reducing operator churn and driving up voice and SMS revenues, or a mix of the two? In the former case, the pricing will be on the higher side of the available range, whereas in the latter it needs to be on the lower end of the available range
- Costs. What will be the start-up cost of the service and the subsequent cost per transaction for the operator and the partner (e.g. bank)? What are the levels of dealer commissions that will ensure a motivated agent network to promote and execute the service on the ground?
Our analysis of key current mobile money services, including Safaricom’s M-Pesa, MTN’s MobileMoney, Orange Money, Zain’s Zap and Smart Money, suggests that service providers that have already launched mobile money services have adopted broadly similar tariff structures yet different price points for different parts of the service (i.e. depositing cash, sending money, withdrawing cash), the end result of which is a very different total cost per transaction for each service.
Using the M-Pesa typical transfer amounts as a guide, the total cost for transferring $5 ranges from 7% of the sum (Smart Money) to 26% (Orange). Moving $20 costs between 3% (Smart Money) and 11% (Orange). Only transferring larger amounts is a relatively small fraction of the total, ranging from 1% (Smart Money) to 6.5% (Orange) to transfer $100.
Hence, while mobile money transfers are cheaper, they are not always cheap for end users in emerging markets.