Since 2012, the International Finance Cooperation (IFC), the private sector of the World Bank, had been working with a range of bank and mobile network operator (MNO) providers in Tanzania to enable mobile payment interoperability – in other words, the ability for a consumer using one provider’s system to make a payment transaction to a consumer on another one. The IFC was critical in developing the technical requirements, such as transaction processing and interparty rules, for Person-to-Person mobile money transactions that led to the country’s MNOs interoperating, and it now aimed to play a similar role in enabling interoperability among the MNOs for merchant payments through mobile money.
The IFC wanted to obtain insights from customers and merchants to help inform the technical details (e.g., the type of Point-of-Sale device and the pricing charged to the end-user) to design merchant payment interoperability). The IFC selected Digital Disruptions to conduct quantitative surveys and qualitative focus groups and subsequently analyze the results. It also requested the firm to interview the mobile money teams of the MNOs: currently, each MNO provider had each launched its own merchant payment product, though the adoption and usage was far below what they had anticipated.
Digital Disruptions’ Solution
We conducted a nationwide survey of over 700 merchants and conducted focus groups with both consumers and merchants in the six major cities of the country. We also learned that among a whole range of providers – banks, MNOs, microfinance institutions, and payment providers – there was significant interest in investing in a merchant payments product but an unclear sense of the potential of the total market size.
Through provider interviews and our survey analysis, we calculated that the market potential was roughly 350,000 to 500,000 small merchants – far more than was previously estimated. Another major insight was on merchant pricing: all providers assumed that small merchants were “too poor” to pay a commission to accept mobile money as a form of payment (in current launches, merchants were not being charged). Using a framework called the Price Sensitivity Meter through our survey questions, and validated qualitatively through discussions with merchants in focus groups, we showed that there would be a high likelihood that merchants would be willing to pay anywhere between 1.5% to 6% of a transaction price.
We also raised two important recommendations on the strategic sequence to enable interoperability for merchant payments.
- The first was that it was imperative that the MNOs providers identify the winning value proposition (such as pricing, customer experience, and marketing incentives) for both merchants and customers before aiming to determine back-end interoperability requirements such as merchant acquisition models and transaction processing; while the latter details were important, we recommended that these should flow only users were satisfied with the core merchant payment product.
- The second recommendation was more contrarian. The existing thinking was that enabling interoperability – in other words, bringing the full ability for consumers and merchants to interact on multiple provider platforms – for merchant payments could spur adoption and usage of the nascent product. While this seemed reasonable, when we reviewed interoperability models with long-term success – not only in financial services (ATMs in the US), but also in telecommunications (SMS in the UK) and airlines (code-share agreements worldwide) – we concluded that it was essential that each provider first build up adoption with their own merchant payment product before interoperating with competitors. We suggested a middle-ground whereby providers could obtain consensus on the design of interoperability for merchant payments (e.g., agree on a fee structure for merchants) while running their own ‘closed’ merchant payment programs until it was mutually beneficial for the respective providers to interconnect.
These insights helped guide both the IFC and the providers on a more prudent and well-thought through path to developing a compelling service for their respective users and designing the basic blueprint to eventually interoperate.