By Paul Leishman, GSMA Mobile Money for the Unbanked

One of the most important sources of value for mobile network operators (MNOs) who offer mobile money services is the ability to sell airtime using the platform. When a customer buys airtime using mobile money rather than with scratch cards, operators unlock value in two ways. First, they pay lower commissions: the commissions paid to agents for performing cash-in (a necessary step before buying airtime) are typically lower than the discounts at which MNOs sell airtime to the channel—although the degree of difference will vary by market. Second, MNOs save on the manufacturing and storage of scratch cards. Any savings realized in these ways flow straight to their pre-tax bottom line.

So how big a deal is this? We’ve found that for successful services, savings from airtime distribution can be a big deal indeed. For MTN Uganda’s MobileMoney, this value source has contributed a total of 12% of their gross profit to date. Even though the service is less than a year and a half old, MTN has still managed to derive significant value from their mobile top-up feature: in their best month so far, roughly 3% of total airtime was sold through MobileMoney – at more than a 9% savings compared to airtime that would have otherwise been purchased via scratch cards.

Beyond Uganda, MNOs are collectively eyeing – or already capitalizing on – mobile top-up as a means of reducing their cost of distributing airtime. Safaricom has led the way, apparently selling 19% of its airtime on M-PESA. And in the context of total profitability for their service, this feat has been important: if we assume that Safaricom saves 8% in costs on airtime sold through M-PESA, and assume that in their last fiscal year, they sold about $800 million in prepaid airtime in total, this suggests that they’d have generated savings of $12.8 million (note that these figures are illustrative). By some estimates, that’s more than a quarter of what M-PESA generated in profits on a standalone basis.

Outside of Africa, mobile top-up has been an equally important value driver for mobile money services – and often by strategic necessity. In the Philippines, where existing domestic money transfer alternatives are better than Kenya, both SMART Money and G-Cash have aggressively promoted their mobile top-up services; in Indonesia and Thailand where regulatory guidelines currently don’t allow customers to withdraw money from an e-wallet, Telkomsel and True Move have both promoted mobile top-ups for T-Cash and True Money respectively as an important ‘use of electronic funds’; and in Fiji, where physical distribution of scratch cards to remote areas can be a challenge, Digicel and Vodafone have both launched with mobile top-up as a core feature.

So how can MNOs evaluate the importance of mobile top-ups to their profitability? The first step is to identify the size of the discount at which airtime is sold to the channel: the higher the discount, the greater the opportunity for mobile money to deliver value. Second, an MNO must estimate the percent of total airtime sales they can reasonably convert from scratch-cards to mobile money. And third, an MNO must consider the myriad costs involved in facilitating mobile top-ups. These can include but are not limited to: perpetuities paid to top-tier agents on airtime sales for customers they register for mobile money; incentives paid directly to frontline agents or customers themselves to stimulate adoption; and commissions paid to agents for facilitating cash-in (because customers can’t buy airtime from an empty e-wallet).

This is part three of Paul’s nine part feature on mobile money profitability see also

Part 1: Is There Really Any Money in Mobile Money?

Part 2: How much must an MNO invest in mobile money before turning a profit?