MPesa is free!
(Originally published here by our COO, Dan Kleinbaum.)
On Friday, Safaricom sent us an e-mail saying that MPesa transactions under KES 100 (~$1 USD) will be free. This is a part of Safaricom’s “agenda to deepen financial inclusion” and comes on the heels of posting a $239 million USD profit in the last six months. One estimate said this price drop will mean Safaricom forfeits $5m USD in revenue per year. This is a drop in the bucket and, in the long run, this will end up being a huge win for Safaricom. The user base will grow, revenue will be driven from value-added services and, eventually, transaction sizes will grow as the goal of financial inclusion is achieved. There’s a case to be made for this in a few different sectors.
P-A-Y-G is enabling companies to open up access to products by changing the ownership model. m-Kopa, the well-known solar lantern company, and PowerGen, a micro-grid developer, are two examples of companies deploying a P-A-Y-G model in the energy sector. Outside of the energy sector, one of my favorite new entries is PayJoy, the company that is changing the ownership model for smartphones (currently only in the US).
As an aside, the PayJoy model is a potential landscape-altering model for smart phone ownership in emerging markets. The CEO has said they don’t have plans to enter the sub-Saharan African market yet, but if you want to develop a P-A-Y-G-smartphone for East Africa, we can help give you the payment rails to do it. Get in touch. Seriously.
Regardless of the industry served, P-A-Y-G companies drive positive economic outcomes for their customers. Working with numerous P-A-Y-G companies, we keep hearing the cost of making payments is a barrier for adoption of mobile money for a large number of people. Many still use cash. The current business case for mobile money is to cover the fees charged to their customers when they make payments and is justified by an increase in repayment rates (and decrease is theft of cash). For a few of the distributed energy companies that use a P-A-Y-G model, about 50% of their current transactions are under KES 100, which will make their business more profitable. But what happens when you can now offer a viable service to several hundred thousand more customers in Kenya? We’ve zero-rated all collections <KES 100 for our customers and we are very interested to see how pay-as-you-go models evolve with this new development.
Most people won’t use MPesa to buy low-priced consumer goods. Paying an extra 5 KES to buy anything <KES 100 just isn’t worth it when physical currency is still widely used. But when you eliminate the charge, it leaves room for incredibly creative folks at Coca-Cola to incentivize the purchase of Coke using MPesa. An example: if I was entered to win tickets to Kool & The Gang every time I bought a Coke over the last several weeks, that would be an incentive for me to use MPesa. I’m still going to use cash for most of these small purchases, but the brilliant marketing team at Coke (or any other consumer product company) can find ways for me to change my behavior.
Now, if they could only easily control the payments and all the incoming data…
Delivering insurance and savings and loans products through mobile is rapidly becoming a huge market. The cost of reaching massive numbers of consumers through mobile phones is dramatically lower than the traditional agency models. After three months, MTN Uganda has over 1 million users on the MoKash platform (I am one of them). The folks at Bima are changing the way insurance is delivered to over 1.5m customers in Ghana and expanding across the Continent. Again, we see the cost of mobile money payments for insurance premiums and loan repayments being an issue for adopting these solutions. For an individual making payment of KES 50/week for insurance, adding on 10% to that total to make that payment is a significant expense. Again, when costs aren’t prohibitive for a much larger potential customer pool, the overall opportunity increases drastically.
Are transaction fees dying? Probably not in Kenya. MPesa revenue was $400m last year, and despite some competition, Safaricom’s market share means they doesn’t have to cannibalize that revenue stream just yet to maintain their stronghold. But in the more established Western payment markets, it is already a race to the bottom of an increasingly commoditized market and the race has started in the international remittance market. With mobile money and a decent size bank account, it has become much easier to compete on speed and price in remittances.
So what’s next? Some payment companies compete by offering services that add significant value like merchant POS solutions or abstracting out all of the issues with global settlement. In this case, Safaricom has already launched value-added services on top of MPesa to compete with services like traditional banks, informal savings groups and even Uber. In other markets, the trend has been to see what MPesa does and follow suit. If an operator like Airtel Uganda, a hungry 2nd place and much more willing to try new things, decided to do the same thing, they could probably get a huge bump in accounts and active users. It is going to be very interesting to see what happens next.
What do you think? Is this just a ploy for customer loyalty or are we on a trend towards payments that are free?
I’m the Chief Operating Officer at Beyonic, and I have been launching products on mobile money services for the last four years. I don’t post often, but when I do, I try to make it interesting. Want to hear more? Follow me.
Originally published at medium.com on November 6, 2016.
