Jungwon Byun

The Big Advantages of Being Small: How a mobile money startup beat the major players in Zambia

The best kept secret in Africa.” That’s how Chrissy Martin and Azalea Carisch of Mennonite Economic Development Associates described Zoona, a money transfer provider in Zambia, in an April 2012 blog post published by CGAP. The post emphasized Zoona’s promise to demonstrate the viability of a lean, third-party provider in a market where multinational telecom operators and established banks have network advantages. At that time, the company had recently secured investments from three big investors: Omidyar Network, ACCION Frontier Investments and Sarona Asset Management. But considering how essential scale and penetration are to the success of a digital money product, Martin and Carisch wondered if a third party provider could actually compete with the likes of MTN or Airtel. The analysts explored the factors that made Zoona different from other providers, including value-added services that went beyond what mobile wallets typically offer. They concluded that these characteristics could give it an edge in the market.

By early 2014, the secret was out, as Zoona had become a market leader in Zambia. However, around that time, the company shifted its focus away from many of the initiatives that Martin and Carisch cited as demonstrating its uniqueness and creativity. The bulk payments, business-to-business payments and e-voucher services it provided to donors, governments and private corporations were de-emphasized. Instead, Zoona began focusing entirely on growing its money transfer service, which had consistently accounted for around 94 percent of its revenues. However, this meant that it would now be in direct competition with mobile operators that leverage massive marketing budgets and vast capital resources to drive usage.

It soon became clear that this wasn’t an issue. By November 2014, the number of unique individuals sending money through Zoona in a 30-day period had grown to 200,000[1] and it was conducting more than 500,000 transactions worth USD $25 million each month. It has solidified its position as one of the leading mobile money providers in the country.

Despite being outmatched in terms of size and capital, Zoona has proven to be a formidable threat to other providers in the country. During my time at Financial Sector Deepening Zambia, I was able to closely study Zoona’s past and future strategy, and I came to realize that Zoona’s advantages are twofold: First, it has developed the infrastructure and incentives necessary to properly manage agents. Second, it has overcome its size and resource constraints by driving innovation with data.

Solving the chicken and egg problem

Financial services for the poor are often plagued by a chicken-and-egg problem. People only want to use mobile finance services if there are sufficient agents with whom they can exchange their electronic value for cash. But agents can only stay active if there are enough customers transacting to generate sufficient revenue. Most telcos have tried to overcome this problem using sheer force: they convert their national airtime network of retailers and kiosks into mobile money agents, and then register lots of customers using flashy promotions or marketing. What actually ends up happening, though, is that many people initially sign up for the service, but are inactive. Then there simply aren’t enough customers or transactions to sustain all of the agents, so many agents also become inactive. Agent inactivity means service unreliability (it’s not uncommon in Zambia for shops advertising mobile money to not actually offer it), which leads to poor customer service that further discourages customers from using the service. To avoid this, most telcos focus on the customer to generate activity – more promotions, more discounts, more advertisements, more education. Zoona, on the other hand, focuses on the agent.

Zoona has placed an unmatched focus on agents, internally referring to them as its primary “customers.” It has even developed a framework of “touchlines” which maps every single point in the Zoona agent’s journey, from the moment she first hears about the company to the point at which she expands to multiple locations. The goal is to empathize fully with the agent to understand her needs and challenges, thereby ensuring that she delivers great service to customers at every step. Start-up materials, such as the booth, signage, and other supplies are provided to qualifying agents on credit through Kiva loans, which agents repay over time. This vertical integration sets Zoona apart as an agent manager and reflects a viewpoint different from that of most mobile operators, who see agents as little more than a delivery channel. “Mobile operators use distribution channels to grow sales. Then, as soon as they have sales, they cut the margins and squeeze as much as possible out of the agents,” says Brett Magrath, Zoona’s co-founder and COO. Zoona, on the other hand, takes great pride in cultivating its agents as successful entrepreneurs in rural communities.

Overcoming size with data

Ensuring that agents deliver a quality service requires monitoring performance and responding to inactivity effectively. But because Zoona started from zero and bootstrapped its way up, it doesn’t have the resources to visit every single inactive agent. “Our philosophy is to focus on the high-performing agents, not on the lagging tail,” says Keith Davies, the company’s Head of Finance, Data Analytics and Risk. “So long as the total number of inactive agents doesn’t surpass a certain threshold, it’s more important for us to focus on growing the high-performing guys.”

Zoona manages this through its dashboard analytics team, based in Cape Town. The data it collects is used to define detailed performance metrics for each agent. Actual performance is then compared to expected performance to identify those that need more intervention or incentives. The team is taking this analytics push even further to build out a decision tree. Once an agent is flagged as underperforming, the system will suggest appropriate responses for the management team. For example, it might recommend that the team visit the agent in person, give the agent a call, thank the agent for a good month, or invite the agent out to Cape Town as an acknowledgment of a job well done.

In this vein, data is now at the core of many of Zoona’s innovations. One particularly exciting development is ZoonaCash, which uses data to significantly improve the process by which Zoona manages agents’ liquidity. ZoonaCash allows agents’ float levels to drop below zero, so they can continue processing transactions for customers – as long as they re-balance the next morning. Zoona is also using data to develop internal “scorecards” for agents, which could effectively function as credit scores to determine their eligibility for loans. Having a rigorous, data-driven method of determining credit eligibility will help Zoona onboard new agents faster and more efficiently.

Zoona is innovating and experimenting as much now as it did in its earlier years, but this time the nature of the innovation is different. Where it experimented with multiple products and revenue streams before, Zoona is now innovating around its core money transfer service. “It’s almost taken us four years to realize that the one we got in the beginning is the right horse to back, and we need to back this horse,” says Magrath.

What can other ambitious third party providers learn from Zoona? Perhaps the most important lesson is that it’s possible to overcome the seemingly insuperable entry barriers and be competitive in money transfer services, even when competing against the big telcos. In fact, being a smaller third party can actually have its advantages, allowing Zoona to experiment quickly and nimbly.

Zoona plans to emulate M-PESA’s model of expanding from its home country into surrounding markets – it launched its service in Malawi last September, and is exploring expansion into Tanzania, the Democratic Republic of Congo and Mozambique. Management hopes to eventually surpass M-PESA as the top mobile money brand in Africa – and also to become the continent’s top employer. Whether or not those goals materialize, by giving the multinationals a run for their money, Zoona has already caught the attention of many in the financial inclusion world. If its success continues, it will provide an alternative business model for delivering financial services to the poor.

Jungwon Byun is a consultant at Oliver Wyman.

[1] Note that many mobile money or money transfer providers will count both the sender and the receiver in their unique customer numbers. In that case, Zoona’s number of unique customers would theoretically double to 400,000.

business development, digital payments, mobile finance