I met Stephen Musoke in the office of the i-network, a Ugandan ICT for development NGO in Kampala where he told me about his mobile money research. I am happy that he will present his insights at the MoneyLab event next week, here in Amsterdam. Stephan is a self-taught software engineer with experience in the design, development and delivery of custom software solutions to customers in government, finance and agriculture sectors (http://www.ssmusoke.com). In his latest engagement Musoke worked with an non-profit to build sustainable models in which farm and crop management tools and financial services are ‘bundled’ in affordable, unified platforms on mobile phone channels to promote commercially viable mass uptake.
GL: You have written a report about mobile money in Uganda. Can you tell something about your findings?
SM: I have been very interested and watching mobile money from a distance both as a techie and a user – through a social lens of how it has transformed the lives of people in Uganda starting out as a nice to have to a necessary part of day-to-day life. This is evidenced by people’s reactions when the systems are down or not functioning as expected.
So I take this to be more than a report, it is a futurespective of what it would take for Mobile Money to move to the next level of usage, where it becomes a core platform for commerce. I have been a developer/software engineer in Uganda for the last 12 years focusing on custom web based solutions for clients across various sectors of finance, agriculture, eduction and government. A common pattern of problems always involved how to handle payments, without the overhead of cash or integration with banking systems to streamline information management.
When Mobile Money first started it was not very clear how it would work, and what benefits, which only became clear once I started using it regularly only then did I start hitting the boundaries of the available usage scenarios. Later I worked with a non-profit which was seeking to bundle agricultural information with financial services via the mobile phone in Uganda, and mobile money as an existing platform looked viable. The baseline surveys showed that 85% of farmers have access to a phone within their households, yet their challenges were how to pay for inputs and get paid for their produce in addition to knowing what to plant and where to sell it. Analysing the agricultural value chains which form 80% of GDP, found that the major constraints in improving efficiency was the difficulty in making and receiving payments.
That research exercise and experience helped validate my thinking in what does it take to move a payment system to the next level, despite the regulatory, competitive and economic constraints around it.
GL: If I understood the origins well mobile money is not coming from the NGO-sector and its ICT for Development rhetoric. Needless to say, it is not coming from banks either. Do we have to situate inside the telecom sector? From a 1990s internet perspective, these are conservative forces, to put it mildly, dominated by either large global players or (privatised) state firms. Why did they start with mobile money?
SM: The NGO-sector and ICT4D rhetoric only appeared after the apparent success of mobile money, the banks have no interest in it because they have alternate revenue streams that have lower capital requirements and require less operational investment. The telcos on the other hand are fighting for their survival, in a world which is increasingly regulating them to dumb pipes on which the Internet is built. This is exacerbated by a huge drop in international call rates, through competition from VOIP services and improved technology, plus the rise and ploiferation of social media messaging applications that reduce the need for voice, SMS but gobble up data. What the telcos have however is an existing mass of customers who are a captive audience, therefore by providing a good-enough service to those customers, they can reap economies of scale using existing airtime outlets and 3rd party agents.
The penetration of mobile phones was also unprecedented as the costs of phones went down from $1000 in 1990 to under $25 in 2010, and ARPU from $1500 to $3.5 over the same period, even with 10 million customers, the gross revenue is $35million. On the other hand, the mobile money transfers in Uganda in 2013 were $640m, taking 1.5% transaction fee shows a revenue of $10million with lower overhead costs has a higher gross profit margin than voice. The telcos are also consolidating, as seen in Uganda by the Airtel/Warid merger which was all about customers, to compete with MTN. One should remember that telcos were formerly government owned monopolistic entities, so their structure is thus, slow moving but able to crush through the competition.
GL: Can you tell us more about the NGO ICT4D rhetoric of the ‘unbankables’ and how this is, or is not, related to the rise of mobile money?
SM: There is truly a class of unbankables, who essentially live from hand-to-mouth in the new age cash economy. However these unbankables used to exchange goods and services via barter trade without need for currency.
Mobile money has relatively low transaction & convenience costs to move money from one person to another, works on feature phones, and outlets are limited by the business viability that increases when bundled with other business operations such as retail. The outlets are fully owned by the 3rd party agents which provides them with an alternate revenue stream while increasing their concentration and penetration.
What the rhetoric does not state is that the unbankables also need the financial services, that have to be at a a lower price point to match their relative income which can be related to the issue of micro-payments in the commerce industry.
GL: If you think of mobile money, what do you think of? Boots in your area? Have you seen it at work in the countryside?
SM: When I think of a mobile money outlet, I see a shopkeeper, a mother with her child in her booth, a wholesaler, a bar owner, a barber shop. These are the regular people that you tend to transact with for small amounts, $10 to $50.
Mobile money also has a social angle to it, from personal experience, I can honor my obligations to relatives in the countryside at way lower costs than traveling there or getting somebody else to do so. So yes it is working, and given that culturally during burials, and ceremonies, I am expected to contribute I can do it conveniently. The Mobile Money agent is the friendly money outlet in my neighborhood, or wherever I go who is functional even when there is no power, and works all days of the week without fail, and whose language is very simple, “Who do you want to send to”, “How much do you want to withdraw”.
GL: I have heard geeks speculating about a possible implementation of bitcoins on future mobile money platforms. In theory, such a construction seems quite likely.
SM: Bitcoins are a complicated technology which needs to be explained to many other than technophiles. Think about how complicated it will be to convince & educate legislators, let alone the common populace yet most of them do no know how to use computers and have cash as an alternative. There however is a place for bit coins as a niche addition to the eco-system to whom the technology and service adds value.
GL: How ‘Keynian’ is the current mobile money set-up? Is there such a thing as culture in this respect? The sudden rise of thousands of boots, the informality of operators and the way in which they are rooted in families, clans and neighbourhoods seems to suggest that the technology remains very close to the existing social structures.
SM: Mobile Money may have become famous through Mpesa from Safaricom in Kenya but its origins can be liked to Phillipines and Indonesia where farmers actually use mobile phones to pay bills, and receive money. The Kenyan success story is one of pivoting a product by Safaricom, which gained speedy traction due to the security risks of carrying & transacting with cash.
However, like any other business, economies of scale are key, so yes existing social structures are the basis for getting the regular & consistent transaction plus providing a level of trust, education & support for the informal operators. There are successful case studies that show boots leveraging regular transactions as a measure of credit worthiness and increasing commerce by reducing the cost of transactions (in remote rural areas transport costs can be as high as x10).
GL: Like anywhere, mobile money in Uganda is producing its own stories of mergers, failures and downtime. How do you look at this from an industry perspective? Is this phase of consolidation inevitable?
SM: Mobile money is driven by telcos which require scale to capitalize on the opportunity, hence the mergers to acquire customers. On the other hand consolidation is inevitable in any maturing sector, business line and among business models as the growth rates slow, market becomes saturated and profit margins start going down. The consolidation provides helps raise the barriers to entry for competitors therefore protecting future revenues. The challenge that I see in this case is that the consolidation is creating larger walled gardens and virtual monopolies, which are bad for innovation and customer service.
The failures are inevitable since mobile money is a bolt-on the monolithic single function switching & billing systems on which the telcos run their operations. The telcos are facing threats to their fundamental revenue models, but they do not want to open up their platforms fearing competition and being relegated to dumb pipes. The next wave of business models will be at the agents level providing value added services already existing on the mobile money platforms to increase their profit margins.