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The Business Case for Mobile Money
The functions and benefits on a Rate of Return (ROI) model

3G Innovations on Ulitzer

This article explores the functions and benefits on a Rate of Return (ROI) model designed to assist operators with their decision to purchase a mobile transaction platform such. It examines the revenue and cost benefits attributed to such a system and explains how an ROI model can quantify these benefits for each service provider and estimates a personalized rate of return. Equipped with quantifiable data that is particular to their own business operations, operators can make informed decisions regarding a transactional software platform and better understand the impact of their investment.

The Problem
Average revenue per subscriber (ARPU) has been on a steady decline as carriers penetrate low-volume users and fierce competition has driven voice minutes to near commodity-level pricing. Operators have tried to combat the decline through investments in mobile data services, applications, and other mobile value added service offerings.

As the number of mobile subscribers moves from three to four billion, the profile of that next billion represents a unique demographic where serving the subscriber value-added-services means augmenting an already capable 2G+ network. The profile of that next billion are from the developing markets where economies are primarily driven by cash; banking systems exist however do not serve the individuals in the remote areas where communications networks are capable of reaching. The next billion are remote and migrant workers, who generate an income to send back to their homes to support their loved ones.

A majority of that next billion will dominate the prepaid subscriber community. According to Informa, prepaid subscribers will continue to dominate the landscape for many years to come.  Overlaying this analysis onto the regional subscriber acquisition uncovers several interesting dynamics.

In the developed markets we have also seen the shift in favour of a prepaid over postpaid account, a no-commitment mobile account[1], which is a byproduct of the destabilization of financial markets in the developed markets. The challenge for mobile operators in developed markets is how to capitalize on the shift and growth of mobile prepaid subscribers.

Some people see mobile money as the next big thing. They say it promises a bright new future where mobile payments will make fortunes for operators and transform the lives of unbanked consumers who use these mobile payments to pay utility bills rather than spend the day queuing.  The unbanked community alone is a huge constituency: in 75% of countries, the majority of citizens have no access to banking facilities.

Where to Begin?
Operators have traditionally used a paper scratch card system. This gives the consumer a code number that can be typed into the phone to credit the phone with a number of minutes or a financial value. The code is hidden by a strip that has to be scratched off to reveal the number, hence the name. This mechanism for distributing phone credit allows non-phone outlets such as news vendors and drug stores to sell phone credit. The system is not without its drawbacks.

The benefits of replacing the scratch card with an electronic top-up system are huge for both the operator and the consumer. There is a significant reduction in fraud, no need to carry physical inventory and the amount of the top-up can be flexible unlike fixed denomination scratch cards. Some markets see an operational reduction by as much as 60%.  This works particularly well in those markets where consumer funds or sales infrastructure are limited.

An electronic top-up system is effectively a business based on the wholesaling of minutes. These are sold on through a distribution chain, being broken into smaller and smaller packages until they reach the final distribution agents.  Electronic top-up gives operators a significant reduction in logistical overhead; while giving them plenty of exposure and brand reach out on the streets.

What More Can Be Done?
Even more important it is the impetus of how we begin educating consumers how to turn money into minutes, and then how to use that interaction and facility to do more.

To begin with an operator must ensure that the investments are reused for other purposes. The mechanisms, processes, and control procedures, and existing infrastructure put in place from a transaction platform executing a recharge capability can be repurposed for more.

Plug in capabilities that allow for Peer to Peer airtime transfer, which allows subscribers to send minutes to each other. This is valuable in developing and developed markets, where, for example, a member of the family purchases for the household and distributes the minutes to their family members. Use that same peering mechanism and equate the value money rather than minutes and what the operator now has is the capability to provide P2P Money transfer, which allows money to be transferred in the same way as minutes - with the exception from bank accounts, or virtual wallets.

Using the same platform again bolt on an commerce and bill-payment options  to allow the subscriber to pay for goods and pay bills, through the use of a virtual wallet in the phone (residing in the network), or interfacing directly to a bank account and utility company.

What About Mobile Marketing?
Typically when people are transacting for goods and services, they are at most receptive for more information to be pushed their way, as a reminder of additional products or services, to purchase. Mobile marketing is finding a hard time to find home, but when incorporated properly into a transactional platform, develops what was once not a well understood problem space, to creating a business with plans that have a greater return than expected.

To encourage use and retention of all these services, rewards programs and promotions need to also be encouraged and introduced. Traditional scratch card and electronic vouchers and highly branded for effective point-of-sale merchandising, therefore borrowing from what works and making it better also typically improves the bottom line.

The Business Model Explained
The definition of what constitutes a bank changes from country to country, and the needs are vastly different. The GSMA along with the Bill and Melinda Gates Foundation is looking to mobile payments as a way to encourage savings in communities that are mainly rural and where income is tied to harvests.

With all this defined how does an operator return the investment made with such services?  Incorporate well understood business models such as SMS charging and per minute voice charging and apply that to transactional services, where sender pays, and you've got a new line of revenue that will satisfy any CEO. Typically this has led to a $1 a month increase in ARPU, often from a very low base.

The Final Word
As a final note, it must be stated that there are numerous factors that affect the payback and the results will vary according to the particular circumstances of the service provider. Payback results can be influenced by the following factors:

  • Single transactional platform investment vs. multiple
  • Number of direct revenue generating services applied
  • Incorporation mobile marketing

When deploying a transactional services platform service providers must consider these variables and understand their influence on their investment.

[1] First Quarter of 2009, Sprint Nextel gained 764,000 prepaid iDen subscribers. MetroPCS, LEAP, and Virgin Mobile also benefited from this trend.

About Vincent Kadar
Vincent Kadar is the President and CEO of Telepin Software, a provider of mobile money transaction platforms. He has more than 16 years of executive experience in software technology companies for wireless and telecom networks. Vincent has several patents registered in the areas of networking and wireless services, and is a frequent author and speaker on mobile money trends and issues. He holds an HBSc in Computer Science.

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