Challenges of Mobile Money Agents in Emerging Markets
Mobile money agents play an important role in promoting financial inclusion in emerging markets. According to the GSM Association, the number of mobile money agents worldwide increased from about 500,000 to 5.3 million between 2011 to 2017. During this same period, the widespread consumer adoption of mobile money services led to roughly 600 million new mobile money accounts being registered. Globally, the World Bank estimates that 1.7 billion people remain unbanked and through the growth of mobile money, agents are now playing a central role to potentially put banking within reach for millions of people.
For financial services to reach the remaining unbanked people, agent networks need to flourish in rural and remote areas. BCG also highlighted that financial service providers make investment decisions on agent networks based on population size and density, which is creating an urban versus rural segmentation. Full-time agents in large cities need to make 26 transactions per day to break-even, while full-time agents in rural markets need approximately 10 transactions per day to do the same. Attaining these requirements can be challenging for agents due to the ongoing operating costs, which can be up to $154 in urban cities and $66 in rural areas per month for full-time agents. In order to operate a self-sustaining business venture, the agents need to break-even; certainly they want to make a profit, which requires processing more daily transactions than their break-even point.
The potential avenue to help mobile money agents lies in the variable costs. The BCG report pointed out that ongoing liquidity management expenses are the most significant variable cost and equal about $10 per month on average, or up to 10% of total ongoing costs. The practicalities of liquidity management are also time consuming. Urban agents rebalance more than eight times per week and in doing so, wait in long lines at banks and face significant risk of theft. Likewise, rural agents have to travel substantial distances (on average, 20 kilometers roundtrip) in order to rebalance on average two to three times a week. Liquidity management expenses, time spent for account rebalancing, and foregone transactions due to account rebalancing, can make it difficult for agents to meet their break-even volume per day. Moreover, according to the Helix Institute of Digital Finance, a significant amount of transactions are being denied due to liquidity management challenges — with denial rates as high as 20% in Tanzania. In such cases, the agents who fail to manage liquidity effectively are forced to deny transactions when they do not have either e-float for customer deposits or physical cash for withdrawals.
In the franchise-based third-party agent model, if agents fail to operate a self-sufficient business, the mobile money networks will be unable to reach more customers. In the recent GEMA Association report, the global number of registered mobile money agents grew 18 percent YoY to reach 6.6 million in 2018. However, only 57 percent of these agents are active on a monthly basis. Given the hindrance of liquidity management expenses for mobile money agents, the solution lies in providing these agents with an on-demand e-float loan based on their credit score and performance metrics.
Reducing Break-Even Volume with Pngme
To help overcome the liquidity challenges faced by mobile money agents, Pngme is launching digital credit scores and e-float loans for mobile money agents with partner mobile money operators in Africa. The Pngme App will request agents to share their cell phone data and upon successful submission, a free credit score report will be provided; qualified agents will be able to access e-float loans through the Pngme platform. Pngme’s e-float loan program will help agents decrease their daily break-even amount, reduce denial of transactions due to lack of float balance, save time on rebalancing activities, and reduce the burden of ongoing liquidity management. Our early estimates indicate that by using Pngme’s e-float loan services, urban full-time agents will be able to decrease their daily break-even volume from 26 to 23 transactions. The removal of liquidity management expenses is also estimated to reduce daily operating expenses from $5.13 to $4.62 for urban full-time agents. This reduction is expected to increase the agent’s profit margins and facilitate in operating a self-sufficient business. Additionally, the mobile money operators and financial institutions will be able to reach more customers through the efficiency in agents’ daily operations and ability to serve more customers.
We aim to close the $5.2 trillion finance gap, and firmly believe that this is a large step in that direction.
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