Mobile Money for the Unbanked: Fundamental strategies work best for emerging markets

Details: Shardul Shrimani; Category: Mobile Finance; 13 March 2013; 8940 views

The final session of MWC 2013 saw an executive level panel from the world's leading mobile money operators and vendors. MMU has been a great success over the past few years as it combines financial transactional services with existing basic mobile services to create financial inclusion to the unbanked. It is one of the few mobile services in recent years that have resorted to simple SMS functionality for authentication rather than developing newer and innovative technologies. The session emphasised some of the key success factors and obstacles MMU has faced and the progress the service has made.

One of the most essential factors of success emphasised during the discussion is the need to establish a strategic vision between a banking partner and the operator for mobile money to have strong foundations for success. Telenor Pakistan's Chief Financial Services Officer Roar Bjaerum discussed some essentials points to ensure success in mobile money services.

Strong alignment between the mobile operator and the bank: Telenor Pakistan established its mobile money brand 'easypaisa,' by partnering with Tameer Microfinance before launching the service in 2009. The relationship between Telenor and Tameer worked well because both parties had the same strategic vision. Tameer's long term interest in branchless banking combined with engaging regular C-level meetings with both organisations made Tameer a logical partner for Telenor Pakistan to deploy easypaisa.
Adhering to regulatory frameworks is essential: MMU is still a nascent industry but growing fast. In Kenya for example there are now more M-Pesa users than Facebook users. This rapid level of growth can be complex to manage considering the risks associated with the service. Operators must adopt and build on the stringent framework banks and other financial institutions use today to ensure efficient and safe money management. In the example of easypaisa, Telenor is responsible for channel management and retail set-up. Telenor also host the technology and market the service. Tameer is responsible for account management, settlement, risk, compliance and fraud prevention and detection.
Innovation in mobile money for emerging markets will come however fundamental service provision should prioritise innovation: Mobile money services were originally designed to provide financial services to the unbanked. Customers in these markets will benefit by increased coverage of this basic service rather than increased innovation services as seen in more developed markets. Increasing coverage of the basic service will drive the number of transactions and volumes leading to a higher utilisation of the service. In developing markets, mobile wallet solutions have been implemented which enable customer to business transaction, such as paying for a coffee. Markets for mobile money are typically cash driven and consumers will need to see an advantage of paying for an item through a mobile wallet account rather than cash.

Operators that have launched mobile money in emerging markets explained that although capital expense requirements are reasonable to set up the service, operators must consider ongoing operational expenses to make services successful. Some operators have overcome this expense by implementing a commission model for agents which reduces the operational expense for outlets with low volumes of transactions yet still rewards the agent, making it feasible for operators to continue to roll out the service in rural areas. During the initial phases of launch when transactions are both low in volume and low in quantity, MTN paid agents a commission for every registered user. This kept the agent engaged in the deployment phase and provided an alternative income. MTN also pays agents a commission for both cash-in and cash-out, though pays a higher commission for cash-out as these agents have a higher cost of replenishing physical cash.

Although mobile money solutions in emerging markets have not been implemented to drive revenues, operators in these markets have been successful; MTN Uganda's mobile money solution was cash flow positive after just 14 months of operation. The service should not be seen as simply another value added service but an enabler of other services for the community. By deploying this service, the operator can benefit from churn reduction and maintenance of ARPUs. A mobile customer that has registered and continues to use a form of mobile money transfer such as paying utility bills is less likely to churn as the service becomes a necessity rather than a simple convenience. In addition, providing a basic mobile service such as airtime top up will stabilise ARPUs, as the customer is less likely to wait longer periods between top up periods.

Outlook: Operators still need to cover the basics to ensure continued success.

The GSMA has already recorded 163 mobile money services around the world and a further 107 are in progress. According to the expert panel on mobile money, operators need to tackle the basics first before rolling out new and innovative services. Operators need to build trust and awareness in the product. Mobile money has been around since 2007, however new operators and service providers entering the mobile money market will have to invest heavily in marketing the service. If the service is not already available, a much higher marketing expense will have to be made especially if it is to be launched in a very rural area. If there is a service in place already any new service provider will need to rely heavily on targeting new customers of which there may be very few if the service from the original service provider has been up and running for over two years. Acquiring a competitor's customers will be difficult as these customers are likely to have their accounts set up for bill payment and other money transfer making it inconvenient for them to switch unless there is a significant incentive.

Operators in underserved banking markets should consider expansion of the service before implementing innovative services. As the service is still in the early stages of adoption and the real need is in emerging market where a basic service is the priority. Offering international money transfer is becoming more important as migrant workers look to send money back to their home countries. In Mali for example, Orange customers are now able to receive international money remittances through its Orange Money Transfer International service created in partnership with MFS Africa. The service has been created for the growing number of Malians working overseas who need to send money back to their home country.

It is evident that mobile money is fast becoming one of the most popular services in emerging markets, and judging by the 107 planned deployments, it will continue to do so. One of the main considerations that have always been associated with mobile money is fraud. This has always been high on the service provider's agenda and is essential to focus preventative steps and leverage the solutions that banks have implemented in the past, and continue to innovate on. The GSMA's paper on, "Managing the Risk of Fraud in Mobile Money" by Lara Gilman and Michael Joyce highlights three potential areas of fraud in mobile money; transactional, channel and internal. Potential transactional frauds include, vishing which uses phone calls to acquire PIN numbers or other personal identification details, advance fee scams, payroll fraud, reversal requests where a customer requests to reverse transactions that were actually successful. Channel fraud consists of splitting transactions where agents split cash in to earn multiple commissions, false transactions where customer funds are transferred to personal accounts, and registration fraud where false or duplicate accounts are created. Internal fraud is largely identity theft or where employees collude for personal financial gain. Fraud will always be high on the agenda for mobile money services; however operators must carry out their own regular internal audits to ensure all processes are carried out as specified.