Emerging Markets: MMU Revenue Challenge

Subject: In this post I attempt to estimate “critical mass” financial numbers for a mobile money to the unbanked (MMU) service to be sustainable.

4 June 2010

Subject: In this post I attempt to estimate “critical mass” financial numbers for a mobile money to the unbanked (MMU) service to be sustainable.

I’m a few weeks late in publishing this, it just slipped off my radar. Attended the GSMA Mobile Money Summit last month in Rio. Great people in attendance, although the event itself leaved much to be desired.  The MNOs had a focused set of meetings on the opening Monday covering “how to work with regulators” which is certainly a key to success. I was struck by the volume numbers in country pilots.. they are so small.

Safaricom released earnings at the beginning of the month. This data coupled with the data from the Mar 2010 Gates foundation report provides insight into the challenges faced by new payment mechanisms in other emerging markets. Market approaches will surely be tested as other countries attempt to replicate the MPESA success. It has taken 3 years, and some very unique market conditions, for Safaricom drive this service into profitability. 


  • MNOs must reach around 8M users (or around $300-500M per month GDV) to break even
  • Bill Payment is key to driving payment volume in emerging markets
  • Without a regulatory partnership everyone looses. Phillipines wins prize for best bank, MNO, regulatory partnership in the world.. if you want an example of success talk to Rizza at GCASH.

Safaricom Revenue Data

Safaricom Annual Report shows MPESA “Total Annual Revenue” of 7.56B KES ($93M USD, 9.48M users) for the year. Gross Volume is not published.. but there is other “anecedotal data” to give more color:

  • transferred a cumulative Sh405 billion since launch
  • US $320 million per month in person-to-person (P2P) transfers
  • US $650 million per month in cash deposits and withdrawal transactions at M-PESA stores (Gates foundation)
  • Average Sh1.8 billion a day ($670M per mo total). In Earnings release. (does not align w/ number above)
  • Grew from 5M to 9M users in 2009
  • Interest from $1B+ settlement funds is not included in either Vodafone nor Safaricom’s earnings. Understand there is agreement between CBK and other parties to use for infrastructure, education and microfinance.
  • Note: The Gates foundation numbers on P2P and Tran volume seem high.. I’ve never had them before


  • Given growth of 100%, assume average 2010 (May-May) volume GDV of 320+650/2 = $485M USD
  • Monthly revenue of $93M/12 = $7.75
  • Take Rate = 7.75/485 = 160bps (seems about right)

Previous/Related Posts

MNOs as Depository Institutions?

Updated November 10, 2009

Excellent Background Articles:

Success and value breed trust and loyalty. MPESA customer surveys by CGAP point to desire for MPESA to offer interest on balances. The genesis of MPESA’s success is not something that Banks have seen before (in emerging markets):

  • Cash replacement (without their control)
  • Technology
  • Customer segment – Growth from the LOW end of customers that banks normally serves

Deposit taking, and payments are typically a regulated businesses which banks have excelled. However their past success was serving a customer segment that was far different then what MPESA serves today. Can Banks adapt to the new opportunities service the unbanked in emerging markets? Will new Micro Finance Institutions (MFI) emerge as the principle banking entity? Will MNOs seek approval to offer financial services separate from Banks or MFIs?

In Kenya, the explosive growth of MPESA has put both regulators and banks in a very awkward position. It was originally launched as a money transfer business, and has emerged as an effective cash replacement with an annual transaction volume of over 10% of Kenya’s GDP. Consumers have unexpectedly embraced MPESA, and regulations have had a challenging time adapting (or anticipating) the vector in which it has grown. The regulatory challenge now is “connecting” the MPESA network to the “banking” network and evolving the:  regulatory authority, regulations and controls around it.

In 2005, Kenya drafted the Deposit Taking Micro Finance Bill which was past at the end of 2006.



In addition to supporting traditional MFIs, the Act made it possible for non-banks to participate in deposit taking as an MFI (in the future), and now the first “non-bank” MFI has been accepted (just 3 months ago in June 09).


It remains to be seen whether an MFI license will be granted to MPESA, to extend its money transfer license. A more likely route will be for (multiple) MFIs to be approved to source funds from MPESA (MPESA as payment network)

The Philippines may provide the best example for MNO/Bank collaboration in mobile money. GCASH in the Philippines is the mobile money solution from MNO Global in conjunction with Bank of the Phillipines (BPI).


Last year Global and BPI partnered in the creation of a new microfinance provider:   Pilipinas Savings Bank


The Philippines was one of the first countries to develop a comprehensive law in support of MFIs. In 2000, Philippine regulators acted in response to the updated General Banking Law which mandated recognition of microfinance as a legitimate banking activity. Regulators developed a unique set of rules and regulations MFIs as the updated Law declared microfinance as a flagship program for poverty alleviation.


Bank as Depository Institution

Before tackling the issue of Deposit taking in Kenya, let’s discuss the issues surrounding existing (non MFI) banks servicing MPESA customers. Having spoken to several of the key parties in Kenya, the business issues surround: who “owns the customer”,  who is assuming the risk (“money transfer” v. bank ) burden for this connection. For purposes of example, let’s take the KYC requirement in Kenya (as in most countries) a customer sighting (by a bank employee) with valid ID. Kenya has had problems with counterfeit IDs


How should regulators proceed? Bank infrastructure in many parts of the country is immature. There are over a million people that would need to go through the KYC process, most of which do not have an identity card (separate from issues in article above). Should regulators relax the KYC burden? Should money transfer agents be allowed to operate under MFI regulation? In my post below, I’ve outlined a few of the regulatory approaches


I would certainly like additional feedback, but my understanding is that regulators are taking a concurrent track: Updating the MFI regulations (originally designed in 2005), updating the “Money Transfer” regulations as covered within the General Banking Act, approving MFIs to source funds from MPESA (services on the MPesa Network) and defining a new regulatory scheme for mobile money which would touch both banking and telecommunications regulations. Vodafone’s regulatory experience here will likely prove to be a tremendous differentiator in future markets, as their ability to field a team capable of partnering with regulators further enhances their creditability.

(A very broad summary of the issues, apologize in advance for the gaps.) From a Bank perspective, concern is justified over MNOs ability to create a liabilities business. Banks should have the right to compete for these deposits, with a level regulatory playing field. From a MNO perspective, banks have not served these customers in the past. For MPESA, the Banks interest in this segment arose after the MNO developed it. The banks should pay for this “customer acquisition” and servicing, and the MNO should be able to offer products and services that support customers.

MNO Deposit taking

There are currently 3 separately regulated parties that are positioning to provide interest bearing accounts: Money Transfer Services, MFIs, and Banks.  Emerging markets have invested significant resources in defining MFI regulations, however these were drafted prior to the success of services like GCASH and MPESA. The CGAP data in Kenya clearly shows customer “interest” (pardon the play) in using MNO services beyond that which a “money transfer agent” is licensed to perform. However accelerating the attractiveness of these money transfer services, by providing interest bearing accounts, may further exacerbate an already challenging regulatory situation. I would expect to see regulators requesting that MNOs open up/partner with traditional banks (as the depository institution) prior to approving MNOs as an MFI, or enabling traditional MFIs to compete. Interoperability between these licensed entities must be addressed. This view flows out of MNO incentives (e.g customer ownership, high fees for cash out) and current agreements with bank(s) with regard to settlement of funds. With that said, I would expect very little success for traditional banks attempting to provide this service, as it does not align to their business model. A model which will likely succeed is MFIs access to “non-traditional” payment services, as both MNOs and MFIs are nimbal and able to adapt quickly here and support their existing business model. See Western Union example below (in India)


The challenges that MPESA faces, while challenging, are extremely exciting as it represents the “Phase 2” success of mobile money in emerging markets. Just look at the rate of change in issues facing service in Kenya today, compared with 18 months ago


Mobile Money: MNOs will Rule in Emerging Markets

Payments, banking and regulation may well evolve differently in emerging markets over the next 5 years as new services establish a unique ecosystem that serves 1 Billion consumers never “connected” to the world’s economy.

Updated Dec 15, 2009

Regulators in Africa and India are working actively to ensure consumers (and the global banking system) are protected in the exciting confluence of mobile and finance. Their involvement is completely appropriate given the opportunity to improve the lives of millions of unbanked people around the world. Defining responsibility and the commensurate controls associated with connecting non-traditional (unregulated) networks to highly regulated banks is a herculean effort which may lead emerging markets to remake a “payment system” that is more efficient than that which exists in today’s developed countries. This opportunity for “leap frog” improvements will be driven by the unique path emerging markets are evolving. Key stakeholders will be able to leverage learnings of developed countries, and trials in emerging markets, as they develop infrastructure necessary to support a network that enables both financial services and telecommunications.

Today’s regulatory approach, within these emerging markets, may be best summarized as an “experimental period” with simplified controls. Very early regulations have focused on simplicity by ensuring that the “value” stays within the MNO network, and limiting: balances, ticket size and beneficiaries. By constraining transfer of “value” to well defined  MNO services (ex top-ups) regulators have certainly addressed many risk, AML and audit issues. These early controls have provided time for regulators to review progress and fashion new regulations in which existing regulated entities can comment. This order, with which emerging economies are proceeding, may come as a shock to some in the developed world.

Many believe that this more cautious orderly approach in mobile payment was driven by the unstructured success of MPESA (links below). An estimated 10% of Kenya’s GDP currently passes through this channel.  Governments, banks and MNOs leveraged the learnings of the Kenyan market, first among them is: once a new payment system takes hold, it is hard to change. The alacrity with which MPESA was adopted by Kenyans has caused “a new awareness” among governments and business for both the opportunity to provide access, and the challenges faced in managing it. For regulators, there is a renewed sense urgency for defining the “rules” by which to protect consumers and hold participants accountable. Ex in India below

Vodaphone MPesa in India

Regulatory changes have significantly impacted many investments made to date, with the key example of Reserve Bank of India’s Aug 2009 regulation preventing non-banks from domestic money transfer (destroying Obopay’s P2P plans). Banks have created much friction for the expansion of “pilots” and their capabilities. The banks’ position is that once value is exchanged between network participants, or to another network, that these services compete directly with a regulated “payment system”. So we have a “dance” of 4 parties: Regulators, MNOs, Banks and Consumers. In my discussions, the regulatory approach may be generalized by the following:

A)    Experiment.  Set interim guidelines with expectations that they could be revoked/changed. Communications regulators are driving this approach as they try to assist their stakeholders. MPESA began because of Communication regulatory authorization… not KCB

B)    Review. Require submittal of plans to both communication and banking regulators.

C)    Establish. Legal/Regulatory accountability. Define responsibility and audit guidelines for responsible regulators. For example in Kenya their was very little consumer protections for electronic transactions, the Kenya’s electronic transactions act was just established this year and serves as a model for Africa.

D)    Define Audit responsibility for MNO. May force partnership with regulated bank for clearing and settlement. Set auditing guidelines for MNOs under communications regulations (Monitor/audit payments and transfers).

E)     Constrain. Set limits on MNO services and “value” allowed to accumulate in MNO “wallet”, …etc. Example RS 5000 in India, Prohibit/restrict any bank functions in MNO. ex, No interest bearing accounts.

F)     Isolate. Restrict payments connections external networks. Ex in Africa.. Commercial “beneficiaries/payees” must be approved over a certain volume threshold. (regulatory Instrumentalism). Note: MNOs have addressed this by shifting value to a “regulated” payment (ex. Pre-paid card) and partnerships.

G)    Enforce KYC responsibility for MNOs engaging in payments at Cash in/out points. Example retail partner is responsible for validating identity.

Business Model

It is difficult for established businesses to create effective business models “down market” from their current customer base (see Clayton Christensen – Innovators Dilemma). MNOs may be best positioned to execute, on the mobile money value proposition, given that the “unbanked market” is market that they serve much more effectively today (reputation/brand/service/efficiency), and the fact that “mobile money” is a key to sustaining their growth.  I cannot underestimate this point. For banks serving the unbanked represents a low margin (if not money loosing) value proposition for all of their current products. Similarly, payments are a profit neutral business for banks separate from the lending or commercial services which surround them. Bank product lines are typically not focused on accounts with balances of less the RS 5,000 ($100). In addition, existing Bank systems typically do manage millions of small ticket real time money transfers (think SEPA or Wire) with associated risk, authorization, and AML controls. This “gap” in serving emerging markets is prompting indigenous efforts (ex RBIs: RTGS, National Infrastructure for Mobile Payments, and India Card).

For MNOs in emerging markets, mobile money is aligned to their current business and in fact essential for growth. Allowing “cash in” and “transfer” enables customer usage  through pre-paid plans. For MNO consumers, access to money services provides ADDITIONAL value to their EXISTING MNO relationship (more on this later). MNO success in “mobile money” is assured because the service further enhances the EXISTING MNO business model, a model which the team and infrastructure to: market, sell and service the unbanked is established (and profitable).

The consumer value in mobile money stems from the macro economic transformation that exchange of value provides in moving from “informal” communication to money centered “business” communication. Payments and value may well evolve differently in emerging markets over the next 5 years as payments, telecommunication, regulation and new services establish a unique ecosystem that serves 1 Billion consumers never “connected” to the world’s economy. It is the combination of “network access” and “value access” that provides transformational opportunities to the world’s consumers. This market dynamic leads to transformational “leap frog” opportunities within emerging markets.

MNO Fragmentation

The principle challenge for MNOs to address is in emerging markets is: fragmentation. A large reason Vodafone was successful in Kenya was that they had 80% of share. Fragmentation of consumers in highly competitive mobile markets, combined with conflicting standards, technology and retail partnerships may cause consumer confusion. This chaos is anathema to the “trust” necessary to establish consumer confidence in payments and value storage. For example, in Nigeria can you pay your utility bill on any cell plan? Dominant MNOs will likely race to establish payment networks and partnerships, even in the constrained regulatory environment. Less dominant MNOs will likely look to regulators, standards, interoperability and other mechanisms to level the playing field. It is essential that MNOs get this right the first time, as “trust” is something earned over many years and quickly destroyed.

In emerging markets, MNOs may be best served by attacking “breadth” opportunities first. Very simple services that can have very broad impact, with very little assistance from external vendors may provide better support for immediate growth:

  • Nature of network effects are that you must deliver value to everyone on the network (whether a bank or an MNO). Successful networks must have established physical distribution points.
  • Objective in payments is to establish use and acceptance. Example, receive your pension… now establish a savings account, or send money to your grandson.
  • Trust.. Serviceability, manageability, and risk management in “simple services”.

For Bankers

As a banker myself, I never admit defeat in attacking a profitable market segment. Given that payments are not particularly attractive for banks (separate from the products and balances that support them), there are several strategic options (Beyond the scope of this post.. but which I would love to discuss). In general banks should maintain engagement with regulators and MNOs, and focus on providing services that protect their network and enable access to consumers. Examples:

  • Switching. Extending payment capabilities in existing accounts and networks. Switching between multiple MNO value stores
  • “Participating” on the mobile network. Micro lending through “supporting role”.
  • Risk Management.
  • Partner w/ large existing customers in their participation. Example, Pension/Payroll to mobile plans, or connecting to MNOs to business (retail lockbox on mobile)
  • Managing compliance. Example: Cash out

For Software Vendors (ISVs)

In emerging markets, I would expect to see rapid evolution constrained only by regulation. Expect to see very simple services that can have very broad impact, and support MNOs existing value. A key distribution point for these services are local agents. For those of you in the US, think of these agents as the local “country store” of 80 years ago, trusted members of the community that frequently extend informal credit. Banks in Kenya are just gained access to agents in distribution of their services in order to compete with Vodafone and ZAP.

Many of the “consumer facing” services will require very little assistance from external vendors until the networks mature and value is transfered beyond the MNO network. Example issues for vendors today:

  • MNOs have very solid SMS development skills. Look at MPESA, ZAP, GCASH.. who developed the software behind them? The MNO.
  • Simplicity lends itself to better risk management, a key for reinforcing the “integrity” of a new payment system. Solid risk management is even more pronounced in the face of new regulations.
  • CEO visibility with MNOs, Banks and Retailers. Paying a “US Vendor” for anything relating to a payment function is not likely. Citi mobile teams have built tremendous SMS applications in weeks (sorry Silicon Valley).
  • Government Visibility. In addition to CEOs, governments and regulators are highly involved in addressing the needs of their citizens, whether “unbanked” or “unphoned”. Regulators globally are looking to share learnings from Kenya, Philippines, India, … Banks expect between 600M-800M people will gain first time access to financial services over the next 8 years. A tremendous market, that will be served much differently then banks (and retailers/MNOs) have operated in the past.

This is not to say that ISVs have no role, but rather their role will be supportive of facilitating exchange of value… NOT leading with a brand (ex Obopay). Examples:

  • Government  pension distribution across multiple MNOs
  • Business connection to multiple MNOs payments
  • Businesses clearing settlement, AR integration and reporting
  • CRM solutions for customers, automated response
  • Assist MNOs, Banks and Businesses in compliance and reporting.
  • Bank connection to MNO networks. Ex: micro lending… receive your pension… now establish a savings account, or send money to your grandson.
  • ISVs should look at supporting services in connecting business to this new network.

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