The post is part of a series looking at key findings from the 2014 State of the Industry Report on Mobile Financial Services.
Last week, we discussed how mobile money usage is evolving and found that some of the fastest growth is occurring in transactions involving a wider ecosystem of business and institutional users. In this post, I’ll be taking a closer look at the business itself, to understand how these growing transaction volumes are helping to generate higher revenues for mobile money providers. As mobile money continues to become a mainstream service offering for MNOs, what does this mean for the indirect benefits typically associated with the business? And finally, how much are mobile money providers investing in the systems and operational infrastructure to serve this increasingly diverse range of customers and products?
Direct revenues from mobile money
This year, we noted encouraging progress in the number of providers who are experiencing revenue growth from mobile money: nearly 40% of the respondents in our sample had more than doubled their revenues in the nine months between September 2013 and June 2014. In fact, the total global revenues generated by mobile money services grew over three times as fast as transaction volumes in 2014 (126.5% CAGR).
While this is certainly exciting, this global figure masks wide variances across different deployments, some of whom are reaching high growth rates on relatively small earnings in absolute terms. The majority of deployments are still at relatively early stages of development, working on building the foundations of a strong distribution network and activating their customer base. Half of the MNOs in our sample still earn less than 1% of their total company revenues from mobile money.
For those operators who have managed to reach scale and operate a mature, ecosystem-based service, mobile money revenues can contribute well above 10% of total company earnings. At least 11 providers this year reported generating more than USD 1 million in revenues from mobile money during the month of June 2014, compared to 8 providers in 2013, demonstrating the level of earnings that can be achieved through an increasingly active customer base.
This year we also saw greater diversity in revenue sources for our survey respondents. While most mobile money revenues still originate from fees charged to consumers, this year one in ten respondents reported earning the majority of their revenues from business fees, reinforcing the growing importance of mobile money as a payment channel for businesses to conduct B2B and B2C transactions, such as bulk disbursement of salaries.
Indirect revenues
For mobile operators in particular, mobile money can generate a range of indirect benefits, such as increased customer loyalty, a higher average revenue per user (ARPU) on the GSM business, and savings on airtime distribution. Safaricom, for example, states that M-PESA users are “stickier” than non-users (meaning that they are less likely to switch over to another GSM provider) by 10–30%, contributing to an annual savings for the company of USD 1.60 – USD 5.60 for every M-PESA user. Nevertheless, results similar to this example are few and far between, as mobile money’s ability to reduce customer churn tends to diminish once the service becomes mainstream within a market.
Likewise, reducing costs of airtime distribution via agents can also be a motivating factor in the decision for MNOs to offer mobile money services. Some MNOs are making this a lucrative model, selling well over 25% of their airtime through mobile money. Nevertheless, the majority of MNOs in our sample still conduct less than 1% of their total airtime sales via their mobile money services.
The importance of investments in mobile money
In a paper we published on mobile money profitability, Mireya Almazán and Nicolas Vonthron explain that mobile money can indeed be a profitable venture, but getting there requires heavy ongoing investments in operational expenditures and a shift away from cash-based transactions towards a mature digital ecosystem.
This year, we saw encouraging signs as mobile money providers continued to invest in improving and expanding their services, showing important commitment to the long-horizon investment required by this industry. Over 80% of the respondents who reported their level of investment said they had either maintained or increased investment since the previous year. Among these respondents, we noted that nearly half of the providers earning mobile money revenues over USD 1 million had invested “up to 50% or more” than the previous year.
Platform migrations was a key area of investment during 2014, reflecting the changing technical requirements needed to accommodate an increasing number of companies and third party users of mobile money. By June 2014, half of all survey respondents had either already migrated their platform or planned to do so within the next 12 months.
In the next post in our series, we’ll discuss mobile insurance services, and the two distinct distribution models that have emerged, both of which are proving to be successful in achieving scale.