Given the excitement of m-payments, each MNO/bank provider is trying to decide what determines a winning value proposition for m-payments. In the light of hundreds of technological suppliers, it can be forgiven that the mobile train is freezing in the headlines. Alternatively, even though they are still uncertain about the destination they can opt to purchase a ride ticket.
Success stories both in South Africa and across the continent demonstrate that competitive operators do not vary greatly from less successful competitions in terms of technology. Although the distribution of cash-based companies is clearly influenced by a variety of key factors, such as simplicity, promotion, consumer education, pricing and ease of registration. The main issue for consumers or prospective customers is whether they can reasonably quickly receive their money from the scheme.
The experience of M-PESA
In this connection, M-PESA was one of the leading m-payment offers in Africa and it is arguably the main difference. Six months after its launch in March, M-PESA had already succeeded in registering more than 1,200 agents, more than twice the total ATMs in the country at the time, and about three times the number of Western-Union(WU) outlets.
At that time, M-PESA also managed to attract more than 800,000 customers, a figure that almost ten times higher than 7.99 million by September 2009.
Electronic money versus cash
The normal frustration with the use of e-money is in cash-based businesses. The preference indicates that low-income bankers have to withdraw all of their money from a bank or an ATM shortly afterwards.
Genesis Analytics’ comprehensive work in this area shows that accessibility is a main driver of this behaviour. Individuals tend to collect the highest sum on a tour instead of having to go to the bank and the ATM on a long and uncomfortable journey. This conduct obviously has security effects, which make consumers vulnerable to money loss and thus entails a balance between risk and convenience.
The level of e-money comfort users, especially through their distribution networks, are expected to further increase products such as M-PESA. Over time, consumers are expected to demand more and more of their e-money services, use them to handle revenue receipts, pay taxes, make transactions from retail stores, transfer money to friends and family and save.
After this transformation and the ease of which consumers use their funds electronically, delivery becomes much easier to handle. Instead of offering cash in and out services, this service focuses on accepting e-money. There is an increasingly less barrier to cash management problems faced by agents and which M-PESA is confronted with.
But users in Africa are still a long way away and in every country on the continent there are cash transactions that are dominant. Special retaillers report that cash is still about 86% of transactions in volume, also in South Africa, with perhaps the most established financial system in Africa (1).
As long as this situation continues, MPA providers will have to rely on their cash-in and cash-out skills, which is certainly not an easy job.
While M-PESA has succeeded in achieving very good performance in its agent count, its financial success remains less obvious. It still had to make a profit from June 2009, and was officially just breached every month (2). With the commission paid to customer registration agents, lower churn levels and greater use are the secret to profitability. In addition, M-PESA should become profitable as market potential hits, tapers are registered and registration costs relatively lower.
Channels versus Add-ons for transformation
M-payment solutions are often divided into two categories: those which promote social change by providing customers previously excluded from the formal bank system with a new channel and those which simply provide current customers with an additional channel.
The implementation of mobile banking, mainly as additional chain for established customers, has been popular in both ABSA and FNB in South Africa. FNB now has more than 1 million active cellular banking clients, with similar numbers published by ABSA. However, these rate of performance in m-banking have nothing to do with delivery.
It is only recently that both banks brought their offer into the transformational arena through the introduction, on their distribution network, of money transfer services to unaccompanied persons.
CashSend was the first ABSA to send money to unbanked individuals via established electronic networks, including ATMs, Internet and mobile phones, allowed ABSA customers to send money. Then recipients can access any ABSA ATM funds, but they must withdraw the entire deposited volume.
FNB has been accompanied by Send Money, a similar deal, one it enables unbanked recipients to trade the money they were given. You can use your e-money to purchase airtime, save money, make balance inquiries and transfer money to another cellphone.
With respect to withdrawals, recipients of both ABSA CashSend and FNB Send Money can not withdraw their e-money from ABSA and FNB ATMs. ABSA has an especially good ATM footprint of 9,200 machines and FNB of 4,300. If delivery by itself is the decisive factor for the acquisition, it would obviously be better for ABSA to FNB to send money or any other structured goods, including money transfer, MTN money transfer, Western Union and Moneygram, which have been launched on the market.
However, it is not enough to guarantee the success of m-payment systems alone, considering the importance of delivery. Customer expectations must be met in the value proposition, including the product and pricing.
FNB has taken a bold step in this regard with regard to pricing and will not charge service charges until May 2010. The FNB product also has greater functionality than the ABSA product, which, as has already been stated, enables customers to operate using e-money. Factors like these are not the way to predict a winner in the e-money race, but the basic principle that transformative offers would unlikely be successful until delivery reaches a critical stage.
The next move will probably be to allow cashout transactions on point-of-sale (POS) devices for each of these providers. If this were achieved, the distribution leg, though less so in more remote rural areas, would be greatly improved. Since 2006, SA had approximately 655,000 POS devices which could use e-money to bring people around the world closer together (3).
On a medium basis, further insight into remote areas can be reasonably expected as technological developments would enable more affordable rivals, possibly in the form of the cell phone, to deploy their conventional POS devices. However, a variety of security problems will have to be addressed before anything can be achieved.
Proposal for distribution and value for payment
Therefore, distribution is important for the success of transformational M-payment solutions, but success depends more than just distribution.
Finally, an attractive product offering, reasonable pricing and attractive brand image, suitable marketing and consumer education programmes have to be integrated into an attractive value proposition.
Therefore, it cannot prevent the future success of m-payment offering to an operator that does not have a large distribution channel in place. It nevertheless complicates the implementation process and needs to be thoroughly pre-evaluated. Questions like: ‘Who’s going to ‘owne’ the offer?’ ‘What incentives are needed for each party to fulfil its responsibilities’ and ‘Given regulatory requirements that might endanger the legality and/or economies of the entertainment?,’ ‘Will there certainly be enough scope and scope to help the owner and the distributor to make the offer worthwhile for the product?’
1) FinMark Brief, “the banking investigation, analysis of the Competition Commission’s report to the panel, and its future effect on access to finance for poor South Africans,” by Jenny Hoffmann, April 2009.
2) MAFP profit this year     2) M-PESAGenesis Analytics (Pty) Ltd. Copyright© 2009
3) Euromonitor International, 4Q, 2006 (as cited in the South African Competition Committee’s presentation by MasterCard)