Money Transfer 14
In a country like Kenya, where almost half of the population does not have access to potable water, banking transactions are done with the most sophisticated mobile payment tool in the world. The M-Pesa payment system has revolutionised the economy of this country since it was implemented in 2007 (Karnouskos 2004). With no access to banking services but with a mobile phone, Kenyans make all kinds of banking transactions through a simple message writing.
The Ecosystem
An operational ecosystem shapes the activities all the players in the system. Each player is either affected positively or negatively by the actions of another player. A situation which acts as a threat to one player may be a great opportunity to another player in the market. As illustrated by James (1990) a business environment consists of main players; these players are briefly discussed below. Customer may be seen as the most critical aspect of the business environment. This because every business is started with a core objective of making profits, (Ganesh, 2014). By offering either goods or services or both to a given target customer. Without the customers, therefore, a business idea or enterprise cannot exist. Customers need to guide the business operator on what to offer to satisfy the customer’s need or want. In mobile money transfer, the customer need is to send receive and use his/her money in a more convenient way. To bridge this, gap the service providers adopted the use of the customer’s mobile phone to access and transfer money over a long distance. Customers have embraced this new product very positively. In Kenya for instance, Safaricom the leading money transfer telecommunication distributor 11 years after introducing its mobile money transfer boosts of over 65% of the total subscriber (Mas and Morawczynski, 2009). The main competitive advantage the firm has over its competitors is its mobile transfer business portfolio. This indicates that mobile money transfers have been able to serve the market money transfer needs better than other financing institutions such as banks. Another import aspect of the ecosystem is the market under which the organization operates. The business environment is very dynamic, due to this it keeps on changing. To remain competitively relevant, therefore, firms must come up with survival tactics so as not to be pushed out of the market. The forces of demand and supply control the marketing environment. To attain a stable marketing environment, therefore, the players should work towards the achievement of an equilibrium situation. In Kenya our case study, the mobile transfer business there is no equilibrium. This is because there is only one dominant supplier, Safaricom dominates the market when it comes to money transfer. The telecommunication firm has a laid down infrastructural platform to support the growth and expansion of business portfolio (Karnouskos 2004). The firm has recently moved to the country’s parliament seeking to be declared the dominant telecommunication firm. Another aspect which gives the telecommunication a competitive edge than its competitors is increased promotion of the mobile transfer business portfolio. Safaricom main promotional programs are linked with M-pesa business. These promotions are meant to remind Kenyans of the existence of the service. It’s also aimed at persuading the customers using other telecommunication networks to switch from those service providers and shift to using their product. Airtel the main competitor to Safaricom, this is regarding the number of subscribers offers money transfer at no cost. However due to poor marketing initiatives by the company it reaches only a few customers. The company does not have the necessary infrastructure capacity to compete with Safaricom when it comes to mobile money transfer and banking. Safaricom enjoys low-cost leadership on its products, to entice the consumers it has so many promotional initiatives discouraging its competitors from taking any action that may promote their mobile money transfer. Due to this, entry to the market of mobile money transfer has become so hard with many companies failing to survive. However, the government of Kenya has ensured fairness in the marketplace by refusing to declare Safaricom the dominant brand.
Another important player in the ecosystem is the government. The government is concerned with the regulation of the business environment. The government does this to ensure that all the players in the market are protected from exploitation and at the same time they are closely monitored not to exploit others. The government comes up with operational policies which affect the activities of the organisations. Recently the Kenyan government increased taxes on mobile money transfer which made the transaction cost to improve drastically. This negatively impacts the mobile money transfer business portfolio. The government through the laid down agencies regulates the business activities of different firms in the mobile banking network. Apart from offering money transfer functions the business of Mpesa also provide some money lending services to its customer. This additional service to the customers promotes the expansion of the market share. This packaging aspect of the service provider enables them to conquer more market and above retain the already captured market share. Another service provided by the service provider is saving with an excellent return to its customers. The saved money can be easily accessed and used without having to undergo a very long process. All these stakeholders are essential in facilitating the mobile money transfer business. The method and logistics involved in the process by different stakeholder are proportional to another player in the marketplace. Mobile money transfers and banking, however, acts as a threat to another aspect of the ecosystem which are the banks and other financial institution. The telecommunication firm has good offers for the customers and at cheaper rates making others prefer the service providers over banks. An opportunity for the mobile money transfer then is a threat to the banking organisations operating within the ecosystem. On the hand these organisations are linked with the money transfer service providers’ firm, this is because the organisations act a medium. Money transfers happen from the bank account and into the operators or customers phone and then back to the bank under a different statement. This, therefore, shows that this ecosystem is entirely dependent on each other. Each player on this ecosystem has to act keeping in mind the consequences of their action to the entire environment. Business ethics policies developed by government agencies and other non-governmental agencies guide the codes of conducts of the players within the ecosystem.
James F. Moore stated that a business ecosystem describes the structure and behaviour of a network of high-tech organisations that share a critical technological platform and the ways individual firms can flourish in such an environment (1990).
A business ecosystem usually has seven key actors each with its role:
customers
markets
products
processes
organisations
stakeholders
government
Like any other ecosystem, the ecosystem of a mobile money service encompasses a hierarchical structure that has the government at their highest level and the customers at the bottom of the pyramid. Within this ecosystem, three players stand out for their extreme importance. Banks play a significant role within this ecosystem, and apart from customers already mentioned, Mobile money operators typically hand over the control of operations to an agent who develops or manages the company’s software and services. With the expansion of the brand, the agent feels the need to multiply and consequently empower with the purpose of processing transactions on behalf of the principal agent (Mas, 2011).
The purpose of the bank is to retain the money that comes from the mobile money service. Even when the company has a non-banked model, it is necessary to use banks that serve to secure custody funds of the clients. These funds cannot be intermediated by Mobile Network Operator (MNO) or the bank and are exempt from MNO bankruptcy, but insurance protection laws vary from country to country.
As previously stated, the MNO instructs its agent to manage the company and the agent, in turn, has the function of getting the product/service to customers. In the case of M-Pesa, it hires small entrepreneurs to get these services to customers with the company’s mother flag. These small agents must obey a hierarchy of agents, and the big agents must take responsibility for the small agents in their area. Agents also have the function of educating the perceived clients that they are the first form of interaction of the clients with the system.
At least one registered user must make transactions, however, the services vary depending on whether the receiver is also a user or not. If the receiver is not a user, a fee will be charged, which encourages the user to sign up, taking into account future operations.
Approach
Financial inclusion is an approach designed to ensure fairness and equality in accessing the financial resources by the different players in an economic ecosystem. The principle provides that businesses and entities in need of financial aid attain access to easily affordable and useful financial assistance. Financial inclusion plays a vital role in fostering economic growth. Ensuring access to the finances by different organisations helps these organisations to grow and expand (Mas and Morawczynski, 2009). The financial aid booster increases the revenue base of these organisations which promotes the national income through taxation. Financial inclusion, however, has to be undertaken sustainably to ensure that a country doesn’t suffer from inflation. The high amount of money in circulation causes the money to lose in value and therefore leading to the inflated economy. The lending services of these services providers have to be monitored to ensure its done sustainably and not in ways which will lead to inflation.
Non-Banking financial companies (NBSCs) are financial institutions that offer various banking services but do not have a banking license. This type of institutions is usually not allowed to receive deposits from the public, what keeps them outside of the traditional format required under bank policies.
According to Mas and Morawczynski (2009, p. 23), financial inclusion aims to draw the unbanked population into the formal financial system so that they have the opportunity to access financial services ranging from savings, payments, and transfers to credit and insurance.
Taking into account the financial inclusion, Vodafone decided to develop a strategy that would attract and would adopt the needs of non-bank targets. They felt obliged to create its platform because those that already existed in the market were destined to more developed countries and its strategy happened to reach the population with fewer financial resources. M-Pesa was intended to attract low-income people who might not have access or availability to create bank accounts and who did not have more advanced phones such as smartphones. The creation and implementation of the M-Pesa would take more time and would have a higher cost but if it were well received in the market, it would have a considerable profit margin, and that is what happened.
How M-Pesa Works?
The system is simple: anyone can go to an M-Pesa outlet (agent) to register and switch to a SIM card with a special chip. Once registered, it delivers money to the agent, who will turn it into credits in the mobile phone. From there, through specific codes, it is possible to send money to the recipient, pay bills or withdraw the money that gets accumulated. Note that to use M-Pesa services, users do not need a bank account. Users with registered accounts can send money or payments to unregistered users at a higher cost to have the recipient registered.
All the money collected by M-Pesa is deposited in Safaricom’s bank accounts, these bank accounts serve as regular checking accounts and are insured up to a maximum of $ 1,000 by the Deposit Protection Fund (Feig, 2007).
Although Kenya was the first country to adopt the system, it quickly spread to other regions, reaching countries like Afghanistan, Egypt, India, South Africa or Tanzania. By the end of 2013, M-Pesa had about 16.8 million active customers who made more than 900 million euros in transactions per month (Feig, 2007).
Although the project reaches Europe at a time when “virtual money” is gaining ground, especially with bitcoin, Filipe Garcia explains the differences: “M-Pesa is always stuck in the currency of the country, in the case of bitcoin we speak of an alternative currency. The aim of M-Pesa is not to come to a new currency, but to an alternative form of payment. ”
Kenya served as the test tube of the mobile payment system. Safaricom, the country’s largest mobile phone operator, realised that there was a parallel market for sales of mobile-to-mobile minutes of business potential. Kenyans have been buying mobile phone credits for many years in minutes by transferring between them. Taking advantage of the country’s ability for this type of operations, the operator bet on the M-Pesa, whose name joins the “M” from mobile with the “pesa”, a word that means money in Swahili, the language of most Kenyans.
In a country with few resources, the idea has revolutionized the small actions that, for a Western European country, are one step away from a trip to the ATM. The M-Pesa replaced the main form of money remittances from the cities to the Interior of the country, which previously passed through an envelope full of money handed over by the bus drivers.
Competitive Advantage
It can be said that the competitive advantage makes the product or service of a company special, separating them from others and attracting more customers. According to Thompson and Strickland (2003), a company has a competitive advantage whenever they have a lead over its rivals in securing of clients and defending against competitive forces.
Porter (1985) describes competitive advantage as the singularity of a company compared to its competitors. This implies, seeking to do differently and manage to maintain an advantage over the competition. Porter developed a model to identify the industry structure that can be used to determine corporate strategy. This model identified 5 forces that stated the attractiveness of a market sector over time. The 5 forces identified by Michael Porter are described below:
1 – Competitive rivalry;
2 – Threat of substitutes;
3 – Threat of new entrants;
4 – Bargaining power of buyers;
5 – Bargaining power of suppliers.
Porter’s theory to explain why agents need a competitive advantage
Competition helps the organisation to strategise on the most efficient approaches of attaining their set strategic goals. Companies’ strife to acquire a competitive advantage over its competitors or reduce the competitive advantage of its competitors (Russell, 2013). To achieve effectiveness in competition initiatives, the organisations must ensure that they understand their operating environment well. Dynamism in the operational environment brings about either an opportunity or a threat to an organisation (Feig, 2007). Organisations preparedness in handling environmental dynamism ensure determines the competitive position at which the organisation will hold in the ecosystem. To understand this better, the company employs the porter’s model of competition. Issues that an organisation has to understand to remain competitively relevant are; the threat posed by the substitute-in mobile money transfer there are many substitutes which have come-up into the market. These substitutes include; Airtel money, and K cash these are the main substitutes currently in the market threatening, the existence and operation of Mpesa. To remain competitively at the edge, therefore, it has to increase its market share and seek to improve customer loyalty (Terrence O’Brien, 2012). Low-cost leadership approach can be employed by the service provider to ensure that it retains its customers. The Kenyan market, for instance, is price sensitive the best way to retain these customers, therefore, is through reduction of the of the transaction cost. These substitutes offer cheap transfer rate due to this despite their mobile money transfer infrastructure this substitute still has got some reasonable number of subscribers. Failure to act by the Mpesa at this time when their infrastructure is underdeveloped may affect the business portfolio shortly. To curb this threat, therefore, initiatives should be undertaken which discourages them from developing a better money transfer infrastructure. Another competition challenge for the mobile money transfer is a threat to a new entrant into the market. The service providers do not operate under a monopoly market structure. Due to this threat into the market entrance is a headache to the service provider. The east Africa nations operate on a free market this extends the threat of new entrant to not only come from Kenya but also the neighbouring country (Rice, 2010). When a new company with a strong financial base which enters the market it will be a major challenge to Mpesa service providers. This is because it will reduce the competitive advantage of the already dominant brand. To curb this challenge, the operators should ensure that the market is saturated by taking advantage of every opportunity to expand and grow. Another challenge threatening competitive advantage is the increase in the buyers bargaining power. The development of the substitute brands creates a threat to Mpesa business portfolio. This is because this increases the bargaining power of the buyers since they have other alternatives (Morawczynski 2008). to reduce the effect of this threat posed by this new development in the marketplace the mobile money transfer providers have to offer competitive pricing to their customers. Failure to adjust their pricing policies to fit the new market environment will lead to loss of business to their competitor. Another major challenge discussed by Porter is the competitor’s rivalry concept. If competition is not controlled, it can lead unethical business practices by the competitors as they struggle to exist in the market. Competitors’ rivalry determines the intensity and the nature of the competition environment under which organisations operate in. competitors’ strife to drive each other from the market so that they can have all the market to themselves (Vaughan, 2008). Understanding tour competitor, however, is a defence mechanism. This because when a mobile money transfer provider understands their competitors well, they will work to reduce their competitive advantage and improve their own. Mainly competitors use pricing strategies approaches to obtain a competitive advantage over their competitors. The best mechanism to withstand competition is low-cost leadership where an organisation offers quality products and a lower price. Engaging in benchmarking is the strategic approach towards managing of the competition. The benchmarking allows an organisation understands its competitor’s strength and weakness and therefore can exploit the competitor’s weaknesses to acquire a competitive advantage (Omwansa, 2009). Another increasing threat affecting the mobile transfer is the increasing bargaining power of the supplier. Their supplier, the government, in this case,e, has high bargaining power. The government is concerned with the regulation of the business environment. The government does this to ensure that all the players in the market are protected from exploitation and at the same time they are closely monitored not to exploit others (Batchelor, 2012). The government has come up with initiatives and policies which affect the operations of the mobile money transfer provider. The taxation aspect, for instance, has increased the operating cost of the service providers (Rice, 2010). This has led to an increase in increased charges of service being directed to the customer with any quality added. This can cost the service provider the customer making the organisation to lose its customers to competitors.
Strategy
One of the key strategies used by the Mobile Network Operators (MNO) to expand its network is the good management and training of its agent network. The International Finance Corporation describes in its M-Money Channel Distribution Case that Safaricom discovered that one of the engines for the success of the company was the quality of the management and the training that the agents received. Safaricom generally conducts focus groups allowing its clients to help improve its services, and some of the complaints were the lack of availability of its agents, the lack of knowledge in the matter and the difficulty to maintain float liquidity.
The International Finance Corporation adds that during the trial period, some training methods were implemented and refined with the aim of empowering their agents by making them realise that their role is of maximum importance for the company’s growth but still this area needs to be improved. Safaricom realised that its training line, which consisted only of a group of 4 elements, would not be sufficient to satisfy its needs. Hence they decided to expand their area of agent formation by creating local firms to do so.
Section 2
Use the lifecycle approach to explain (crucial)
Develop a new interface for agents (systems development)
Buying products from agents could also be an idea
Mobile money transfer service just as any other product undergoes through different phases of the product lifecycle. The first phase of the product was witnessed when it was introduced back in 2007. A low adoption late was noted with few early adopters using the product. Increased promotion and marketing of the concept led it to enter the exponential growth phase successfully, the number its user grew drastically making Kenya to be recognised globally by leading in mobile money transfer. Over time Mpesa has become a cash cow for Safaricom (Makin. 2011). Due to this, the telecommunication firm has ventured into product development and diversification to ensure quality standards. The product has undergone various development phases many of them designed to improve the security aspect of using the aspect. Currently, the product is enjoying growth stage of the product lifecycle. There has been an increase in the use of the platform by the subscriber. This is due to the many user-friendliness interfaces adopted by the organisation to enhance the quality of service. Just like any other product, Mpesa will one day get a stagnation point and eventually decline (Hughes and Lonie, 2010). To extend its life span therefore as a product innovative, development needs to be undertaken to ensure its improved. Since the product has covered the better part of the market, therefore it’s high time the management think about adopting niche marketing for the product (Morawczynski and Miscione, 2008).I t should be designed in that a blind person can also use it and receive, transfer or access his/her money despite him/her being disabled. This interface will enable reach a market which is entirely unserved in the market. Through this interface, the organisation will increase its market share and acquire a competitive edge (Mas and Morawczynski, 2011). The innovative approach will be considered a corporate social responsibility.
Section 3
The financial impact for the agent and Safaricom.
Mobile money transfer as a benefits portfolio has many financial implications to the mother brand. Return on investment has been witnessed from this approach with the company reporting billions on annual profits. The organisation has a strategic objective of making money transfer portfolio to be their core business to promote revenue generation. Through the growth of the sector, many agents have come up which has led to the creation of jobs for the many (Scott, Batchelor, Ridley and Jorgensen, 2004). This has helped many to earn a living from the agent’s jobs. It’s also a source of revenue for the government through taxation. Another vital social implication is the creation of jobs for Kenyans with most employees.
Social impacts
Safaricom engages in various social corporate responsibility programs which benefits the society at large. These programs include; changing the lifestyle of the agents, by providing jobs which help the employee to earn a living. Free medical camp for the fistula-the company is traversing across the country offering free medical checkup for women at the society. This helps women suffering from the condition to be treated free of charge. The program is aimed at restoring dignity on to women. Through these program women who had lost their marriage as a result of the condition are going back to their husband. The social wellbeing of the society is therefore, part of the company’s vision. Another program is the Blaze challenge in which the organization seeks to identify and promote the local youth. By engaging in these practices, the organisation boosts its brand image.
The organisation also sponsor health-related events such as the Dakaini marathon intended to teach the public of the dangers brought about by cancer and other health conditions.
References
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