Chapter 3: The case of Vietnam mobile service company
3.2. Mobile money – Opportunities for VMS?
3.2.1.3. How to pricing the unbanked?
The most two important benefits of mobile money services to consumers is offering a wide outreach coverage and a better pricing. As some researches of CGAP, the figure shows that on average, mobile money is 19% cheaper than comparable bank services overall and 38%
cheaper at lower values at which poor people are likely to transact (given the research carried with low end banking and not take in account to other
cost for inconvenience). It is also half the price of other informal options.
The reason is that bank branches require considerable investment in infrastructure, equipment, human resources, and security. By contrast, branchless banking leverages existing infrastructure (agent shops) and equipment (mobile phones).
While banks charge fixed fees whether a person transacts with $1 or
$100, branchless banking providers charge tiered or percentage-based fees for many transactions. So, the lower the transaction value, the cheaper branchless banking will be compared with banks. This means that using mobile money will be significantly cheaper than using bank alternatives for low-income, previously unbanked clients who are likely to transact at this lower end.
A research by CGAP in May 2010 on branchless banking pricing analysis use the methodology of comparing pricing of 16 leading branchless banking services against 10 formal banks targeting the mass market as well as informal money transfer options with prices are PPP adjusted so they are comparable for customers in very different markets.
The figure came out that:
Average branchless banking price is $3.9 per month when banking price is $4.8 per month.
With the different values for customer, the pricing get different levels:
Value $23 $69 $207
Banking price $4.8 $4.8 $4.8
As percentage 21% 7% 2%
Branchless banking price $3 $3.9 $7
As percentage 13% 6% 3%
% Branchless banking cheaper than banks 38% 19% 45%
Sources: CGAP – branchless banking price research 2010 Figure 3.7. Price of banking services vs branchless banking
For the money transferring between branchless banking and informal options, the price is as follow:
Average Value $62 ($160 PPP) As percentage
Other options (post office, bus, money changer..) $10.7 6.7%
Branchless banking price $4.8 3.1%
% Branchless banking cheaper than other informal options
54%
Sources: CGAP – branchless banking price research 2010 Figure 3.8. Price of mobile money transfer via informal options vs
branchless banking In the total transferring
money fee, in average, sender takes 49% and receiver take 51% of price.
The Method of charging for main services is as figure 3.9.
(Sources: GSMA research 2009) Figure 3.9. Number of Providers that
charge specified method of pricing
(Sources: GSMA research 2009) Figure 3.10. Transaction pricing of main mobile money services
Having a look at banking price and post office fee for money transfer in Vietnam now, we have figure 3.11 below:
Vietcombank Vietinbank Vnpost Transportation bus
Domestic transfer Sender
To in network Acc. Free Free 1.92% min $1 0.1% min $1
To others 0.02-0.05%,
min $0.5-$1.5
0.02-0.1%, min $0.5-$1.5 Receiver
To in network Acc. Free Free Free Free
Cash 0.03%, min $0.5 0.02% min $0.5
International transfer
Sender 0.15%, min $15 0.15% min $20 0.07-0.02%
min $20
N/A Receiver 0.2%, min $4 0.2-0.7% min $2 Free
Cash out (in 2 days) 0.03% min $1 0.02% min $0.5 N/A N/A
Cash in Free Free
Sources: official public price of institutions Figure 3.11. Vietnam money transfer pricing
The pricing rate of 0.02-0.1% of money transfer above seems to be a small rate. But in fact, to get that rate, the money transfer amount has to be over $2,500. If not, it has the min fee of $0.5-$1. And for the post office or informal channel, the rate is even higher. Here, we assume to ignore the other cost associated with going to the bank branches, bus stop or post office – a comparative far from rural customers’ house due to a thin network.
The important point here is for the unbanked market, the need for money transfer amount in the range $15-50 is high frequency. So we do some calculation for this market as figure 3.11. It shows that for transaction value from $15 to $50, the money transfer fee via bank is 1-6.67% (both sender and receiver) and via post office or bus is 2-6.7%.
Low Medium High
Average amount of money transfer $15 $30 $50
Banking price (min) $0.50-$1 $0.50-$1 $0.50-$1
As percentage 3.33%-6.67% 1.67%-3.34% 1%-2%
Post office/ bus price $1.00 $1.00 $1.00
As percentage 6.7% 3.3% 2.0%
Figure 3.12. Vietnam money transfer pricing for unbanked
Moreover, the bank services need maintaining account with minimum of $2.5-$5 while mobile money associate with benefit (commission) when top up to mobile account.
After those above market analysis, we have some conclusion:
Service provides recommend should be: deposit, withdrawal, buy top up, bill payment, send money, receive money, and balance inquiry.
Services fee structure should be:
9 Deposit, balance inquiry: free.
9 Bill payment, send money, receive money: Flat ($0.1- 0.3/transaction).
9 Cash out: Tier (2-4%).
3.2.2. Regulation condition
As many researches above conclude that regulation is an important factor of mobile money entry strategy’s success, VMS introducing mobile money transfers of course will face regulatory constraints with regard to financial regulation.
To get on with mobile money services, the provider has to have licenses to enable its outlets to distribute and service the Mobile Money products. In some countries like Philippines, this started from national state bank. In some others, if it is the partnership of MNO and bank, it is the bank
In Vietnam, IFC has launched a advisory program to bank the Vietnamese unbanked people with some seminar with MNOs and central bank of Vietnam. It is certainly the good opportunities for VMS to utilize their support to get this kind of license.
Vietnam now not yet has a clear legal frame work for this kind of mobile money services. The most recent highest level legal document is decree 64/2001/NĐ-CP dated 20th September 2001 adopted by the Government on payment operation made through settlement service providers. Under this Decree, payment providers now not limit only in bank and financial institutions but also other organization has ability; not only domestic payment but international. However, there hasn’t any article in this decree or other legal document regulate about those “other organizations”
that can be payment providers, how to get the license.
So, with the lack of legal frame work stated above, many payment institutions in order to achieve their strategy in e-payment services asked for State bank of Vietnam to get the license to pilot e-payment services in 2008.
Until now, there have 6 license been approved for payment institutions to start these services. The model in general is partnership with banks to be a third party’s e-wallet support payment. These models, including mobile wallet of Viettel and VinaPhone, still achieve very little recognition of consumers because it still in term of payment only as discuss above in previous part.
To achieve a better success, mobile money services should focus on send/receive money which require ability to deposit/ withdrawal at hundred thousands of POS rather than bank branch/ATM only. Then the problem is license to be payment providers for VMS.
There are some ways to get that license as follow:
VMS can get it their own like some payment did, but with the assistant of IFC lobby the State bank of Vietnam to get the full license to be payment providers. (Learn from model of Philippines).
VMS partnership with banks to use their licenses. And that partnership still have to ask State bank of Vietnam for permission to set up distribution network act as POS to deal with deposit/
withdrawal transactions.
In this proposal process, VMS must show the solution for fraud;
money laundering concern and KYC rules (know your customer). They also have to build strong relationships with government and regulatory bodies so solves any issues raised over the time.
3.2.3. Technical and IS
3.2.3.1. VMS current technical and Information system
VMS are now has partnership with both payment companies and banks to distribute services.
With payment companies, VMS has connected with their systems to distribute top up in many ways: top up via web, special menu SIM, ATM, SMS, POS (which you in put your money and tap the screen to top up), application on your mobile, etc..The connection model is as follow:
Sources: VMS
The model to connect with banks is also the same. VMS connected directly with Dong A bank, Vietcombank to support customers top up and pay bill via their banks accounts. With others bank, the connection is made through 3 rd parties: payment companies above.
With this system, VMS currently has 2 type of accounts in their network for prepaid is: mobile account and MobiEZ account (sales account); for postpaid is mobile account (this is a debt account) and Fastpay account (top up account for post paid – to store top up value). This June 2011, the system is improved to assist other type of account, including mobile wallet account.
So, with current system, VMS has no difficulties in developing mobile money business. Using the current system of mobile IN, the securities is as high as your mobile account/ sales account now.
3.2.3.2. Technical applied for mobile money
As discuss in 2.4.3, the SIM and USSD based seem to be most appropriate to integrate mobile money services: easy to approach, security.
VMS currently has a special SIM Card called MobiEz Sim – which is supplied to distribution network – to sell top up to customers instead of scratch card – no serial input need. This kind of SIM use a special menu communicates to VMS network via SMS to follow command of sales person to top up for MobiFone subscribers. Then, selling airtime is just easy and quick as a SMS. This network now has more than 90.000 agent’s nationwide and create an average of 400.000 transactions per day. This distribution method contributes nearly 20% of prepaid card sales volume of MobiFone.
That implementation experiences show that SIM is a effective method.
With this idea flow, we can integrate a mobile money menu to all MobiFone SIM card (both prepaid and postpaid). All new customers join MobiFone will have services already their on their SIM card. But for the current customers, they can go to MobiFone shop to change their SIM card or VMS can offer another USSD method instead for those.