I wrote before about the effects of removing mobile money transaction fees, here I’d like to explain more on why its in the interest of the Mobile Money service providers to eliminate transaction fees.
Ultimately banks in Uganda need transaction fees simply to keep going, their client base isn’t sufficient to sustain them on investment and loan interest alone. As it is Mobile money is ran by telecom companies to whom it isn't even the main source of revenue. Telecom companies can afford to sacrifice transaction fees revenue in return for larger deposit volumes which will support operation as a fund.
Most of what I've written here can be proven (or disproven) by some basic number crunching. For now, just take my word for it ... or not.
The changing nature of mobile money
Mobile money as it is today is ran as a money transfer system, In a money transfer system the goal of the company is to have as many transactions as possible and thus maximize revenue from the transaction fees. Mobile money however is destined to be thought of as a savings platform. And in a savings platform, you want to maximize the amount of money in the system. Meaning you want more deposits and fewer withdrawals. One way to do this is to encourage more transactions to be done without cash withdrawals. Transaction fees encourage withdrawals so they gotta go.They'll make more money without the fees
A money transfer system such as mobile money is limited by scale, most individuals don’t need to make a mobile money transfer everyday. But most people are saving some money every single moment, whether it is in their wallet, bank, safe, mattress or other spot. So while margins for mobile money will always be higher, potential revenue for mobile money operating as a fund are much higher. It’s the difference between mobile money and say the NSSF. In theory without transaction fees a mobile money operated as a fund could quickly outpace even NSSF because while NSSF gets just 10% of the monthly salary of some formally employed workers, mobile money could get more than 10% of the monthly transactions of everyone with a mobile phone.They can afford it
The thing about electronic transactions is that when it comes to transferring value, the logistics of transferring 1USD is about the same as that of transferring $1million. Contrast this with cash where transferring large value typically means significant expenditure on security alone. This in addition to the ATMs, Staff and bank branches needed means that there is a higher marginal cost for each new user for traditional banking systems as there is for Mobile Money systems. Lower marginal cost means that there is less work needed to be done to reach more users.Ultimately banks in Uganda need transaction fees simply to keep going, their client base isn’t sufficient to sustain them on investment and loan interest alone. As it is Mobile money is ran by telecom companies to whom it isn't even the main source of revenue. Telecom companies can afford to sacrifice transaction fees revenue in return for larger deposit volumes which will support operation as a fund.
Most of what I've written here can be proven (or disproven) by some basic number crunching. For now, just take my word for it ... or not.
jk.ol/lp
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