Why do mobile money agents get paid less than airtime retailers?
Posted: November 1st, 2011 | viewed: (1,661) | Comments: ( 4 ) | Topic: Agent Networks, Blog Post, M-PESA |
In most markets, if you compare the margin that retailers earn from selling prepaid airtime to the commissions that mobile money agents earn buying or selling e-money, you will find that the former is almost always higher than the latter. This makes recruiting mobile money agents from your pool of airtime retailers tough, an issue we discussed in a sidebar in “Building, Incentivising, and Managing a Network of Mobile Money Agents”. But we didn’t confront the more fundamental question: why do operators set mobile money commissions lower than the margin they offer airtime retailers?
At one level, the answer is obvious. The less you pay agents, the more attractive the mobile money business case becomes. What’s more, when operators sell airtime on their mobile money platform, they are effectively switching customers to a lower-cost channel and therefore reduce their cost of goods sold. These savings flow straight to the bottom line.
But of course, there is the agent’s point of view to consider. The return that any retailer earns is a function not just of the margin they earn, but also the volume of goods they sell. That means that you can persuade a retailer to add a lower-margin good to their inventory if they accept that that good will be faster moving.
Safaricom got away with offering retailers M-PESA commissions that were lower than airtime margins because they were able to ensure that agents were busy, which meant that their inventory of e-money and cash was turning over fast. I suspect that the average M-PESA agent in Kenya does an order of magnitude more volume compared to the average airtime retailer, which more than compensates them for the lower margin they earn on each transaction. Safaricom achieved this by closely managing the ratio of customers to agents, never letting the number of agents get so large as to dilute the volume of transactions, and thus the return, of the average agent.
In many markets, however, mobile money agents actually perform fewer transactions per day than airtime retailers do. This implies that the business case for serving as a mobile money agent is worse than for selling airtime both in margin and volume terms. Is it any wonder that agent il liquidity is one of the biggest challenges that face mobile money deployments? Agents have options when it comes to deploying their capital, and if mobile money doesn’t seem like a good one, they’ll invest in something else.
The moral is as general as it is simple. You can find a channel for a low-margin good so long as it will sell fast. You can find a channel for a slow-moving good so long as it is high margin. But trying to find a channel for a slow-moving, low-margin good is doomed to fail.
The good news is that this means operators with an underperforming channel have two different levers to pull to restore agents’ engagement and liquidity. The first and probably best is to increase the volume of transactions that agents perform. The other is to pay agents better commissions. But either will help.
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This is possibly the biggest issue around uptake of Mobile Money. It is also the start of the following vicious cycle: If the agent is not willing to keep inventory of Mobile money, then there aren’t enough of them around so Cash-In and Cash-out is not available as close to home as airtime is. If the customer needs to go very far to access a Cash-in / Cash out agent then this becomes the same reason why they didn’t enrol with Banks.
We at Utiba actually have solutions for this problem that are very innovative and yet don’t require the operator to pay higher for mobile money than they do for airtime.
The attraction to being a mobile money agent cannot be commission but that it brings consumers into an agent’s store. The consumers once cashed up will purchase other goods. So in retailer speak it is all about foot traffic. Whether you are a small store holder in rural Kenya or a convenience store operator in downtown Sydney the principles are the same. In many developed economies cash out is offered at the point of sale. The retailer does not earn a cent but they offer the service because it reduces their cash holdings and brings in customers. The same reason that many small convenience stores around the globe have cash machines. Many of which are not returning significant income to the retailer.
Retailers in emerging markets will figure this out. It is probably more important that the process of servicing mobile money customers is efficient. That it takes little time.
My view on this is maybe a little simplistic, the cash in networks for e-money typically do not earn less than they do for Mobile Top Up, this is primarily due to the enhance value. The transaction for an e-money “Top Up” and an airtime top up are virtually the same, most of the top up networks would love to charge the same percentage but can usually be persuaded that the real value is in the amount of the load. My current e-money project in the UK is loading an average of £94 per load where as the operator I am working with has an average airtime top up of less than £9.
My Point – the % base for e-money may be lower but given the value the actual income stream is higher for a similar amount of work.
For cash out networks this should end up being the same scenario although I am yet to see specific trends on the value that is being sent on these. I do agree with the footfall comment from an earlier post, however agents don’t seem to remember this when they are discussing the commission side of a deal.
“Slow moving” describes no successful payments platform anywhere. Safaricom’s fast moving low margin is the only path.
Two keys are interoperability and increasing agent sophistication. Interoperability will deliver consumer choice and boost overall transaction levels. Truly sophisticated agents could potentially provide mobile financial services. A very wide variety of mobile financial services added to an agent’s repertoire will increase the value of their agency. Commissions will find their correct spot through market forces will inform commission levels.
First and foremost: transaction volume. Regulations, technology and business models determine a lot but to paraphrase Bill Maurer of IMTFI, it is the things people do with these systems that will drive change. Active users drive change; more and more and more are needed.