Business of Platforms: Mobile banking in Africa and other developing areas - PowerPoint Presentation

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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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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

Three 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

In 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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M-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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Frequency 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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Cash-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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Transfer 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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Despite 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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Cashing 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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Cash-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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Data

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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Tanzania

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Frequency of transfers

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Transfer network

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Transfers

18Cash is a close substitute to m-transfers for short distancesElasticity of demand for m-transfers decreases with distance

Transfers

19Cash is a close substitute to m-transfers for short distancesElasticity of demand for m-transfers decreases with distance

Probability of an m-transfer increases with distance

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Summary 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

System 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

Lifetime of money in network

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Number of P2P transfers before leaving the network

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Price elasticity of cash-out in cash-in-cash-out transfers

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Many 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

People put money in the phone rather than keep cash

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People store cash on the phone to ameliorate risk

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Sept. 15, 2015, the three smaller networks introduce compatibility through software interface

Largest network (Vodacom) remains incompatibleTransfers across networks electronically feasible but expensive29

Current

researchImpact of telecom network on probability of using mobile banking 30

Review 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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Review 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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