The mobile money agency system has made huge progress in increasing access to financial services and reducing the cost of transactions, though in terms of serving the “last mile” - those wishing to make single dollar transactions - there is still much to be done. But the answer may be staring us in the face, says Nomanini CEO, Vahid Monadjem.
In disrupting the traditional
financial system, with its reliance on formal tellers and ATMs, mobile money
and its agency model have taken off across Africa. According to Frost &
Sullivan, the value of mobile money transactions in Sub-Saharan Africa reached
USD 656 million in 2014, and may more than double to USD 1.3 billion in the
next four years.
The success of the likes of
M-Pesa, Paga, Zoona and Splash-Cash stemmed from the relative inaccessibility
to and unaffordability of the banking system for small transactions. Mobile
money providers reduced the cost of transactions by eliminating the need for
high-cost office space and tellers behind expensive counters. Yet, if we are
speaking about banking the unbanked, values transacted are still relatively
large and hence infrequent. The average M-Pesa transaction value is over USD
20, which is a lot if you earn less than USD 2 per day, which well over one
billion people globally do. It's time to extend the gains of the agency model
to the next level: to single dollar transactions with general retail merchants
on every street corner.
For payments with dedicated
agents, who earn all their income from transactions, the fixed monthly cost is
USD 150 - 250 per agent. An agent would have to process over USD 20,000 in
transactions to break even. If they were to do that on single dollar
transactions, each agent would have to process two transactions a minute, eight
hours a day, every day of the week. This is not likely to happen. So average
transaction values remain at around USD 30 and providing single dollar
transactions continues to be uneconomical.
There is a need for a third tier
in the payments system if the last mile of payments is to be covered. The first
tier is of course bank branches and ATMs, the second tier is mobile money agents
and the third tier is merchant payments. We need to make single dollar
transactions a cost-effective reality, which it cannot be under the current
system, as it is impossible for single dollar transactions to cover the costs
of the first and second tier models.
The answer, however, may be
staring us in the face: merchants in the informal retail trade. Nigeria has
thousands of bank branches, tens of thousands of mobile money agents, and
hundreds of thousands, if not millions of small retail merchants. This is a
ubiquitous touch-point for consumers across Africa.
At Nomanini we are realising that
services like ours can be the last mile when it comes to single dollar
payments.
This is based on simple
economics. Whereas 100 per cent of an agent’s income comes from payments,
merchants sell all sorts of other items, so processing of transactions provides
an additional income or a complementary income for the rest of their business.
In fact a merchant wants to do small transactions to attract customers. If the
transactions are too large, their liquidity suffers and they would rather refer
those transactions to dedicated agents. With lower overheads - the shop is
already built, the staff are already employed - costs come down, and with them
so do transaction values. Now single dollar payments are a possibility, simply
by utilising a massive pre-existing network.
People that live on USD 5 per day
- over four billion people, or two-thirds of the world’s population - can now
cost effectively make electronic transactions daily. This third tier of
financial services provides one more level of inclusion to the use of e-money,
which can then be extended over time to transactions for other things such as
microfinance and insurance. To create a truly cashless society will require
that the liquidity and cost of using of e-money to be on a par with cash, for
those at the bottom of the pyramid as well as at the top. That is the story of
single dollar payments, where currently cash has a better value proposition for
daily payments.
Creating this third tier has its
challenges. Payments is a low margin business and last mile is an unattractive
area to serve for many businesses regardless of what sector you are in. There
has been little consolidation in the market, and the immaturity of the
ecosystem is a hindrance to doing it at scale. Merchant acquisition is
intensive and requires significant tech and organisation.
By utilising the huge existing
merchant network to make single dollar payments more accessible and affordable
to the bottom of the pyramid, a third tier is possible. This is what our
service offering enables. And from there, it could provide a springboard to a
multitude of ancillary services - such as credit scoring and inventory
management for merchant. We just need to get the economics right for
nano-transactions.
About Author
Vahid Monadjem is the founder and
CEO of Nomanini, a South African-based enterprise payments platform provider
that enables transactions in the cash-based informal retail sector.
He is passionate about working at
the intersection of technology and design in informal markets, where Nomanini’s
solutions can directly impact people's lives. Vahid’s vision for Nomanini is to
provide platforms for transactions in emerging markets by empowering local
partners to create the tools that best suit their particular environment.
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