mobile commerce in mea - january 2009
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Mobile Commerce in MEA: A Current Reality January 2009 Globalization and the unprecedented growth of mobile telephony in the MEA, bring with it the chance to facilitate m-commerce activities across new frontiers. The potential applications for these developing economies are far and wide, with opportunities to improve and transform the lives of millions.TRANSCRIPT
January 2009
The Delta Perspective
Globalization and the unprecedented growth of mobile telephony in the MEA, bring with it the chance to facilitate m-commerce activities
across new frontiers. The potential applications for
these developing economies are far and wide, with
opportunities to improve and transform the
lives of millions.
Mobile Commerce in MEA: A Current Reality
Author Javier Alvarez - partner: [email protected] Janssen - principal: [email protected] Arons - associate: [email protected] Partners Intelligence Unit
Key highlights for 2012
• Large gap between mobile and banked customers; Mobile subscribers to
exceed number of bank account holders by 200 million in the MEA region
• ConsiderablemarketpotentialofUS$1.3billionform-commerceservices
expected in the MEA region; Regional split of 58% and 42% between Africa
and Middle East respectively
• Revenuepotentialform-remittancesexpectedtotouchUS$385millionand
US$260millioninMiddleEastandAfricarespectively
• Revenuepotentialfromm-moneyactivitiestohavealargerimpactinAfrica
andestimatedatUS$480millionasagainstUS$155millioninMiddleEast.
This is due to the wider gap between the ‘unbanked’ and the ‘wirelessly
connected’, coupled with a larger population
2
Derivatives of M-commerce
The rapid proliferation of mobile telephony coupled
with the speed of adoption of technologies, has led
to an unprecedented acceleration in the deployment
of m-commerce activities across the globe.
The concepts of buying goods and
services, money and airtime transfers,
payment of utility bills and various
other mobile centric transactions,
have not entirely been new features
to the wireless world.
Owing to the transaction type and
vehicle, the origins of m-commerce
are ambiguously differentiated under
broad categories. The taxonomies are
each derived based on the nature of
business and customer interactions
and also to some extent the level of
personalization.
• Remittances,oftenthemostpopular
transaction mode in emerging
economies, includes the sending and
receiving of funds, domestically and
across international borders
• Paymentsarebasedontransactions
over text based mechanisms,
Exhibit1:ClassificationofM-Commerce
between a user and retailer. For
example, purchase of items such
as train/bus ticket, general utility
and food items, airtime recharge,
prepaid top-ups through text-based
or voice enabled transactions, fall
within the paradigm of m-payments.
• Banking,ontheotherhand,canbe
said to encompass, a broader array
of mobile account management
as well as mobile financial
information needs.
Keeping the characteristics of MEA,
set in the backdrop of high migrant
population in the region, our paper
centres on the scope, benefits,
and opportunity of m-commerce
applications. Thus, we focus on the
two classifications; m-remittance
related activities with other facets
of m-commerce clubbed under
‘m-money’.
Source:DeltaPartnersAnalysis
3
Assessing the opportunity for M-Commerce in MEA
For about a decade, mobile transactions have been
earmarked as a promising business opportunity, both
for mobile operators and banks.
Exhibit2:BankandMobilePenetrationsinMEA:20071
1NotethatmobilepenetrationisdefinedasthenumberofactiveSIMS/population(socanexceed100%);bank
accountpenetrationisthe%ofpeoplethathasabankaccount(socannotexceed100%);Tocompareliketolike
wehavedividedthemobilepenetrationbyafactorof‘1.3’(dualSIMeffect)
Source:DeltaPartnersAnalysis
Itistruethatindevelopedmarkets,
M-commerce has not been able to
live up to its expectations in terms of
delivering the ‘Holy Grail’ in revenues.
However, in emerging markets, the
reduced presence of the conventional
branch-led retail-banking model offers
a golden opportunity for operators who
manage to get the business model right.
Inthesedevelopingcountries,large
segments of the population present
unpredictable and irregular income
patterns, as low-income urban and
rural dwellers continue to remain
under or un-banked. The large gap
between number of mobile users and
bank account holders has helped in
the creation of a lucrative potential for
provisioning of m-commerce facilities.
With mobile operators increasingly
adopting innovative business
modelstoaddressthe‘Bottom-of-
thePyramid’efficiently,thepaceof
mobile penetration will only continue
to outstrip the penetration of bank
accounts.DeltaPartnersbelievesthat
there would be an additional 200
million more mobile customers than the
traditional bank account holders in the
MEA region alone by 2012.
The advantage of developing a
market towards m-commerce is that
it continues to drive the economic
system toward a cashless transaction
environment.Severaloperators,
especially those in emerging economies
have come to realize the importance
and potential that lies captive in these
service offerings. The most successful
international cases are presented by the
operatorsinPhilippines(GlobeTelecom
andSmartCommunications),andisfast
being adopted and tailored by operators
in other parts of the world.
InAfrica,eversincethesuccessful
launchofSafaricom’sM-PesainKenya
(launchedinearly‘07,hasover4.1
M-Commercesolutionsactas an alternate for uplifting the underserved population
4
Exhibit3:ExamplesofM-CommerceServicesinMEAandSelectedEmergingMarkets
Exhibit4:MobileandBankAccountPenetration(%)forSelectMEACountries
* To be launched
Source:DeltaPartnersAnalysis;
Source:DeltaPartnersAnalysis
million registered users with more
than 5000 partnering agents and 110
‘Pesapoint’ATMsacross46towns),
various operators in variety of sizes
have jumped on the bandwagon. As
it stands currently, operators in MEA
suchasMTN(whoalreadyintroduced
MTNBankinginSouthAfricaatan
earlierstage),Zain,Etisalat,Orascom
and Orange are rolling out their
respective solutions to capture
this opportunity.
5
Exhibit5:Socio-economicEnablerstoM-Commerce
Source:DeltaPartnersAnalysis
The ‘Delta Partners’ Point of View
The promising growth in m-commerce services
is strongly driven by the latent need for banking
solutions for those unaddressed by the financial
sector thus far.
Most banks have traditionally focused
on the high-end customer segment
limiting themselves to a small
proportion of the developing countries
population. Mobile operators, on
the other hand, despite entering the
same markets decades later, have
created unmatched inroads across
various levels of the socio-economic
strata and succeeded in surpassing the
banked population.
Furthermore, the factors that help
create a positive environment for
thriving m-commerce solutions are
(i)presenceofanaddressablerural
population(ii)poorinfrastructural
(transport/power)backbone(iii)high
proportion of mobile phones as the
communicationdevice(iv)presence
ofmigrantpopulation(Refer Exhibit
5).Forinstance,thepresenceof
favourable demographics and reliance
on cash for everyday subsistence by
lowincomegroupsinthePhilippines,
led to the popularity of m-commerce
servicesofbothoperators,i.e.Smart
and Globe.
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Globe Telecom introduced its services
inPhilippineswithafocusonthe
high end market and an emphasis
on postpaid services. However, the
presence of a large population in
the middle and low income tiers in
the country was difficult to ignore.
InOctober2004,GlobeTelecom
launched its first micro-payment
services,calledG-Cash,aservice
designed to convert and link a user’s
mobile phone to a bank account.
The principal transaction types were
those between a phone-to-phone
and phone-to-bank account. On
activation, the product enabled
subscribers to engage in a plethora of
mobiletransactionsrangingfrom(i)
cashdeposits/withdrawals(ii)credit
transfertoprepaidaccounts(iii)
airtimetransfers(v)cashlesspurchases
(vi)payrollcredits(vii)international
remittances.Inadditiontotheabove
services,G-Cashalsoprovidedfor
micro-finance in agreement with
the‘RuralBankersAssociationof
thePhilippines’(RBAP).Thecostsof
serviceoftheG-Cash‘suite’typically
vary with the transaction type. For
instance,SMSesforinteraccount
transfercostPHP1(US$0.02)each,
while cash deposits and withdrawals
incur a fee of 1% on the transaction
value. The success of this platform can
be proven by the number and volume
of subscribers and transactions
runningonit.Presently,over1.2
million subscribers are estimated to
be on this system. Additionally, the
transaction value is believed to be in
excessofPHP3million(US$60K)each
day, spanning 400 accredited partners
and3000outlets.
Taking into account the key learnings
fromthePhilippinessuccess,MEA
operators could achieve positive
market impact, owing to the
similarities in demographic set-up.
We feel the immediate opportunity
lies in bringing financial services to
the telephonically connected yet
unbanked population. We estimate
this market to have a considerable
potential of US$1.3billionbytheyear
2012 in the MEA region alone, with a
split of 58% and 42% between Africa
and Middle East respectively2(Refer
Exhibit 6)
Remittance flows are driven by
the degree of globalization and a
growing trend towards multi-spatial
households. As the growth of migrant
workers increases, this drives the
global demand for money transfers.
AccordingtotheWorldBank,the
globalremittancemarketin2007
wasestimatedatUS$337billion,
registeringhealthyCAGRof13%
from2003-07withay-o-ygrowthin
2007of19%.Strongnetremittance
inflows were registered especially in
the developing continents, with Africa
(US$29billion),LatinAmerica(US$49
billion)andAsia(US$62billion)
registering strong net inflows of
remittances.Inthe2007,theMiddle-
East registered a net outflow of
US$13billion(US$29billionoutflow
vs.US$16billioninflow).
Needless to say the measure of market
potential operators can largely achieve
will depend on a combination of
market skill and intrinsic will of all the
stakeholders involved.
(a) Available Strategic Options
Inordertoexecutem-commerce
offerings successfully, operators will
first need to gauge and understand
the direct benefits of potential
revenues and indirect benefits
of improved customer retention
and loyalty. Having said that, the
successful launch is linked to an
operator’s long-term vision and
marketing strategy.
2Assumptions:•Mobilepenetrationgrowthratesdeclinefrom41%between2002-07to9%uptill2012 in Africa
•Mobilepenetrationgrowthratesdeclinefrom28%between2002-07to10%uptill2012in Middle East
•Penetrationofm-commerceservicestoreach25% of total mobile users by end of 2012 in MEA
7
Exhibit7:Operator’sStrategicChoices
Source:DeltaPartnersAnalysis
Exhibit6:M-CommerceMarketPotentialforMEARegionin2012(US$)
Source:DeltaPartnersAnalysis
Inordertodecideuponthebest
way forward, these benefits need
to be assessed against investment
requirements in the near-term and
thelong-termfuture.Basedonthe
operator’s overall strategy alignment,
the initiative can be classified into
(i)Core(ii)Add-onoriii)Limited
involvement.(Refer Exhibit 7)
(i) Core -Underthisstrategy,mobile
operators(potentiallyafterasoft
launch)offeranexhaustiveportfolio
of m-commerce services, whereby
the portfolio of m-commerce services
becomes a core element of the
operator’s value proposition. Hereby
the operator adopts a dominant
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position in the overall value chain.
One such example of a successful case
isthelaunchofM-Pesaserviceby
Safaricominearly2007.(Refer
Exhibit 8)
(ii) Add-on-Inthisset-up,
mobile operators would consider
m-commerce as a driver for ‘Value
AddedServices(VAS)’anddevelop
partnerships with banks, retailers,
and utilities in order to leverage
the competencies required. An
example of this would be the mobile
micro payment service launched
by Vodafone in partnership with
HSBC.Theserviceisamethodfor
money transfer by which subscribers
can transfer money, by depositing
moneyintotheirVodafoneCash
accounts and withdraw money from
it from designated ATMs. While, the
VodafoneCashaccountdiffersfrom
the bank account, services can be
availed of at all the Vodafone and
HSBCbranchesinEgypt.Typically,the
costoftheserviceisEGP0.30/call,i.e.
US$0.0054/callforbalanceenquiries
and transfers while withdrawal incurs a
fee of 2% on the transaction amount.
(iii) Limited involvement - This
strategy would result in operators
reaping the benefits from increased
data traffic or wholesale activities such
ashostingof3rdpartyoperators,
MVNOs or banks. Though this
option has the lowest risk profile,
the financial returns are likely to
belimited.TierIIoperatorsmaybe
interested in such options as these
help ride on the twin benefits of
low risk exposure and idle network
capacity.Forinstance,in2006,an
MVNOcalledmBankmobilewas
launchedinPoland.WhilemBankwas
responsible for performing payments
and providing for payment related
information,Polkomtel
soldairtime.Additionally,Dutch
Rabobank bank launched an MVNO
for m-commerce services.
(b) Aiming towards the Best Fit: Which
Model should an Operator Adopt?
Basedontheoperator’sstrategic
Exhibit8:CaseStudy(M-Pesa)
Source:DeltaPartnersAnalysis
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Exhibit9:FourPossibleBusinessModelsinM-Commerce
Source:DeltaPartnersAnalysis
choice out of the above three options,
the four business models that exist
are:MobileOperatordominated,Bank
dominated,HybridandIndependent
thirdparty(Refer Exhibit 9).
Inouropinion,themobileoperator
dominated model has in it various
advantages over the bank dominated
ones, especially in developing markets.
Additionally, the full control of
m-commerce interface, which allows
operators to provide fully secured
transactions, also has in it the ability
to appeal to consumers at large. Thus,
the mobile operators can leverage
upon their existing strengths of:
• Robustnationalinfrastructure
• Significantexperienceinmanaging
expansive distribution network
• Experienceinrunninghighvolume/
low value transactions
However, banks do have a slight
advantage when it comes to customer
trust in such financial solutions. Hence,
market assessment is crucial before
deciding on a certain model while
success is never solely decided by
the model chosen but the operator’s
implementation.Inthehigh-growth
economies of MEA, we believe that
operators with a strong brand name
and wide distribution network should
capitalize on the head-start they
enjoy vis-à-vis the banks and adopt
the mobile operator dominated
model. This would enable them to
acquireasizablechunkoftheUS$1.3
billion m-commerce opportunity by
2012, while also strengthening the
companies’ overall positioning
in the market.
10
3KYC:Duediligenceandbankregulation,which financial institutions and other
regulated companies must perform to identify their clients and ascertain relevant
information pertinent to doing financial business with them.
(c) Managing Stakeholder Interest
The evolutionary roadmap of
m-commerce activities is expected to
bring with it advances in technology,
improved security systems and a wider
rangeofserviceofferings.Despite
all the changes, the crucial factor
for the success of an operator driven
m-commerce initiative, would be the
roles played by the remaining key
stakeholders of the ecosystem, i.e. the
consumer, the distribution network
andtheregulatorybody(Refer
Exhibit 10).
(i) Consumers - The most important
group of stakeholders to be actively
managed. Affordability, accessibility
of services and convenience of use are
the leading two criteria in ensuring a
good consumer experience.
(ii) Distribution Network - The
active management of the distribution
network is a necessity in achieving
sufficient traction for service take
off and post-launch acceleration.
Sincethesedistributorsarethefinal
Exhibit10:ChallengestoOvercomewithKeyStakeholders
Source:DeltaPartnersAnalysis
interface to the end-consumer, they
need to be adequately incentivized
for them to consider pushing
m-commerce products and services
more effectively. Low-start up costs,
attractive commission structure,
simplicity of execution, reliable and
hassle-free processes all add to
improving the overall comfort level of
this group.
(iii) Regulators-Compliancewith
the regulatory climate in each country
is a necessity. The two key aspects
in m-commerce service provisioning
are to ascertain legality of financial
transactions coupled with professional
management of the ‘funds in float’.
Someeffectivewaysingoverningthe
above can be:
• Complyingwithofficial‘KnowYour
Customer(KYC)3 procedures
• Developingrobustprocessesand
protocols in co-operation with
financial systems, in order to ensure
highest levels of security and risk
management tools.
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Conclusion
The most important and widespread advantage of
m-commerce solutions for an operator in emerging
markets is to capture the unofficial cash flow in
the system.
For the consumers, it eliminates the need to carry physical cash, minimizes
money-laundering opportunities, improves savings and eases money transfers.
Additionally, the system brings with it long-term tangible benefits for the
government as well. A larger segment of banked and connected population
leads to decrease in poverty levels, improved quality of life, increased tax
collectionsandenhancedconsumptionandGDPlevels.
The largest beneficiaries in this regime, especially in an operator dominated
model,areindeedthemobileoperatorsthemselves.Inouropinion,
m-commerce enables them to increase penetration rates and total revenues,
strengthen and broaden their overall value proposition, maximize network
utilization,improveARPUs,introducenewVASrevenuestreamsand
reduce churn.
DeltaPartnersbelievesthatleadingoperatorsintheemergingmarketsof
MEA are best positioned to leverage upon all the benefits of m-commerce,
and would do well to act fast and create a competitive edge for themselves.
However, the success of this endeavor rests upon striking the right balance
between operator commitment and collaboration by other entities of the
value chain.
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Delta Partners is the leading integrated management advisory and investment firm specialized in the Telecoms, Media and Technology
(TMT)sectorinhighgrowthmarkets,withmorethan100professionalsoperatingacrosstheMiddleEastandAfricafromitsoffices
inDubaiandJohannesburg,andthroughitsthreehighlysynergeticbusinesslines:
Advisory:DeltaPartners,asthelargestadvisoryteamspecializedintelecomsintheMiddleEastandAfrica,operatesinmorethan
25marketsintheregion,partneringwithC-Levelexecutivesintelecomoperators,vendorsandotherTMTplayerstohelpthem
address their most challenging strategic issues in a fast-growing and liberalizing market environment.
Private Equity:Asafundmanager,DeltaPartnersmanagesan$80Mprivateequityfund,targetinginvestmentopportunitiesinthe
TMTspaceintheMiddleEastandNorthAfrica.DeltaPartnersprivateequitybusinessunitleveragestheGroup’suniqueTMTindustry
expertise to create value for its investors throughout each stage of the investment cycle, from deal sourcing, to opportunity analysis,
and support to portfolio companies.
Corporate Finance: DeltaPartnersprovidescorporatefinanceservicesandhasbeeninvolvedinseveraltelecomtransactionsinthe
region. As true industry specialists, the firm offers a differentiated value proposition to investors and industry players in the region,
eithertothesellerorbuyersideofthetransaction.DeltaPartnersactivelyleveragesitscloselinktoDeltaPartners’privateequityarm
to access the investor community as well as top-level financial talent.
AtDeltaPartnerswedelivertangibleresultstoclientsandinvestorsthroughanexclusivesectorfocus,andauniqueapproachto
services, combining strategic advice and hands-on pragmatic approach.