For profit or for human life?
The mobile money operation is really unattractive if businesses do not have superior advantages or an eco system which uses leverages among different services - PHOTO: HOANG TAN
On March 9, 2021, the Prime Minister officially issued a decision approving the pilot operation for payment for small-value goods and services with the telecom account, or the mobile money service. To residents in big cities, this information seems uninteresting as they have more convenient solutions. However, to people in remote and out-of-the-way areas, especially the poor, this service may help change significantly their life.
The primary goal of mobile money is to provide essential financial services, such as payment, money transfer/reception, savings and insurance, for people unable to access them because they live in remote, out-of-the-way and rural areas. The typical examples for the development of this service are African countries, especially those in sub-Saharan Africa, and India.
In 2014, the Indian Government was determined to develop mobile money to cover essential financial services along with the telephone coverage. However, the country’s unbanked population still stands at 200 million people.
To service providers, mainly mobile service operators, the mobile money is a very large market but the profit per customer is very low. According to a report released by the Global System for Mobile Communications in March 2020, only 60% of mobile money service providers had EBITDA (earnings before interest, taxes, depreciation and amortization) above zero. Those businesses did not incur losses, but it’s highly likely that they had a very small profit. Paytm, a big name in the mobile money service in India established in 2010, only reached the break-even point and had profit in 2019.
A mobile money business usually undergoes the startup phase in the first one or two years, grows in the fourth or fifth year and gains stability afterwards. The cost structure of mobile money is different from those of traditional services like calling, messaging, data and value added services. The mobile money is an OPEX (operating expense) segment, with the expenses mainly for paying commissions for agents which are transaction outlets, and marketing and human resources costs. The largest expense is the commission for cash-in and cash-out, which, according to statistics, sometimes account for 40-80% of the revenue.
Mobile money brings many benefits for people out of access to financial services and supports effectively micro-finance and micro-insurance programs, which are major issues of financial inclusion and one of the targets for sustainable development. It also enhances the efficiency of access to essential services like power and water for people in rural areas, increases convenience and reduces payment management cost for businesses.
Another significant benefit of mobile money is cash support in case recipients do not have bank accounts. Many destitute people in remote and out-of-the-way areas need emergency aid but do not have the means to get it. With mobile money, the recipient only needs to have a mobile phone number, be it for the 2G service, and he or she can get the aid more easily. It is also a solution for paperless immigrants and refugees in need of assistance.
Small and micro businesses can diversify their payment acceptance through mobile money. Imagine tourists or visitors to a remote area who want to buy some goods or service but do not bring along cash and the areas have no ATMs, mobile money would then be a satisfactory service for both sellers and buyers.
Mobile money development is needed in not only poor countries and remote rural areas. In many cities in some developed countries, residents or tourists can buy bus and metro tickets and pay parking fees though messages, and the amount will be deducted (for pre-paid subscribers) or added to the bill (for post-paid subscribers). Though there are many payment apps on smartphones, payment through messaging has a superior advantage owing to its convenience.
The above analysis shows that the mobile money operation is really unattractive if businesses do not have superior advantages or an eco system which uses leverages among different services. Nevertheless, the benefits which mobile money gives to poor people and those in remote and out-of-the-way areas with no access to essential financial services are undeniable. This group of vulnerable people will be left out should the market principle reign. Therefore, the development of mobile money needs joint supports from governments and charity funds or investment funds like the case of the Bill & Melinda Gates and Flourish funds. Profit should not be the foremost criterion for a program aimed for the benefit of society or human life.
(*) HCMC Economics University, IPAG Business School Paris and AVSE Global
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