What Is The Future Of Mobile Money Fees?
Will mobile money fees decrease or increase in the long term?
A few months ago in Dar es Salaam, Tanzania, I had a conversation with Victor and Rubben from TemboPlus, a BaaS startup, and Evans from Evmak, a payment processing startup, about how expensive mobile money fees are and what the future might look like for these fees. Victor shared some great insights during the discussion.
From Left; Victor from TemboPlus(Baas startup), Rodrique from SBAN(Angel investors Network) and Me from Swahilies(Bookkeeping and Bankig startup for SMEs).
Victor’s insight was that if you deposit 5 million TZS (~$2,000) in your bank account and don’t use it for days or months, your bank will be much happier. This is because they can use that deposit to make money through lending or investments. Banks don’t rely on you transacting the money to generate revenue they can still earn from your deposit even if you don’t transact.
However, this is different for mobile money providers. If you deposit 5 million TZS (~$2,000) in your mobile money main account and don’t transact, your mobile money provider won’t be happy because they can’t make money from your deposit unless you transact. The Central Bank doesn’t allow mobile money companies to touch or trade customer deposits; only banks are permitted to do so.
This made sense to me and explained why mobile money providers focus only on fees and why they might charge high fees. However, one thing I still don’t accept is that just because regulators won’t let them touch customer deposits, they penalize their customers with high fees. I hope mobile money providers can become more innovative and build other revenue channels without relying on high fees that burden their low-earning majority customers.
Last year, in 2023, we were in a situation in Tanzania where you could be charged up to 20% of the transaction amount for making a 5,000 TZS C2B payment to a different mobile money provider. Although fees are still high, they have started to decrease, thanks to regulators, mobile money providers themselves, and stakeholders who raised their voices.
What other revenue channels Mobile Money companies are creating?
Banks Partnership; Since mobile money providers cannot directly access customer’s deposits, they have partnered with banks to allow mobile money users to open sub-accounts (through a simple process on mobile money, without a separate KYC process, using the same KYC) on Mobile Money for savings and credit access. It is through this approach that mobile money customer deposits can be utilized or touched by bank partners of mobile money. This approach is performing well. In Kenya, mobile money services like M-Pesa offer products such as M-Shwari, a savings product that also provides credit. Similarly, in Tanzania, there are products like Mgodi, which also combine savings with credit offerings.
While these products are performing well and generating revenue for banks and mobile money providers, I believe their impact could double or even triple if customer’s main account deposits (which are substantial when combined across all mobile money users) were utilized for lending or investments without requiring users to open additional sub-accounts or only use their separate savings for lending or investments. The only way for that to happen is if mobile money companies become banks, and for now, that is not something they really consider.
Other financial services
Mobile Money companies are venturing in offering other financial services like;
Insurance; In Tanzania, Mobile money companies are now heavily investing in insurance products. Vodacom is massively pushing its VodaBima/Insurance product to its customers via M-PESA where in two years, VodaBima sold over 1.5 Million policies to over 200,000 customers across its portfolio of services i.e Motor, Health and Life insurance. Insurance has been one of the most difficult financial services to sell in Africa, but mobile money seems to be finding the best way to do it soon. And also this year Safaricom secured an insurance licence in Kenya after a four-year wait.
Lending and Investments; Mobile money companies work with banks and other lenders to lend to their customers by leveraging customer base, mobile data for credit score and best repayments collection such as direct debit. They also launched investment services like M-Wekeza by M-pesa in Tanzania and Safaricom received regulatory approval to launch a second money market fund, Ziidi.
Mobile money providers aren’t banks that can focus on deposits and generate revenue, but we have seen that they offer a variety of other financial services mentioned above that can still generate significant revenue, enough to avoid charging high fees to customers. My question is, what is the future of mobile money fees? I would really appreciate your thoughts and comments.
Thanks for reading. You can personally contact me via Twitter , LinkedIn or Email; founder@swahilies.com.