Small Business Might Be Big Business for Mobile Money
Mobile money is usually marketed as a way for workers in urban settings to send money home and support their family. But a product like mobile money, which provides a faster, safer, traceable, long distance way to pay people (that doesn’t require change!) is much too fundamental to be used just for one purpose. Potential uses include supporting children away at school, paying domestic staff, contributing to group savings schemes, storing money for safe keeping while traveling, and plenty other – some “Lotharios” even use it to support their mistresses!
Small business owners and entrepreneurs are also getting in on the action. On various trips over the past few months I spoke with M-PESA clients in Kenya and Tanzania, MTN Mobile Money clients in Uganda, and easypaisa clients in Pakistan. In all places, I ran into market traders, fish sellers, store owners, market middle men, etc. who use mobile money as a key part of their business. Many of them reported time and cost savings in making mobile payments, and considerable efficiency improvements in their logistics and customer service stemming from this medium.
The idea that MSMEs (micro, small, and medium enterprises) use mobile money should come as no surprise, since they have a lot to gain. They need to pay and be paid frequently, sometimes in (relatively) large amounts or over long distances, implying they could lower cost and save time with a cheaper and more convenient way to pay electronically. They also need to manage their working capital to get the most from it, which means turning it over as often as possible – increasing the speed of the cycle from cash to inventory to receivables and back to cash.
Being able to receive payment from clients more quickly allows them to speed up the conversion of receivables to cash; similarly, being able to arrange delivery and pay over the phone increases efficiency on the other end by moving cash into inventory more quickly and with less time and cost to arrange. At the same time, because the business owner can more quickly order more supplies, they can reduce the inventory they hold and not wait to run out before ordering more (moving toward the “Just In Time” style of production practiced by many multinationals) which also speeds turnover.
Despite the expectation that there might be substantial benefits and the anecdotal evidence that small scale commercial use of mobile money is wide spread, it’s still a phenomenon that is not well documented or understood. Two pieces of research caught my eye recently that shed light on the usage of mobile money by MSMEs.
The first is a study of MTN Mobile Money users in and around Kampala Uganda done by Ali Ndiwalana, Olga Morawczynski, and Oliver Popov in 2009. The researchers did not set out to investigate business users, but when they ask their survey respondents what (aside from airtime purchases) they were using mobile money for, they found nearly 33% of transactions were to purchase or sell goods or services, while the remaining two-thirds corresponded to money transfers. Larger formal businesses in Uganda don’t accept MTN Mobile Money as a means of payment, so it’s likely most of these purchases and sales transactions were conducted by entrepreneurial individuals or small businesses on one side or the other. This is a significant volume, given that Mobile Money has never been marketed in this way and speaks to the high level of need from this group.
The second piece is a recent study conducted by Lennart Bångens & Björn Söderberg who interviewed 110 MSEs (just micro and small, not medium sized enterprises) in Tanzania about their usage of mobile money. The authors find that the rate of mobile money usage by business owners is much higher than national average and that many report significant benefits. The main benefit these entrepreneurs reported was increased efficiency from time saved and improved logistics. Most find mobile money much easier than banks: the locations are more accessible, customer service is better, transactions are faster, and it’s much easier to sign up for an account. That said, agents often didn’t have the float to meet larger transaction sizes and some reported having to visit two to three agents to get the cash or float they needed. The authors also believe that MSE’s may help “diffuse” mobile money by prompting customers and suppliers to sign up – yet another reason they may be of high-value to MNOs as early adopters.
The paper also recounts some case studies of MSMEs that parallel some of the anecdotes I heard on my various trips and illustrate the value of mobile money to small businesses but also the limitation. See the case of Rajabu, a flower seller who cut his time from order to delivery in half and reduced the time to be paid by customers, but sometimes needed to split payment over two days to stay under transactional limits imposed by the central bank, which used to allow only $330 per transaction instead of the current $650. In order to meet his obligations to suppliers in Kenya, he sometimes had to send money via bus.
Reuben, in Tanzania, sells braided hair wholesale to salons and beauty shops and uses M-PESA to receive payment mostly from up-country customers who place orders by phone, saving a trip to Dar es Salaam. While mobile money has improved the situation over sending money by bus or by bank or paying in person, he’s not always happy with quality of service and cash availability at M-PESA agents who are more used to smaller value transactions.
The data and stories illustrate the potential mobile money has for increasing MSEs’ efficiency and lowering costs. They also highlight the challenges MSEs face in getting the most from mobile money services due to the limits on transaction sizes, the lack of mechanisms to pay across borders, and the fact that agents don’t always have enough liquidity to meet MSEs needs, among other constraints. Mobile operators would do well to pay attention to the needs of this important customer segment, and regulators should keep them in mind as well – possibly allowing for special classes of account with greater transaction limits and the ability to make more kinds of payments including cross-border and into other payment systems like banking a debit/credit card networks.