Valuable Bits

I would say most of the mobile money implementations to date have chosen a tiered pricing structure. This could be a result of a copycat-strategy where M-PESA in Kenya is the model or it could just be that this is the best way to go.

In Ghana MTN has chosen a mixed model of tiers and percentage. To send less than 35 USD costs about 0.70 USD for a complete transaction of deposit/send/withdraw. For amounts over 35 USD a percentage of 2% is charged (1% for depositing and another 1% for withdrawing).

The positive thing with a percentage is that the simplicity of just having one number that need to be communicated instead of 4-7 with a tiered structure. For instance M-PESA’s tariff sheet could look a lot better if they used fixed percentages for deposits/transfers/withdrawals.

The simplicity has some downsides as well. You as the service provider loses a chance to influence the usage behavior of the service. Are you for instance going to market yourself as a service that is cheap on lower amounts for the poorest or be competitive on the larger amounts? With a tier structure the price structure can be fine tuned to attract a specific customer segment.

Another benefit of the tier structure is that’s actually easier to calculate with. It was not mine or Gunnar’s proudest moment when we realized that it had taken us 20min to calculate the total charge of a transfer done with percentage fees. In the end it was simple math but it is still far from the simple adding and subtracting of a tier structure. An example: Carlos want to send 20USD to his mother, or in other words he wants her to receive 20 USD. The question then is how much he need to deposit if the fees are: free to deposit, 1% for transfer and 1% to withdraw?

As it is done in two steps it becomes 20/(0.99*0.99) = 20.406081012141618

As you see this is far from a simple figure. The easiest way for Carlos is probably to just add 1% (0.2USD) two times and then a little extra and deposit 21USD. But I still think it could source of confusion for both customers and agents. If this is the normal use case or if it is more likely that Carlos doesn’t need to know the exact amount the receiver gets is still unknown to us. If that is the case a percentage fee is probably better.

With a tiered structure the customer has some extra cheap amounts built into them. For example if you were to withdraw 15,000KSh from M-PESA in Kenya the normal amount for withdrawing this is 350Ksh. If the customer istead chooses to withdraw 5,000 and then 10,000 the fee is only 275Ksh. That is a difference of 75Ksh which for some can be worth the hussle of an extra withdrawal. If and how common this is also needs to be researched.

Even though a tier structure is most popular at the moment it is far from perfect and I hope we will see new creative tariff structures in the future.