This post is written by Debbie Watkins, SBI’s Resident Advisor in Dhaka, Bangladesh.
We talked in the previous article about how pricing can encourage customer behavior to develop in a certain way – and that most people are able to spot a good deal (or a dummy) when they see one.
When we’re talking about mobile money, there are generally 3 price “events” – at cash-in, when one person transfers to another, and at cash-out. If you’re aiming to offer a true mobile wallet (a virtual “current account” as opposed to purely a money transfer service), I would argue for making person-to-person fees a very, very low, flat fee (something in the order of one US cent or its equivalent). Here’s a small scenario that explains this:
Nazmal is a security guard in Dhaka. He sends money home to his parents every month – a lump sum when he gets his salary. His parents spend the money on rent (a monthly payment); food (daily); school fees for their youngest child (weekly) and try to save a small amount in case of emergencies.
Nazmal deposits the amount he’s sending into his mobile wallet, and transfers it to his parents’ mobile wallet. They have a choice now of what to do with it, which will be driven by how the pricing you have established works best for them:
- They can withdraw the whole amount and keep it under the bed. They are more likely to do this if cash-out fees are structured on a flat or slab basis, as it works out cheaper for them to withdraw one larger amount than a number of smaller amounts.
- They can withdraw some now and some later, when they need it – this would be more expensive for them than option 1 with flat or slab pricing. If you have percentage pricing there’s no difference for them either way, except for the additional costs/time involved in visiting the cash-out agent more often.
- They can pay their expenses directly to the landlord/grocery store/school using the person-to-person feature on an ad-hoc basis, “save” the rest, and only withdraw cash when it’s necessary.
The third scenario has huge benefits for everyone. For the ADC provider, the cash float stays in their system, as it’s just been transferred from one user to another instead of being exchanged for cash. For Nazmal’s parents, they can pay institutions immediately without having to physically go to them; can pay small amounts for groceries on an ad-hoc basis; and know that whatever they have left over is stored securely but can still be easily accessed in case it’s necessary. For the landlord/school/grocery store, they don’t need to worry about safekeeping for cash receipts.
Of course, in order for this model to work, a number of things need to happen. Firstly, all levels of the chain need to open a mobile wallet – therefore the process needs to be fairly straightforward, free-of-charge and available in convenient locations. This is a numbers game – the more ways and places there are for people to use their wallet, the more they will use it instead of cash. Secondly, the ecosystem needs to allow for the larger institutions – the schools, or the wholesaler that the grocery store buys from – to maintain larger wallet balances (subject to tighter KYC controls) and be able to offload their mobile wallet balance into a bank account. Finally, integration with other platforms (such as commitment savings or microloans) enables the mobile wallet to be a really useful financial tool – more on this soon.
If you are a mobile money provider, do you know whether the float is more lucrative to you than cash-out fees? Can halving a particular fee increase your transaction volume tenfold (and do you want it to?). What type of fixed and variable costs are you going to have, and how long do you expect it to take for you to recover them? In my next posting, I’ll be talking about financial modelling and looking at how variable use case scenarios can affect a mobile money venture’s bottom line in different ways.