Note: For more information on pricing and commissions, please join Neil Davidson and Paul Leishman for a Webinar on December 14th at 9:00am BST. To register for this webinar, please email mmu@gsm.org
For a mobile money service to scale and achieve profitability, it’s critical to have well designed customer tariff and agent commission models. This is a topic we’ve written about extensively already: Neil Davidson and I shared some insights on how MNOs can best incentivise agents in the “How to Incentivise a Network of Mobile Money Agents” section of our recent agent network handbook; in August I wrote a blog post detailing four common pitfalls that MNOs should avoid when designing their agent commission models; and any reader who’s used the GSMA Financial Model will know that pricing and commissions are one of the most sensitive variables at play. So how can MNOs ensure their tariff and commission models are well designed? Here again, MTN Uganda’s MobileMoney reveals some key insights.
If the MTN Uganda MobileMoney customer tariff model looks familiar to you, that’s probably because you’ve seen it in action before: in structure, it’s similar to the one used by Safaricom’s M-PESA. And as Ignacio Mas noted in the 2009 Mobile Money for the Unbanked Annual Report, this tariff structure (and the way it’s taken to market) works for a few reasons: it’s simple and transparent, customers are not bound by minimum balance requirements or prohibitive deposit fees, and it offers customers an ability to send money to non-customers.[1] It’s inevitable that MNOs will innovate and trial new models, but the design features listed above can be considered prerequisites for an effective tariff model in any environment.
It also merits note that MTN Uganda’s customer tariff model grants customers minimal leeway to defraud the operator of prospective direct revenues. That is, given that the p2p transfer fee typically accounts for less than half of the total end-to-end cost of sending money using the service, customers have little incentive to perform a direct deposit. Moreover, MTN has structured its tariff tiers in such a way that there is no opportunity for a customer to reduce their fees by splitting a cash-in or cash-out into multiple smaller tranches.
But it’s not just MTN’s customer tariff model that merits attention. Their agent commission model has been thoughtfully designed, too. The article Neil Davidson and I wrote for the 2010 Mobile Money for the Unbanked Annual Report details most of our thinking on agent incentives, but it’s worth briefly noting here how MTN espouses some key principles.
First, MTN pays MobileMoney agents a commission for every activity that they perform, even though MTN may not charge customers a fee directly for each one. For instance, even though MTN doesn’t charge customers a fee to cash-in, they do provide agents a commission for providing this service in recognition of the time and cost involved. Of course, while MTN take a temporarily hit by subsidising cash-in, the fees collected from an end-to-end money transfer (which includes a cash-in, a transfer, and a cash-out) do exceed the corresponding commissions paid. All told, the margin MTN earns for a typical end-to-end P2P transfer (excluding variable technology fees) to a registered customer is just north of 50%.
Second, while MTN may pay agents for both cash-in and cash-out, they deliberately pay a higher commission to agents for facilitating cash-out than they do for cash-in. This stems from the simple fact that ‘cash-out’ agents have a higher cost of restocking their inventory of physical cash than cash-in’ agents do for restocking their inventory of e-money. As such, ‘cash-out’ agents must be compensated accordingly.
Third, MTN recognized that to keep agents engaged in the period following launch when transaction volumes are typically low, it would be important to provide them with a different source of revenue. To this end, they have provided agents with a commission for every customer that they register.[2] Thus, in the early days following launch, MobileMoney agents earned money by registering customers; as the service scaled they increasingly earned their money from facilitating cash-in and cash-out transactions for customers.
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?
[1] Ignacio Mas: Good Service Design Features of M-PESA’s Money Transfer Service. 2009 MMU Annual Report.
[2] This decision also helped drive customer growth.