Chapter 4: Mobile money services business development proposal for VMS107 4.1. Mobile money business development proposal for VMS
4.1.2.3. Service pricing and agent commission
With the result survey in previous chapter on pricing, VMS has 58%
consumers accept services fee below 10.000 VND/transaction and agents expect for net revenue of around 70.000 VND/day.
So, on experiences lessons from previous deployments, the writer recommends VMS’s fee & commission structure as follow:
Unit: thoundsand VND
Non cash
transaction 10-500 500- 1.000
1.000- 5.000
5.000- 10.000
10.000- 20.000 Customer tariff (paid out of their mobile wallet account)
Customer registration -
Show balance 0.2
Change PIN 1
Deposit 3 4 5 6 9
P2P (to customers) 3 3 3 3 3
P2P (to non-customers) 10 14 20 32 38
Bill payment 2 2 2 2 2
Withdrawal (customers at agents) 5 8 15 26 33
Withdrawal (customers at ATM) NA NA NA NA NA
Buy airtime -2% -2% -2% -2% -2%
Total gross channel commission (share by super agents and retail outlets)
Customer registration 20
Show balance -
Change PIN -
Deposit 3 5 8 12 14
P2P (to customers) - - - - -
P2P (to non-customers) 4 4 4 4 4
Bill payment - - - - -
Withdrawal (customers at agents) 5 7 12 20 28
Withdrawal (customers at ATM) NA NA NA NA NA
Buy airtime - - - - - Commission share for retail outlets
Customer registration 14
Show balance -
Change PIN -
Deposit 2,1 3,5 5,6 8,4 9,8
P2P (to customers) - - - - - P2P (to non-customers) - - - - - Bill payment - - - - - Withdrawal (customers at agents) 3,5 4,9 8,4 14 19,6
Withdrawal (customers at ATM) NA NA NA NA NA
Buy airtime - - - - - Table 4.2. VMS mobile money price and commission
The customers’ fee and agents’ commission are charged against their mobile wallet account, not by cash. VM pay the master agents according to the commission note here, and they pass on the fees to their retail outlets through their channel (70%).
For transactions from 500.000 VND below (majority of transaction by mobile money services), we see the fee and commission structure as:
Transaction against cash:
Deposit: is charge by 3.000 VND/transaction for customers and cost VMS 3.000 VND/transaction in total commission, of which 2.100 VND go to the retail outlet. For MPESA, this fee is free of charge to customers, but that can lead to uncontrollable of saving transaction where fee for round trip of saving transaction is lower than its commission they have to pay. So learn from others MNOs, VMS should charge some fee for deposit transaction.
Withdrawal: cost customers 5.000 VND/transaction. VMS pay 5.000 VND/transaction to the channel, of which 3.500 go to the retailers.
Thus, a round trip saving transaction (1 deposit + 1 withdrawal) cost the customer 8.000 VND which in fact equal to what the channel gets. VMS don’t get any on this.
Withdrawal on ATM will be more expensive because it will be add up with banking’s price when negotiating with bank.
Electronic transfer of value:
P2P transfers: cost a flat cost of 3.000 VND/transaction. This will make VMS bulk of it revenue. Each transfer round trips, VMS get 3.000 VND. Especially when Mobile money has many services for consumers to use their electronic value, they will not cash out and VMS can save commission while encourage payment and transfer value transactions.
VMS customer can also send money to non service customers: money is debited from the sender’s account, and the recipient gets a code by SMS which it can use to claim the monetary value at any service retailer. Thus, it’s an account-to-phone service, with the receiver’s experience being similar to how Western Union works today. The pricing on this service is interesting: it’s a lot more expensive for a customer to send to a non- customer than to a customer (10.000 VND versus 3.000 VND), but at the other end cashing out is free for a non-customer which is not the case for a customer. This may seem odd: the customer is penalized while the non- customer gets a free service. The logic, though, is to put the pain on the sender, who has the money and the understanding of how services works – and hence the clout to insist that the receiver register as a service user.
Customers fee
Trans up to (1000 VND) Cost per trans Round trip cost
In P2P Out Saving transfer
500 3 3 5 8 11 1,000 4 3 8 12 15 5,000 5 3 15 20 23 10,000 6 3 26 32 35 20,000 9 3 33 42 45
Agent commission
Trans up to (1000 VND) Commission per trans On Round trip
In P2P Out Saving transfer
500 3 0 5 8 8 1,000 5 0 7 12 12 5,000 8 0 12 20 20 10,000 12 0 20 32 32 20,000 14 0 28 42 42 Table 4.3. VMS price and commission analysis for round trip transaction
Bill payment is analogous to a P2P transfers, except that customers send money to the Mobi-cash account of institutions. Customers must enter the biller code (a number that uniquely identifies the biller) on the Mobi- Cash phone menu, and also have the option of entering an account number (which is necessary if the biller cannot associate the customer’s phone
number with their bill account number). Mobi-cash charges the same amount for transfers of money for bill payment as for P2P (i.e. 2.000 VND per transfer). However, in the case of bill payment by Mobi-cash, VMS receive other commission for payment collection and customer can be offer a percentage of their bill. Total of these commission and discount can be up to 5-8% of the bill
Moreover, customers can buy airtime directly from their mobile wallet, at zero cost – and with around 2% discount. This is a saving to VMS in compare with 7.5% airtime top up commission now.
Non monetary transaction:
Users can register for Mobi-cash for free, but the channel gets 20.000 VND per customer registered. This constituted a powerful customer acquisition incentive for stores during the early days of this business when there were few customers (and hence relatively little transaction commissions to be had). But this commission is only fully paid when customer create the 1 st transaction. (25% will be paid at registration finish)
Balance inquiry costs the customer 200 VND/times. It can be free but VMS should impose this modest fee to avoid the situation that customers were checking their balance unreasonably frequently. (The SMS receipt following any transaction indicates the customer’s balance, so there was in fact little need to incentivize customers to check their balances often.)
Change PIN cost customers 1.000 VND/times.
With those above pricing and commission structure, VMS retailer with the average of 20 transaction per day (in which 35% are deposit, 65%
are withdrawal) can receive gross revenue of 74.200 VND a day with a
capital investment of 3.000.000 VND for this business. Others who has lower rate of withdrawal will be more efficient.
Mobile money
Capital 3,000
Gross revenue 106
Trans/day 20
Deposit (35%) 7
Withdrawal (65%) 13
Average trans value 500
Average commission per trans 5.3
Deposit 4
Withdrawal 6 Expense (leave out other expense) 31.8
Liquidity mgmt 31.8
Gross revenue after super agents share 74.2 Table 4.4. Mobi-cash retailer revenue analysis 4.1.3. Distribution
A successful business model will see the agents as a special type of customer, for without them, the essence of branchless banking is lost.
As describe in 3.2.4.2 about developing distribution channel for mobile money services. We are not discussing about how to choose retailers, which type of distribution channel will be applied (this was discussed in 3.2.4.2).
The development of VMS Mobi-cash agent networks is mainly to support customers in cash‐to‐digital value conversion and vice versa. To achieve this, VMS should build four elements into its channel management execution strategy: (i) engaging intermediaries to help manage the individual stores, thereby reducing the number of direct contacts it had to deal with; (ii) ensuring that outlets were sufficiently incentivized to actively promote the service; (iii) maintaining tight control over the customer experience; and (iv) developing several different methods for stores to re‐balance their stocks of cash and e‐value.
To engage intermediaries, VMS use aggregate models. In this model, master agents perform two key functions: (1) liquidity management (buying and selling e-value from VMS and making it available to individual stores under their responsibility), and (2) distributing agent commissions (collecting the commission from VMS based on the overall performance of the stores under them and remunerating each store). In the launching, VMS should create networks of around 20-25 master dealers to build around 2.000-2.500 outlets nationwide divided by regions (5 VMS centers). After the launching phases, the next is the developing customers with main task is to concentrate on signing up customers. Then, final phase is the numbers of outlets will be growth in parallel with number of customers (with the rate of around 1:30) to ensure the wealthy develops of agents networks.
To ensuring that outlets were sufficiently incentivized to actively promote the service, we can see the commission in previous part and compare to expect of retail outlets survey results (which is already mentioned before).
To maintaining tight control over the customer experience, VMS has to build trust on its retails networks via closely link Mobi-cash to MobiFone brand with the same appearance similar to VMS current shops. Moreover, VMS should ensured that customers can walk into any retail authorized outlet and have a remarkably similar experience. This has helped to build trust in the platform and the outlets, and gives customers a consistently positive view of the service. VMS maintains this control over the customer experience by investing heavily in store training and on‐site supervision which it is currently do the same via Vira with its outlets.
Besides, VMS can deploy a system that customers receive instant
experience to trust the system. The confirming SMS constitutes an electronic receipt, which can be used in dispute resolution. The receipt confirming a money transfer details the name and number of the recipient and the amount transferred. This allows the sender to confirm instantly that the money was sent to the right person—the most common source of error.
With this convenience, VMS then requires its outlets to record all cash‐in/cash‐out transactions in a paper‐based, Mobicash‐branded logbook.
For each transaction, the store clerk enters the Mobi-cash balance, the date, agent ID, transaction ID, transaction type (customer deposit or withdrawal), value, customer phone number, customer name, and the customer’s national ID number. Customers are then asked to sign the log for each transaction, which helps discourage fraud and also gives agents a way to offer first‐line customer care for customers querying previous transactions. Each entry in the log is written in triplicate. The top copy is kept by the retail outlet for his records, a second is passed on to the store’s master agent, and the third is sent to VMS. Recall that all information contained in the agent log (except for the customer signature) is captured electronically by VMS when the transaction is made and is available to the master agents via their web management system. Hence, the main purpose of the agent log is not for record‐keeping, but to provide comfort to customers who are used to having transactions recorded on paper.
When partnership with bank and bank card union, Mobi-cash customers can go to bank’s branch to do cash in/cash out transaction and withdrawal money from ATM. To do so, they must select “ATM withdrawal” from their Mobi-cash menu on phone. They then receive a one‐time ATM authorization code, which they enter on the ATM keyboard to make the withdrawal. No bank card is needed for this transaction. By
accessing the ATM network, Mobi-cash customers can now make withdrawals at any time, day or night. This applicant helps VMS to empower its services and avoid its inconvenience of in case retail outlets cannot always meet requests for withdrawals, especially large withdrawals.
By far the biggest challenge faced by Mobi-cash stores is maintaining enough liquidity in terms of both cash and e‐float to be able to meet customer requests for cash‐in and cash‐out. If they take too many cash deposits, stores will find themselves running out of e‐float with which to facilitate further deposits. If they do too many withdrawals, they will accumulate e‐float but will run out of cash. Hence, they frequently have to rebalance their holdings of cash versus e‐float. This is what we refer to as liquidity management.
VMS can develop multiple store liquidity management methods (discussed previously in chapter 2). These two method place the master agent in a central role, with the expectation that the master agent will
‘recycle’ e‐float between locations experiencing net cash withdrawals (i.e.
accumulating e‐float) and locations with net cash deposits (i.e.
accumulating cash). These 2 methods are:
1) Master Agent provides direct cash support to stores: Under this option, the store clerk comes to the master agent head office to deliver or offload cash, or the master agent sends cash runners to the store to perform these functions.
2) Master Agent and stores use their respective bank accounts: Under this option, if the store has excess cash and wants to buy e float from the master agent, the store will deposit the cash into the account of the master agent at the nearest bank branch or ATM. Once the master agent confirms
receipt of the funds into its account, the master agent transfers e float to the store’s Mobile account. If the store wants to sell e float to get cash, the store transfers e float to the master agent. The master agent then deposits (or transfers) money into the store’s account at the branch of the store’s bank.
The store can then withdraw the cash at the nearest branch or ATM.
4.1.4. Business organizational structure
To deploy this business, VMS has 2 choices of organizational structure: embedded and stand alone business (illustrative in figure 4.2).
Figure 4.2. Mobi-cash organizational structure models
Looking at these models, the writer recommends the embedded models are suitable for current VMS structure.
The roles/ responsibilities of the Mobi-cash team including:
Operations management:
A Mobile money director will be responsible for the overall management of the organization
A Mobile money coordinator will be in charge of the
synchronization of the project Marketing:
A Product manager responsible for price/product, market research and reporting
An Operational marketing manager responsible for promotion, partnerships with distribution partners & commercial activities.
Finance / BO:
A Finance administrator responsible for the back-office financial transactions
BO Administrators Customer care
A Mobile Money Team leader that reports to existing Customer Care manager
A team of existing CCOs will be responsible for MM FO problem solving but will not be dedicated only to Mobile money
Sales
Responsible of the channel strategy and relationship with merchants
Existing merchant managers will include MM merchant recruiting in their tasks
IT
Responsible for the correct technical network interaction between VMS and the bank, will report to an existing IS manager.
4.2. Risks & challenges for VMS when deploy mobile money services
In the above business proposal strategy, the author made effort to draw a strategy with main factors to launch mobile money business successfully. However, there are many challenges that mobile money business faces and especially risks that VMS might meet when starting mobile money business.
In general, mobile money business has some main challenges. In current 94 live deployments, there are few complete deployments which provide customers with full mobile money services (especially cash in, cash out services). The main reasons are of difficulties and challenges of implement mobile money services such as:
Mobile money entry strategy needs a more sophisticated suite of products to attract (a) an attractively large number of customers who (b) will be active and do a number of transactions per month. To do this, providers need fresh thinking about mobile money products that will work with the mass market with effective cost.
Legal policies are an important initial condition to deploy mobile money but it is not easy for MNOs to approach license.
Agent networks is a very difficult parts of mobile money business in term of both recruiting agents and managing agents, especially liquidity management – which is affected by commission policies. So, how to set a suitable commission can support both business profit and encouragement for agents is a great task.
Culture of the population and consumer behavior is also a challenge to mobile money while more than 75% people are rural and agriculture. To educate them with modern e-money in their
mobile phone is not an easy task.
Moreover, VMS should also consider some risks when deploy mobile money services from the very beginning named:
First, the regulatory limitations on providing financial services would have great effects to the successful of mobile money business. The most important key factor of this business plan is mobile money remittances. This product can’t attract consumer if it doesn’t allow them to withdraw cash from their mobile wallet. It is especially true in the cash economy. So, to get financial services license (by VMS itself or via the partnership with bank) is the necessary condition for this business. MNO and banks have been competitive in mobile money space. So, in partnership, VMS may have many concerns in the relationship management especially benefit sharing issues. In the partnership with banks, Moreover, there would be some strict regulations on KYC, AML/CFT requirement) that cause difficulties for VMS to quickly develop large number of customers due to the increasing the complexity of mobile money services.
The more complicated the registration is, the less customers will interest on the services. Then due to the “eggs and chickens” rules of these services, the launching may met difficulties.
Secondly, services in Vietnam mobile market in general and mobile money in particular, with the high percentage of inactive subscribers, the investment on system license might be ineffectively. Moreover, achieving profit from the services may not ascertain profit for VMS, as the small transaction charges will only prove their worth in high volume. The heavy cost arising from a large volume of transactions may overshadow revenue gains. So, it is vital for VMS in mobile money business to justification for the infrastructure cost because VMS as well as any MNO has the shareholder pressure for faster and high returns.
While financial gain was not always the main reason that operators looked towards mobile money in the past, the forthcoming NFC model brings a more encouraging prospect for revenue generation, given its stronger capability to address the critical mass and carry multiple services.
Single-carrier, single-bank mobile banking solutions mostly don’t succeed beyond the initial pilot because the addressable market is too small. In this aspect, NFC will again become a potential saver by bringing a much larger addressable market. This is the suggestion for VMS when considering the infrastructure cost.
Thirdly, the lack of technical interoperability and security remains an important issue that needs to be addressed soon from the initial. While mobile networks already have encryption on the messages transmitted across the network, mobile transfers require additional tracking and logging for regulatory demand. The quality of security therefore is the necessary and challenge for VMS. They also have to consider about the interoperability with other system from the beginning.
The last but not least, the competition among other MNOs when they also launch the same business. Competition for customers and agents is likely to grow as more entrants join the field. Right if it appears that the mobile business seem to have profit, Viettel and Vinaphone will soon launch the similar. Currently, as stated previously, Viettel has intended to provide Pay-plus (already announced the public but not yet provided SIM) and Vinaphone with Momo. But these kind of services just focus on payment and transfer via bank account. So the volume is still limited. If this mobile money business model proves to be successful, sooner or later, other MNOs in the industry will have similar business. Then the competition will be higher, the price will be more competitive and profit margin will be lower. As the result, the return will be not as expected.