The Mobile Money for the Unbanked 2009 Annual Report will include a detailed case study on the Zambian mobile money market, including analysis of the marketing, agent distribution and technology approaches used by Celpay and new entrant, Mobile Transactions. The report also includes an overview of the Zambian regulatory environment based on a series of conversations with Payment Systems regulators. In anticipation of this case study, an interview with Lazarus Muchenje, CEO of Celpay, has been provided. The interview was first published in the Q1 2009 Quarterly Update.
GSMA: Can you tell me a bit about Celpay?
Lazarus: First, I’ll describe where we fit in the mobile chain. We are not a mobile network operator, neither are we a bank. And that’s quite an important distinction. We work with mobile network operators and we work with banks – we sit in between as an enabler. However, we do provide services directly to the market, with the banks and the MNOs behind us. So you can look at it in two ways – MNOs and banks that want to do mobile banking can contract us to white label their services, but we are also providing services directly to customers as well. That’s our business model in a nutshell, and where we fit in the value chain. We currently operate in the Democratic Republic of Congo, Zambia, Tanzania, and we will probably incorporate in Zimbabwe in the next couple of weeks. We are highly optimistic that there will be an opportunity in Zimbabwe in the future. The other countries we are looking at are Kenya and Malawi.
GSMA: Are your services currently offered to customers under the Celpay brand as well as bank or MNO brand?
Lazarus: All our services are Celpay branded, and even the banks that work with us co-brand.
GSMA: You’re optimistic about a few African markets – can you explain what you see as the key market indicators of demand when sizing up a market?
Lazarus: The first point is the level of banking penetration, coupled by a high volume of cash transactions going through that market. There must also be insufficient banking infrastructure and good mobile take-up. From these factors, we have an inferred demand. Next, you take these figures and ask ‘how many of these people are not banking because of cost? Because of convenience? Because they don’t trust the banks? And how many aren’t banking because they see no need for banking?’ Of all those four types of people, our model addresses the needs of three – all but the ones who simply don’t see a need. You’ll never convince a guy to bank who doesn’t want to just because now there is mobile banking. Our model provides convenience. Our model is low cost – we charge no monthly fees, no subscriptions, no fixed monthly deposits, no entry balance, so we have done a good job of keeping cost of entry at zero, which is important. Our model is transaction based (cost paid by the business). Now for the third group – the guys who mistrust banks – we find that they actually have a fair amount of trust with mobile network operators. When we began, our name was aligned with Celtel, but now we have developed trust with consumers under the Celpay brand.
GSMA: How successful have you been so far at achieving profitability?
Lazarus: I don’t know many people who have been successful by way of profitability in this field. We’re very fortunate in that we are above break-even in Zambia. In fact in Zambia we are quite profitable now. How profitable are we? We know now what works and what does not work. We know what will make us break even in the DRC, but it’s a challenge to get the overall company to break even with all the markets we are pursuing.
GSMA: So your model in Zambia is the successful one that you hope to replicate in other markets?
Lazarus: Yes, that’s the one we are taking to other English speaking countries in this part of Africa.
GSMA: What have you focused on in Zambia that’s taken you to this state of profitability?
Lazarus: We’ve focused on the low hanging fruit first – which is business-to-business transactions. We find that the issue of collection of cash easily by people with large distribution networks is a huge challenge for them. We’ve sat down with many corporations and understood what their banking challenges are and developed B2B solutions that address their challenges. So if you were to ask me what would make someone successful, it’s not necessarily just ‘banking the unbanked’, it’s to bank the informally banked when doing business. Take an example of a network operator – with over 1,000 distributors paying them on a daily basis. Those distributors are not normally banked, so they struggle to make cash payments. Those distributors can now open an account and make payments through us. So we solve a number of problems for the MNO – they don’t have to hold or take out insurance on cash anymore. Those people – who were always business people, who were always handling a fair amount of volume through their hands, but were never recognised by the banking system are now actually paying through our system. After 6 months, the same previously unrecognised businesses can now go to a bank and get a loan.
GSMA: So you’re not banking the end user, you’re banking the distribution network.
Lazarus: Exactly. When we talk about B2B, our key success factor is taking businesses from a ‘small b’ to a ‘big B’. Big businesses have always had requirements for systems like this, but the banks had never been flexible enough to accommodate small businesses that make up a big part of a distribution network. That’s the niche that we fill out. That’s our form of financial inclusion.
GSMA: Do you offer any services to the end consumer or are you strictly focused on the distribution network right now?
Lazarus: We’ve always offered services to the end consumer. The real issue is the levels of success. We’ve been around now for over seven years. You can imagine that when we were beginning, even sending text messages was not fashionable. Thus, there was a fair amount of resistance, which is how we ended up with our focus on B2B. It meant that for the same amount of effort, you could get much higher volumes. The stage we’re at now, is that we’re looking at p2p – by way of money transfers and the sale of airtime on a retail basis. We currently offer transfers and airtime payments and payments to service providers.
GSMA: When it comes to the P2P model, what types of marketing and promotion have you found to be most successful, and which have been least successful at driving adoption?
Lazarus: We’re in a better place to speak to B2B, because it’s really early days for us in the P2P space. However, I can tell you that we’ve learned that you need a big brand to make this work. You also need a lot of interactive marketing. You can’t must have a simple campaign, because success in P2P requires consumer trust. So you really need a multi-faceted campaign where you put up your billboards and TV spots, but also where you engage the consumers and get their feedback. This feedback informs you on how to move forward. You can’t simply run a dry campaign and then after a while hire someone to do a market impact analysis – it needs to be more interactive. You need to find out what the market is thinking on a weekly basis and then react immediately.
GSMA: So when it comes to distribution, what are the key things to understand?
Lazarus: We do have some success in the p2b service, wherein an example would be a customer paying for satellite television services to a corporation. To have success here, we’ve had to build out an extensive distribution network. So we’re quite qualified to speak to this. A good distribution partner is one who is trusted in the community. You also need somebody who has a fair amount of cash on hand. Cash is important because that’s the medium. They need to have the systems and capacity to accept and disburse cash. If a business doesn’t have cash handling system in place, then they are not suitable because that’s not something that can be taught overnight. If you look at our distribution, you’ll find a lot of pharmacies, the ‘key shop’ in the village, post offices – people normally handling cash. The key really is to leverage existing cash-handling systems. Those systems don’t have to be complicated. The word system makes it sound like you need to have a big staff, etc. But that’s not the case.
GSMA: How enabling are the regulatory environments in Zambia, DRC, Tanzania and some of the other markets you’re in or considering?
Lazarus: There has been a fair amount of positive change since we started. When we started, there was nothing at all. Today, Tanzania and Zambia have enforced new laws. We see this as progress. In DRC, we have found that due to socio-political factors, the priorities are such that the regulatory infrastructure is just not in place. What does this all mean for us? It means that we can operate in markets like Zambia or Tanzania with relative certainty. In the DRC, we operate on other forms of certainty, like permission from the Central Bank – but this is not backed by law. The absence of a formal law makes it difficult to invest with certainty.
GSMA: If you could make one request to regulators in any of the markets that are relevant to you, what would it be?
Lazarus: It would be to learn from the progressive markets where these laws have already been implemented. We don’t need to relearn these things. The laws that have been made to date are actually very good. They’ve been made together with all stakeholder interests being taken into account.
GSMA: What would you like to see the GSMA do to help move this market forward from either a regulatory or a commercial perspective?
Lazarus: interoperability is a huge issue for us – especially when we are one of two or three players in a market. You need to bring us together on neutral ground to ensure we have similar standards. Second is to help engage in constructive conversation with regulators.
GSMA: Finally, how optimistic or pessimistic are you about the prospect of using mobile to deliver financial services to unbanked customers in developing markets?
Lazarus: I am quite optimistic, but we need to be realistic. In each market, we need to understand why people aren’t banking, with regard to the four reasons discussed earlier. If people aren’t banking because they don’t want to bank – for religious reasons, cultural reasons, whatever the case, then the outlook in those markets is bleak. But where people are not banking because it hasn’t been made convenient, or its costs are prohibitive, rather than based on lack of trust, then I’m quite optimistic that we will be able to do well in that part of the market.
GSMA: Thanks for your time, Lazarus.