Why we must rethink mobile money model

As the growth of the person to person market levels off, providers are gunning for the customer to business segment in a bid to increase utility of their services and embed themselves more deeply into the lives of both the consumer and the business.

Technology empowers businesses to do three things well; the first is to increase efficiency by removing friction in the consumer engagement process, the second is providing business intelligence and lastly reduce the cost of business.

The pricing of the enabling technology must, therefore, be well thought out if it is to scale well. Mobile money competes with cash and it therefore suffices to look at the cost benefit of using cash.

A good number of enterprise entities have jumped aboard the mobile money bandwagon, but the real growth for the providers lies in the on boarding of SMEs that number in the hundreds of thousands.

The cost of cash to both consumers and those they patronise can be calculated using different formulas, but I will take a simplified approach to give perspective for comparative analysis.

For a consumer to utilise cash it takes a series of steps involving both time and money; a visit to the ATM or bank branch and thereafter a visit to the retailer or service provider.

For the service provider, depending on their vertical, there is the cost of handling cash and that of real-estate to handle foot traffic.

The numbers on some alternative payment channels are; Safaricom on its Lipa na M-Pesa service takes one per cent of each transaction value, Equity Bank with their transport centric service BebaPay which is in partnership with Google take 5 per cent, while PesaPal a payment services aggregator levies a 3.5 per cent transaction fee on e-commerce, bill payments and invoicing and five per cent on ticketing.

For service-based businesses, these transaction fees could be considered okay, but for those moving product, a deeper analysis will reveal why adoption may be stifled.

Margins are usually in the seven to 15 per cent range for many SMEs, so if a spare parts dealer, for example, grosses Sh100,000, he will make on the lower level Sh7,000 in profit.

Transaction fees will be Sh1,000 based on one per cent of his gross, meaning that the collection service costs him 14 per cent of his earnings.

This is akin to having a silent partner who takes out, month on month over one tenth of earnings and this is where it doesn’t make sense, even when juxtaposed against other benefits.

We must look at the business model on the mobile money front differently especially in light of the SME market inclined to service and product suppliers, no hard and fast answers, more of an intellectual jog to see if we can do it different.

Mr Njihia is CEO of Symbiotic | Twitter - @mbuguanjihia