Mobile money in Kenya has outgrown its peer to peer roots that have seen incumbents like Western Union and MoneyGram lose market share in regional money movement with an added assault on their global remittance dominance. As the growth of the person to person market levels off providers are gunning for the customer to business segment in a bid to increase utility of their services and embed themselves more deeply into the lives of both the consumer and the business.
Technology empowers businesses to do three things well; the first is to increase efficiency by removing friction in the consumer engagement process, the second is providing business intelligence and lastly reduce the cost of business. The pricing of the enabling technology must therefore be well thought out if it is to scale well.
Mobile money competes with cash and it therefore suffices to look at the cost benefit of using cash. A good number of enterprise entities have jumped aboard the mobile money bandwagon, but the real growth for the providers lies in the on boarding of SME’s that number in the hundreds of thousands. The cost of cash to both consumers and those they patronize can be calculated using different formulas but I will take a simplified approach to give perspective for comparative analysis. For a consumer to utilize cash it takes a series of steps involving both time and money; a visit to the ATM or bank branch and thereafter a visit to the retailer or service provider. For the service provider, depending on their vertical, there is the cost of handling cash and that of real-estate to handle foot traffic.
The numbers on some alternative payment channels are; Safaricom on its Lipa na Mpesa service takes 1% of each transaction value, Equity Bank with their transport centric service BebaPay which is in partnership with Google take 5%, while PesaPal a payment services aggregator levies a 3.5% transaction fee on e-commerce, bill payments and invoicing and 5% on ticketing.
For service based businesses, these transaction fees could be considered okay, but for those moving product, a deeper analysis will reveal why adoption may be stifled. Margins are usually in the 7-15% range for many SME’s, so if a spare parts dealer for example grosses Ksh. 100,000, he will make on the lower level Ksh. 7,000 in profit. Transaction fees will be Ksh.1, 000 based on 1% of his gross, meaning that the collection service costs him 14% of his earnings. This is akin to having a silent partner who takes out, month on month over one tenth of earnings and this is where it doesn’t make sense, even when juxtaposed against other benefits.
We must look at the business model on the mobile money C2B front differently especially in light of the SME market inclined to service and product suppliers, no hard and fast answers, more of an intellectual jog to see if we can do it different.
Various people have opined on my take on things here, and with most, I have agreed that mobile money may not be for everyone. While there may be more S’s than M’s in SME, every S aspires to grow into a multi outlet or multi region outfit and that is when mobile mobile money benefits will far outstrip cash.