Mobile Money Transfer (MMT)

gsma-western-union-logoMobile Money Transfer (MMT) is a peer to peer form of mobile payment mechanism which has the best prospects for success amongst other forms of mobile transactions. The GSM Association has picked up MMT as a project and is supporting its members in embracing MMT.

The money transfer has been in existence since the time the money was invented by man. Man has moved from one place to another in search of work and in many cases, leaving the family behind in his hometown. The families’ back home get support from the money the migrant population sends back home. Forms of money transfer have changed over the years. The most primitive method being either carrying the money themselves when they visit back home or send it through a friend or acquaintance. For the last many years, many people have been dependant on Postal Services to remit money home. This service was popularly known as money order in many countries including Great Britain. Postal services are known to have branches where even the banks do not offer services. This envious position of postal departments is being taken over by mobile services as their distribution network starts to out number other traditional distribution networks. Today, mobile operators have the largest distribution network in any developing economy and hence are in a better position to remit money from one location to another.

The World Bank estimates that remittances totaled $397 billion in 2008, of which $305 billion went to developing countries, involving some 190 million migrants or 3.0% of world population. The money received is an important source of family (and national) income in many developing economies, representing in some cases a very relevant percentage of the GDP of the receiving countries. As per another World Bank estimates, the cost of money transfer varies from 2.5% to 25% depending on the sending and receiving country combination. This high cost of money transfer is forcing people to try alternative ways of money transfer and telecom companies are more than willing to oblige them. Given the size of the mobile industry, the subscriber penetration and the technology, it is not surprising that mobile money transfer has evolved in the cellular space. Major operators with international and inter-regional footprints such as Vodafone and Orascom Telecom have announced their intention to deploy mobile remittance, which they hope will act as a catalyst for the wider adoption of mWallet-enabled transaction services. The cost of money transfer over mobile is much lower than other available mechanisms.

MMT started as peer to peer airtime transfer. Later, the people in the low income group without credit cards started to barter airtime with products. In a way, mobile airtime started to be used as a proxy for cash. The balance transfer mechanism was introduced by the carriers using electronic recharge method to reduce the distribution cost of low value recharges. When the control of airtime transfer was given to consumers, airtime started to be passed on and traded in exchange for goods or services. Kenya and Philippines were the first few markets where P2P informal payment systems have developed into more formal money transfer services.

Initially the airtime transfer was restricted to the same carrier but later on as the demand increased, companies like Redknee (Roaming Recharge Platform), eServeGlobal, etc. started to provide interoperability across carriers. The money can be transferred using a SMS or using a platform based on USSD or IVR. The process of mobile money transfer is detailed in the figure below:


The key entities involved in the mobile money transfer are retailers and one or more entities out of the rest of the four listed below:

  1. Cash-in/ Cash-out retailers and
  2. Banks, or
  3. Mobile Carriers, or
  4. Handset Vendors, or
  5. 3rd Party Money transfer enablers

The business models depend a lot on the regulatory freedom given by the central banks. There are essentially three prevalent business models in the field of MMT.

  1. Carrier – Bank Partnership Model, e.g. MTN and Standard Bank in South Africa (MobileMoney service)
  2. Carrier only Model, e.g. M-PESA of Safaricom in Kenya
  3. 3rd Party – Bank Partnership Model, e.g. OboPay

The business models in mobile money transfer are very similar to mobile payments. For further details on these models, please refer to my earlier post on mobile payments business models

Critical Success Factors

The process of mobile money transfer may look very simple and intuitive but there are many factors that could derail the evolution of this exciting money transfer mechanism. A few of the critical success factors are listed below:

  • Consumer Acceptance – For any service to be successful, the consumer acceptance is a necessary precondition. Consumers are looking for easy to use, secured and cost efficient money transfer service. Consumers especially in the developing country may not be very comfortable with technology and may not have too much help at hand. This means that the service should be intuitive and should use an existing mechanism like SMS or IVR or USSD. USSD is better as it is more secured than other two. Consumers value security!!! The cost of transfer should be far lower than the other means of prevalent money transfer mechanisms. The service providers should work towards building trust amongst the consumers. It would make a lot of sense if the most trusted brands in the business can come together to offer mobile money transfer services.
  • Building of Adequate Ecosystem –The ecosystem in MMT would include the customer acquisition setup, distribution and retailer network, technology provider and the banks. The service providers should have enough outlets where the consumers can get the mobile money loaded on their phone (cash-in) and can also exchange the mobile money for cash (cash-out). Consumers are not going to travel 10 kilometers to avail the service. Treasury management, liquidity management and customer transactions management are some of the new skills that the service provider needs to learn unless there is a bank that is involved in the ecosystem. Insufficient liquidity management can kill the service
  • Regulation – The future of mobile money transfer is dependant on the regulatory environment in various countries. The central banks across the world need to appreciate that the risk associated with mobile money transfer is low and hence they should be ready to exempt some of the regulations when it comes to MMT. “Appropriate” and “Proportionate” regulatory environment should be the approach followed by regulatory authorities. At the same time, the service providers should fully comply with the rules and regulations laid out with respect to KYC (Know Your Customer), AML (Anti Money Laundering), CFT ( Combating Financing of Terrorism), controlled risk matrix, etc.
  • Service Provider Outlook – the carriers should not view this service from the prism of their existing mobile services. Mobile money transfer is not just another VAS service and is neither a service to control churn and enhance retention. Churn reduction can be a by-product of this service but cannot be the objective in itself. Adequate top management focus should be there on this service otherwise, it may not take long before the service provider goes bankrupt due to liquidity and treasury mismanagement. There are new competencies that are required to be added to provide this service and unless a carrier or any service provider is willing to commit itself for the long haul, it is not worth getting into this service. It is essential to conduct a proper risk assessment before committing resources to this business.

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