In my last post, I wrote about the significance of churn reduction benefits to the profitability case for mobile money; and when people talk about indirect benefits, ‘reduction in churn’ is usually closely followed in the same sentence by ‘uplift in ARPU’ (Average Revenue Per User). Having shed light on the important role churn benefits can play in the context of profitability, now we’ll focus on the role of uplift in ARPU. But before we answer the question posed in the title of this post, let’s first determine whether ‘uplift in ARPU’ is even the right metric for practitioners to measure.

To gauge whether mobile money actually causes customers to spend more, ‘uplift in ARPU’ would need to be measured over time. But this particular type of analysis is tricky. First, the average selling price for airtime and SMS, and therefore ARPU, in a country varies for any number of reasons on a month-to-month basis, so it’s impossible to simply attribute any change solely to mobile money. Second, in many cases ARPU figures will already include revenue generated from mobile money – so taking credit again would be inaccurate.

It’s clear, then, that ‘uplift in ARPU’ isn’t a perfect metric. But what, if anything, is? We propose that the less catchy, but somewhat more accurate, phrase of “increased share of wallet for voice and SMS” is the more relevant metric. By measuring ‘minutes of use’ and ‘billable SMS events’, an MNO can isolate changes in customer behaviour, something that’s not possible with an ‘uplift in ARPU’ calculation. Additionally, “increased share of wallet” accurately describes just why a mobile customer might consume more mobile services on their mobile money SIM; that is, it’s easier to imagine a customer who carries two SIM cards, each month spending $3 on one, and $2 on the other, shifting some of her spending to the stickier of her two SIMs.  So if we accept “increased share of wallet for voice and SMS” as a good metric, the question still remains: is it a significant driver of profitability?

Unfortunately, our findings in this department are inconclusive. From a survey conducted in 2009 by McKinsey & Co., CGAP and GSMA, we know that in the Philippines 44% of mobile money users carry more than one SIM, and 68% report using their mobile money SIM as their ‘primary SIM’; this is encouraging, but not conclusive evidence that this benefit is real. In the case of MTN Uganda’s MobileMoney, active customers do consume slightly more voice and SMS than non-mobile money customers, but drawing a solid conclusion here would be incredibly challenging from a data-mining perspective.

While we haven’t conclusively pinpointed the impact of “increased share of wallet for voice and SMS” in a financial model, it’s plain to see that the potential to reap benefits is massive – and there are some steps MNOs can take to position themselves to do so.

Beyond executing well to ensure customers do indeed have an incentive to keep their mobile money SIM in the phone more often than not (a subject I discussed in the previous post in this series), promoting mobile money as a method of topping up is also important. In particular, MNOs have found success by promoting mobile money as an option for topping up in small increments, and topping up after hours when scratch cards may be unavailable. For instance, WING, a Cambodian mobile money service, has enjoyed success with their mobile top-up feature, and found that 33% of top-ups on their system occur outside typical store hours, and 70% occur at the US$1 price point, a level at which scratch-cards are a particularly expensive as a distribution option.

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?