With the number of mobile money licensees in Nigeria up to 14 and counting, mobile money operators face a lot of competition when it comes to attracting potential customers. So far there has been little differentiation in terms of product offering with just about all operators offering standard P2P transfer and bill payments. One area however where operators can stand out from the crowd is pricing. Those that have raised their head above the parapet (most haven’t yet) and released their pricing show a tendency to favour percentage-based charging (typically 2%), subject to maximum and minimum fees. There is little evidence to date of tariff-based pricing.
However a recent report from the Tamara Cook et al of the Gates Foundation suggests that this approach to pricing may have to be rethought. The post on micropayments in Kenya and Tanzania shows a move towards tariff-based pricing, which allows for lower fees for smaller transfers sizes. The hope is that these changes will make micro-transactions more affordable for those at the base of the pyramid and act as a boon for financial inclusion. The following table from that post details those changes and has been updated to show the percentage transaction costs:
It is interesting to note how transaction fees are significantly cheaper in Tanzania than in Kenya due to increased competition in that market. This is the yardstick that should apply to Nigeria as it has four times the number of mobile money operators and, if anything, the competitive environment will be more intense.
Comparing those prices already publically released in Nigeria – Monitise and MTN (GT and Fortis) – with those of Tanzania doesn’t make for comfortable reading from a financial inclusion perspective. As it stands, those wishing to make micropayments in Nigeria would be priced out of the market. If financial inclusion is genuinely a goal for mobile money operators, it will be difficult to achieve with this pricing*.
However, even if the mobile money operators wanted to reduce their tariffs for smaller transactions sizes, could they afford to do so? One disadvantage of not having a mobile operator (MNO) led model is that it adds an extra layer of cost to the service –the cost of accessing the mobile communications network (i.e. SMS, USSD). For a MNO-led model, this access can be offered at marginal cost, which is effectively close to zero. However for a non-operator led model, as we have in Nigeria, the MNO’s are understandably keen to offer this access at commercial rates. And by all accounts they are driving a pretty hard bargain – the mobile money operators in Nigeria would effectively have to loss lead on the lower transaction amounts to match the fees we see in Tanzania.
In all likelihood most of the mobile money operators are still fine tuning their pricing strategies and we could yet see prices lowered for smaller transaction sizes. But with the mobile network operators firmly digging their heals in over cost of access the suspicion is that they may not be low enough to promote financial inclusion for the very poorest.
* Monitise are at least more competitive on larger transactions sizes, which may well make business sense for them given that the average transaction size in Kenya is in the region of $33.