version 06132020 Read Seeking Fertile Grounds for Mobile Money Mobile Money in Tanzania Many households do not have traditional bank accounts A new escrow bank account can be created and attached to a mobile phone number ID: 799855
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Business of Platforms: Mobile banking in Africa and other developing areas (version 06132020)
Read: Seeking Fertile Grounds for Mobile MoneyMobile Money in TanzaniaMany households do not have traditional bank accountsA new (escrow) bank account can be created and attached to a mobile phone numberand, therefore, to a mobile telecom networkNo other banking services (loans, mortgages, investments)
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Slide22
Continue
Each mobile telephone network creates its own money
Mobile banking networks are
incompatible
For example:If there are two mobile telecom companies, A and B, in a country, then there are three types of money: State (S-) money, A- m-money, and B- m-money
Slide3Three functions of mobile banking network
To transfer money to another person or businessTo transport money in the very short termTo save money3
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Conversion from S- money to A- or B- m-money (“cashing in) is free
Conversion from A- or B- m-money to S-money (“cashing out”) is expensive: fee 2-5% for an average transaction
Transfer across networks, from A- money to B- money is even more expensive
Transfer within a network has a low fee, 0.3% for average transactions
Substantial surplus losses because of
de facto
lack of interoperability
De facto
lack of interoperability makes exchange rates crucial.
In Tanzania:
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B
A
Flows of m-money and conversion fees
State Money
State Money
0% Fee
>2-5% Fee
2-5% Fee
~0.3% Fee
~0.3% Fee
Slide6In Tanzania 35% of households have at least one m-money account
three major m-banking networksVodacom (Vodafone), 53% market share in m-moneyTigo, 18%Airtel, 13%Since calling and transferring money across networks is expensive, many consumers have a different phone or a different SIM for each networkTigo advertises phones that take multiple SIMs
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Slide7M-money is most frequently used to send or receive remittances
Non-remittance transfers are infrequent14% of all households made or received a non-remittance payment in the past six months using any type of cash delivery, including m-moneyThe most common types of payments included school fees, government fees and taxes, utility bills, and salaries
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Slide8Frequency of service by type
Service type
Frequency
Cash-in23%Cell phone top up
21%
Cash-out
19%
P2P transfer
17%
Purchases
13%
Bill pay
5%
Other
2%
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Slide9Cash-out fees
Amount
500-3999
4000-4999
5000-9999
10000-1999920000-29999
30000-39999
40000-
49999
50000-99999
100000-199999
Fee
500
600750
1200
1350
1500
1750
2000
2500
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Slide10Transfer brackets
20,000-29,999
30,000-49,999
40,000-99,999
49,000-99,000
100,000-199,999
In-network transfer price one week before July 5
th
2014
300
350
350
400
500In-network transfer price one week after July 5th 2014350
350
350
500
600
In-network transfer price one week before September 15
th
2015
350
350
350
500
600
In-network transfer price one week after September 15
th
2015
350
350
350
500
600
Out
-network transfer price one week after September 15
th
2015
17001850
2100
2500
3100
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Slide11Despite the zero interest rate
Half of consumers with m-money accounts use their account as a savings account21% Vodacom M-Pesa users and 12% of users of Tigo & Airtel use m-money for business transactions
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Slide12Cashing in and cashing out of m-money
is done through a network of fixed and roaming agents that act as ATM machinesThis is the main cost of the banking networks
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Slide13Cash-in and cash-out commissions paid to agents
Amount
1000-2999
3000-3999
4000-4999
5000-69997000-9999
10000-19999
19999-50000
50000-99999
100000-199999
Cash-in agent commission
45
70
100
125
150
225
275
350
600
Cash-out agent commission
200
200
200
200
200
200
300
400
600
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Slide14Data
3 months of banking transactions from Tigo Tanzania, includingcash-in, cash-out, recharge mobile, transfer, check balanceBalance, operation size, GPS location, fee
During the period, there was an u
nanticipated price change in transfer and cash-out fees
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Slide15Tanzania
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Slide16Frequency of transfers
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Slide17Transfer network
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Slide18Transfers
18Cash is a close substitute to m-transfers for short distancesElasticity of demand for m-transfers decreases with distance
Slide19Transfers
19Cash is a close substitute to m-transfers for short distancesElasticity of demand for m-transfers decreases with distance
Slide20Probability of an m-transfer increases with distance
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Slide21Summary of transfer results
Long distance transfers more inelasticTransaction taxes 0.25% transaction tax lowers the propensity to transfer by 46%10% tax on the transfer fee lowers the propensity of transfers by 13%Taxes are extracted from long distance remittancesregressive tax Interoperability with zero cash-out fee would increase the propensity for m- transfers by 1%21
Slide22System also used for cash-in-cash-out transactions
Transporting money without transfers SavingsInterest rate is zeroBut starting a year ago, Tigo started paying a “dividend”22
Slide23Lifetime of money in network
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Slide24Number of P2P transfers before leaving the network
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Slide25Price elasticity of cash-out in cash-in-cash-out transfers
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Slide26Many users transport money through network without a transfer
to avoid carrying cash and losing their money in muggings or theftWe use revealed preference to estimate the probability of getting mugged at any point of Das es Salam26
Slide27People put money in the phone rather than keep cash
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Slide28People store cash on the phone to ameliorate risk
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Slide29Sept. 15, 2015, the three smaller networks introduce compatibility through software interface
Largest network (Vodacom) remains incompatibleTransfers across networks electronically feasible but expensive29
Slide30Current
researchImpact of telecom network on probability of using mobile banking 30
Slide31Review Questions
Give various social and economic factors that incentivize many Tanzanians to adopt mobile banking. Explorative: We see that in China, mobile banking platforms (Alipay, WeChat Pay) operate on official (state) currency, RMB. In the U.S., Venmo and Zelle platforms also operate without the need to create their own mobile moneys. Why do you think each mobile banking network in Tanzania had created their own mobile money?Generally, what are some of the uses of mobile banking? In Tanzania, what do people mainly using it for? How about in the U.S.? And China?
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Slide32Review Questions
Draw a connected diagram that shows the different conversion fees among the different players in Tanzania’s mobile banking market? Do these fees provide additional social surplus? Is this the consequence of network effects?Explorative: Despite gaining no interest when saving money in any mobile banking platforms, Tanzanians save money on them anyway. Why? What are their other alternatives as saving instruments?True or False: Cash is a close complement to mobile money transfers for short distances?True or False: The distance of money-receiver is positively correlated with the demand by money-sender for mobile banking transfers?
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