New publication on setting up shop: Strategies for building effective merchant payment networks

Today, we’re releasing the second publication in a series of deeper insights into selected topics based on the findings of MMU’s 2013 State of the Industry Report on Mobile Financial Services. This publication, ‘Setting up shop: Strategies for building effective merchant payment networks’, addresses barriers that prevent merchant payments from scaling using mobile money, and highlights some of the key tactics that mobile money providers are using to increase adoption.

For mobile money providers, merchant payments have huge potential to increase mobile money transaction volumes. As a product, merchant payments have caught the attention of mobile money mobile money providers because of the sheer magnitude of retail payments in the market and the opportunity it represents to integrate the mobile wallet more deeply into everyday life. In 2012, 28 mobile money services were offering merchant payments. Two years on, 60 services have rolled out merchant payments, while another 28 revealed plans to launch the product within the next 12 months.

Yet, despite strong enthusiasm in the industry, today only a handful of services currently generate over 1,000 transactions a month. Merchant payments accounted for 1.6% of total transaction volumes and 4% of total transaction values in June 2013.[1] These figures continue to grow in 2014, but suggest that scaling a merchant network requires more than determination and goodwill. There are important factors that ought to be considered by mobile money providers when taking on this challenging new endeavour.

To gain a better understanding of approaches to merchant acquisition and management, MMU conducted 12 interviews with mobile money deployments that have made significant strides in building an active merchant network.

Highlights from the paper:

Building a merchant network

Some of the main lessons and insights from mobile money providers about how to build a merchant network are:

  • Building an active merchant network requires significant investments – all of the mobile money providers MMU interviewed admitted rolling out merchant payments was more challenging than they had originally anticipated, with some saying they had found it just as difficult as building their agent network.
  • Merchant networks need to be larger than agent networks – the potential number of merchant payments a customer will make with their mobile account is far greater than the number of transactions they would make at an agent.
  • Dedicated teams have been built to sign up merchants – ultimately, 10 of the 12 services created a dedicated sales force to both sign up and manage the merchants in their network.
  • Both quality and quantity are important when signing up merchants – active merchant rates (the percentage of merchants transacting on a monthly basis) can suffer when operators focus only on signing up as many merchants as possible.

Managing a merchant network

If it does not cost a merchant anything to sign up, most will do so, even if they are not yet fully convinced of the benefits. In most pricing models, merchants begin paying for the service when they transact, which is when cracks can start to appear. Merchants need to be visited frequently to reinforce the value proposition and ensure they are comfortable using the service. Providers have found the following practises to be instrumental in increasing merchant activity rates:

  • Successful mobile money providers use an internal dashboard to review merchant activity on a regular basis – this helps providers understand how many merchants are active, what makes them active, what is driving the transaction volumes, what types of businesses are most active, and other insights such as peak transaction times (day or night).
  • Merchants with an interest in analysing how their business is performing, or who need to perform reconciliations, require access to transaction data outside of USSD and SMS – providing merchants with web-based access to transaction reports is important.
  • The settlement process is a critical factor in getting merchants to use the service – providing merchants with clarity around settlement and how to access their funds is important to making them feel comfortable with the service and effectively manage their cash flows.
  • The reliability of the service is crucial – in one example shared by an interviewee, a bar fight broke out when a service was down for scheduled maintenance at 2 a.m. Delays in merchants receiving SMS confirmations was a common problem.

Download the publication.

As with the other publications in this series, this paper is not intended to be seen as best practice guidelines, and MMU does not advocate any of the tactics featured here as proven strategies for success. Rather, these unique, market-specific approaches are examples of innovation for mobile money managers seeking to learn from the experiences of their peers.

We also encourage you to share with us any tactic that has proven effective scaling mobile money merchant payments in your market in the comments below.


[1] Claire Pénicaud and Arunjay Katakam (2014), “State of the Industry 2013: Mobile Financial Services for the Unbanked”

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