By Paul Leishman, GSMA Mobile Money for the Unbanked

If you’ve ever attended a mobile money conference, you’ve likely heard a speaker tout the potential benefit of ‘reduced churn’ that mobile money can unlock for an MNO. But what you probably haven’t heard is whether any service has actually delivered on this promise – and if so, whether the subsequent benefits amount to a big or small deal in the overall financial model.

In our analysis of MTN Uganda’s MobileMoney, a service that has turned the corner into cash-flow positive territory on a month-to-month basis, we uncovered a startling finding: in any given month, the churn rate for active mobile money customers is negligible. That is, while the churn rate for regular mobile customers was roughly 4.5% per month, the churn rate for an active mobile money customer was no more than 0.2% over the course of the three months for which we analysed data.

This is a dramatic reduction, but the question remains: does it make much of a difference to the overall profitability of the service? In the case of MobileMoney, the answer is a resounding yes. Of the total revenue generated to date, churn reduction benefits account for 33% – and if the service wasn’t delivering this benefit, MobileMoney would have barely been out of the red by now. In other words, the benefit of reduced churn matters – a lot.

Alas, there is one catch: not every service we’ve studied has generated results as impressive as the ones described above.

As illustrated in Exhibit 9, some services report a less dramatic reduction in churn; some report no change in churn; and some even report a slight temporary increase in churn. This variance underscores an important message for MNOs that launch mobile money services on the basis of potential for churn reduction: the benefits are real and attainable, but only for those who execute effectively. That is, the services that have not realised any churn reduction benefits are those that have registered customers with no real interest in the service, or been plagued by bad customer experiences, poorly planned agent networks, and half-hearted attempts at creating a strong brand and relevant service offering. It’s easy to see, then, why executives in some countries have gone as far as charging internal transfer pricing premiums to their mobile money business units, reasoning that a poorly executed foray into financial services will do nothing more than jeopardize existing relationships with valuable mobile customers.

So what does this mean for a mobile money practitioner? First, it means that execution is everything. The promise of ‘reduced churn’ has been realised – but only by deployments that are well funded and have executed effectively.

Second, without considering the benefits of reduced churn, the profitability picture is incomplete. Today, many MNOs choose to exclude churn benefits from their P&L or business plan: some do so because executives are sceptical about whether variances stem from ‘causation’ or ‘correlation’; others reason that if this service is to be sustainable, it must be on the basis of direct benefits alone. The latter rationale is prudent, but when capital budgeting season arrives and executives start to ask for IRR figures, it behoves practitioners to have these figures at hand.

And finally, the significance of churn reduction benefits underscores the importance of tracking the right metrics. For practitioners to gauge whether the service is moving the needle on churn, they must first have a process established, usually one in which an external data warehousing team is engaged, to track the metric. This can be time consuming, but given the potential importance of this metric, it’s clearly worthwhile.

This is part four 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?

Part 3: How Significant are Airtime Distribution Savings to Profitability?