Mobile money for the unbanked – Avoiding common industry pitfalls

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A new Roland Berger study, entitled Mobile Money for the unbanked – Avoiding common industry pitfalls, highlights the challenges of creating a Mobile Money operating arm, cautions operators that success isn’t guaranteed despite potentially high demand, and provided actionable recommendations.

As part of the research more than 20 operators across Africa and Asia were analyzed.

Average cost per transaction by channel in an East African nationIn recent years, Mobile Money has emerged as an attractive way to increase financial inclusion by using a mobile phone as a wallet. It has a lower cost of acquisition, at 30% to 50% of cost compared to traditional banking channels in emerging markets. There are now close to 300 Mobile Money operators in 90 countries.

However, while there are numerous success stories citing high revenue growth and reduced customer churn, the reality is that a majority of Mobile Money businesses either under-perform or fail. The study found that only 22% of the examined Mobile Money operators accounted for over 10% of their Group revenues, underscoring the paucity – but achievability – of genuine scale in this industry.

Four common pitfalls faced by Mobile Money operators

According to the study, a number of common pitfalls can be identified among sub-par Mobile Money deployments, which lead to serious problems or outright failure for Mobile Money operators. These pitfalls can occur in four strategic pillars: organizational setup, distribution network rollout, technology strategy and marketing strategy.

Organizational setup pitfalls: Mobile Money services typically start out as a fledging project within a Group and aren’t usually a part of the core product or service. The project may not initially have a standalone management team, which means genuine decision-making authority in the leadership is often restricted.

“Management influence usually centers on the relative size of business revenues. Given that a majority of Mobile Money businesses are usually small in scale, the relative size can impact the level of autonomy. Successful operators have the potential to increase their Mobile Money revenues to constitute at least 20% of group revenues,” says Damien Dujacquier, Senior Partner and Head of Telecom, Media and Technology for Southeast Asia at Roland Berger.

Dujacquier – a co-author of the study – added that a lack of genuine authority within the Mobile Money organization can not only slow progress, but also foster a culture of non-performance. “It can lead to difficulties in attracting high quality talent, which may be the biggest organizational blow of all in the long term.”

No of registered mobile money customers covered by one agentDistribution network pitfalls: The role of an agent – an individual (often, a shopkeeper) who helps conduct on-the-ground business – is paramount. An agent network is typically under a Super Agent or Distributor, which manages critical field operations such as agent recruitment, training and liquidity management.

One of the major issues highlighted by Roland Berger is the lack of active Super Agent management by the Mobile Money operator, which can have a negative domino effect on the agent network.

The study – which analyzed more than 20 operators across Africa and Asia continents – found that the most optimum ratio maintained by leading players globally is one agent to 200-300 active customers.

“Super Agents need to be fairly liquid, since there are bound to be plenty of cash transactions. This requires simple and predictable processes to be in place for the Super Agents to handle float and serve their agents – a challenge in emerging economy environments,” said Ashwin Bhat, Project Manager at Roland Berger and one of the co-authors of the study.  Additionally, excessive KYC (Know Your Customer) requirements can severely dampen customer acquisition, he cautioned.

Technology strategy pitfalls: Mobile Money operators can create downsides at the technology deployment stage. Roland Berger found that newly formed Mobile Money operators often have an insufficient understanding of technology requirements and the due diligence for technology selection.

“Starting a new venture often requires significant capital investment and if the most-suitable vendor is not chosen owing to cost considerations, subpar technology can impact effective rollout. To be successful, strategic investments must continue as the industry matures and products begin to compete for the same customers,” said Mohit Gidwani, Principal at Roland Berger and a co-author of the study.

According to the study, operators must have a war chest of between $3 and 5 million to invest if they’re starting from scratch.

Marketing strategy pitfalls: Investing in good marketing is sometimes neglected, as Mobile Money operators become fully focused on setting up the infrastructure. For any new Mobile Money operator, especially in an incubation or growth stage, it is imperative to educate customers to increase the rate of customer acquisition and active usage.

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