Mobile payment pricing structure: a two speed service with most African mobile operators

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Four years ago, Safaricom launched M-Pesa in Kenya. The mobile operator which introduced the first mobile payment scheme in Africa on March 6th 2007 has since witnessed this service been introduced in several African countries by other mobile operators including its competitors in Kenya. Mobile payment services have launched in South Africa, Madagascar, Uganda, Côte d’Ivoire, Senegal, Tanzania, etc. However none of the payment services in these countries have attained yet the depth and reach of Safaricom’s mobile payment services. The mobile operator offers of course standard transfer services but also international remittance services, bank accounts, utilities payments, purchases facilities, cash cards – in short, all the services that you expect from a traditional retail bank. But for all the laurels that mobile payment services deserve for developing banking services, there are still improvements to be made in particular on the pricing structure that currently governs mobile payment services in Africa. Isabelle Gross analyses the payment services offered by 4 mobile operators: Safaricom in Kenya, Orange in Côte d’Ivoire, Telma in Madagascar and MTN in Uganda.

Joining the mobile payment scheme offered by one of these four mobile operators is of course free. However a customer might need to swap its existing SIM card for a new one in order to be able to use the mobile payment services. At MTN Uganda, the SIM card swap is free for postpaid customers but prepaid customers will have to pay a small fee of US$0.64 (UGX1,500). Mobile operator Telma in Madagascar proposes a SIM swap at a little bit more than US1 (2,000 Ariary). However, all four mobile operators limit their mobile payment services to their own mobile subscribers. MTN Uganda puts it in a rather positive way by saying “this service is available to every MTN Mobile customer” while Safaricom in Kenya cursively mentioned the limitation when it lists the requirement details that a customer needs to provide to register for the service: “You will be required to give the agent your Safaricom mobile number, your first and last name, your date of birth, and show an original identification document”. This service restriction only encourages multi-SIM ownership. If a customer is not a existing subscriber of MTN Uganda or Orange Côte d’Ivoire or Telma Madagascar or Safaricom in Kenya but want to user their mobile payment service, he/she will need to get one of their SIM card and will end up with two SIM cards (one to use for the voice calls and one to use for mobile payment services).

The “walled garden” commercial approach of mobile operators for payment services gets even tougher when it comes to the fees to pay for transfers. The common denominator among all four mobile operators is as follows: if you transfer money to another mobile user registered to the service, the fee will be rather small but if you transfer money to a person that is not registered to the service or has a subscription with another mobile operator, than the fee to pay can be 5 times more or even 20 times more than the fee to pay when you transfer money to a registered person.

At Telma in Madagascar, transfers to registered mobile users attract the following fee. It costs US$0.13 (250 Ariary) to transfer between US$0.07 and US$3.7 (100 and 5,000 Ariary) to a register user but it will cost 3 times more to send the same amount of money to an unregistered user. For higher transfer amounts the fee gap gets even bigger. It costs US$2.2 (3,000 Ariary) to transfer between US$731 and US$3,652 (1,000,001 and 5,000,000 Ariary) to a register mobile user but 3.6 times more to an unregistered user.

Safaricom in Kenya has similar price differences for the “on the network users” and “off the network users”. It costs US$0.12 (KShs10) to transfer between US$0.60 and US$1.20 (50KShs and 100KShs) to a register user but it will cost 7.5 times more to send the same amount of money to an unregistered user or a mobile user subscribed with another network. With higher transfer amounts the fee difference is also more important. It costs US$0.36 to transfer between US$1.20 and US$850 (KShs101 and KShs35,000) but nearly 14 times more to an unregistered user.

At MTN Uganda, it is the same story all over again. It costs a flat fee of US$0.34 (UGX800) to transfer money between US$2.12 and US$425 (UGX5,000 and UGX1,000,000) to a register user but it is twice more expensive for a transfer of US$2.12 to an unregistered user and nearly 24 times more expensive for a transfer for the highest amount of US$425. The pricing of money transfers to unregistered users is just so prohibitive that it makes it even more compelling to get a SIM card from the mobile operator offering the payment service.

Orange Money in Côte d’Ivoire doesn’t have this price differences but that’s just because the mobile operator only offers its mobile payment services to its own registered users. Just for a comparison purpose, it costs US$0.36 (CFA150) to transfer between US$0.1 and US$10.86 (CFA5 F and CFA5,000) and US$4.35 (CFA2,000) to transfer between US$109 and US$217.4 (CFA50,005 and CFA100,000).

To withdraw the transferred money unregistered users are usually better off then registered users. At MTN Uganda, Telma Madagascar or Safaricom the withdrawal is free for unregistered users. This explains also partly why the transfer charges are so high at the start for unregistered users or mobile subscribers of another network. For registered users, mobile operators split the cost of transfer and withdrawal between the sender and the receiver. By spreading the cost between sender and receiver, the service also appears cheaper. Further, the charges incurred by a registered user who wants to withdraw the money transferred are much higher than the transfer charges incurred by the sender. Mobile operators are very fine psychologists and they know a lot about human mentality: it is easier to part yourself from money (withdrawal fee) that doesn’t totally belong to you yet (the transferred money). To withdraw US$850 (KShs35,000), it costs approximately US$2 (KShs170) with Safaricom. MTN Uganda charges nearly US$4 (UGX9,000) to withdraw US$425  (UGX1,000,000) while Telma Madagascar will ask for US$4.4 (6,000 Ariary) to withdraw US$3,652 (5,000,000 Ariary).

Despite the withdrawal fee that registered users have to pay, there is still a difference in terms of total cost (transfer and withdrawal fees) between a registered and an unregistered user or a mobile subscriber of another network.

At Telma Madagascar it is 1.2 times more expensive for an unregistered user.
- 3,000 Ariary for the transfer and 6,000 Ariary for the withdrawal for a registered user
- 11,000 Ariary for the transfer and withdrawal for an unregistered user

At Safaricom, it is twice as expensive for an unregistered user
- KShs30 for the transfer and KShs170 for the withdrawal for a registered user
- KShs400 for the transfer and withdrawal for an unregistered user

At MTN Uganda it is nearly twice as expensive
- UGX800 for the transfer and UGX9,000 for the withdrawal for a registered user
- UGX19,000 for the transfer and withdrawal for an unregistered user

Why this difference in prices between registered and unregistered users and a mobile subscriber of another network? The processes behind the transfer and the withdrawal are the same for the two categories of users and therefore for the mobile operators, the cost should be the same too. MTN Uganda’s claim about “virtual banking, bridging the gap to the un-banked” sounds rather overdone when its mobile payment service is a two speed service: cheaper for its mobile subscribers and more expensive for mobile subscribers of other operators. Is it interoperability between competing mobile payment services that will finally get rid off this “walled garden” commercial approach? Let’s see how mobile operators will position themselves when they will be faced with interoperability implementation. It will happen sooner than later.