This is a guest post written by Mireya Almazán and Megan Oxman, from The Bill & Melinda Gates Foundation.
M-PESA continues to make headlines, increasing revealing insights on the economics of mobile money. Recently released financial statements from Safaricom indicate that M-PESA contributed 15.8% of Safaricom’s total revenue (compared to 12.5% the previous year), making it the company’s second largest revenue stream after voice. Most strikingly, M-PESA revenues increased 43% with only a 6% growth in registered customers from the previous year (now at 14.9M). This suggests that most of the revenue growth was driven by a large increase in the number of fee-based transactions (e.g., peer-to-peer transfers) per customer.
In addition to fee-based revenues, M-PESA generates cost savings for Safaricom’s airtime business: 29% of Safaricom’s pre-paid airtime top-ups are now conducted electronically through M-PESA rather than through paper-based scratch cards, which are more costly to distribute. M-PESA also appears to help reduce churn on Safaricom’s core airtime business: Safaricom’s customers increased by 11% to 19.1M from 17.2M recorded in FY2011, despite raising its airtime tariffs above its competitors in early 2012.
Though we can glean M-PESA’s revenue contributions and indirect benefits derived, direct profit contributions are undisclosed and sensitive to cost assumptions. Large costs associated with building and maintaining a mobile money deployment include agent network management, marketing, and platform licensing fees. Remarkably, M-PESA’s agent network grew by 46% (to 36,700 agents) over the last fiscal year. At this scale, commissions paid to agents for each cash-in/cash-out transaction they conduct, as well as for signing up new customers, is substantial.
Nevertheless, M-PESA’s continued revenue growth in Kenya is good news for the industry, as it may encourage other providers to invest more heavily in building out mobile money systems that serve poor and rural customers. While Safaricom’s M-PESA has been an anomaly to date, accounting for nearly 70% of all mobile money transactions globally, according to MMU’s Global Mobile Money Adoption Survey, we are now seeing mobile money gain traction in other markets. Notably, M-PESA now accounts for 8.5% of Vodacom’s service revenue in Tanzania, compared to 2.8% the previous year.
Despite our optimism regarding the growing importance of mobile money as a business driver for mobile operators, we recognize that the business case for mobile money in developing markets is undermined by the high on-going cost of converting cash to electronic value (and vice-versa). This underscores the pressing need to enhance the range of use-cases (beyond p2p transfers) that can be performed electronically. Increased experimentation on revenue models through fee structure changes and new product offerings may help to boost the proportion of electronic transactions conducted relative to cash-based transactions. Particularly from a financial inclusion perspective, getting the economics right is critical to enable new partnership models that can yield a range of affordable mobile-enabled financial services for low-income segments.
