So far on this blog, we’ve written about the role that indirect benefits play in enabling a mobile network operator (MNO) to turn a profit from a mobile money service – but what about the most obvious source of value, direct revenue from customer fees? After all, as stated in a previous post, this is often the single source of value upon which MNOs evaluate the business case for mobile money.
For MTN Uganda, who currently offer domestic money transfer and mobile top-up services, direct revenues include fees to send money, and fees to withdraw money from an e-wallet. To date, these direct revenues, less commissions paid to agents, contribute 52% of total gross profit for the service. It’s clear then, that this is an area of the business case not to be neglected. So how can MNOs ensure they’re well positioned to fully capture this source of value? Well in the case of MTN Uganda’s MobileMoney, one decision has had more of an impact than any other: enabling p2p transfers to unregistered recipients.
Uganda is a fragmented mobile market: according to Wireless Intelligence at time of writing, MTN holds 44%, Zain, Warid and Uganda Telecom each hold roughly 18%, and Orange holds 3% market share. So it’s not surprising, then, that when MTN launched the service, they made sure customers could send funds to recipients on any network. To date, 38% of P2P transfers made using MobileMoney have been from a registered customer to an unregistered recipient; and this use case has generated 45% of total revenue (and even more in gross profit). Two things are striking about this data: first, the overall number of P2P transfers to unregistered users is quite high, which suggests that had MTN not offered this option, they likely would have left some revenue on the table. Second, P2P transfers to unregistered users are more lucrative for MTN than P2P transfers to registered users (i.e. 38% of transactions are generating 45% of revenue). This occurs because MTN charges customers a premium – 7% for low and 94% for highest value transfers – to make a transfer to an unregistered recipient, and the commission paid to agents remains the same. Thus, by enabling P2P transfers to unregistered recipients, MTN not only expands the base of potential users for their service, they also generate a significant amount of revenue.
But not every MNO allows P2P transfers to unregistered recipients: some reason that by doing so, they are forfeiting potential net new mobile revenue from recipients who, if they want to receive money, have no choice but to activate a SIM from the MNO in question (and then, as the theory goes, start to use this new SIM for mobile services, too). But this walled garden logic is risky: mobile money is a service that is predicated on network effects, and particularly in countries with fragmented mobile market share, the ‘closed model’ presents an insurmountable customer experience barrier to adoption, ultimately making it difficult to scale the mobile money service. And if a mobile money service cannot scale, its sustainability becomes questionable – so in the end, any benefits of net new revenue will be short lived.
Its clear, then, that direct revenues are a significant value source, and mobile network operators have an opportunity to maximize them by enabling P2P transfers to unregistered recipients – a feature that, coincidentally, is just what customers in Kenya, Uganda and other successful mobile money countries have demonstrated that they want.
Profitability Series
1. Is there really any money in mobile money?
2. How much must an MNO invest in mobile money before turning a profit?
3. How significant are airtime distribution savings to profitability?
4. How significant are churn reduction benefits to profitability?
5. How significant is ARPU uplift to profitability?
6. How significant are direct revenues to profitability?
7. How can an MNO manage costs to achieve profitability?
8. How can MNOs ensure their tariff and commission models are well designed?
9. What metrics should an MNO monitor and manage?