The following is a guest post we’re pleased to share by Ignacio Mas, Deputy Director from the  FSP program at the Bill & Melinda Gates Foundation.

At the MMU working group in Barcelona a couple of weeks ago, Seema joked that last year I declared cash to be the enemy of financial inclusion, and this year I nominated multiple SIMs as the enemy of operators. Now I am ready to unveil the third in the triad of bad guys of mobile money: non-customers.

Mobile customers who are not on your mobile money scheme represent more than foregone incremental revenue. Never mind that those non-customers are not generating any mobile money revenue – they are actually reducing the value of mobile money for everyone else. That’s inherent in a network business, it’s what we call a network effect. The value to me of being part of the network increases with the number of other people who are on it. Conversely, the fewer the number of potential payment counterparties, the less I want to be a part of it. If you think that doesn’t apply to you, think about businesses. Does it really solve anything for my business if only 5% of my customers can pay me through mobile money? But if the vast majority do, then it really solves my collection headaches.

Let me bring back the other enemies. Cash is the enemy because it is so costly to move around. It is the enemy of poor people, because it adds a lot of cost to every transaction they do with anyone who is more than a stroll away. Most financial service providers are quite far from where poor people live and work, and the result is that more than 70% of people in developing countries don’t have a bank account. Cash is the enemy of mobile money because it forces operators to share almost half of mobile money revenues with retail stores whose only job is to provide backward compatibility with the legacy payment system that poor people are on – cash. Take cash out, and mobile money could be so much cheaper and so much more profitable.

And multiple SIM cards are the enemy if you believe that the main reason why you are doing mobile money is to entangle your customers with a sticky service. Churn will not be reduced if the customer selects which SIM card to use each time they want to do a transaction based on which mobile money network the recipient of the funds is on.

Those are pretty powerful enemies: the (at least initially) vast majority of mobile customers who are non-users; cash that has been around for centuries; multiple SIMs which are now so easily available. No wonder mobile money seems hard. (And if you don’t think it’s hard, my guess is that you haven’t been at it for very long).

How to solve all of this? Interconnect your mobile money platforms. Wait! Operators, please hear me out.

If you interconnect, the pool of payment counterparties is automatically expanded. You are leveraging other operator’s customers for your own advantage, not just your own. Larger network effects kick in for your customers. Your customers will be instantaneously happier, they will tell their family, friends and business associates about it, and they will help convert non-customers into customers virally. The non-customer enemy retreats.

You may say that you are already doing precisely that by allowing your customers to send money to non-customers via an SMS code they can convert into cash at your cash merchants. Beware! You are defeating enemy #1 (non-customers) by perpetuating enemy #2 (cash). You should want money to stay in electronic format as much as possible, rather than force a conversion back into cash. Why concede half your revenue to the cash merchant from the get-go? Let your customers be able to transact with as many people as possible, electronically. And offer the possibility of an SMS payment as well – but to be used only to send money to non-customers who by definition must go through cash.

And if you want your customers to stick with you, they should be able to send money to anyone using your SIM. Your SIM should represent choice. If you insist on fragmenting your customers’ payment world, don’t be surprised if they maintain a foot in each. Enemies #2 (cash) and #3 (multiple SIMs) are in fact in cahoots: if customers use multiple SIMs associated with walled-garden mobile money schemes, they will interconnect through cash (I receive money on one SIM, I cash out of that, I cash in on my other SIM, and I send the money off).

The enemies are lurking! Mobile money operators, circle the wagons! Interconnect your platforms!