Pricing and commissions Webinar English

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GSMA Webinar Mobile Money Pricing & Commissions

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Confidential 2

Agenda

1. Pricing a mobile money service

A. Valuing the serviceB. Structuring the tariff sheetC. Proofing against fraud

2. Setting mobile money commissions

A. Commissions 101B. Overview of agent profitability driversC. Influencing agent profitability

9:00-9:45

Segments

9:45-10:30

Our Task:

Task: design a tariff sheet and set of agent commissions.

Service: MMU-PESA, a new offering targeted at the unbanked

Provider: Mobiphone, a GSM operator with 30% market share.

Country: Mobiland, a country with 20% bank penetration, and 4 competing mobile operators.

Features: Domestic P2P transferQuestions & Answers

Questions & Answers

*If you as a question, you will remain anonymous to the group*

Confidential 3

Valuing the service

Price>Customer’s Perceived Value

Cost of Goods Sold>What is the objective willingness to pay?How cheap or expensive is the next best formal or informal alternative?

What price must we charge to sustain our channel strategy?

What price must we charge to cover other variable costs?

1

2

3

4

Value-pricing approach

Confidential 4

Valuing the service

Pesagram

Speed# Outlets

1,000 Instant

Reliability

High

Service

Bus Driver 80 2-Day Low

Cost of P2P transfer using existing alternatives P2P transfer alternatives in Mobiland

Price

8%

$1.50

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96

Pesagram

Bus Driver

Value Transferred ($)

Fe

e (

$)

Confidential 5

Valuing the service

Pesagram

Speed# Outlets

1,000 Instant

Reliability

High

Service



Price

8%

$1.50

MMU-PESA500 ......10,000

Instant High?

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96

Pesagram

Bus Driver


Fe

e (

$)

Confidential 6

Valuing the service

Pesagram

Speed# Outlets

1,000 Instant

Reliability

High

Service



Price

8%

$1.50

MMU-PESA500 ......10,000

Instant High?

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96

Pesagram

Bus Driver

Pricing Window


Fe

e (

$)

Confidential 7

Valuing the service

Pesagram

Speed# Outlets

1,000 Instant

Reliability

High

Service



Price

8%

$1.50

MMU-PESA500 ......10,000

Instant High?

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96

Pesagram

Bus Driver

Pricing Window


Fe

e (

$)

Confidential 8

Structuring the tariff sheet

Transaction Value

Tra

nsac

tion

Fee

Transaction Value

Tra

nsac

tion

Fee

Flat-Rate Tiered1 3

Model

Transaction Value

Tra

nsac

tion

Fee

Percentage-Based2

Bus Driver $1.50 Pesagram 8% Not in use

In Mobiland...

Confidential 9


Transaction Value

Tra

nsac

tion

Fee

Transaction Value

Tra

nsac

tion

Fee

Flat-Rate Tiered1 3

Model

Transaction Value

Tra

nsac

tion

Fee

Percentage-Based2

Advantages

Disadvantages

• Simpler

• Difficult to remain competitive on price for low-value transactions

• Difficult to generate enough revenue from high value transactions to satisfy agents

Confidential 10


Transaction Value

Tra

nsac

tion

Fee

Transaction Value

Tra

nsac

tion

Fee

Flat-Rate Tiered1 3

Model

Transaction Value

Tra

nsac

tion

Fee

Percentage-Based2

Advantages

Disadvantages

• Simpler



• Captures more value• Simpler in some markets

• Difficult to generate enough revenue from low value transactions to adequately compensate agents

• Difficult to remain competitive on price for high value transactions.

Confidential 11


Transaction Value

Tra

nsac

tion

Fee

Transaction Value

Tra

nsac

tion

Fee

Flat-Rate Tiered1 3

Model

Transaction Value

Tra

nsac

tion

Fee

Percentage-Based2

Advantages

Disadvantages

• Simpler



• Captures more value• Simpler in some markets

• Difficult to generate enough revenue from low value transactions to adequately compensate agents

• Difficult to remain competitive on price for high value transactions.

• Less simple

• Captures more value• Easier to satisfy agents

Confidential 12


Model

Transaction Value

Tra

nsac

tion

Fee

Transaction Value

Tra

nsac

tion

Fee

Flat-Rate Tiered1 3

Transaction Value

Tra

nsac

tion

Fee

Percentage-Based2

Confidential 13


Charge Fee?

Best practice: charge only for ‘value-creating’ transactions

Value-creating?

Charge Fee?

Value-creating?

Charge Fee?

Value-creating?

Cash-in P2P Transfer Cash-out

Confidential 14

Cheaper than PesagramMore expensive than the bus driver

Value

Tiered pricing structureOnly charging for value-creating transactions

Structure

Creating a tariff sheet for MMU-PESA

Guidelines

Confidential 15

MMU-PESA – Tariff Sheet

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99

Pesagram

Bus Driver

MMU-PESA - Registered

Transaction Type Range FeesDeposit $0-100 $0.00

Transfer to Registered $0-100 $0.00

Withdraw Registered $1-35 $0.00$36-70 $0.00

$71-100 $0.00

MMU-PESA Customer Tariff


Fe

e (

$)

Confidential 16


$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99

Pesagram

Bus Driver





$71-100 $4.00



Fe

e (

$)

Confidential 17


$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99

Pesagram

Bus Driver





$71-100 $4.00



Fe

e (

$)

Confidential 18


Registered Customer

Unregistered Customer

“When a money transfer is between two registered customers, those are two customers who are less likely to

churn.

“When a money transfer is sent to an unregistered customer, we earn a

higher margin.

Mobiphone Cellfone GPRfone X

Mobiland Mobile Market Share

P2P Transfer

P2P Transfer

24% 17% 50% 9%

Confidential 19


$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99

Pesagram

Bus Driver





$71-100 $4.00



Fe

e (

$)

Confidential 20



Transfer to Registered $0-100 $1.50Transfer to Unregistered $1-35

$36-70$71-100


$71-100 $4.00Withdraw Unregistered $0-100


$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99

Pesagram

Bus Driver


MMU-PESA -Unregistered


Fe

e (

$)

Confidential 21



Transfer to Registered $0-100 $1.50Transfer to Unregistered $1-35 $2.00

$36-70 $3.50$71-100 $6.50


$71-100 $4.00Withdraw Unregistered $0-100 $0.00


$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99

Pesagram

Bus Driver




Fe

e (

$)

Confidential 22



$36-70 $3.50$71-100 $6.50




Scanning for risks

Confidential 23



$36-70 $3.50$71-100 $6.50




Scanning for risks

1 Direct Deposit“Occurs when the customer initiating a P2P transfer hands an agent cash, but provides them with the mobile number of the recipient rather than their own in an effort to avoid paying a transfer fee.”

Confidential 24



$36-70 $3.50$71-100 $6.50




Scanning for risks

1 Direct Deposit“Occurs when the customer initiating a P2P transfer hands an agent cash, but provides them with the mobile number of the recipient rather than their own in an effort to avoid paying a transfer fee.”

2 Split Transaction“Occurs when a cash-in, cash-out or bill payment is split into multiple smaller ones to minimize fees.”

Confidential 25




$36-70 $3.50$71-100 $6.50




$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99

Pesagram

Bus Driver




Fe

e (

$)

Confidential 26


Transaction Type Range FeesDeposit $0-100

Transfer to Registered $0-100Transfer to Unregistered $1-35

$36-70$71-100

Withdraw Registered $1-35$36-70

$71-100Withdraw Unregistered $0-100


$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99

Pesagram

Bus Driver



Fe

e (

$)

Confidential 27




$36-70 $3.00$71-100 $5.00




$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99

Pesagram

Bus Driver



All deposits must be made into a customer’s own account.


Fe

e (

$)

Confidential 28

Pricing Summary

Structured using tiers

Option to send to unregistered recipients

Priced according to perceived value

Minimal risk of direct deposits

1

2

3

5

AttributesMMU-PESA Tariff Sheet

Fees only applied to ‘value creating’ transactions4



$36-70 $3.00$71-100 $5.00




Minimal risk of transaction splitting6All deposits must be made into a customer’s own account.

Confidential 29

Agenda

Segments





9:00-9:45

9:45-10:30

Our Task:





Features: Domestic P2P transferQuestions & Answers

Questions & Answers


Confidential 30

Commissions 101: do agents even need to be paid? what for?

Help me register! And teach me!

That takes up my staff’s time.

Sell me e-money!That’s working

capital I need to tie up in e-float.

Buy my e-money!Holding cash is costly and risky.

Show me a tariff poster!

My wall space is very sought after.

Principal: pay agents for every activity they perform, even if the MNO does not charge the customer a fee.

Confidential 31

Commissions 101: how are the economics different from airtime?

Airtime

Cash Flows“As soon as I sell all my scratch

cards, I’ve earned back my principal and also my profit margin.”

Mobile Money

“When I sell my e-money, I’ve made my principal back, but don’t get paid commissions until end of

month.”

“Once my airtime is sold, it’s gone. I can’t make money by accepting someone else’s and reselling it.”

“For every cash-in transaction I perform, I can do a cash-out in turn; this means restocking less often.”

Restocking Frequency

“Everyone on my street sells airtime – I get no major lift in sales from

selling this product.”

“Selling mobile money differentiates my business – it generates

additional foot traffic.”Foot Traffic

Confidential 32

Overview of agent profitability drivers

What are the variables that drive an agent profitability equation?

Float

Average commission value

Average transaction value

1

the amount of e-money and/or physical cash an agent must have on hand to transact.

2 Restocking costthe cost an agent incurs to restock his cash or e-money float balance.

4the average commission earned for performing cash-in/cash-out transactions.

5

the average value of cash-in/cash-out transactions performed by customers.

Volume of transactions3

the volume of cash-in/cash-out transactions performed each day by an agent.

What is the formula that determines agent profitability?

xProfit Margin Asset Turnover

-Commissions Restocking Costs

Float

or

or

avg. commission value

avg. trans value

restocking cost

float

- ) avg. trans value x # of transactions( )x( - float

*

*Assumptions:• The agent performs only one type of transaction (cash in or cash out), not a mix• The agent incurs no labour costs• Every transaction is the same average value, and the agent depletes her stock of float completely before restocking

Confidential 33

Low enough such that MNO earns acceptable margin

High enough such that agent earns acceptable profit/ROA

Value

Agents need to be paid for every activity

Structure

Guidelines

Creating agent commissions for MMU-PESA

Confidential 34

MMU-PESA – Agent Commissions



$36-70 $3.00$71-100 $5.00




need to pay

need to payneed to payneed to pay

Commissions


Confidential 35




$36-70 $3.00$71-100 $5.00




$0.30

$0.60$0.90$1.20

Commissions

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96

Value Transferred

MNO margin on end-to-end P2P transfer

MNO Profitability


Confidential 36




$36-70 $3.00$71-100 $5.00




$0.30

$0.60$0.90$1.20

Commissions

FloatRestocking costVolume of transactions per dayAverage commission valueAverage transaction value

$1,000$15

2$60$50

Return on assetsDaily profit

(11%)(.30)

Variables

Agent Profitability


Confidential 37




$36-70 $3.00$71-100 $5.00




$0.30

$0.60$0.90$1.20

Commissions


Confidential 38




$36-70 $3.00$71-100 $5.00




$0.90

$1.80$3.60$7.20

Commissions


Confidential 39




$36-70 $3.00$71-100 $5.00




$0.90

$1.80$3.60$7.20

Commissions


$1,000$15

2$0.60

$50


131%$3.60

Variables

Agent Profitability


Confidential 40




$36-70 $3.00$71-100 $5.00




$0.90

$1.80$3.60$7.20

Commissions

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96

Value Transferred

MNO margin on end-to-end P2P transfer


Confidential 41

Overview of agent profitability drivers


Float



1




5




“the less float I need to hold, the less amount I have tied up in working capital”

“the higher commissions I earn for each transaction, the better”

“the more transactions of a profitable value, the better”

“the less time and money I spent balancing float, the better”

“the more transactions I process, the more I earn”

MNO Influence

Agent Perspective

Confidential 42

Influencing agent profitability drivers


Float1





VISIT SCHEDULE

Tactic #1: Leverage airtime distribution network to rebalance liquidity for agents on a regular basis.




5


Confidential 43




$36-70 $3.00$71-100 $5.00




$0.30

$0.60$0.90$1.20

Commissions


$1,000$15

2$0.60

$50

Variables

Agent Profitability


(11%)(.30)


Confidential 44




$36-70 $3.00$71-100 $5.00




$0.30

$0.60$0.90$1.20

Commissions


$1,000$1

2$0.60

$50


40%$1.10

Variables

Agent Profitability


Confidential 45



Float1





Capital City Countryside

$1,500 $500Liquidity Requirement

Region

Tactic #4: Create different sets of liquidity requirements according to likely volume.




5


Confidential 46




$36-70 $3.00$71-100 $5.00




$0.30

$0.60$0.90$1.20

Commissions


$1,000$1

2$0.60

$50


40%$1.10

Variables

Agent Profitability


Confidential 47




$36-70 $3.00$71-100 $5.00




$0.30

$0.60$0.90$1.20

Commissions


$800$1

2$0.60

$50


49%$1.10

Variables

Agent Profitability


Confidential 48



Float



1




5




Tactic #6: Market the service to drive up transaction volumes.

Confidential 49




$36-70 $3.00$71-100 $5.00




$0.30

$0.60$0.90$1.20

Commissions


$800$1

2$0.60

$50


49%$1.10

Variables

Agent Profitability


Confidential 50




$36-70 $3.00$71-100 $5.00




$0.30

$0.60$0.90$1.20

Commissions


$800$130

$0.60$50


736%$16.13

Variables

Agent Profitability


Confidential 51

Agenda

Segments





9:00-9:45

9:45-10:30

Our Task:





Features: Domestic P2P transfer


Questions & Answers

Questions & Answers

Confidential 52

Appendices

Confidential 53



Float1





SALARY PAYMENTS

Tactic #5: Help agents anticipate and prepare for events that will be strains on liquidity.




5


Confidential 54



Float1





Tactic #2: Create a layer in the distribution system above frontline agents, whose responsibility it is to manage liquidity in exchange for a fee...

Share of commission

100%

80%Masteragent

Agent Agent

Cost of liquidity management

Agent Agent

HighAverage commission value



5


Confidential 55

“Transfer $100 from my bank account to my True Money e-wallet”



Float1





Tactic #3: Link agent e-wallet accounts with business bank accounts to create rapid, low-cost mechanism for loading e-money.

Option-1 Option-2

+Average commission value



5


Confidential 56

Benchmarks: fee as a percent of value transferred

Sample includes deployments from East Africa, West Africa, and Asia

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99

Value Transferred

Fee

as

a %

of

Val

ue T

rans

ferr

ed

Confidential 57

Benchmarks: premium to send money to unregistered customers

Sample includes deployments from East Africa, West Africa, and Asia

Value Transferred

Pre

miu

m

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99

Confidential 58

Benchmarks: transfer fee as a % of end-to-end cost for P2P money transfer

Africa: Ghana, Kenya, Tanzania, UgandaAsia: Fiji, Afghanistan

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99

Value Transferred

Tra

nsfe

r F

ee a

s a

% o

f Tot

al

Confidential 59

Benchmarks: MNO gross margin on P2P transfer to registered customer (sum of fees minus commissions)


Value Transferred

MN

O g

ross

ma

rgin

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99

Confidential 60

Benchmarks: Cash-out commission as a % of total commission


Value Transferred

Cas

h-ou

t co

mm

issi

on

as

% o

f to

tal

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99

Pricing and commissions Webinar English

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