Expansion of Mobile Money in Africa: the transaction fee concern in Ghana and Uganda
Emergence and expansion of Mobile Money
By now you have heard or probably used this innovation – Mobile Money – that is pushing the frontier of financial inclusion of the unbanked. Through it users transfer or receive value for services procured or rendered. It is on the back of Mobile Money that mobile financial services such as mobile payment (apps) and digital banking emerged. Mobile Money is basically a type of electronic money that is transferred electronically using mobile networks and SIM-enabled devices, primarily mobile phones. The issuer of Mobile Money may, depending on local law and the business model, be a mobile network operator, a financial institution, or another licensed third-party provider. Essentially, Mobile Money is a financial service delivered and accessed on mobile phones using STK or USSD technology.[1]
Historically, Mobile Money started as a frugal innovation in Kenya that was noticed by Safaricom. After 2 years of development and pilot, M-PESA was launched in 2007. By May 2012, this innovation was serving over 15 million customers. Like wildfire, Mobile Money spread into other African countries albeit with some initial challenges with regulation. The adaptive regulatory regime of the financial service sector has been a key driver of the growth of Mobile Money in Africa. In Ghana for example, the Central Bank had to repeal the Branchless Banking Guideline which among other things emphasised a Bank-led approach and replace it with the EMI Guideline to open up the space and provide incentives for the participation of non-bank institutions. This propelled Mobile Network Operators to invest heavily in the drive for adoption of Mobile Money. Mobile network subscribers can open Mobile Money accounts through Over-The-Air (OTA) registration with only a valid national identification. In Ghana, MTN Mobile Money customers can choose any of these three wallet types: minimum, medium, and enhanced wallet. All of these have daily and monthly transaction limits. A customer with a minimum wallet type is allowed to transact up-to GHS 300 per day and GHS 3000 per month and can only hold a maximum balance of GHS 1,000 whiles that of the medium wallet is permits transaction up-to GHS 2,000 per day and GHS 20,000 per month and can hold a maximum balance of GHS 10,000. The enhanced wallet on the other hand allows transactions of up-to GHS 5,000 per day and 50,000 per month and can hold a maximum balance of GHS 20,000.
When it first started, Mobile Money operated on technological platforms that were merely an advanced airtime recharge platform. Pioneers included Utiba, Telepin, Comviva, and eServeGlobal; with only Fundamo being service-specific.[2] With adequate investments over the decade, many of these platforms have improved. Market leader, MTN Mobile Money services now operate on the Ericsson platform. It hitherto was on the Fundamo platform. The transactional functionality of most Mobile Money systems supports customer, agent, operator, and regulator activities. Mobile Money has evolved largely because Mobile Network Operators are leveraging on their distribution network and subscriber base to explore it as an entirely new line of business beyond just Value-Added Service.
How transactions follow on Mobile Money platforms
There are basically three types of transactions that happen with Mobile Money. The first is incoming transactions, here account holders receive e-money (cash-in) by exchanging fiat money for e-money at agent locations. Other means through which account holders can receive e-money are disbursement, bank-to-wallet, and remittances. The second type is value circulation, here value is exchanged through payments (P2P, C2B, and B2B) on-net. The third type of transaction is the outgoing transaction, here value exists the system through cash withdrawals, off-net & cross-net payments, bill payments, wallet-to-bank, airtime purchase among others are made.
What the figures say so far
As of December 2018, there were 132 Mobile Money deployments led by Mobile Network Operators in Sub-Sahara Africa out of the 272 recorded globally. These had a total of 395.7 million registered accounts representing 45.6% of the global spread with 145.8 million active 90-days accounts. Total transaction volume stood at 1.7 billion with a value of USD 26.8 billion.[3] As at 2017, the average Mobile Money account holder was moving $188 ($57 P2P, $56 Cash-in and $45.9 Cash-out) per month.[4] The growing Mobile economy in Africa is driving the success of Mobile Money. By the end of 2018, there were 456 million unique mobile subscribers in Sub-Saharan Africa – an increase of 20 million over the previous year and representing a subscriber penetration rate of 44%.[5] This however is behind the global average of 66%.[6] Indicative of room for further growth. The penetration rate is expected to reach 50% by 2025.
Impact of Mobile Money on lives
From a capability approach, Mobile Money contributes to providing access to life-enhancing services, such as healthcare, education, financial services, employment, and social protections to customers who are traditionally underserved. A study by Suri and Jack (2016), assessing the long‐term poverty and gender impacts of Mobile Money in Kenya, revealed that M‐Pesa boosted consumption levels per capita and lifted an estimated 2% of Kenyan households out of poverty. The study concluded that Mobile Money use resulted in better livelihood choices.[7] A similar study by Adaba et al (2019), exploring the contribution of Mobile Money to well‐being, showed that Mobile Money has contributed to the expansion of people's capabilities, many of whom are poor and from traditionally unbanked or underserved sections of the population.[8]
Pricing and issues emerging
The working mechanism behind Mobile Money is that, the account holder, at an agent outlet converts fiat money to e-money, which is stored on the account holder’s mobile phone SIM card. The agent in turn deposits the fiat money (less commission) at a partner bank, which will either be a trust account for the Mobile Money operator or a Super-Agent depending on the model permitted by the Central Bank. The three main types of transactions done by account holders are cash-in, cash-out, and transfers which are often person-to-person, person-to-business, and person-to-government payments. Each of these transactions carries fees that are charged to the account holder based on the pricing model of the provider.
Across the Mobile Money landscape in Africa, there are basically three types of pricing models: the slab-based pricing, as used by MTN Uganda, is where transactions within a predefined range are charged a flat fee; the percentage-based pricing, as used by Vodafone Cash, where a flat percentage fee is applied to transactions, regardless of the amount; and the free model, with no transaction cost incurred by the user.[9] The Slab-based pricing model is the most widely used by Mobile Money service providers because of its user-friendliness, especially among users with low literacy. However it is the most expensive one, on a percentage basis, for the small value transactions.[10] A customer transferring GHS 75 on-net on Vodafone Cash in Ghana pays GHS 0.75 representing 1%, whiles a customer in Uganda transferring the equivalent of UGX 48,900 on MTN Uganda pays 1.7%. In the case of cashing-out at agent points, fees are around 3.37% and 1% on MTN Uganda and Vodafone Cash Ghana, respectively. No matter which pricing model is in use, a wider user base and volumes are needed for the provider to achieve profitability. In today’s Mobile Money business models, Cash In Cash Out transactions drive provider economics. For at scale providers, it represents approximately 70% of revenue and 80% of the cost.[11] In a mature ecosystem, providers can expect more than 20% profit margins and more than 15% cash flow margin.[12]
In recent times, there have been calls for the reduction of transaction fees charged by providers in Africa as it remains among the highest in the world, at roughly 2% of the transaction amount.[13] The call comes after a decade of roll-out when the revenue margin of providers is believed to have doubled. As of March 2017 and December 2016, Africa’s two leading Mobile Network Operators - M-Pesa and MTN Mobile Money earned an estimated $548 million and $205 million in annual mobile financial services revenues respectively.[14] In Ghana for example, the argument has been that the high transaction fee is not incentivizing the unbanked population to move away from the cash-based economy. According to Bank of Ghana, the success of Mobile Money transactions in advancing financial inclusion cannot be overemphasized, but there is still scope for further expansion and there’s a need to focus on areas such as pricing of digital financial services to promote competitive practices to foster increased usage. Broadly, market players are seeking to lower costs and increase access channels to make digital financial services affordable to the general public.[15] Meanwhile in Uganda, MTN Mobile Money in April 2019 hiked it charges on sending money, withdrawing cash (Mobile Money agent and ATM), and making payments. This comes after the company raised the fees on Wallet-to-Bank transactions.[16] By October 2019, the company reduced its charges on high-value withdrawals ranging from UGX 1,000,001 to UGX 7000,000 at CICO agents. A tax of 0.5% on all transactions still remains in place.[17] For the majority of people whose transactions are small value, the cost of using Mobile Money remains high and an alternative only in cases where they are not able to readily use cash. A study assessing the impact of the introduction of the tax on Mobile Money in Uganda showed that 47% of respondents stopped using the service as a result.[18]
Service providers on the other hand have forwarded arguments to justify the high transaction fee. In Ghana, MTN Mobile Money cited the “demands of agents” and the “capital investments” as some of the crucial considerations informing decisions on the cost of the transaction.[19] Most operators in Ghana use between 60 to 80% of the fee generated from a single line Cash-In Cash-Out transaction to pay commissions to the agent enabling this transaction. A cash-in transaction attracts a commission of 0.5% whiles a cash-out attracts 0.4%, all of which are paid from the 1% transaction fee charged during cash-out or transfer. There are distributors enabling agents to deliver assured service to customers. They too get paid from the same fees charged. Apart from these, there are other costs – platform, human resource, branding and marketing cost, education, and awareness. In the words of the Managing Director of MTN Ghana Mobile Financial Services, the 1% is standard industry practice across all the Mobile Money platforms that we have had the opportunity of interacting with. It sort of meets some industry standard to meet the basic overheads of the service.[20]
Customers’ take on fees charged on transactions
Interestingly, the voice of the customers appears to have been missing in this conversation. There seems to be limited literature that highlights the perspective of customers on the transaction fees charged by Mobile Money service providers and how it impacts their usage of the service. In Ghana, customers as of 2019 hold an estimated 29,578,169 registered Mobile Money accounts with 43% of these accounts being active.[21] In Uganda, data by the Bureau of Statistics as at 2015 shows that there are about 21,102,000 registered Mobile Money customers.[22] In both markets, the total number of customers is statistically significant that their voices cannot be ignored in this discussion. There are 7 Mobile Money operators in Uganda compared to 5 in Ghana. This article brings the perspectives of Mobile Money subscribers in Ghana and Uganda to fore. A total of 200 customers in both countries were surveyed using an online closed and open-ended questionnaire. Generally, the research philosophy used in the conduct of the survey is pragmatism, which according to Saunders et al (2012) accepts concepts to be relevant only if they support actions. It recognises that there are multiple realities and different ways of interpreting the world, that is, no single opinion can ever give the entire picture of a phenomenon. Analysis of the data shows the following:
I. Percentage of adults 18+ with Mobile Money accounts
From the data, 99% of respondents aged 18+ years old in both markets – Ghana and Uganda have Mobile Money accounts. 65% of respondents in Uganda have two Mobile Money accounts with two different Mobile Network Operators compared to 29% of respondents in Ghana. The main reason attributed to this phenomenon in Uganda is the high cost of transacting across networks. Hence, as much as possible customers want to be on multiple networks to void these charges. Between both countries, Uganda has the highest (1.7%) on-net transaction fee. An MTN consumer transferring UGX 60,000 ($15) to another network will have to pay to 5.5% transaction fee. From consumers perspective interoperability is not working well. Mobile Money operators in Ghana on the other hand appear to be relatively enjoying customer loyalty because of interoperability. Not many customers are having multiple accounts with different network operators to be able to transact across networks. 61% of respondents in Ghana have just one account with just one operator. When it comes to usage, 95% of respondents in Uganda use their accounts for person-to-person transfers and cash-outs transactions compared to 98% in Ghana. Other transactions that featured were airtimes and data purchases and bill payments.
II. Percentage of adult women with Mobile Money accounts
Gender analysis shows that more men than women have Mobile Money accounts. Out of the 100 respondents surveyed in Uganda, 47% of women have Mobile Money accounts compared to 30% in Ghana. The survey questionnaire was distributed and answered online. There were more male respondents than female responding to the questions. Probably this could be indicative of an underlying gender inequality in digital access and literacy. In both countries, male respondents were in the majority of Mobile Money account ownership. There are cultural reasons for this: women earn less decent livelihoods than men; women largely have fewer assets than men, and digital literacy is also lower among women.
III. Average amount transacted and transaction fee
Data from the survey shows that the average amount that is cashed out or transferred by respondents to another user’s Mobile Money account in Ghana is GHS 1,641 ($283), whiles that in Uganda is UGX 1,011,120 ($268). The fee charges on these are transactions are GHS 16 ($2.76) and UGX 15,375 ($4.01) in Ghana and Uganda, respectively. In percentage terms, the transaction fee charged on these averages are approximately 1% for Ghana and 2% for Uganda. Making Uganda the most expensive. It is worth noting that, even though Mobile Money network operators in Ghana claim that fee on all transactions above GHS 1,000 is capped at GHS 10, it appears that may not be the case for customers from the data as they still pay effectively 1% on transactions above this threshold. Some operators claim that Mobile Money agents are to blame for these discrepancies. Not much has been done to curb this.
IV. Opinion of the expensiveness or inexpensiveness of transaction fees
Respondents were asked to share their opinion on the fee charged by operators on their cash-out and transfers (P2P and C2B). In both countries, customers asserted the expensiveness of fees charged on transactions – 91% in Ghana and 88% in Uganda. As it emerged from the data, transaction fees charged by Mobile Money operators have an impact on account usage. 83% and 53% of respondents in Uganda and Ghana respectively noted the high transaction fees charged by their Mobile Money provider prevents them from using their accounts to make payments, especially to another account on a different network. It probably explains why cash remains “king” in both economies as asserted by 56% and 57% of respondents in Ghana and Uganda who prefer using cash over Mobile Money.
It is interesting to note that even though the percentage of respondents who thought the transaction fee was expensive in Ghana was higher compared to Uganda, it did not affect their usage as much as it did for their counterparts in Uganda. This phenomenon is explained by the fact that, most of the Ghanaian respondents were on one network (MTN) where the large network effect meant that most of their transactions were on-net. Where they had to transact off-net, the pricing was relatively cheaper compared to their counterparts in Uganda. The effect of transaction fees on usage can be seen in the transaction volumes, values, and new accounts when mobile operators decided to scrap fees on P2P and B2W transactions under a specified threshold to facilitate usage and digital payment during the COV-19 pandemic. In Ghana and Uganda, operators set the “no fee” threshold for transactions under GHS 100 (US$ 17) and UGX 30,000 (US$ 8) respectively. This led to an increase in subscribers across both markets. In Ghana, registered Mobile Money subscribers increased by 6.9% to 15.5 million with active subscribers increasing by 2.1% to 9.3 million.[23] Across Africa, it is expected that Mobile Money subscribers will get to over 500 million in 2020.[24]
V. Satisfaction with Money Mobile services
As it is with every service and product, consumer satisfaction is key to driving success. It has been 10 years since Mobile Money was introduced to both Ghana and Uganda. The growth has been exponential. Respondents were asked whether they were satisfied with their Mobile Money operator. From the data, it emerged that most respondents are not entirely satisfied. In Uganda, 65% of respondents were somewhat satisfied, 21% were very dissatisfied, only 13% stated they were very satisfied with their service providers. The figures in Ghana showed similar discontentment. 71% stated they were somewhat satisfied, 9% were very dissatisfied, the remaining 20% stated they were very satisfied. This also explains why the respondents preferred cash to Mobile Money. If this phenomenon persists, it will be difficult to achieve a cashless or cash-lite economy in both countries.
How the transaction fee could be reduced
Diversifying revenue streams could help reduce the concentration on P2P and C2B transaction fee as the sole revenue streams available to Mobile Money operators. In the long-term, the transaction fee model may not be sustainable with the kind of competition and innovation happening in the market. In Ghana for example, GCB Bank and Zeepay have just received clearance to issue electronic money, bringing the number of players in the market to five. The size of the pie is about to shrink. Diversification becomes the only means of survival. Mobile Money operators can consider leveraging on their agent network, customer base and customer transaction data to provide adjacent services to third party companies to reduce dependency on transaction fees.
Interest earned on float income is another revenue stream that can be considered. The challenge however is the cap instituted by Regulators. In Ghana, the Central Bank has set the range of interest rates that Banks can pay on Mobile Money float income to between 1.5% to 4%. This range, which is below the Treasury Bill rate does not help Mobile Money operators to maximise revenue. In 2016, the Bank of Ghana issued the Dedicated Electronic Money Issuer (DEMI) Guideline which enjoins Mobile Money operators to pay interest on balances held by customers. This led to a 22.85% increase in float to approximately GHS 2.7 Billion by 2019.[25] Currently, Mobile Money operators in Ghana retain 90% of the interest and pay 10% to customers. Revenue sharing for third party services offered on Mobile Money must also be optimised.
Regulators should implement policies that will lead to the digital maturity of the economies to ensure that more value circulation is happening on-net to reduce outgoing transaction cost. Innovation around the cost structure of Cash In Cash Out could be game-changing but it must be thought through carefully. Agents play a central role in acquiring and maintaining customers, changes in CICO structure could have implications on customer acquisition costs for operators.
Conclusion
From the analysis, it can be concluded that customer satisfaction with Mobile Money is low and cash remains “king”. Mobile Money has the potential of making the economy of both countries cash-lite if the cost of transactions could be lowered to meet the needs of the large informal sector. The opportunity cost of using Mobile Money to cash must be negligible to enable universal adoption to achieve the cash-lite agenda. Regulators must create an environment for healthy competition to drive cost down and operators must continue innovating and diversifying their revenue streams to deepen adoption and usage. In all of these, customer satisfaction and protection must remain the ultimate focus. Issue of pricing, network stability, recourse mechanism, data protection, digital literacy, and fraud prevention must be looked at keenly by operators and facilitated by regulators.
UNCDF Global Youth Lead
4 年I agree a new business model and cost structure is needed if MM wants to go beyond P2P and boost other use cases...
General Partner @ Resilience17 | prev: VP Growth X Marketing at Chipper, Voicea, Honey
4 年fantastic analysis and data points, thank you!
Just an addendum: Vodafone’s M-PESA Platform was not a recharge platform repurposed. It was build ground up based on design thinking around distribution models, MFI group practices and what is required to run a service back office ... purpose built. It was not commercially available software for competitors to buy, it was wholly owned and run.
Executive Chairman at Human Security Research Centre
4 年Good job!
Recruiter and Partnership Consultant
4 年Stagnation and lethargy have been a bane in whatever we do in Africa. Ingenuity, creativity and innovation are going to be the leitmotiv of the future, especially after COVID19. Mobile money is a wonderful idea and must be embraced holistically. Competition among financial operators has been fierce, just to say the least, and this is what is needed to encourage creativity and innovation. I believe that in order to enhance and gain people’s confidence, different approaches must be taken by all operators for the benefit and satisfaction of all because it is about money. So far, there are some gaps in the operations that do not entirely protect the consumer. There is no system of traceability-major flaw. No legal accountability on operators for the customer to seek redress only between the government and operators, just to cite a few. It must be extended to all ECOWAS countries and even worldwide to compete with the banking system. All that I am trying to say is to think outside the box to bring our peoples to enjoy what we Africans can produce to alleviate their suffering. No more time to waste after Corona.