Understanding the Cost of Mobile Money

For any operator that is looking to launch a mobile money service, a first look at the costs can be daunting. In this post we'll highlight were you can expect to incur costs and explore how these costs can be managed effectively.

Costs may be encountered in three different phases of the project. Figure 1 summarises the costs you can expect to encounter in each phase.



Figure 1: Mobile Money Cost Drivers

No doubt, some of these costs are more strategic than others. So, which ones should you invest more in and which ones can you afford to minimize? Unfortunately, the answer to that question is as varied as the number of markets out there. However, there are some commonalities that can be drawn from recent successful service launches.

Firstly, development and management of the agent network is a highly strategic activity that will require significant investment to ensure appropriate scale with the uptake in user registrations. Operators should budget for this actively generously to ensure that agents can be rolled out quickly and that they can be adequately incentivised to encourage initial usage of the service. Although this activity can be costly, the relative 'value for money' is high. In the case of MTN Uganda, one year after the launch of the service, building and managing the agent network accounted for only 7% of their total costs but the wide availability of agents has been touted as one of the key drivers of their success.

Secondly, technology is a huge cost driver that if managed effectively can lead to significant impacts on the bottom line. Many operators are purchasing off-the-shelf platforms to facilitate quick take-to-market and to avoid large investments in development. Both operators and vendors need to keep in mind that technology platforms are only the beginning of a successful mobile money service. Platforms should be priced in a way that allow the operator to spread their investment over time and as the uptake of the service grows. Vendors that participate in a revenue share show their commitment to successful launch of the service.

Lastly, as the service grows, commissions paid to agents will become larger proportion of the costs. In the case of M-PESA in Kenya, agent commissions accounted for only 10% of the costs in the first year. However, by the third year of operations, agent commissions accounted for more than 60% of the costs. Shortly after the launch of a service, incentivising the agent network is an important factor in encouraging usage but, as the service stabilises, operators can look for innovative opportunities to manage these costs. It will be important for operators to have detailed statistics and analytics on the effectiveness of each agent outlet and to be able to monitor the individual profitability of each agent. This way operators can control the growth of the agent network and ensure that maintain an optimised roll-out.