The expression silver bullet means a simple remedy for an intractable problem. It can be described as a panacea, a magic bullet, a miracle drug, that’s exactly what mobile money is to Sub Saharan Africa. Mobile money is an African solution to an African problem to achieve financial inclusion and digitize payments. Why mobile money is seen a silver bullet and what is the future of mobile money post Covid-19?
Let’s look at the key numbers reflecting the power of mobile money in Africa as reported by GSMA in the State of Industry Report 2019:
· Registered users exceed 500 million
· Africa accounting for more than 46% of global users
· Active users of >200 million and growing rapidly
Transacted value of > $ 450 Billion USD
· A daily transaction value of > $1.2 billion USD a day
Why mobile money is seen as a silver bullet
- Financial Inclusion:
How do you break the cycle of poverty? Short answer is get a mobile money account. Mobile money account has been singularly driving financial inclusion and banking the unbanked. Removing poverty is one of the 17 Sustainable Development Goals, mobile money is seen as the most effective vehicle to achieve Financial inclusion.
II. Creating livelihood:
The core to mobile money business is a wide agent distribution network. In Africa, the reach of an agent is 58x than a bank branch and 26x than an ATM. Agent commission is the no.1 operating expense for the mobile money business accounting for 30% to 60% of mobile money revenues depending on the maturity of the business. Mobile money has created entrepreneurial opportunities and sustained livelihood to millions of agents.
III. Formalizing the economy:
Governments, Central Banks, Regulators have encouraged and facilitated with policy frameworks for the growth of mobile money industry. Aside from financial inclusion digitizing cash has set the path to formalizing the economy. Digital transactions leave a verifiable audit trail of money transfers and with robust Anti Money Laundering process and other controls, the mobile has led to formalizing the economy. Governments have been innovative in taxing mobile money transactions albeit being counterproductive have mopped up additional tax collections to the exchequer.
IV. Mobile Money business driving up valuation for Telco’s:
As mobile money business achieves maturity, Telco’s increasingly realize the value of a platform business. The value of the Fintech business gets an EBITDA multiple of 15x and more which is twice the EBITDA multiple of telecom services. Telco’s have invested and scaled up the core product to evolve into a full suite of mobile financial services thus beginning to capture value share in the ecosystem and enhancing shareholder value.
V. Building the payments platform for the digital economy:
The pandemic has accelerated the migration to a digital economy with consumers and businesses have swiftly adapted to digital platforms. Building an integrated digital financial ecosystem to unleash the next wave of innovation, investments and entrepreneurial energy in the Fintech space. Mobile money platforms are at the core of connecting supply side (Fintech) with demand side (consumers, merchants and SMEs) to realize the full potential of digital economy.
Mobile money is truly a silver bullet which has positively impacted across all stakeholders of individuals, businesses, economy and society as a whole. Paving the way for achievement of financial inclusion and democratizing access to financial services.
Maslow’s theory of needs and Mobile Money Business model
Abraham Maslow US psychologist published a paper called A Theory of Human Motivation in 1943 in which he said that people had three levels of needs, which come in a particular order. As each level of needs are met, the desire to fulfill the next level begins.
Mobile Money use cases have grown from money transfer to a full-fledged mobile financial services platform. Like Maslow’s theory of needs, mobile money has evolved from meeting basic needs to more advanced and sophisticated offering of wide spectrum of financial products and services.
Level1: Core Product meeting the basic requirements
· Product
– unique purpose of mobile money in Africa is to enable conversion of physical cash to electronic and vice versa, i.e. ease of cash in and cash out transactions.
– Convenient and affordable person to person (P2P) money transfer to family and friends.
– Payment for water, electricity, TV, school fees aside from airtime purchase are the key usage behavior.
·Distribution network of widespread agent and float rebalancing outlets. The business is heavily reliant on mobile agents through physical distribution of float and cash.
·Customer Journey: Consumer expectation of error free and speedy transaction, uptime of platform, assurance of balances, transaction confirmation, account statement builds trust and confidence on the platform
· Revenues mainly from core product of Cash out and P2P transactions. Agent commission pay out, cost of KYC and customer acquisition along with, tech platform development is the key operating cost. The profitability of the business is either negative or low until reaching critical mass of customers, agents and transactions on daily basis.
Level II – Democratization of payments and empowering customers:
Product offerings moving up the value chain after meeting consistently the basic needs.
Companies Rise or Fall on How Well They Renew Their Leaderso Money transfer enabled to make proximity payments and furthering the scope of digitizing cash transactions at merchants for groceries, fuel, pharmacy, transport, dining and others.
o Bulk Pay facility for payment of salaries to staff, vendor payments, payment to farmers for produce and purchase of Agri inputs.
o Connecting gaming and betting companies to mobile payments to serve belonging needs of customers while facilitating Off grid solar companies to deliver services through mobile payments.
o Promote online transactions with virtual credit card transactions.
· Distribution and availability of float is simplified with bank integration for consumers to move money seamlessly from bank account to wallet, wallet to bank account. As bank to wallet and bulk pay transactions pick up, less dependence on physical distribution as digital transactions commence.
· Customer experience of always on platform, educating customers on bank to wallet, bulk pay facilities as well on online payments. Onboarding merchants and creating awareness for digital transaction pave the way for growing velocity and value of transactions.
· Revenue streams from core transactions grow in volume and value from cash out, P2P transfers. Additional revenues from Bill Payments to utilities as a collection account, merchant transactions, Wallet to Bank, and Bulk pay. Profitability of business improves with sustainability. Ability to invest in innovation and build a larger distribution and merchant network.
Level III: Payments as a Service (PaaS) for enabling digital economy
· Product offerings evolve digitally as mobile money matures to payment as a service.
o The key attributes are fully integrated and fully interoperable mobile money ecosystem.
o Ability to plug and play into the financial ecosystem with simple and standard APIs to achieve high level of integration.
o Innovation led by Fintech start-up’s that drive niche and hidden opportunities driving mobile transactions and value.
o QR Code enabled merchant pay for one click payment with smartphone.
o International remittances to allow free movement of money Pan Africa and across all continents. Facilitate diaspora payments to back home by directly transferring to mobile money.
o Access to micro and checkout loans and insurance with partnership with banks, financial institutions and insurance companies. Mobile Money platform is a marketplace for financial services as consumer benefits from choice and competitiveness.
o Democratization of capital markets by widening the reach of investing in stocks, shares and bonds to all mobile money consumers. This can not only bring many first time investors but deepen the reach of capital markets across urban and rural markets.
o Finally, a ‘Super App’ integrating all digital financial services in a one stop digital shop. The digital experience is optimized with best in class User interface (UI) and user experience (UX). Digitized Mobile Money can counter the threat of value capture from OTT players as they penetrate mobile payments. Leverage the mobile money app to tap into new revenue streams of advertising and messaging.
· Distribution and availability of float is now across both physical and digital platforms a healthy blend to deliver superior customer experience through ‘Phygital’. Decline in the dependence of agent led float distribution as digital channels become reliable and convenient.
· Revenues across multiple revenues streams, velocity of transactions increase multi fold, float remains in the digital ecosystem. Optimized distribution costs and growing revenues drive scale and healthy profitability of mobile money business.
Its been a fulfilling and transformation experience to see Mobile Money evolve and impact positively over the last decade. Covid has further accelerated the evolution of mobile into a full suite of digital financial products and services. African success is a replicate able model globally for growing Fintech revenues >25% of telco business.
By Somasekhar VG
MANAGING DIRECTOR | PRESIDENT | DIVISIONAL HEAD ★ Building & Transforming Businesses in Emerging Markets
