Good afternoon to everybody, hope you have enjoyed the lunch. And just to make sure that none gives in the temptation of a post lunch siesta, I’m going to keep my presentation short and sharp. In 10 minutes I will address 3 points: First, we’ll look at whether and how much disruptive innovation pays off. We’ll then dive into the current status of mobile money deployments in emerging markets, and finally look at a case study to see how a fast follower can still disrupt the marketplace
What is a disruptive technology? A ‘ disruptive’ technology is one which, in its most basic terms, suddenly changes the way people do things. For example, for hundreds of years people used a slide rule to calculate, then seemingly overnight in the 1970′s the electronic calculator appeared. Everyone went Wow! and just threw away their old slide rules. Remember how quickly the ipod changes the music industry? One of the leading technology research firm IDC are predicting 3 disruptive technologies going mainstream: Web connected TV, The ‘cloud’, Mobile devices, (By 2025 it’s estimated there will be 50 billion connected mobile devices – these will involve lots of disruption between industries.) Clearly not every single mobile technology will be disruptive. A new technology can be disruptive if the user experience is easy, new revenues are created at lower cost, value can flow in new directions to a new player. The more boxes it ticks the more sustainable.
Tim Huse and Scott Anthony had assembled a database of companies that they called "on-the-brink" disruptors. These were companies following the pattern of disruptive innovation. They had created a solid base of business but hadn't broken through the $1 billion revenue mark. Think Intel in the 1980s, Cisco in the early 1990s, and Amazon.com in the early 2000s. They named seven publicly traded companies that appeared to fit the pattern: Alibaba.com (1688.HK): online market that gives small, primarily Asian companies, access to global markets Blue Nile (NSDQ: NILE) : low-cost diamond retailer EnerNOC (NSDQ: ENOC): provides energy demand management services iRobot (NSDQ: IRBT): produces simple household robots like Roomba K12 (NYSE: LRN): sells a suite of products that enables online learning SonoSite (NSDQ: SONO): pioneer of the portable ultrasound business VistaPrint (NSDQ: VPRT): affordable online marketing services for small businesses Had you split $100,000 in these seven companies on January 16, 2009, you would have close to $260,000 today (compared to about $175,000 if you had invested in comparable indices). Six of the seven companies individually exceeded the overall market, by wide margins.
From Afghanistan to Zambia, mobile network operators (MNOs) in developing countries are launching mobile money services at a rapid pace. Yet while their enthusiasm to enter this business is clear – to date 78 deployments have been launched and another 83 are being planned – their rationale for doing so is not. There’s no doubt that Safaricom’s runaway hit, M-PESA, is profitable. But Kenya represents somewhat of an anomaly – the perfect coalescence of latent demand, a dominant MNO and a progressive regulator. So the question remains for just about every MNO outside of Kenya: is there really any money in mobile money? Source: http://www.mobilemoneyexchange.org/Discussions/is-there-really-any-money-in-mobile-money There is great inertia in getting mobile payments innovations into profit. Retail payment systems require scale to get off the ground and struggle to grow incrementally. This is due to three factors: Network effects:the value of joining a network is directly proportional to the number of people already on it. Chicken-and-egg trap: In order to grow, these systems must aggressively attract both customers and cash-in/cash-out merchants in tandem. Otherwise, merchants will stop offering the service due to low transaction revenue and customers won’t join the system because they can’t access a convenient outlet. Trust: Customers have to become comfortable going to non-bank retail outlets to meet their cash-in/out needs and initiating transactions through their mobile phones. Until a deployment serves a large number of customers, people will lack trust in the new system because they know few who can vouch for it. To be successful: First, they must create enough urgency in customers’ minds to learn about, try, and use the service. Second, they must invest heavily in above- and below-the-line marketing to establish top-of-mind awareness of (and trust in) the service among a large segment of the population. And, third, they must incur considerable customer acquisition costs (beyond marketing and promotion) to ensure that their cash-in/out merchants are adequately incentivized to promote the service. BRAZIL Mobile Money Deployments Oi Paggo Oi (2007) Market Characteristics Mobile Penetration 94.90 % Financial Services 43.00 % Urban Population 80.75 % Adult Literacy Rate 90.51 % GDP PPP $10,466 Domestic Financial Flows Cash Payments $525,592 million Direct Credits $1,668,874 million International Remittances Inbound % of GDP 0.32 % Inbound Total $5,089 million Top Inbound Countries Japan United States of America Spain Outbound Total $1,191 million Top Outbound Countries Lebanon Portugal Spain KENYA Mobile Money Deployments yucash yu (Essar Telecom) Zap Zain (Bharti Airtel) (2009) M-PESA Safaricom (2007) Market Characteristics Mobile Penetration 56.39 % Financial Services 10.00 % Urban Population 45.00 % Adult Literacy Rate 85.10 % GDP PPP $1,712 Domestic Financial Flows Cash Payments $10,990 million Direct Credits $80 million International Remittances Inbound % of GDP 4.90 % Inbound Total $1,692 million Top Inbound Countries United Kingdom Tanzania United States of America Outbound Total $157 million PHILIPPINES Mobile Money Deployments GCash Globe SMART Money Smart (PLDT) Market Characteristics Mobile Penetration 86.51 % Financial Services 26.00 % Urban Population 63.00 % Adult Literacy Rate 93.40 % GDP PPP $3,515 Domestic Financial Flows Cash Payments $78,580 million Direct Credits $380,190 million International Remittances Inbound % of GDP 11.20 % Inbound Total $18,643 million Top Inbound Countries United Arab Emirates United States of America Saudi Arabia Outbound Total $3,559 million Top Outbound Countries China United Kingdom United States of America
According to the Bill & Melinda Gates Foundation, most are not scalable and sustainable unless: 1: it has at least 10 times the number of cash in/out outlets (i.e. branches) of any bank in the country. This indicates that the deployment offers a compelling value proposition to customers based on physical proximity to a transactional outlet. 2: the scheme is able to generate at least 50 transactions per outlet per day. This suggests that merchants are motivated to promote the service and the retail channel will propagate organically, based on a demonstrated effect from successful merchants (50 transactions at around US 10 cents commission per transaction would contribute $5 of daily revenue to the store).
In one year to Feb 2010 Zap has become the most widely available mobile money service in the world, with deployments in Bahrain, Kenya, Tanzania, Sierra Leone, Ghana, Niger, Malawi and Uganda Zain has a vision for Zap that differs from the likes of M-PESA, MTN MobileMoney and their other major competitors in just about every way. They want the ecosystem to be cash-free. The team’s approach to partnering with banks has led to a uniquely collaborative engagement model with the financial sector; their efforts to leverage SIM registration initiatives in Tanzania and Uganda have been a strategic driver of customer registration; and their distribution settlement mechanism is distinctive within Africa.
1. Across East Africa, the flat fees Zap charge for a money transfer – excluding the costs of cash in and out – are lower than its competitors. For instance, in Uganda, the transaction fee for sending money using Zap is Ugsh250 (USD$0.12), compared to Ugsh800 (USD$0.39) for MTN MobileMoney. 2. Zap typically promote some combination of money transfer, airtime top-up, bill payments, and merchant payments. By doing so, Zain provide consumers with options to use their electronic money rather than instantly convert it back into cash. Many competitors only promote money transfer which ends in cash out. 3. For instance, the C2B element of Zain’s partnership with OILCOM enables Zap customers to pay for their fuel using e-money, while the B2B element then enables each OILCOM fuelling station to use Zap to pay their suppliers, bank or head office using e-money. Zap Tanzania’s partnership with Coke currently enables mini-distribution centres to pay their master distributors using Zap. This partnership could lead to a massive number of merchants being created in its second phase if mini- distribution centres begin encouraging the retailers who pay them to use e-money – because at that point it would also make sense for retailers to accept e-money as payment from their customers to avoid the need to load their e-wallets. 4.Commission model is also different Zap agents are paid their commissions in cash by the customer each time they perform a transaction, whereas M-PESA agents are paid electronically in one lump sum in arrears by the mobile operator. The difference between these two models is significant: Zap agents take responsibility for levying a discretionary fee each time a customer cashes in or out, whereas M-PESA agents do not (their customers are instead charged via an automatic electronic deduction when they cash out) Zap came up with this due to complaints from agents about competitors’ models. First, agents complained about the amount of time it took to be paid – that is, they expressed a desire to be paid in real time rather than at the end of a month. Second, agents complained that when they received an electronic deposit at the end of the month, it was too difficult to understand how much they were really making from the service – or if the payment was even accurate. And third, rural agents whose cost of managing liquidity was higher than those in urban areas expressed a desire to have the option to adjust their fees accordingly.
![My MicroAgenda (10 slides 10 minutes) ,[object Object],[object Object],[object Object],“ It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” - Darwin](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)