Research Problems
Over the past fifteen years, mobile phones have revolutionized telephony, far surpassing basic communication needs Equipped with numerous functionalities, these devices have spurred the growth of value-added mobile services, mobile commerce, and their use as access devices This evolution has created a wealth of lucrative opportunities for merchants and service providers in the mobile phone industry Today, mobile phones outnumber any other device used for marketing, selling, and delivering products and services.
The global expansion of mobile services has been remarkable, with the ITU estimating that in 2006, 79% of the world's population had the potential to access these services.
As of 2009, there were over 4.6 billion cellular subscriptions worldwide, resulting in a global mobile phone penetration rate of 68.2% In developed markets, penetration has reached nearly 100% of the population, while developing markets are experiencing rapid growth Notably, in Vietnam, by the end of August 2010, operators reported 142.2 million subscribers, exceeding the population by approximately 165% This highlights Vietnam's status as a rapidly expanding mobile market.
The rise of mobile phones has paved the way for mobile money, enabling cash transactions to occur as swiftly as sending a text message In developing regions, small retailers have transformed into banking hubs, allowing customers to purchase vouchers to top up their mobile accounts With mobile money services, these retailers can accept cash and credit it to users' mobile-money accounts through a simple text message Users can then transfer funds to other registered users, who can withdraw cash at local shops, or to unregistered users, who receive a redeemable code via text.
Mobile money has emerged as a significant topic, with Juniper Research forecasting that global users of mobile money transfer services will surpass 500 million by 2014 Recently, various markets have witnessed the launch of multiple mobile money transfer services, introducing innovative payment solutions These developments offer numerous advantages for consumers, as well as for operators and banks involved in the ecosystem.
Mobile money presents a significant business opportunity in the Vietnamese market for operators, financial institutions, and payment companies MobiFone is well-positioned to capitalize on this emerging trend.
With this study, I want to get a well understanding and analyst the opportunity of Mobile money business on VMS-MobiFone.
Objective and aim of thesis
This research is implemented to obtain the two purposes:
The study explores the opportunities and benefits of mobile money within Vietnam's mobile market, focusing specifically on VMS-MobiFone By analyzing successful case studies and conducting preliminary research on mobile money services, the article highlights the potential for growth and innovation in this sector.
• Develop business proposal for VMS-MobiFone: find the suitable models with current situation of VMS and develop a business proposal recommendation
With these above objectives, this thesis aims at giving a basic theoretical foundation of Mobile money implementation in general and how to apply to VMS-MobiFone in particular.
Research questions
The researcher will go to find the answer for questions below:
• What is Mobile Money? Is it a good opportunity?
• What are the models of Mobile money implementation?
• What are the key success factors?
• Is Mobile money an opportunity in Vietnam for the mobile operator
• How to implement to VMS- MobiFone?
Scope of work
This thesis explores the mobile money theory, focusing on its evolution since 2007, when Kenya successfully implemented mobile money, setting a global precedent.
This thesis examines the critical factors influencing the implementation strategy of mobile money, specifically focusing on market strategy, partnership models, and distribution channel settlements These elements are identified as key challenges and vital success factors for effective mobile money deployment The study also analyzes the current situation of VMS-MobiFone's mobile money services from their inception in 2005 to the present.
Data resource
For the theoretical part, data sources are textbooks, researches, articles from internet since 2007 As for the case study, data is obtained from questionnaire, interview customers and internal data.
Methods
The thesis uses the empirical method, desk researches, questionnaire, interview and case study in the study process.
Significance of thesis
The thesis highlights the significant potential of Mobile money in Vietnam's mobile service industry, particularly as it aligns with the country's rapid mobile penetration and limited access to financial services With many developing nations already adopting this technology, Vietnam stands poised to capitalize on the opportunities presented by Mobile money, making it a promising avenue for mobile operators.
Thesis limitation
The primary limitation of this thesis stems from the relative novelty of mobile money globally, and specifically in Vietnam, which has resulted in a scarcity of academic reviews and evidence Additionally, there has yet to be any practical implementation of mobile money solutions by Vietnamese operators.
This thesis has a specific focus and will not address all theoretical aspects of mobile money Instead, it will concentrate on the analysis of distribution channel settlements, which will inform the action plan for implementing mobile money within VMS-MobiFone.
This research employs experimental methods, utilizing a questionnaire survey and statistical analysis to gather data However, it is important to note that this methodology has inherent limitations.
Expected results
This thesis aims to provide a comprehensive theoretical framework for mobile money, analyze the opportunities within the Vietnamese market, and identify strategies for the business development of VMS based on the insights gathered from this research.
Structure of thesis
Apart from the executive summary, introduction, references and appendix, this thesis concludes four parts as follow:
Part 1: Mobile money theoretical overview
Part 2: International MNOs mobile money deployment
Part 3: The case of Vietnam mobile service company
Part 4: Mobile money services business development proposal for VMS.
Mobile money theoretical overview
Mobile Money (MM)
1.1.1 The convergence of Mobile service and financial service
Penetration of mobile services across the world is increasing rapidly
In 1990 there were just over 11 millions mobile phone users worldwide Today, over 4.8 billion mobile subscribers over the world (ABI, Q1 2010)
The integration of mobile and financial services is increasingly evident, with a recent survey by Edgar Dunn & Company and the GSM Association (GSMA) revealing that by 2012, 7% of subscribers in developed countries and 4% in developing countries are expected to make at least one cross-border remittance This translates to over 248 million subscribers utilizing mobile money transfer services, highlighting the growing significance of mobile financial solutions in today's regulatory landscape.
Financial access remains a significant challenge for the poor in many developing countries, with access rates lagging far behind the global mobile penetration rate of around 70% Currently, there are approximately 0.5 million bank branches and 1.4 million ATMs worldwide, a stark contrast to the over 4.8 billion mobile subscribers globally.
Bank transfer and money remittance fees can be prohibitively high for small denomination transfers, making it difficult for workers to send funds to their relatives This financial burden limits their ability to provide support, particularly when sending smaller amounts of money.
According to World Bank reports, the rising costs of retail premises and staff have led to high overheads, making remittance commissions expensive On average, these fees are estimated at 15% per transaction, with costs exceeding 25% for remittances under $100.
Mobile money services are projected to benefit workers by approximately $200 annually, based on World Bank data indicating 12-14 transactions per year These services primarily involve simple, low-value transactions, such as cash-in and cash-out operations for transferred funds.
In conclusion, the convergence of mobile and financial services presents significant opportunities for mobile network operators (MNOs), financial institutions, and consumers alike However, it is essential to adapt financial regulations to accommodate these new services, providers, and customers, particularly in addressing the inherent risks associated with mobile money initiatives.
1.1.2 What is Mobile money service?
Numerous terms are being used to describe the ways mobile phones facilitate financial services like: mobile banking, mobile payments, mobile transfers, etc So, what is mobile money?
Mobile money encompasses a wide range of interconnected applications within the financial industry, primarily referring to services that facilitate electronic transactions via mobile phones This concept includes various mobile financial services, such as mobile wallets and mobile payments, which connect customers to financial solutions through their mobile devices.
This article explores the concept of mobile money, encompassing all monetary transactions conducted through mobile phones It highlights the emergence of various mobile money applications that have significantly transformed financial interactions.
Mobile banking refers to the use of a mobile phone to remotely access bank accounts, allowing users to check their account balances and make bill payments This technology serves as a new delivery channel for existing bank customers, while transformative models aim to include unbanked populations into the formal financial sector.
Mobile Money Transfer (MMT) is a convenient person-to-person application that allows consumers to electronically send and receive money using their mobile devices This service facilitates both domestic and international remittances, enabling users to transfer monetary value seamlessly from one individual to another via their smartphones.
Mobile Commerce (Mobile Payments): Mobile payments refer to person-to-business payments that are made with a mobile phone instead of focusing person-to-person money transfers like MMT
Mobile proximity payments utilize smartphones to facilitate transactions at point-of-sale (POS) terminals, primarily through contactless technologies like Near Field Communication (NFC) This method allows users to make payments for in-store purchases or settle bills via their banking or mobile accounts, offering a convenient alternative payment channel for both online and offline transactions.
Mobile remote payments/ bill payments
Mobile money enables all mobile subscribers, regardless of their banking status, to deposit funds into their mobile accounts, transfer money easily to others, and convert those funds back into cash affordably Initially, successful mobile money services focus on simple money transfers but evolve over time to offer more advanced features, providing lower-cost savings, credit, and insurance options compared to traditional banking methods like branches or ATMs.
There are some other terms that are often used in association with, or interchangeably with, e-money, mobile financial services include:
Electronic Wallet (eWallet): Refers to the cash value that is stored on a card, phone, or other electronic device
Electronic Vouchers: Refer to definition for electronic wallet
Mobile Wallet (mWallet): An electronic wallet that is stored on a phone GSMA provides the following more specific definition:
mWallet serves as a comprehensive data repository that stores consumer information necessary for executing financial transactions via mobile devices It intelligently converts consumer instructions from mobile handsets or applications into actionable messages, enabling financial institutions to efficiently debit or credit bank accounts and payment instruments.
Stored Value: Refer to definition for electronic wallet
Figure 1.1 Mobile Money services 1.1.3 Opportunities for Mobile money services
Mobile payments have been explored by mobile network operators since 2000, but initial efforts saw limited success Recently, advancements in handset functionality, chip technology, and mobile networks, along with enhancements to point-of-sale infrastructure, have significantly improved the landscape for mobile money solutions This evolution has fostered collaboration between various industry stakeholders, including banks and telecom operators, paving the way for more effective mobile payment systems.
The global recognition of mobile money highlights its significant social and economic advantages, particularly in developing countries with limited financial infrastructure This innovative financial service provides billions of individuals in remote and rural areas with a more affordable and convenient alternative As a result, the extensive reach of mobile phones facilitates quick and easy access to essential financial services for a larger population.
Firstly, in emerging countries traditional financial services usually haven’t been reached or accessed by a large proportion of the population
Benefit of Mobile money services
Mobile money is revolutionizing financial access by integrating banking and mobile technologies, providing consumers with convenient financial services, especially for those with limited access This innovation not only enhances consumer experience but also generates significant advantages for operators, banks, and payment companies alike.
Mobile money offers numerous advantages for mobile operators, including increased Average Revenue Per User (ARPU) and data traffic It enhances customer acquisition and retention while creating new revenue channels, such as sharing fees Additionally, mobile money can help reduce operational costs, promote upselling of mobile content and postpaid services, and improve brand image.
Mobile operators generate revenue from various sources, including transaction commissions, subscription fees, and the monetization of float paid by end users As customer engagement and transaction volumes rise, so does revenue The monetized float allows operators to earn returns through short- and long-term investments, typically yielding rates of 12%-15% Therefore, operators should focus on increasing float deposits by incentivizing usage and enrollment instead of promoting cash withdrawals.
Mobile money services provide significant indirect benefits for mobile operators in emerging markets, including increased Average Revenue Per User (ARPU), lower churn rates, and opportunities for upselling and acquiring new customers.
A recent market sizing study by CGAP and GSMA reveals that mobile money customers generate an average revenue per user (ARPU) that is 74% higher than that of non-mobile money customers Additionally, statistics from countries that have implemented mobile money services indicate a potential ARPU increase of 5% to 10% over several years This insight is crucial for operators venturing into developing markets, where ARPU levels are typically low.
Mobile money services play a crucial role in reducing customer churn, a major challenge for mobile network operators (MNOs) By providing mobile financial services, MNOs can enhance customer retention, particularly among segments that demand more advanced offerings.
Mobile Money presents an opportunity for current and potential bank customers to experience up-selling and new customer acquisition By introducing innovative mobile financial services, telecom companies can expand their reach to untapped customer segments This increased market share not only attracts new customers but also facilitates the cross-selling of telecom services, ultimately driving revenue growth.
Mobile operators can significantly reduce billing costs for both prepaid and postpaid subscribers by enabling customers to make payments directly through their mobile devices This eliminates the need to pay commissions to retail distributors of top-up vouchers, making the payment process more convenient for users, who can complete transactions anytime, like having a 24/7 open shop Research suggests that these changes could lead to a potential savings of up to 4% in sales costs.
Figure 1.4 Value drivers of mobile money to MNOs 1.2.2 To Customers
The extending mobile money to other emerging countries, especially in Africa and Asia, would have a huge impact to customers
Firstly, it’s clear that mobile money provides a starting point to formal financial services for the billions of people lacking access to savings accounts, credit and insurance
Secondly, mobile money provides a faster, cheaper and safer way to transfer money than other alternatives like slow, costly transfers via banks and post offices, or bus driver
Mobile money significantly lowers the costs associated with money transfers by leveraging a network of local agents instead of relying on costly bank branches By eliminating the need for physical locations, mobile technology facilitates timely and secure transactions, resulting in reduced remittance fees This innovative approach to financial services is particularly appealing to low-income users in emerging economies.
According to World Bank estimates, reducing remittance commission charges by 2-5% could lead to a 50-70% increase in formal remittance flows, significantly boosting local economies This reduction in costs would allow for lower-value remittances, which currently average around US$200 Vietnam ranks among the top 20 countries for remittance receipts, with an average transfer fee of approximately 10% The growth of mobile money services holds promise for further decreasing these costs in the near future.
Mobile money services have significantly transformed the way recipients in rural areas manage domestic remittances, allowing them to focus on more productive activities instead of spending hours traveling to banks In Kenya, the implementation of M-PESA has led to an income increase of 5-30% for households, with four out of five users acknowledging that losing access to M-PESA would greatly impact their lives Users appreciate M-PESA for its speed (98%), convenience (97%), and security (98%) compared to traditional informal methods Similarly, in the Philippines, around 90% of mobile money users feel their funds are secure and would recommend these services to others As mobile money continues to evolve, consumers will benefit from enhanced speed, convenience, and security across a wider range of financial products, including savings and credit.
Figure 1.5 Example MPESA Cost of non-bank domestic transactions
Thirdly, mobile money also provides many other functions such as payment, savings in a secured way instead of keeping and carrying money with many risks around
Financial institutions have the opportunity to use the development of mobile-financial convergence to achieve their aims such as:
■ New services offered to consumers, i.e mobile money transfer services (innovation) and new revenue flow there comes
Leveraging mobile infrastructure allows banks to significantly reduce costs, as mobile operators benefit from lower transaction expenses due to their highly automated networks By delivering financial services through mobile platforms, banks can minimize the overhead associated with installing and maintaining costly ATM networks This cost efficiency is crucial for banks aiming to maintain high performance and competitiveness in the evolving financial landscape over the next decade and beyond.
■ Across all consumer groups (banked, under-banked, unbanked) Mobile capabilities can increase banking penetration of untapped markets at a relatively low acquisition cost
Increased access to mobile telephony in developing countries significantly enhances their economies by facilitating bill collection and payment methods, which reduce costs and save time for banks, merchants, and customers Additionally, mobile money promotes the transition of remittances from informal to formal channels, providing greater visibility of money flows and improving regulatory management.
Figure 1.6 Compelling reasons for key stakeholders to invest in Mobile money
In conclusion, the introduction of mobile money transfer services presents significant socio-economic benefits for all stakeholders involved, particularly enhancing access for consumers previously limited in their financial options This innovation aligns with financial regulators' goals to improve financial accessibility across diverse consumer groups, fostering competition and reducing reliance on informal remittance channels Additionally, the mobile and financial industries stand to gain from the development of new services and revenue streams.
Models for Mobile money business
Mobile money applications are primarily categorized into two prevalent models: operator-centric and bank-driven, as these sectors manage extensive customer bases However, the landscape is evolving with an increasing number of new entrants, including handset manufacturers, payment companies, and card issuers, expanding the mobile money market.
As technology evolves, various mobile money applications are emerging with distinct business models tailored to specific countries and mobile network operators The development of the mobile money ecosystem varies significantly across markets, as no universal model can accommodate all regions This variation is influenced by multiple factors, including market composition, regulatory openness, the maturity of related industries, the dominance of key players, and potential collaboration within the value chain.
Operators are ideally positioned to provide mobile money services as a valuable addition to their offerings This is particularly beneficial as they adopt 3G technology, which necessitates the introduction of new data services to drive revenue growth.
As their own service offering, MNOs have been independently deploying mobile money applications, providing prepaid top-up services, mobile money transfer and mobile payment services through its billing platform
Operator-centric models are commonly adopted in developing markets such as Africa for mobile banking serving the unbanked segments
M-PESA, a money transfer service developed by Vodafone in Kenya, exemplifies innovative financial solutions Operated by Safaricom, the service positions itself as a financial provider, while a local bank manages the M-PESA accounts and assumes legal responsibility for financial liabilities.
In the Philippines, G-Cash exemplifies an operator-led approach to mobile money, managed by Globe as a standalone account independent of traditional bank accounts Unlike conventional banks, G-Cash serves as a payment solution provider, handling various financial aspects Globe's success is largely attributed to e-money regulations that empower mobile operators to function as financial entities This model thrives in the Philippines due to several factors, including a significant unbanked population, the widespread use of affordable SMS, and a high demand for remittance services.
In Vietnam market now, there still no operator begins with this business
Strength of MNOs Challenges to MNOs
They own the Mobile subscribers
They own large distribution channel
They are experts in mass marketing
Their systems are designed to perform millions of transactions per second while keeping costs to a minimum
Figure 1.8 Strength and challenges to MNOs in Mobile money 1.3.2 Bank – Centric
Banks typically approach new mobile money products with caution due to their inherent risk-averse nature Although they recognize the potential for expanding their customer base through mobile banking systems, they are carefully evaluating the balance between the increased credit opportunities and the associated risks.
Initially, individual transactions in mobile banking are smaller than those in traditional banking Consequently, the primary players in transformative mobile banking models are expected to be banks that possess the strategy, brand, and ability to engage unbanked customers At the same time, banks are not aggressively expanding their core banking products through mobile channels.
The majority of developments of mobile money services of banks thus have been around simple mobile banking facilities that permit account enquiries or transfer of funds
Banks deploy these solutions as an extension of their traditional banking services
Bank-led models prevail in Africa as major banks look at mobile banking as a competitiveness necessity to expand their service reach For example, First
Since 2002, the National Bank of South Africa has implemented mobile banking as a crucial element of its retail banking strategy The bank has created its applications internally while collaborating with a third party to enhance its offerings.
The Bank Centric Model has evolved to include a robust SMS messaging gateway, enabling seamless access across all mobile networks Initially a “first to market” offering, this service has transformed into a vital transaction channel, facilitating millions of transactions valued at hundreds of millions of rand each month for the bank.
In the Vietnamese market, numerous banks have introduced mobile banking services that integrate web tools and mobile SMS, allowing customers to connect their bank accounts with their mobile accounts for convenient transactions such as topping up mobile balances and paying bills Despite these advancements, these services primarily benefit existing bank customers and do not address the needs of millions of unbanked individuals, as transactions still rely heavily on web tools Recently, Dong A Bank has expressed interest in partnering with Mobile Network Operators (MNOs) to offer mobile SIM cards featuring a specialized toolkit that includes integrated mobile money services, although this offering remains exclusive to Dong A customers.
Strength of Banks Challenges to Banks
They have been dealing with money since there was money – they are experts in cash management
They are compliant to financial regulations
They are trusted when provides financial related services
Limited Reach (to unbanked millions)
Figure 1.10 Strength and challenges to banks in Mobile money 1.3.3 Payment Company centric
The rise of mobile payment opportunities has led to a growing number of payment networks entering the industry These independent service providers are actively enhancing the online payment landscape by facilitating secure transactions between customers and merchants.
Figure 1.11 Payment network Centric Model
Payment networks are increasingly making their mark in the mobile payments sector, with PayPal recently launching a mobile checkout feature for browser-enabled phones This innovation enables users to check their balances, transfer funds, and locate nearby shopping options By capitalizing on its extensive online auction user base, PayPal aims to broaden its payment services and reach a wider audience.
In China, leading mobile payment service providers such as UnionPay, YeePay, and Taobao are bolstered by extensive partnerships with banks, merchants, and mobile operators However, these collaborations are primarily established on a provincial or city level, resulting in a constrained network of partnerships that is limited to specific geographical regions.
Several payment solution companies are actively operating in Africa, focusing on mobile transfer and cross-border remittance services Notably, WIZZIT and Crandy have been developed independently of traditional operators to address the significant gaps in banking infrastructure across the region.
In any of this model, in order to get a successful business, it requires a very good partnership among members
1.4 Key success factors for mobile money business
The success of mobile money transfers rests on their fulfillment of customers’ needs and the offer of a better solution than was previously available
Implementing a mobile money business presents several challenges, including navigating regulatory issues, developing an effective product strategy, executing successful promotional campaigns, managing distribution channels, and ensuring a robust technical system.
International MNOs
Entry mobile money strategy for MNOs
In this study, the author researched on numbers of mobile money deployment practices around the world to find out successful and appropriate models for MNO mobile money entry strategy
To successfully implement a mobile money project, Mobile Network Operators (MNOs) must clearly understand the challenges associated with entering this market Insights from previous projects and interviews with industry leaders highlight essential strategies to unlock mobile money's potential Key components of this strategy include market analysis, partnership models, technical and information systems evaluation, and effective distribution channel management.
The first important part in a mobile money entry strategy is defining the market strategy The market strategy is defined via two steps: preliminary assessment and marketing strategy
A preliminary assessment of mobile money services involves conducting a comprehensive market study that encompasses socio-economic, mobile market, and financial market analyses, including banks, microfinance, and money transfer services This qualitative and quantitative research helps identify opportunities and challenges in the market, informing strategic decisions such as whether to deploy mobile money services, assessing their competitiveness, and determining the optimal implementation plan.
In regions where banking penetration rates are below 30% but mobile penetration is significantly higher, mobile money operators have a unique opportunity to "bank the unbanked," particularly those at the "bottom of the pyramid" who are often overlooked by traditional banks due to high acquisition costs Therefore, mobile money services should focus on delivering value to all customer segments lacking full access to banking services.
Limited banking services are prevalent in countries facing several challenges, including the high costs of maintaining bank accounts, inadequate infrastructure, and high minimum income requirements to open an account Additionally, the premium image promoted by banks often discourages low-income segments, while a widespread belief exists that banking costs are high and overly complex.
To enhance the value proposition and encourage usage, it is essential to implement services that cater to specific market demands Operators should conduct thorough market surveys, including qualitative customer studies and customer journey analyses, to identify the unique needs of each business and consumer segment.
Mobile money services could unlock greater opportunities by offering branchless banking at lower fees than traditional banking By conducting research on alternative fee structures for mobile money, these services can establish a competitive pricing policy that benefits consumers.
When launching a mobile money business, the first crucial step is product development, which encompasses a range of services from mobile banking to mobile payments It is essential to consider integrating foundational services, such as airtime top-up, to enhance the overall mobile payment experience.
Figure 2.1 Relative value of MNO in mobile money services
The complexity of services can differ greatly and does not necessarily relate to their potential in the mass market Each service demands varying degrees of involvement from banks or mobile network operators For example, while mobile payments and banking necessitate integration with banking systems, their successful launch does not guarantee widespread adoption.
Operators should prioritize launching features with significant usage potential to effectively educate the market In regions where cash remains dominant, the challenge of sending money is particularly complex Consequently, mobile money transfer emerges as a crucial feature to implement at launch, given its high penetration and usage potential, along with the absence of convenient and accessible alternatives.
Exploring various mobile money transfer models can effectively address market demands One approach is Peer-to-Peer money transfer, which facilitates transactions between two registered users, specifically targeting senders and receivers who possess mobile phones and are customers of the service provider Additionally, mobile users have the option to send money to recipients who are not customers of the operator, broadening the scope of mobile money services.
Incorporating cash in and cash out processes is crucial for successful launches, while robust account management features are essential for low-income users to conveniently monitor their balances at any time.
Typically, additional services to be included in the roadmap will cover utility bill payment, airtime top up, micro loan disbursement and university or school tuition fees payment
Once service awareness has increased, it is essential to explore the launch of more advanced features International remittance presents substantial business potential and should be prioritized early in the development roadmap The value proposition for international remittance hinges on facilitating multiple corridors, enabling users from various countries to access the service Local operators must establish partnerships with distribution and banking entities in migrant countries to effectively address these corridors However, the expansion of these corridors adds complexity, necessitating a greater number of partnerships.
Hence, most operators will need to partner with Remittance Service Providers (RSP) which can propose global hubs with multiple corridors
Western Union’s recent Digital Vendor Program initiative enables operators to be part of the international remittance program and to benefit from existing infrastructures in all senders’ countries
Besides, business to business (B2B) applications such as salary payments and payments collection are developing as the next generation of mobile money features
After the successful launch and adoption of a mobile money service, marketing managers will encounter heightened competition as both major mobile and non-mobile companies may introduce their own mobile money solutions.
Operators should focus on developing credit and savings services within the mobile money framework to provide a comprehensive range of financial services This approach will help distinguish their offerings from other mobile money initiatives and expand their reach in markets where peer-to-peer transfers have limited potential Additionally, this phase may see the emergence of more advanced partnerships with microfinance institutions.
Figure 2.2 Potential Service Roadmap for Mobile Money and Payment
Which products should be key for mobile money business?
Research on mobile money services in emerging markets like the Philippines and Kenya reveals that cashless payments represent only a small fraction of total transactions—2% in Kenya and 10% in the Philippines The primary focus of branchless banking services is facilitating money transfers, including sending and receiving funds These services are essential for clients who need to transfer money to family members in rural areas, pay utility bills, or receive government benefits Consequently, there is a growing demand for financial products that extend beyond basic payments, with cash in/cash out capabilities being crucial for the development of these services.
Mobile money case study – M PESA (Kenya)
Kenya is 582.646 km2 area countries of 38.6 million populations in 2008 with 75% of them are in rural and agriculture GDP of Kenya is
$890/capital (2008) Figure 2.13 Kenya economic situation b Access to finance
The significant rural-urban migration in Kenya has led to the phenomenon of split families, a challenge faced by many developing nations Despite this, there remains a strong cultural pressure to maintain ties with one's ancestral village, highlighting the importance of heritage in the face of modern changes.
Before M-PESA's launch in Kenya, 38% of the population was financially excluded, lacking access to any financial services (FinAccess 2006) The country faced limited financial alternatives for domestic remittances, with the bus system being the primary method for sending money Additionally, the Post Office offered an expensive and inconvenient service that was not well-regarded by users In this concentrated mobile operator market, Safaricom stands out as the dominant player, holding approximately 80% market share.
It enjoys a relatively low prepay airtime commissions: Safaricom gives 6% of sales to the channel, of which 5% typically goes to the retail outlet
Kenya boasts a remarkable mobile phone penetration rate of approximately 42 connections per 100 people, which is comparable to wealthier nations like Mauritius, Tunisia, and Morocco, despite its lower income level of $890 per capita.
Why choose Kenya’s M-PESA case study?
M-PESA is a very beginning successful case in developing mobile money services in developing countries which is a good model to get lesson for many following implements in other countries
Compare to Vietnam, we can see Kenya has some common situation conditions when starting M-PESA services such as:
In 2010, both Kenya and Vietnam exhibited comparable economic conditions, with Kenya ranked 147th and Vietnam 138th in GDP per capita according to the IMF Additionally, approximately 75% of Kenya's population resides in rural areas, mirroring Vietnam's agricultural landscape.
About financial access, banking account access of Kenya before the launching of M-PESA is 11%, the same with the rate around more than 10% in Vietnam now
Mobile money services have been successfully implemented by Safaricom, the leading operator in Kenya, while in Vietnam, the focus is on introducing mobile money through Mobifone, one of the three major operators with a significant market share.
2.2.2 M-PESA Mobile money business a Launching M-PESA : March 2007 b Partnership Model: MNO launched alone by Safaricom – the dominant operator that is part owned by the Kenyan government and Vodafone c Result:
Change the way people send/receive money
Figure 2.16 How people in Kenya sent money before M-PESA
Figure 2.17 How people in Kenya sent money after the introduction of
- 8.3 million registered customers - majority active This corresponds to a penetration of 57% in Safaricom’s customer base and 21% of the entire population or 40% of adults
- 11,000 retail stores at which M-PESA users can cash in and cash out
Kenya experiences approximately $300 million in monthly person-to-person (P2P) transfers, which accounts for around 10% of the nation's gross domestic product (GDP) on an annualized basis While the frequency of transactions per customer is increasing, it still averages only 1-2 transactions each month.
M-PESA stores handle approximately $650 million in cash deposits and withdrawals each month, with an average transaction size of around $33 Notably, Vodafone reports that half of these transactions are valued at less than $10.
According to the 2009 FinAccess survey, 25% of M-PESA users utilized their mobile phones for money storage A subsequent government audit in August 2009 indicated that the average balance in M-PESA accounts was just $3.
- $ 7 million in monthly revenue (based on the six months to September
In the last fiscal year, M-PESA generated US$94.4 million for Safaricom, accounting for 8% of the company's total revenues and establishing itself as the primary catalyst for new profits.
- 19% of Safaricom airtime purchases are conducted through M-PESA
- There are 27 companies using M-PESA for bulk payments distribution Safaricom itself used it to distribute stock dividends to 180,000 shareholders into their M-PESA accounts, out of a total of 700,000 shareholders
Since its introduction in March 2009, M-PESA has enabled 75 companies to streamline their payment collections Notably, the largest participant, an electric utility company, now facilitates approximately 20% of its one million customers to make payments via M-PESA, showcasing the platform's growing impact on the payment landscape.
In Kenya, M-PESA utilizes Sim Toolkit (STK) technology, allowing users to access an application directly from their phone’s menu via the SIM card This method ensures enhanced security for transactions.
This actual cost of transferring money using M-PESA in Kenya is broadly similar and substantially lower than other alternatives e Fee structure
Figure 2.18 Posted customer tariffs for M-PESA
In Kenya, sending money to a registered user incurs a fixed fee, regardless of the amount, up to a maximum limit of USD 460 For the most common transaction of around USD 20, Safaricom applies a fee of 3.6% This fee structure encompasses the deposit fee, which is free, along with the transfer and withdrawal fees associated with the transaction.
M-PESA uses a branchless banking model to enable the service to reach previously unserved communities Besides making cash withdrawals and deposits possible, the agents also play an important role in registering users, handling the ‘know your customer’ (KYC) rules and educating users When Safaricom launched M-PESA, they built the agent network from their existing airtime distribution channel At the start of M-PESA Safaricom had about 1,000 airtime retailers, many of these had multiple outlets Of these 1,000 airtime retailers 300 joined as M-PESA agents at the launch
Safaricom has successfully partnered with large and medium-sized airtime retailers, designating them as master agents for M-PESA By signing a single agency agreement with these aggregators, Safaricom efficiently expanded its network of M-PESA agents across numerous outlets This strategy not only accelerated the growth of M-PESA agents but also simplified management for Safaricom, allowing them to avoid direct interactions with thousands of individual outlets nationwide Additionally, the use of aggregators enhances cash management by addressing cash float challenges that arise from regional discrepancies in deposits and withdrawals.
Stores can manage their liquidity through four primary methods, as illustrated in figure 2.19 Two of these methods are non-bank based and depend on the physical deployment of master agents, which involves the store or a master agent clerk transporting cash between two locations.
The third liquidity management mechanism is through the respective bank accounts of the master agent and the store instead of above clerk
The final liquidity management mechanism was introduced in early