Uganda’s Mobile Money Market: Copycats, Competition and Innovation

Tuesday, 29 June 2010

At the end of its first year, Uganda’s mobile money market has expanded to an estimated 1.25m users between three providers. Maya Prabhu draws first conclusions how the neighbour of mobile money pioneer Kenya is faring. With over 9.5m registered customers as of April 2010, Kenyan mobile operator Safaricom’s pioneering M-PESA has become a global leader in mobile money transfers and has recently, in a partnership with Equity Bank, moved into providing additional financial services . When M-PESA’s success became apparent, Safaricom CEO Michael Joseph had expected that any major mobile operator would copy the service within 12 to 18 months.   But even though the model is compelling, competitors did not follow as quickly as expected, and neither did they expand as quickly as Safaricom. But then Safaricom operates in a uniquely dominant position with a market share of around 80%, therefore creating a powerful network effect that competitors have struggled to break.   Even more so than Kenya, Uganda is a cash-based economy, with all the rigidity and risks to individual cash holdings that this implies. If the uptake of mobile money services here mirror the explosive increase in Kenya’s mobile money usage, this could trigger a large-scale transition from cash to electronic money. However, as in most other countries, no single operator has the same dominant market position as Safaricom.   Three Competitors   In Uganda, three major mobile companies launched their mobile banking platforms in the last year: MTN were the first company to offer mobile financial services to the Ugandan market, launching MTN MobileMoney in March 2009, and recently announced hitting the one million customer mark. The operator is market leader with about 60% of the mobile market. Junior Kwebiiha, National Sales Manager at MTN’s Public Access office, expects that at the end of June, over 1.1 million Ugandans will be using MTN’s MobileMoney. Competitor Zain – shortly to be rebranded after the acquisition of Zain’s Africa operations by Indian Bharti Airtel - launched their mobile banking platform, Zap Uganda, on 29 June 2009 and will have 103,000 customers by the end of their first full year. The Zap platform is available across all Zain/Airtel operations, and Zain had been working on plans to provide cross-border money transfers, in accordance with their One Network elimination of roaming fees. Representatives of Uganda Telecom’s (UTL) three month old mobile money platform, M-Sente, were unwilling to release exact figures in advance of an upcoming promotion, but said they are approaching 50,000 registered.   These numbers represent customers who have registered to open an ‘e-wallet’ or mobile money account, enabling them to keep and transfer funds electronically. However, these figures may understate access to mobile banking, since recipients do not have to be registered users. Registered customers of UTL’s M-Sente and MTN MobileMoney can transfer funds to subscribers at different mobile companies, or even phone-less individuals, who can withdraw the funds transferred from a mobile money agent with the pass-code sent.   However, Zap users can transfer funds exclusively to Zain subscribers. 1.8m Zain sim cards have a Zap menu that subscribers need to enable through a simple choice on the menu. This indicates that mobile money potentially has an impact on a much larger section of the population than user registration alone would indicate.   Marketing and Distribution Networks Each of Uganda’s mobile money providers have borrowed elements of M-PESA’s marketing modus operandi to broaden their reach: MTN have worked with marketing group Top Image, previously partnered with Safaricom. Brandon Ssemanda, Marketing Manager with Zain Zap, said, “Zap has had to change [its marketing] to take a more direct approach... We now have a one-one-one engagement with customers below the line.” UTL say that their approach, what Chief Technological Officer (CTO) Menghistab Tesfai refers to as, ‘experiential marketing’, is also inspired by Safaricom’s example.   Tesfai considers that the value of Safaricom’s distribution network cannot be underestimated in explaining the success Zap’s Kenyan competitor M-PESA: “[M-PESA] grew, and made Zap irrelevant because of their reach and their distribution network. Zap had, in many ways, a better product, but they were pushed out by M-PESA all the same.” M-PESA had, at the end of its very first month, a retail structure including 355 agents; by the end of its first year this had expanded to 2,329 agents. In April 2010, Safaricom reported having as many as 18,103 agents countrywide.   MTN MobileMoney, a little over a year old, has 1,200 retail outlets in Uganda. Perhaps learning from being crowded out in the Kenyan market, Zain Zap has managed to build an agent network with as many as 4,000 agents throughout Uganda, despite servicing far fewer mobile banking users than MTN. Zain’s Head of Marketing George Buza said that while agents were recruited at the beginning, now the company is being approached by airtime distributors and cornershop owners who would like to deal in mobile money. A direct comparison to the M-PESA precedent implies that Zain’s agent network should represent a huge gain, with MTN lagging behind. But the expansion of both companies’ customer figures show that success in mobile banking is not quite the simple equation that Tesfai implies it is. Zap representatives claim that they are getting an average of 1,000 new registered users per month, while Junior Kwebiiha at MTN said MobileMoney is growing at a rate of 70,000 customers each month. A large distribution network is certainly a prerequisite for expansion, but especially when it comes to handing over money to the network operator, customers need to perceive the company as trustworthy. Mobile money provider need to enhance this image in their advertising and marketing campaigns, and ubiquitous presence helps. MTN’s 60% mobile market share also aids in breaking down the barriers of customer awareness and understanding more efficiently.   Zain’s big push to increase their agent numbers might also have been spurred on by the fact that their unusual agent-commission structure requires competition between agents: rather than setting fixed commission rates for ‘cash-in’ and ‘cash-out’ transactions with customers, Zain publishes recommended rates, but ultimately leaves it up to agents to determine the size of the commission they demand. George Buza said the company is aware of the risks to their reputation and customer-relations inherent in giving agents such free rein, but considers it a risk worth taking in order to allow market forces to do their work.   However, Zain’s infrastructure might offer them a basis for rapid expansion in future. Not only do they simply have a larger number of agents offering customers access to cash-in and cash-out services, they are also partnered with Western Union, whose branches nationwide act as a super-agent superstructure.   Urban-Rural Money Flows   The development of a super-agent structure became necessary because on balance, mobile money flows from the urban centres to the rural areas. This means, that in remote areas, agents face the problem that their cash reserves are likely to be depleted by customers withdrawing cash more frequently than they deposit cash.   UTL incentivise stockpiling cash by offering agents a larger commission on ‘cash-out’ transactions. Phil Levin, Director of Mobile Banking at MAP International and M-Sente, says the expectation is that an agent in a more remote area will strike his own deal with, for example, a businessman in the area who is willing to trade mobile money for cash for a commission. Zain have bypassed this problem by offering agents the opportunity to use Zain stores and Western Union outlets, which have greater access to cash and also act as regular agents to Zap customers, to make these transactions.   Zap Agents can also quickly access Zap electronic funds by depositing cash straight onto the settlement account at any Standard Chartered or Centenary Bank branch. Similarly, MTN is currently exploring turning branches of Stanbic Bank into 'super-agents', selling electronic float to agents, allowing them to instantly liquidate cash for MobileMoney. In both cases, however, the inverse - agents selling electronic funds to the 'super-agent' in return for cash - is not on the cards as a possibility at this time.' New Applications and Low-Hanging Fruit Whether encouraged by competition between providers, or simply by technological availability, the expansion of mobile money to offer new applications in Uganda is imminent. Each mobile money provider has a list of new products they plan to launch in mid-2010. Most of this development will take Uganda’s MobileMoney, M-Sente and Zap mobile finance services no further than the territory previously explored by M-PESA in Kenya: key features include bill payment and direct mobile linkages to partnered banks’ accounts. In M-PESA’s early days, Safaricom faced allegations that it was out to compete directly with banks –  not true, the company said, arguing that the mass of M-PESA users were not considered eligible clients by banks anyway. And so far, the relationship with banks is characterised more by co-operation than by competition: In its ‘M-Kesho’ partnership with Equity Bank, Safaricom has moved from mobile money towards mobile banking.   In Uganda, MTN MobileMoney and Zain Zap plan to follow Safaricom’s advance and roll out similar applications in mid-2010, offering users the facility to transfer money in and out of their bank accounts through their mobile phones and mobile money agents. The services will be offered to customers who have accounts with the banks that the mobile operators work with already: Since mobile companies do not have a banking license, they need to have a banking partner to hold the cash, i.e. Stanbic and Standard Chartered respectively. UTL were unwilling to announce a date for such a service, but CTO Menghistab Tesfai says the company will not be far behind its competitors.  Where technological opportunities are ahead of services offered, the innovations surrounding the launch of new mobile banking products is mostly in the area of partnerships. For example, UTL M-Sente already has a school-fee payment capability, but at the moment, users can only pay fees at Makerere University, as that is the only bill-payment partnership that the company has established. Zap’s first move has also been school-fee payment. The mobile finance platform operates a ‘nickname’ or code-based payment system for about 300 schools in and around Kampala.  The early availability of fee payment for the Kampala based university and schools are part of a tendency to offer new products to urban, and often wealthier, prospective users. Both MTN MobileMoney and Zain Zap will shortly offer customers the possibility of paying their DSTV bills remotely, via their mobile phones, and all three mobile money providers plan to release a product which will link bank accounts to e-wallets, allowing, according Brandon Ssemanda at Zain Zap, the substitution of a mobile phone for bank card and ATM.   Mobile financial services began as a product for the unbanked low end of the retail market, but have, in fact, proven attractive for wealthier clients. MTN’s Junior Kwebiiha said it made little financial sense not to offer urban populations the convenience that MobileMoney sells, when over 60% of peer-to-peer transactions are currently urban-to-rural. Menghistab Tesfai at UTL says, while the relatively small number of wealthier Ugandans will never make up the bulk of mobile money users, they represent the low-hanging fruit. But once a bill payment model has been developed and successfully trialled with a partner like DSTV, it’s only a matter of time until it is adapted for use by customers of the more broadly relevant Umeme (electricity) and National Water. Kwebiiha also argues that MTN’s soon-to-be-released merchant payments system will be used by a range of customers spanning the socio-economic ladder, and says that its ‘bulk payments’ product will not only offer employers the chance to efficiently disburse salaries, making the service more interesting for corporate clients, but will also facilitate a smoother and more convenient loan-and-repayment process for retail financial institutions focusing on the low-income population like Pride and Finca Uganda.   Perspectives School fee payments and other new services are intended to tempt customers into trialling the mobile money product, and the anticipation remains that, for the foreseeable future, direct individual money transfers will remain the crucial facility of mobile money. Junior Kwebiiha at MTN MobileMoney, discussing the company’s soon-to-be-released ‘send money to bank’ function, hopes that strengthened linkages between bank accounts and e-wallets will draw upwardly mobile customers into the formal financial system. Regulators’ concerns about money laundering and fraud will keep mobile banking accounts capped at a fairly restrictive balance, which could potentially incentivise financially successful mobile finance users to go through the more rigorous process of opening a bank account in Uganda. Overall, however, the positive side-effect of the deepening linkages between mobile money and banks is the fact that more money is being drawn into the formal financial sector where it becomes available for financial intermediation.   Phil Levin of MAP International and M-Sente is a little more cautious about mobile money’s potential financial impact: “In 2010, mobile money is about money transfer. It could be that in 2015 it’s about savings. What this means is that it’s taking cash out of the day-to-day economy and facilitating the evolution of the Ugandan financial system from an informal to a formal economy.” Tesfai, who works closely with Levin on the M-Sente platform, insists that the linkages between mobile banking and formal bank accounts do not represent a milestone at this point, and that M-Sente’s own roll-out of a similar product is merely intended to prevent the perception of a gap between UTL and its competitors on the mobile money market. He and Levin agree that now, and for the next few years, person-to-person money transfer remains the, ‘killer application’ for mobile money customers.  Not just Levin’s and Tesfai’s  caution regarding the integration of mobile money with the formal banking system indicates that Uganda’s mobile money market is developing at a slower speed than Kenya’s. As much as Uganda’s expansion figures seem encouraging, at the end of M-PESA’s first year in Kenya, the mobile financial platform had over 2m registered subscribers. Uganda’s entire mobile market, in contrast, had 1.25m customers after its first year.  The primary and obvious divide between the Kenyan and Ugandan mobile banking markets is the virtual monopoly Safaricom holds. Far more than other factors cited to explain the success of M-PESA, e.g. financial literacy of Kenya’s users, or a more developed entrepreneurial attitude, this is the key factor in understanding the success of M-PESA that other companies struggle to match. It holds a lesson for the introduction of mobile money services in other markets. From being the dominant mobile telecommunications operator, the company also built its dominance as a mobile payment provider. No operator in Uganda is in a comparable situation. Although MTN holds the largest market share in the mobile and mobile banking markets, it faces significant competition from the two more recent arrivals on the scene, and UTL CTO Tesfai’s statement that the cornerstone of Safaricom’s success has been the strength of its distribution network supports the notion of the company’s near-monopoly as an advantage that no mobile operator in Uganda is likely to gain. Asked to comment on whether the competition might hinder the uptake of mobile financial services in Uganda, representatives of providers stressed their short-term goals. UTL M-Sente’s Tesfai emphasised the importance of a realistic outlook. “No, we’re not going to get 80% of the mobile money market with an 18% market share” he says, “but if we can get 18% of the mobile market share, that’s a solid start.”  However, Phil Levin regards competition as having the potential to stimulate the Ugandan market, to yield innovations in the context of an industry globally regarded by insiders as being in its early infancy. Indeed, Uganda’s mobile financial service market has begun its evolution into more than just a peer to peer money transfer service. Still, there is not much evidence to suggest that this evolution is expedited by competition: it seems more likely that at this point, the roll-out of new products follows on from the advances made in technology, treading onto the turf first trodden by M-PESA. And with the market so far from saturation, competition is still a fairly muted force. Exclusivity agreements with, for example, bill-payment partners seemed to strike representatives of the mobile financial service providers as fairly foreign at this point, with MTN’s Junior Kwebiiha protesting such clauses would be handled by the legal department, and that he was sure they were looked at on a case-by-case basis. With a product that requires a great deal of customer education and trust, it seems likely that market dominance can, in fact, enable penetration rather than encourage developmental complacency. Share this article with others: Comments (0) Subscribe to this comment's feed Write comment Show/Hide comment form Name Email Title Comment smaller | bigger Subscribe via email (Registered users only) I have read and agree to the Terms of Usage. Add Comment