Understanding the potential of the mobile money ecosystem

This blog was co-written by Nicolas Vonthron and Chris Williamson

For GSMA, the mobile money ecosystem includes mobile money providers and all third party organisations that can benefit from mobile money, either by using it as a payment mechanism or by leveraging mobile money accounts. The mobile money ecosystem facilitates transactions from different sectors, such as retail, utilities, health, education, agriculture, and transportation in addition to credit, insurance and savings.

The Digital Payments Ecosystem

Embracing the mobile money ecosystem brings two major benefits to mobile money operators:

1. Increased profitability: Deployments that build a mature ecosystem can expect healthy profit margins of more than 20% and cash flow margins in excess of 15%, making mobile money an attractive proposition relative to the core GSM business. Building the ecosystem is key to increasing the long-term sustainability of mobile money.[1]

2. Greater customer relevance and financial inclusion: While cash is still king for payments in the developing world, it can be problematic; for example, distributing physical cash (whether through salary payments or government disbursements) can be expensive and insecure.A robust mobile money ecosystem allows customers to make and receive more secure, convenient, transparent and affordable payments and financial services, encouraging them to keep mobile money in their accounts. This is especially important for financially excluded and underserved populations.[2]

Despite these benefits, the industry is not there yet. Notwithstanding the overall growth of mobile money, as 21 deployments reached over one million active users, usage continues to be dominated by two types of transactions: on-net P2P and airtime top-ups. These two transaction types represent over 87% of the total volume and 75% of the total value of transactions. This reality persists in spite of widespread attempts to break into new ecosystem verticals; for example, 133 out of 259 live deployments have launched merchant payments and 116 have launched bulk payments. Even in Kenya, despite the success of M-PESA, recent research by FSD Kenya [3] revealed that just 3% of all transactions were made electronically.

However, some mature providers are starting to scale ecosystem use cases. In December 2014, just under a quarter (23%) of the value moving through mobile money was through ecosystem transactions with third parties: bill payments, bulk payments and merchant payments. Looking deeper, this activity was driven by a very small number of providers: nearly 80% of merchant payments occurred through the top five deployments, and nearly 50% of bulk payments occurred within South Asia, reflecting a regional government agenda to disburse social benefits payments digitally.

But these examples are rare, emphasising the complexity of ecosystem players’ requirements, the importance of market and external environment conditions and the level of internal readiness and foundations required by operators to execute on these opportunities.

For instance, to provide the right level of agent coverage for agriculture payments initiatives, operators must consider the specific seasonality and liquidity management implications of different crop types, the definition of appropriate transaction limits and the geographical location of the agriculture businesses. Agri-value chains can be very complex and involve not only disbursements to farmers (which can be output payments, subsidies, insurance repayments or loans), but also B2B payments between agro-dealers, wholesalers and other parties.

As another example, G2P payments initiatives can create significant challenges around customer registration, especially when dealing with low-income customers who may not have a basic mobile wallet or even a mobile phone. These payments can also put an agent network under pressure, through sizeable spikes in demand for cash withdrawal by customers. Indeed, G2P tends to create “dump & pull” behaviour, making it hard for providers to extend the money loop at the same time as focusing on agent management.[4] 

Furthermore, there are linkages between ecosystem initiatives in different verticals for operators to consider. For example, allowing customers to receive their salary payment, government pension, or to access credit using their mobile money account could increase their willingness to pay a utility bill, merchant payment or school fees digitally, since funds are already available in electronic form. These synergies highlight an opportunity for operators who are willing to invest to build a broad ecosystem, but who face a further barrier to entry with narrowly-focused ecosystem initiatives.

Given these unique opportunities to digitise transactions and solve the “cash pain” experienced by customers and businesses across the developing world, why have most mobile money ecosystem initiatives to date struggled to gain traction? In the next post in our series, we’ll explore the three critical requirements for mobile money operators to drive successful ecosystem initiatives: strong foundations, a B2B commercial mindset and a collaborative approach to initiatives.


[1] See also: http://www.gsma.com/solutions-and-impact/connectivity-for-good/mobile-for-development//wp-content/uploads/2014/11/2014_Mobile-money-profitability-A-digital-ecosystem-to-drive-healthy-margins.pdf

[2] See also: http://www.gsma.com/solutions-and-impact/connectivity-for-good/mobile-for-development//wp-content/uploads/2012/10/2012_MMU_Expanding-the-ecosystem-of-mobile-money.pdf

[3] http://www.fsdkenya.org/pdf_documents/14-08-08_Financial_Diaries_report.pdf

[4] http://www.gsma.com/solutions-and-impact/connectivity-for-good/mobile-for-development/g2p-payments-mobile-money-opportunity-or-red-herring