Before I start let me introduce myself. My name is Brett Magrath and I am one of the co-founders of Mobile Transactions. Today my position is Chief Technology Officer as well as being part of the senior management team focused on the strategic direction of the business and general management. As the last member of the senior management team to post a blog the pressure is definitely on and hopefully I can provide some interesting insights into what is definitely an interesting industry.
Within this blog I am going to provide some thoughts into the following:
- M-Pesa – The industry leader causing a confusing theoretical standard
- So where did our strategy and IT approach come from
- Find a source and follow it…as many times as possible
- Where to from here
M-PESA: THE INDUSTRY LEADER CAUSING A CONFUSING THEORETICAL STANDARD
The question around how do you compare to M-Pesa always comes up and therefore I thought before jumping into too much around Mobile Transactions that there would be value in making a few comments on M-Pesa. Firstly, the success of M-Pesa has been amazing and I am in awe of what has been achieved. This said before anyone considers trying to “copy” M-Pesa or believe that their strategy should be the industry standard it is important to assess some of the reasons for the M-Pesa success.
There a probably a million articles on this on the web and the below certainly does not catch them all, but my opinion is that the below are the key components:
- The Kenyan people
- Full buy-in from senior management
- Understanding that mobile money is a service rather then a product
- A strong and trusted brand
- The market share of Safaricom
- Initial donor support
- Management team
These dynamics make for a challenging or near impossible industry standard to try and replicate.
Having been educated in South Africa, rugby is in my blood and I love watching rugby and any sport for that matter. The reality though is that my playing days are long gone and I have settled in nicely to the world of the armchair critic. As an industry mobile money is still very young. The potential mobile money has in terms of social and economic returns are great, but one down side of this is it has lead to a large number of very inexperienced purely theoretical based armchair critics.
My concern is that this combination of the massive success of M-Pesa with the large number of theorists commenting or driving the industry direction is leading to a situation where much of the most creative and real value added services are not being focused on as many people have been brainwashed into believing the only route to success in mobile money is following or trying to be an M-Pesa.
As more and more solutions and models are implemented and more in field knowledge of different models come to life this mindset with start to shift. The challenge will be for those supporting or investing in this space and companies like Mobile Transactions who are involved in implementing services to always reference the successes achieved in other markets, but to focus on building strategies and business plans applicable to what their markets are telling them.
From the Mobile Transactions perspective our views on this remain as they have from day one. Don’t over complicate the strategy, listen to the market, understand the needs of the market and build solutions that meet these needs, then listen and learn some more to evolve and improve our product offering and importantly make sure it is the correct offering. The approach has always been a simple one and one you can only learn from implementation. I would strongly recommend any company looking to launch within this sector to understand what M-Pesa has achieved, but to build a model that is based on market requirements not the M-Pesa effect.
SO WHERE DID THE STRATEGY AND IT APPROACH COME FROM
BANGLADESH NOVEMBER 2004
My original experiences in mobile money started in Bangladesh in November 2004. At the time we were involved in a project to implement a SMS based electronic airtime distribution system. We had implemented the system in a few African markets and through a connection to Telekom Malaysia via Telekom Networks
In essence we build a money transfer service where the sole purpose of the solution was to sell airtime. The main take out of this for me was the amazing potential a market like Bangladesh has. Within a few months the system was processing 500,000 airtime sales per day.
ZAMBIA PILOT JULY 2007
From Bangladesh it was back to Zambia where we were approached by PROFIT a USAID funded organisation to implement an electronic payment system to pay rural cotton farmers in July 2007. Instead of spending time and effort trying to build a system to do this we utilised the same SMS based airtime system from Bangladesh. Yes SMS is not overly secure, but for a pilot in the far Eastern parts of Zambia it worked perfectly and provided a bunch of insights in terms of where we needed to take our technology and the kinds of services we needed to offer. Some of the key findings were linked to providing the ability for Money Transfers whereby employees working in the areas near the ginneries were able to transfer funds to their family back home. Based on this we developed our money transfer service which has growth successfully since the commercial launch last year. Other developments obviously included moving away from unsecured SMS to now offer a Mobile and PC based Internet interface, Java mobile application and soon to be implemented USSD interface.
COMMERCIAL LAUNCH MARCH 2009
Based on the success of the pilot and the progress being made with the Money Transfer service PROFIT again approached Mobile Transactions with the dynamic of the Zambian fertilizer support programme. This is an existing government programme that distributes fertilizer support to rural farmers. Again the IT approach was driven by a business / market requirement and the solution to how best to support this is what has today become our successful voucher solution. Any IT solution we provide we try to make it as generic as possible to support multiple industries and multiple uses. With the voucher product we achieved this and we were able to very quickly launch a slightly adjusted version of the fertilizer solution for the World Food Programme. Last month we handled nearly 40k vouchers and transacted over $1.4m dollars in value.
To summarise our IT approach to date it has been built on the following foundations:
- Listen to the market and develop solutions to requirements
- Solutions win the day not technology – don’t over engineer the solution or put too much effort into the solution until you know it is the correct one
- There must be an IT vision for scalability, but vital this is always kept in check with the realities of what is happening on the ground and relevant to the market
FIND THE SOURCE AND FOLLOW IT…AS MANY TIMES AS POSSIBLE
Core to the success of any mobile money business is getting electronic funds into the system.
For M-Pesa this source is agents putting cash into electronic and then individual customers doing cash deposits to get this electronic and then transacting off this. For Mobile Transactions when we launched our core product was our agent to agent money transfer service. The source was similar to M-Pesa in that it first came from the agents, was transferred to the money transfer then moved to the agent who did a send to bank and the electronic was gone.
There were a few issues with this:
- Getting the source from the agents is difficult – For a new company providing a new service to get agents to put funds into a product that is not their core business is a challenge and although something we achieved it took a lot more time and effort then we imagined. I think even for networks they will find this more of a challenge then they expect.
- Once we had created this the product we were offering meant the source came in was transacted as a money transfer and then quickly moved out.
- Because the source came from the agents the working capital amount of this source was not sufficient to add additional transactions and products to this amount
- The source was a value added service to the agent so the amount of working capital they invested was always competing against the working capital the agents invested in their core business offering
Once our voucher system was launched we were able to create a new source. This time it came from the voucher project companies who put in funds to distribute vouchers. The dynamics of this electronic source was very different:
- The electronic put into the system was towards their core business or strategy or distributing vouchers
- The source was being used to add real value to this core business
- The working capital of this source was enough to look to start to add new products that transacted of the original electronic source therefore increasing the number of times we could transact on the source
- The voucher source created a pool of electronic at our agents through the agents selling products that were core to their business
What was also interesting is our next product we launched was our bulk payment solution whereby companies could pay both banked and unbanked customers via our system. I am going to focus this discussion on the banked side rather then the unbanked as they has different dynamics. On the banked side there is a market inefficiency whereby cross bank transactions are very expensive and our strategy was to offer a lower cost bank payment solution to any bank at one lower rate whereby we then switch between the different banks. Logical yes, but the issue is we needed to create a new source of electronic. Referencing the points above we were trying to create a new source that did not add real value to the companies core business and the real benefit was a cost saving. As we have taken the product to market we have learnt similar lessons to our money transfer product in that getting this source into the system is often more of a challenge then expected. And again once the source is in if it is used for banked payments is departs very quickly. Again similar to our agent to agent money transfers service. Like money transfers I am fully confident that our bulk payment product will turn the corner and achieve the growth we have seen in our other products, but the error we made was focusing on a new source rather then following an existing source.
So with lessons learnt about following the source in early December we will be launching our latest product called our ordering system. The beauty of this product is we are not creating an electronic source as it already exists. Our voucher agents have electronic funds and they have a need for an improved and more efficient ordering process from suppliers. The suppliers too have a need for a more efficient ordering system meaning we are offering a product that adds real value to the company’s core business and we are following the source of the electronic funds we are creating and facilitating multiple transactions off the original source.
What will be interesting to follow is that as we get this electronic to move from the agent to the supplier will our bulk payment solution become more desirable once we have overcome the core challenge of getting in the electronic source.
WHERE TO FROM HERE
In any new industry to make any widespread comments about where Mobile Transactions will go is a bit of an unknown.
What I can say is that the direction will we go will be focussed on a few keys areas:
- Listening to our customers and markets and taking our solutions towards the direction the feedback we get wants to take us
- As we grow as an organisation be in the more privileged position where we can start to analysis the directions we are drawn into to determine which are the best routes for our company
The other component I would add into this is that although the current strategy focuses on following the source and transacting off this I believe future strategies will evolve that focus on analysing the data that we are obtaining. I don’t understand the Micro Finance sector, but I find it fascinating how an industry can boasts about a +97% repayment on loans when the interest rates they are charging are so high. I understand there are large costs involved, what I don’t understand is why they are needed. Is it a lack of financial transaction knowledge of the customers to make sound lending decisions or is it a lack of a low cost payment and repayment solution. As highlighted this lending space is a big unknown to me, but something I look forward to applying my mind to in the future but I guess if I fall back on what I have written in this blog only when the market pulls me into this direction.