rr_mobilemoney_ case_ tanzania_aug2010_nologo
TRANSCRIPT
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Mobile Financial Services in Tanzania
Market development and main players
Riccardo Reati
Aug 2010
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Executive Summary .............................................................................................................................. 3
Introduction: mobile money ............................................................................................................. 5
Tanzania and its mobile money market ....................................................................................... 8
Tanzania ........................................................................................................................................................ 8
The mobile money market in Tanzania: slow uptake ................................................................................... 8
Zain Zap and Vodacom M-PESA: two different approaches to market ...................................................... 10
Vodacom internal remittances and Zain cashless ecosystem ................................................................. 10
Pricing to appeal to different client segments ........................................................................................ 11
Distribution: Vodacom’s agents versus Zain’s merchants ...................................................................... 12
Two different distribution networks ....................................................................................................... 12
Marketing: the unmatched “Big Bang” effect of Safaricom ................................................................... 13
Technology: SIM Toolkit and USSD ......................................................................................................... 13
Enabling environment ....................................................................................................................... 14
Ecosystem of stakeholder and regulation .................................................................................................. 14
Socio-demographic conditions ................................................................................................................... 15
Financial inclusion ....................................................................................................................................... 17
Telecom market .......................................................................................................................................... 21
Conclusions ........................................................................................................................................... 25
References ............................................................................................................................................. 26
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Executive Summary
This paper analyzes the mobile money environment in Tanzania. It focuses on two aspects: the market
and business environment, with the aim of outlining the different approaches and strategies of the
main players, and the enabling ecosystem, with the aim of outlining the key dimensions that have
contributed to develop the market (regulation and institutional stakeholders, socio economic issues,
access to finance and telecom market). These are the main issues emerging from the analysis.
The adoption curve:
The market of mobile financial services in Tanzania has reached critical mass in terms of number
of subscriptions (ranging from 6 to 8 millions) but there is more uncertainty with regards to
amount of money transacted.
The adoption curve in Tanzania is different from the one of Kenya, with a slow initial uptake
and a later steep growth, probably propelled by the fact that players has linked their marketing
campaign to the registration of clients’ ID, required by the government.
The players:
Vodacom has replicated Kenya Safaricom’s M-PESA formula, targeting middle-low end
customers with a value proposition based on internal remittances. Zain is addressing higher
end customers with a product that is linked to their bank account.
While the initial proposal of Vodacom was still based on a cash-in, cash-out model, Zain entered
the market with the purpose of building a cashless ecosystem, puching clients to keep money in
their m-wallet rather than withdrawing, and working with merchants for a wider acceptance of
this form of e-payment.
The ecosystem:
In terms of regulation, there are no significant differences between the approach of the
Central Bank of Kenya and the one of the Central Bank of Tanzania. Both of them are working a
final regulation of mobile financial schemes and granted licenses to players on a no-objection
base. Both of them acknowledge the need of extending the access to financial services in their
countries through unconventional channels as mobile telephone.
There are three main reasons that, combined, can account for the differences in uptake of
Kenya and Tanzania:
o Geographic and demographic reasons: Tanzania land size is more than 50% larger than
Kenya’s, and has roughly the same population. In Kenya the population is more
concentrated in two main areas, while in Tanzania is widely dispersed throughout the
country. This has arguably affected the operations of the business.
o Internal remittances: the volume of internal remittances in Tanzania is likely to be
smaller than in Kenya due to historical and economic reasons. Also the routes of internal
remittances are likely to be different: while in Kenya they are focused on urban-to-rural
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corridors, in Tanzania the flows are more heterogeneous. This gives reasons to think the
“send money home” model might not have worked in Tanzania as well as it did in Kenya.
o Structure of the telecom market: with two and a half the number of clients of Vodacom
and almost three times the revenues, Safaricom was in the position of deploying a value
added service faster, to a bigger customer base and was capable to market it more
extensively.
In summary: the market in Tanzania has had a less exceptional uptake than the one in Kenya, but
there are reasons to think that volume of transaction will grow over time and that competition has
played a positive role, differentiating the services. The reason behind the different uptake can be
summarized in a different market situation: in Tanzania a company with a much smaller customer base
(than the one in Kenya) had to cover a bigger area, in a market where the need of the basic product
(internal remittances) was less acute.
For further information about this analysis please contact Riccardo Reati ([email protected], 919-
627-2773).
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Introduction: mobile money
Mobile money has surged in 2009-2010. The international consultancy firm McKinsey & Co. in
collaboration with GSM Association, has estimated the number of unbaked people using mobile money
to be 45 millions in 2009, to grow to 360 millions in 2012, if average rates of adoption are to remain
constant (Beshouri and Gravåk). The ITU reports the market projections of the intelligence firm Berg
Insight with 55 million clients of mobile banking services, destined to grow up to more than 800 million
by 2015. Juniper research reports that in 2010 just over 200 millions phone will have used some mobile
financial functionality1. Gartner Research puts mobile transfer through SMS on top of the list of the ten
consumer mobile applications that in 2012 will have the biggest impact on consumers and industry
players2.
Many projects were started in 2009 2010: the GSMA Mobile Money Exchange Deployment Tracker3
reports about 70 mobile money projects for the unbanked worldwide; this number is conservative
probably in light of the fact that it doesn’t fully account for the bank-led projects. However there are
signs that both companies and investors are more comfortable with taking risks in this field. There have
been some remarkable successes in the Philippines where two leading mobile operators, Smart
Communications and Globe have started in 2003 and 2004, and in Kenya where Safaricom M-PESA in
1Differences are due to the different scope of the surveys. McKinsey estimates the number of unbanked clients
using mobile financial products, thus leaving out a significant portion of people in developing countries that have a bank account and use mobile financial services. Other surveys consider any finance related transaction through mobile, regardless of location or user. 2 Source: www.gartner.com/it/page.jsp?id=1230413
3 www.wirelessintelligence.com/mobile-money.
Box 1 - Mobile Money: what is it and why it is relevant
Mobile money is a commonly used terms that refers to services that allow mobile telephones to perform monetary transactions, which include cash-in and cash-out, money transfer, payment of bills and other fees, in contact payments (as merchant payments) and other more advanced functions. Differently from mobile banking, “mobile money” is not just a different channel to have access to a bank account. Usually (but not always) mobile money services provides an alternative to bank account in countries with low bank penetration, and therefore can play an important role in extending the financial access to unbanked or low banked people, contributing to their socio-economical development. Regulations worldwide address the concept of e-money, with a broader reference to electronic transactions. It is more correct to refer to it as mobile financial services, to include a variety to value transactions that can be done through mobile, including mobile banking. However the term mobile money has assumed a specific connotation, especially since it has been correlated with the opportunity to provide basic financial services to unbanked people. For this reason the term mobile money will be alternatively used to the one “mobile financial services” in this paper, with reference to three macro categories of services: money transfer, account management and payment.
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Kenya, launched in 2007, has reached more than 10 million subscribers. On the other side there have
been failures that would deserve attention, as in the case of South Africa, which still has a limited
market, notwithstanding a favorable regulatory environment.
This case study analyzes the market evolution in Tanzania, with a look both to the enabling
preconditions and the approach of the leading telecom operators. Tanzania has been chosen because of
its analogies with Kenya: fairly similar economies, comparable mobile customer base, similar operators
in the market (with affiliates of the Vodafone Group and of Zain Airthel being main players), and similar
collaborative approach with the Central Bank. However the adoption rate in Kenya has been much
sharper (and so far exceptional): at two year of distance from the launch of the first mobile money
service, Safaricom alone accounted for more subscribers than all the subscribers in Tanzania. While in
Fig. 01: approximate number of clients and compounded annual growth rate of
three leading mobile money projects. Source: personal elaboration.
Fig. 02: number of mobile money projects worldwide. Source: personal elaboration
based on information provided by GSMA Mobile Money Exchange Deployment
Tracker
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Kenya the adoption curve has been almost linear, in Tanzania it has followed a more typical S-curve with
an initial slow uptake, increasing after the entrance in the market of the second player.
What can explain these differences? What role did competition played in this scenario? The case study
builds its interpretations on a detailed comparison of Tanzania with Kenya, and put both of them in the
context of a wider basket of countries chosen with the following criteria:
Countries that have experiences successful telecom-led projects: Kenya, Philippines, Thailand
Countries that could potentially experience successful bank-led projects: Brazil
Countries that have been relative unsuccessful notwithstanding the early initiatives and the
potential market opportunity: South Africa and India4
Countries that have the potential to experience successful telecom-led projects: Egypt5
Several dimension including socio demographic characteristics, access to financial services, structure of
the telecom market will be considered.
4 Where in India the regulation has created barriers for non bank actors to enter the market, South Africa has had a
relatively enabling regulation 5 Egypt has been chosen also because there are opportunities for the World Bank to work with Egypt National Post
Office on this issue
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Tanzania and its mobile money market
Tanzania
Tanzania made significant economic progresses in the last two decades with a steady economic growth
around 7% since 2000, one of the best performers of Sub-Saharan Africa according to the World Bank
(World Bank, Tanzania country report), and a stable macroeconomic policy that has controlled inflation.
Tanzania has still mainly an agriculture economy, with nearly 80% of the workforce employed in this
sector; the fastest growing sectors are mining, construction, manufacturing and tourism. Sluggishness
and lack of consistency in the reform process toward privatization have led the country to fall behind in
terms of investment climate (World Bank, Tanzania country report), ranking 131 in the World Bank
Doing Business Report. This depends also on the poor condition of key infrastructures, particularly of
railways and ports.
Despite the strong achievements in economic growth, Tanzania still falls behind in development. The
UNDP classifies Tanzania at the 151st position in the Human Development Index ranking: this puts the
country at the bottom of the cluster of countries with medium human development (UNDP, Human
Development Index). With still around 34% of people living under the poverty line, Tanzania struggles to
distribute the benefits of economic growth to the poorest: this is due mainly to the slow growth of the
agriculture sector, which is the one with the highest impact on the lives of poor (World bank, country
report). Enrollment in primary and secondary education has increased, but there are still significant
challenges in the lack of teachers and in the low quality of outcome. More indicators and a comparison
with Kenya will be presented in this the paragraph assessing the socio demographic conditions, Tab 02.
The mobile money market in Tanzania: slow uptake
This paragraph focuses on describing the mobile money market in Tanzania, in terms of volumes and
business strategies of the two main players, Zain and Vodacom, and comparing the approach to the
market of Safaricom and Vodacom.
Box 2 – How to evaluate a successful “mobile money” initiative
How to determine whether a mobile money deployment in a given country is successful or not? Simply comparing the total number of subscribers provides an easy but limited metric. This number depends directly on the population and on he number of mobile subscribers and on other indicators that could make a country more difficult to approach than another (geographical extension, GDP per capita…). Furthermore a many subscriber are inactive users. These are the numbers that are most often cited in artricles and publications:
Adoption rate: calculated as number of subscribers as a fraction of either the population or the subscribers of mobile telephones, with the second being biased towards telecom operators,
Number of transaction: which include cash-in/out operations and any other transaction, provides an idea on how frequently the service is needed
Value transacted: total amount of money transacted within the mobile service in a given time (usually a month)
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As of July 2010, the number of total subscribers in Tanzania ranges from 6 to 8 million in 2010, 15% to
19% of the population6, with 3 to 4 million of Zain and 3 to 4 million of Vodacom7. The numbers for
Zantel are probably negligible at this point in time and the company will not be considered in this study8.
Vodacom launched M-PESA in Tanzania in April 2008 one year after Safaricom launched the same
product in Kenya. After 14 months from launch Safaricom M-PESA had 2.7 million subscribers and a
network of 3,000 agents, while Vodacom M-PESA had about 280,000 clients and 1,000 agents (Camner
and Sjoblom2009). Now Vodacom has about 4 million clients and more than 4,700 agents (Citizen, The
2010), less than half Safaricom’s. Zain launched its Zap in Tanzania one year later: GSMA reports more
than 4 million customers (Leishman 2009), while data on the distribution network are not available.
Vodacom is managing about 17 billion Shillings of monthly transaction (Citizen, The 2010): this would
outline a very modest success of the service, as Safaricom transacted the same volume when M-PESA
had around 800,000 subscribers (from Safaricom’s website). A possible explanation of the low amount of
6 Kenya adoption rate is higher than 27%
7 Numbers are conservative: subscribers of ZAP are reported by GSMA (Leishman 2009) and subscribers of M-PESA
are reported in a article of The Citizen in July (Citizen, The 2010). 8 Safaricom M-PESA recorder about 6.5 million subscribers after 2 years from launch
Revenues for the operator, a useful indicator to determine business viability, but hard to obtain from companies
Growth rate, either of subscribers, transaction or revenues. This paper will provide information both on the total number of subscribers, on the adoption rate and value transacted.
Fig 03: adoption of mobile money in Kenya and Tanzania since the launch of the first service in
each market. The curve for Tanzania is a hypothesis due to lack of consistent data. Source:
personal elaboration from data from Safaricom websites, GSMA, Valuable Bits, The Citizen.
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transaction per user depends on the fact that both companies linked the service subscription campaign
with their client ID registration plan, an activity required by the Ministry of Telecommunications of
Tanzania. While reaching out to their customer base, they have pushed the subscription to the m-wallet
beyond real needs; if this is the case, we would expect lots of inactive users for both networks. However
the value transacted per user could increase over time, proving eventually that this a marketing will pay
off. In any case it seems that both companies are far from achieving the extraordinary success of
Safaricom M-PESA.
Zain Zap and Vodacom M-PESA: two different approaches to market
Vodacom internal remittances and Zain cashless ecosystem
In terms of business strategy, there are three major differences between Vodacom and Zain:
1. Vodacom developed a service based on cash-in, cash-out, while Zain is envisioning a total cash-free
ecosystem (Leishman, 2009). While in Vodacom’s model cash was central, as the service was mainly
a tool to send and receive money, Zain pushed since the beginning electronic payments, for example
developing a partnership with OILCOM the biggest gas retailer, where customers could pay using
ZAP. Zain has also introduced the option to transfer money from any bank account to the ZAP
account, in the attempt to reduce cash-in operations and boost the average amount deposited in
the m-wallet, improving the usage. Furthermore by linking the w-wallet with a bank account Zain is
able to limit the liquidity needed by agents, reducing their risk exposure. More recently Vodacom
has integrated m-commerce functions.
2. While Vodacom conceives the service primarily at national level, Zain introduced since the beginning
the option of receiving international money transfer. Particularly Zain intends to leverage on its
extensive presence across different countries in Africa and Middle East to streamline cross border
remittances.
3. Vodacom targets the middle-low segment of the consumer market, while Zain looks for opportunities
in the business segment. Vodacom has two categories of users, registered and non-registered users:
the second can receive money on any network and at no fee but cannot perform any other
transaction. This system intends to lower the barriers to access to the service especially in rural
villages, where people are not able to use the handsets or show more resistance to adopt it. The the
idea is that urban migrants, possibly wealthier and better educated individuals, will be among early
adopters and registration will eventually spread to rural areas. Zain requires registration both for
senders and receivers.
The portfolio of services of M-PESA and ZAP as of 2010 is fairly similar; it would be interesting to have
more information about differences in the use of them. Furthermore M-PESA is providing a service for
microfinance repayments, option that is not available with ZAP.
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Pricing to appeal to different client segments
Pricing analysis suggests that, while M-PESA has a more traditional pricing scheme that appeal to
customers interested in frequent transaction of small amount, ZAP tends to foster bigger transactions
and to limit cash deposit, pushing customers to use bank transfer, consistently with its strategy to reduce
the cash circulating in its scheme.
Other considerations regarding pricing are:
Zap has a much simpler pricing structure, with three main tiers of fees for cash-in and cash-out and
fixed prices for any other transaction. Vodacom has a different pricing strategy for registered and
unregistered users, with 7 different fees for withdrawals (cash-out). Initially they also had variable
fee structure for sending money. Researchers have shown that there is usually confusion about the
fee structure of branchless banking services and this raises frustration among consumers (Cohen
and Hopkins and Lee, 2008). This might have slowed early uptake for Vodafone.
Zap have sought an opportunity in more sophisticated clients, with the link to the bank account and
the ability to perform more complex transaction, as transferring money from their bank account to
Vodacon M-PESA Zain ZAP
Money transfer
- P2P transfer - Donations to charities and sports club
- P2P transfer - International money transfer
Account management
- Deposit and withdraw money - Account management - Loan repayment for MFI
- Deposit and withdraw money - Account management - Tranfer funds from bank account
Payment - Prepaid Vodacom airtime and post paid Vodacom bills, - Energy, water and sewerage bills, - TV subscriptions, - Pay the examination fee to the National Examination Council - Insurance fee payment - Pay for transportation tickets
- Buy prepaid airtime - Energy, water and sewerage bills, - TV subscriptions, - Insurance fee payment - Pay transportation tickets - Gas (OILCOM)
Tab 01: portfolio of services provided by M-PESA and Zap to the consumer market.
Source: companies’ websites
Tab 02: pricing structure of M-PESA and ZAP. Source: companies’ websites
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their m-wallet. Furthermore, by charging a high fixed fee for transferring money from bank account
(1,000 Tanzanian Shillings), they have identified an opportunity to extract rents from this segment9.
Distribution: Vodacom’s agents versus Zain’s merchants
In terms of management of the distribution network Zain and Vodacom differ on two main points
(Leishman 2009):
Zain has substituted agents with merchants: if agents are exclusively aimed at performing cash-in
and cash-out activities (other than helping clients with technical issues), a ZAP merchant is a retailer
or a wholesaler that would perform cash-in and cash-out, but that would eventually adopt e-float for
its business transactions, both to receive payments from its clients and to make payments to
suppliers. This is consistent with Zain vision to create a cashless ecosystem. Ultimately it will be
interesting to see whether merchants will become distributors/users of more than one mobile
money service and how interoperability will be played.
ZAP agents are paid commissions directly by the clients, in cash, while M-PESA agents are paid
electronically, in a lump sum in arrears by the operators at the end of the month. This gives more
flexibility to ZAP agents to levy a discretionary fee when customers do cash-out: therefore they can
adjust tariffs to the costs of managing liquidity, which differ from urban to rural context (as it mainly
depends on the distance of the agent/merchant from the nearest bank office). The settlement
process also results more transparent and understandable to agents.
Differences between Vodacom and Safaricom M-PESA
Two different distribution networks
According to the analysis carried out by GSMA both Safaricom and Vodacom started to build their M-
PESA distribution network from the existing airtime distribution. However there are two differences in
the way they managed the process (Camner, Sjoblor, Pulver,2009):
Different dimension of the distribution network: at the launch of M-PESA Safaricom had about 1,000
airtime retailers with multiple outlets, 300 of which joined as M-PESA agents. Vodacon was
distributing airtime only through six major retailers, whom in turn sold airtime along to their
partners. To overcome the limits imposed by this system, Vodacom has reached out to end retailers,
with the scope of building its own distribution network for M-PESA. Today 80% of Vodacom M-PESA
agents are independent businesses, with direct relation with Vodacom.
Different organization of the distribution network: Safaricom adopted immediately the aggregator
model, with master agents managing smaller network of agents. This had three benefits: a) allowed
Safaricom to recruit a high number of agents quickly, b) improved the operations, as the company
9 This is also an interesting model of bank-telecom synergy. Similarly to the M-KESHO account developed by
Safaricom and Equity Bank in Kenya, clients can move money from the real account to the virtual one. However while M-KESHO stems from a unilateral partnership between a bank and a telecom, ZAP allows any bank account to the connected. It will be interesting to see which of the two models will achieve more success.
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didn’t have to deal with thousands of small retailers and c) made liquidity management more
efficient: aggregators directly balance agents in surplus (typically those performing mainly cash-in)
with agent in deficit within their sub-networks and provide for liquidity shortage. Vodacom has
started much later to implement the aggregator model.
Marketing: the unmatched “Big Bang” effect of Safaricom
Part of Safaricom M-PESA success can be attributed to the branding and marketing. More than 70% of
Kenyans users of M-PESA heard of the service through above-the-line advertising (TV/Radio and
billboard) with the rest knowing from word-of-mouth (Financial Sector Deepening Trust 2009). This Big
Bang effect (Ignacio Mas, telephone interview of paymentsystem.com) can explain the anomalous
adoption curve, linear instead of s-shaped, of M-PESA. There is another critical dimension of advertising:
companies not only need to mass advertise to subscribe early clients. They need to engage with agents
in a way that they will perceive there is a good market for the service: a major problem is that the sale of
e-float can cannibalize the business of selling airtime, as consumers can purchase airtime using e-float
(therefore not from airtime resellers). In light of this and of the higher margins of airtime sale, some
agents have refused to undertake the new business. Convincing them that there is a good revenue
opportunity is an challenge for the service provider. An argument is that with about one third of the
revenues of Safaricom, Vodacom didn’t have the resources (financial and organizational) to set up such
a campaign. Furthermore Vodacom underestimated the need of investing in training consumers, while
Safaricom recognized this component since the early pilot project (Huges, 2007). A field study in Tanzania
in March-May 2009 showed that most of the users had a high level of brand recognition of M-PESA but
many more had difficulties in recognizing what the service was about and what they had to provide to
activate the service (Camner, Sjoblom 2009). Jacque Voogt, head of M-PESA at Vodacon, admitted that,
in May 2009, they had not yet started the educational phase of the marketing campaign: an earlier
implementation of education activities would have probably generated better results.
Technology: SIM Toolkit and USSD
In Kenya M-PESA is delivered using the SIM Toolkit (STK) technology, in Tanzania through USSD
technology. Both are part of GSM standards. As with STK the user has an application on the SIM card
accessed through the menu on the phone. The downside is that the SIM card has to be swapped by an
agent. With USSD the user has to dial a short number to activate the menu: each input of data is sent to
the server and the new menu with updated information is sent back to the mobile and leaded on the
telephone. This process can be time consuming. A research on the field has proved that users were not
dissatisfied with the interface or expressed that there were problems in learning how to use it (Camner,
Sjoblom 2009)10.
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However it would have been interesting to test non users on this issue
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Enabling environment
The second part of this analysis will focus enabling conditions in Tanzania: regulation, socio-
demographic conditions, financial inclusion and financial literacy, and the structure of the telecom
market. The objective is to identify peculiar conditions that might have affected the development of the
market; in doing so Tanzania will be compared to the benchmark of Kenya.
Ecosystem of stakeholder and regulation
Institutional actors, as the Ministry of Telecommunications and the Central Bank, service providers, as
banks or financial services providers, telecoms and third parties, either independent companies or spin
off of telecoms or banks, technological providers and consumers build he ecosystem of stakeholders of
mobile financial services. This ecosystem varies across countries: in Tanzania the main actors have been
the telecoms and the Payment System Unit of the Central Bank.
The Central bank of Tanzania is currently drafting a regulation framework of mobile payment schemes,
which includes a mobile payment regulation. So far the field has been regulated through the Electronic
Payment Schemes Guidelines, which contain directives for payment schemes but not for mobile money
transfer of mobile banking, and payment. Telecoms have been subjected to a no-objections approval
policy: they, as any other financial and non-financial entity, had to submit an application to the Central
Bank to introduce a new electronic payment scheme: according to article 8.1.2 any non-financial
institution that intends to develop payment schemes that have money transfer and deposit taking
function must submit its application through a financial institution. In absence of specific regulations,
the approach of the Central Bank of Tanzania to the issue has been similar to what the Central Bank of
Kenya did, with collaboration between the Central Banks and the telecoms. Two specifications:
Companies cannot accrue interest on the pooled account in which they deposit money nor can
redistribute them to the clients,
There is a upward limit of monthly transaction of 500,000 shillings per subscriber (in Tanzania)
The process of application has been smooth, probably in the light of the previous experience of Kenya.
The Central Bank acknowledges the benefits that innovation in payment and money transfer can bring,
“does encourage market players to implement such schemes for the benefit of the economy” (NSP
Newsletter 2007) and acknowledge the role of telecom in reaching unbanked areas. Overall it seems
that the regulatory environment is uncertain - because not definitive - but favorable to the deveopment
of a mobile financial market and open to telecoms.
Another institutional aspect that might have affected uptake, not connected to telecom or banking
regulation, is the lack of official ID system in Tanzania. This could have limited the number of people
able to subscribe, especially among lower segment of the population.
When comparing Tanzania to Kenya, it must be pointed out Kenya has received an exceptional interest
from different stakeholders in developing he ecosystem. First of all Kenya was the first country where
Vodafone Group decided to deploy mobile financial services, with Nick Huges, head of the payment
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system unit at Vodafone UK, directly involved in developing the concept, negotiating with stakeholders,
and deploying the service initially. Furthermore the Central Bank in Kenya put exceptional interest in
developing alternative system to expand access to finance. Finally the UK Department For International
Development (DFID) made available a grant of £1 million to finance innovative project to increase the
access to finance. Vodafone UK won the grant and this helped significantly to speed up the process
(Huges and Lonie, 2007).
Socio-demographic conditions
Kenya and Tanzania share some demographic features such as a low population density and a low
urbanization ratio, increasing at a fast rate.
In Africa the high rate of urbanization is characterized by internal migratory patterns, with young
workers leaving their families to move to the city: these workers keep strong ties with their families and
internal remittances are a channel to do so. This system, often referred to as dual system, has been
mentioned as one of the enabling factors of mobile money in Kenya (Morawckynski 2008).
Fig 05: population density and urbanization. Countries in the lower left areas might have
higher potential of mobile money with money transaction services. Source CIA World
Factbook 2010
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If on the big picture, Kenya and Tanzania, look so similar, then are there significant differences that
might concern the mobile money market? Tanzania is 50% bigger than Kenya and the population is more
equally dispersed throughout the country (see figures 06). From a mobile money perspective these
conditions require a wider and more penetrating distribution network.
Different internal remittances flows might have affected uptake. Kenya and Tanzania differ both in total
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Only data from 2010 are available on the CIA World Factbook. The World Bank Data website provides different numbers for the percentage of people living in biggest urban conglomerate: 28.5% in Tanzania and 37.8% in Kenya. 12
Literacy rate: percentage of the population over 15 that can read and write
Kenya (2007)
Tanzania (2008) Population 36,913,721 40,213,160
Urbanization (2010)11 22% 25% Pop. Density 65 people
per Km/sq
45 people
per Km/sq GDP real growth rate 5.5% 7.4% GDP per capita (PPP) $1,200 $1,300 Below poverty line (2010) 50% 36% Gini Index 44.5 34.6 Literacy rate12 85.1% 69.4% Territory (Km/sq) 569,140 886,037
Fig. 06: population density distribution in Tanzania and Kenya. Source: bestcountryreports.com
Tab 02: characteristics of Kenya and Tanzania. Figures from 2007 are reported for Kenya,
from 2008 for Tanzania, as these data should depict the characteristics of the two countries
at the launch of mobile money projects. Source: CIA World Factbook
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volume of transactions and in the direction of the flow of money. Deshinkhar and Grimm (2004), quoting
a Deagrarianisation and Rural Employment study in Tanzania argue that internal remittances in Tanzania
and South Africa have been traditionally small, but don’t offer direct comparison with Kenya. A survey
done by an African ICT research organization, reports that the share of household sending money to
other households in Kenya is 28.2% while in Tanzania is 13% (Comminos, Esselaar, Ndiwalana, Stork,
2008)13. Hypotheses can be done with regards to the differences in distribution of wealth between
Kenya and Tanzania: with a higher Gini coefficient and significantly more people living under the poverty
line, but higher GDP per capita, it is reasonable to think that Kenya has more opportunities to use
internal remittance as a channel to redistribute wealth. This means that the latent demand of efficient
channels to transfer money in Kenya was stronger than in Tanzania. On the other side Camner and
Sjoblom report that the urban to rural corridor in Kenya is very strong, while in Tanzania there are
different corridors, urban-to-rural, rural-to-rural and rural-to-urban (Camner and Sjoblom, 2009). This
analysis, if confirmed, has two direct implications on mobile money:
The management of agents’ liquidity needs to be different14: in the urban-to-rural scenario, with
money flowing mostly from cities to villages, rural agents, performing mainly cash-out, need to
be very liquid to provide for clients’ requests, while urban agents don’t. In the other scenario
the system needs to be more balanced: this is more complex and requires more refined
transactions forecasts.
The branding and advertising need to be tailored to the one or the other scenario. The “send
money home” message of Safaricom M-PESA, which had clear references to sending money to
the village in the countryside, might have not been as effective in Tanzania.
The hypothesis drawn is that Vodacom, by replicating Safaricom’s formula, might have missed the
different dynamics of internal remittances, which have been the key enabler factor for Safaricom.
Financial inclusion
This paragraph addresses both the role of mobile money in expanding the financial inclusion and the
different dimensions of access to finance in Tanzania. A main conclusion is that, as mobile financial
services develop initially among consumers who already have access to finance, Kenya happened to have
a bigger customer base, with a population more educated to the use of financial instruments.
The World Bank states that “access to financial services—financial inclusion—implies an absence of
obstacles to the use of these services, whether the obstacles are price or non-price barriers to finance”
and furthermore, by acknowledging that a wide number of services, such as deposit, credit, payment
and insurance are included in the definition, recommends that “services need to be available when and
13
Please note that this refers to remittances sent between households and therefore misses to catch intra-household remittances, providing therefore only a proxy to interpret different volumes of internal remittances 14
Agents clear their balances at the nearest bank branch on a daily base. However they need to balance between having enough cash to disburse to clients but not too much to prevent possible security risks.
18
where desired, and products need to be tailored to specific needs. Services need to be affordable, taking
into account the indirect costs incurred by the user, such as having to travel a long distance to a bank
branch” (World Bank, 2008). The same World Bank report acknowledges that there are three major
barriers of access to financial services: physical access, documentation to be provided to open accounts
and costs and fees of financial services. Mobile money provides a valuable alternative to traditional
financial service under all the three perspectives: however the most compelling value, as perceived by
consumers is the availability of instruments to make financial transactions. The value proposition varies
across countries, but consumers seem to have in relatively low consideration the opportunity to save or
store money, while favoring the money transfer (Kenya) or payment functions (Thailand)15.
Surveys report that a significant percentage of mobile money users have a bank account. In its analysis of
the Philippine market, CGAP has found that one-half of mobile money users were unbanked (Pickens
2009). A Financial Sector Deepening Trust survey on the use of M-PESA in Kenya reports than most of
the users were literate and had a bank account. It is therefore more appropriate to evaluate mobile
money within the context of the penetration of banking outlets (ATM and bank branches) rather that in
terms of current accounts per capita. Another financial enabling dimension is international remittances,
both in inflow and outflow: SMART in the Philippines built his success partially on international
remittances.
With 0.23 bank branches per 1,000 km sq., 0.57 branches per 100,000 people and 0.07 ATM per 1,000
Km sq., 0.17 ATM per 100,000 people, Tanzania is among countries with lowest reach.
15
Please note that the two researches use different analysis criteria and, therefore, cannot be directly comparable.
Fig 08: M-PESA percentages of number of
transactions by typology. Source: Financial Sector
Deepening Trust 2008
Fig 07: Percentages of consumers using specific
mobile money functions in the Philippines.
Source CGAP 2009
19
Of 27 financial institutions, eight major banks, five international banks and three local ones, dominate,
with about 90% of the market. There are four main categories of bank: local private banks focused on
servicing locally small to medium size business and retail banking, regional banks also servicing small to
medium and retail banking business, but on national scale. International banks mainly with a regional
network play an intermediate role in cross border business flows. The multinational banks are mainly
dedicated to medium and large corporation and to donor intermediation (TanzaniaInvest).
Notwithstanding the growth of the banking sector after the reforms in 1992, which led to an increase of
60% of total assets handled, from $,1.7 billion in 1999 to $2.7 billion in 2004 (TanzaniaInvest), the total
domestic credit is still low, at 17% of GDP, compared to an average of 65.5% of sub-Saharan Africa
(World Bank, 2008). Tanzania has a well developed microfinance market with 5 organizations with more
than 10,000 clients. Pride TZ, BRAC TZ, FINCA TZ and the National Microfinance Bank are the biggest
organizations operating in the country (mixmarket.org).
On a bigger scenario Tanzania seems to share with other southern African countries, and in particular
with Kenya, low bank coverage and a relatively small international remittances flow.
.
Bank branches
per 1,000 Km Sq.
Bank branch per
100,000 people
ATM per 1,000
Km sq.
ATM per 100,000
people
Botswana 0.11 3.77 0.27 9
Kenya 0.77 1.38 0.56 0.99
Madagascar 0.19 0.66 0.07 0.22
South Africa 2.22 5.99 6.49 17.5
Tanzania 0.23 0.57 0.07 0.17
Uganda 0.67 0.53 0.9 0.7
Zambia 0.21 1.52 0.09 0.65
Zimbabwe 1.11 3.27 1.15 3.38
Fig 09: access to financial outlets (ATM and bank branches). The highest value of the two categories
is taken, in the consideration that this is the best proxy of physical access to finance. The bubbles
represent the sum of inflow and outflow of remittances in USD dollar, nominal value. Source: World
Bank 20009
Tab. 03: penetration of financial outlets in a selected basket of southern and eastern African
countries. Each column is ranked with a color based system from lower penetration (red) to higher
penetration (green). Tanzania shows low values for all the indicators. Source: World Bank
20
Given the similar preconditions, what financial indicators can contribute to explain the relative difference
in the mobile market development in the two countries? The different level of financial literacy between
Kenyans and Tanzanians provides a possible explanation. The 2006 Financial Sector Deepening Trust
surveys in Kenya and Tanzania, shows that the number of people that have no access to financial
systems is significantly higher in Tanzania than in Kenya.
If the need of mobile money were proportional to the lack of access to financial services, we would have
expected more rapid growth in Tanzania than in Kenya. One hypothesis is that due to a smaller
penetration of financial services, Tanzanians are less acquainted with financial terminology and tools
such as balance and transactions. The Financial Sector Deepening Trust addresses lack of financial
education as “one of the major barriers to accessing financial services in Tanzania: lack of education in
general and financial literacy in particular. More than half the total population has never heard of a
debit card, an ATM machine or even a current account. Improved access will require improved levels of
education right across the country” (Financial Sector Deepening Trust 2006). As early adopters of mobile
money seem to be mostly banked people, the situation depicted in fig 10, suggests that the initial
customer base in Tanzania is smaller than in Kenya. The effects of lack of financial education compound
with the different literacy levels (31% of Tanzanians cannot read or write, while in Kenya only 14%).
Another possible argument is that an insufficient penetration of banks inhibits the possibility of
extending the agent network. As already mentioned agents need to be in the proximity of bank branches
Fig 10: access to financial system in Kenya and Tanzania in 2006. “Formal financial institutions are those supervised by a financial services regulator now, or (in the case of pension funds) likely to be soon. This category includes banks and insurers. Semi-formal financial institutions are those with
some formal supervision, but not from a financial savings regulator. This category includes the SACCOs and larger MFIs. The informal segment includes small, usually community-based
organizations such as ROSCAs, Village Community Banks, upatu and money-lenders.” (FinScope). Source: FinAccess and FinScope 2006
21
as the fixed costs of reaching a branch on a periodical base (usually daily) should be proportionate to the
revenues over that same period. Paucity of branches or non homogeneous distribution of them over the
territory lead to higher costs of liquidity management and can make the business unsustainable. By this
view it is arguable that countries with more potential to develop mobile financial services fall under a
range determined by a bank coverage that is not too high (otherwise there would be no market
opportunity) and not too low. However there is no supporting evidence to determine that this
interpretation affects the differences between Kenya and Tanzania.
Telecom market
This paragraph will: 1) describe briefly the telecom market in Tanzania 2) provide a possible explanation
of the differences between Tanzania and Kenya starting from the different concentration of the market
and 3) address the impact of mobile money on the business of MNOs in the two countries. A major
conclusion is that a strong concentration of the telecom market creates favorable conditions for the
deployment of a new mobile application at mass scale, especially in countries where companies need to
approach mass-market strategies to reach critical revenues (for niche strategies the situation can be
different).
With more than 16 millions subscribers, more than one third of the population, and a growth rate at
30%, the telecommunications market in Tanzania has been experiencing in the last years a tremendous
growth. The market enjoys a good level of competition with a Herfindahl-Hirschman Index of 2872. The
biggest player is Vodacom, which was awarder the license in 1999 and now has 36.2% of the market
share, followed by Zain at 29% and MIC Tanzania (Tigo) at 25%. These are also the fastest growing
players, while Zamtel Tanzania and the mobile arm of the national telephone company have been losing
clients. In February 2007 Vodacom started to offer services over 3G followed, one year later, by Zain:
now also Zain and TTLC are in this space. The latest newcomer in the market is Excellentcom, (HiTS
Tanzania), which announced in August 2010 that is ready to launch its service.
From a mobile money perspective, three characteristics that makes a strong dominant player more
suitable to launch an application at mass scale: financial strength, needed for the initial investments to
set up the structure to manage the agents and to market the service, big and more penetrating retail
distribution and a high brand awareness, essential to gain the trust of the population. On the other side
a strong initial player can have positive externalities on the market by raising awareness on the service
and providing literacy needed for adoption. Safaricom had two and a half the number of clients of
Vodacom, revenues almost three times higher and strong brand awareness among Kenyans (a fairly
unique condition). Vodacom had a far less dominant position and had to cover a territory that was
almost double the one of Kenya and a population that is more equally distributed: this combination of
characteristics can have affected the deployment of the service and the capacity to reach scale.
22
Another perspective that would deserve more analysis is related to potential differences of technological
literacy among the population, with Kenyans being more confident at using mobile technology. It seems
that the Kenyan wireless market is more mature, as the growth rate has started to decline in the last
year faster than in Tanzania (fig 12). More people having been using a mobile phone for more time
could be a proxy of higher confidence in handling a telephone. However, if analyses on this issue have
been carried out in Kenya and the Philippines with interesting results (Cohen, Hopkins and Lee, 2008),
there are no evidences for Tanzania.
It is also interesting to evaluate the impact of M-PESA and ZAP on the two markets, to figure out what
role has mobile money played in the business strategies of the companies. It is clear that Safaricom and
Vodacom have introduced this service when the respective market growth was starting to decline
(fig.12): the decline coupled with new entrants pushed major players to look for value added services to
reduce churn.
Fig 11: concentration of telecom market among different countries in 2010. Source: personal
elaboration, data from telegeography.com
23
However mobile money didn’t lead to higher customer acquisition nor, surprisingly, to significant
increase in ARPU, which has been decreasing constantly over time for both Safaricom and Vodacom16.
M-PESA has helped Safaricom reducing churn, at least for a couple of years, while it didn’t significantly
helped Vodacom.
The situation of the two markets is clear in the following figures. In Kenya, M-PESA has allowed
Safaricom to increase market share in a time in which new incumbents were entering the market, at the
expenses of Zain.
16
Data for Zain are not available. Other players have not been surveyed.
Fig 12: Subscribers and annual growth of the wireless telecom market in
Kenya and Tanzania. Source: telegeography.com
Fig 13: market share of the telecom sector in Kenya. Source: wirelessintelligence.com
24
The same cannot be said of Tanzania, where Vodacom has lost market share, while Zain has maintained
its position.
Several variables might affect these dynamics: for example people might have two accounts with two
SIM cards, one for the m-wallet and one for the mobile network (the policy of Vodacom that doesn’t
require users to subscribe to the service to receive money allows for this configuration). If these data
prove to be consistent over time and in other countries, telecoms might start to wonder whether this is
an attractive business.
Fig 14: market share of the telecom sector in Tanzania. Source: wirelessintelligence.com
25
Conclusions
Central to this analysis is the answer to the following questions: in country where the regulators are
open to explore ways to extend financial access using ICT and flexible to engage in a dialog with all
stakeholders, including telecoms, what characteristics can affect the uptake? Assuming that regulation
has a major impact, the paper suggests to look into the following:
Geographic extension of the country and distribution of the population, two characteristics that
directly affect the dimension of the agent network
Dynamic of internal and international remittances, particularly significant for countries where
money transfer would be the main application. Flows and volume of remittances affects the
latent demand for the service and the management of liquidity
Organization of the bank sector and, mostly, of the telecom market: due to lack of
interoperability between different services, markets with high level of concentration and a
strong dominant player, are more likely to have a fast initial growth, as the major player is able
to scale faster the network.
This paper also suggests that the uptake in Tanzania has been initially slower than in Kenya but has
speeded up with Zain offering a service. Tanzania might be looked as a worldwide benchmark in terms
of number of subscribers, but in terms of volume of transaction, Vodacom (main player in Tanzania) is
way below Safaricom. This would lead us to think that in Tanzania either the demand of money transfer
is lower or there are a lot of non-active subscribers.
Zain is trying to develop a cashless ecosystem, reducing the cash in and out operations, by linking the m-
wallet to the bank account and by extending the possibility to pay using virtual money. On the other side
Vodacom is very focused on money transfer and cash-in and out.
Finally the impact that mobile money has on the business of the operators is not clear. Developed
initially with the promise of reducing churn and increasing ARPU, the mobile service has helped
Safaricom for some years, while its role with the players in Tanzania is more uncertain. This is probably
due to the elevated competition in Tanzania.
26
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