1. GSMA Webinar Mobile Money Pricing & Commissions “We are currently waiting for all participants to join and will begin the webinar shortly. If you have specific questions you’d like to answer via this webinar, feel free to send us a confidential message now.”

2. Agenda Segments Our Task: 1. Pricing a mobile money service 9:00-9:45 Task: design a tariff sheet and set of agent commissions. A. Valuing the service B. Structuring the tariff sheet C. Proofing against fraud Service: MMU-PESA, a new offering targeted at the unbanked Questions & Answers Features: Domestic P2P transfer Provider: Mobiphone, a GSM operator with 30% market share. 9:45-10:30 2. Setting mobile money commissions Country: Mobiland, a country with 20% bank penetration, and 4 competing mobile operators. A. Commissions 101 B. Overview of agent profitability drivers C. Influencing agent profitability Questions & Answers *If you as a question, you will remain anonymous to the group*

3. Valuing the service Value-pricing approach > > Price Customer’s Perceived Value Cost of Goods Sold What is the objective willingness to pay? What price must we charge to sustain our channel strategy? 1 3 How cheap or expensive is the next best formal or informal alternative? What price must we charge to cover other variable costs? 2 4

4. Valuing the service Cost of P2P transfer using existing alternatives P2P transfer alternatives in Mobiland Speed # Outlets Reliability Service Price Pesagram 1,000 Instant High 8% Fee ($) Bus Driver 80 2-Day Low $1.50 Value Transferred ($)

5. Valuing the service Cost of P2P transfer using existing alternatives P2P transfer alternatives in Mobiland Speed # Outlets Reliability Service Price Pesagram 1,000 Instant High 8% Fee ($) Bus Driver 80 2-Day Low $1.50 500 ... ...10,000 High ? MMU-PESA Instant Value Transferred ($)

6. Valuing the service Cost of P2P transfer using existing alternatives P2P transfer alternatives in Mobiland Speed # Outlets Reliability Service Price Pesagram 1,000 Instant High 8% Fee ($) Pricing Window Bus Driver 80 2-Day Low $1.50 500 ... ...10,000 High ? MMU-PESA Instant Value Transferred ($)

7. Valuing the service Cost of P2P transfer using existing alternatives P2P transfer alternatives in Mobiland Speed # Outlets Reliability Service Price Pesagram 1,000 Instant High 8% Fee ($) Pricing Window Bus Driver 80 2-Day Low $1.50 500 ... ...10,000 High ? MMU-PESA Instant Value Transferred ($)

8. Structuring the tariff sheet Flat-Rate Tiered Percentage-Based 1 3 2 Model Transaction Fee Transaction Fee Transaction Fee Transaction Value Transaction Value Transaction Value In Mobiland... Bus Driver $1.50 Pesagram 8% Not in use

11. Captures more value

13. Difficult to generate enough revenue from high value transactions to satisfy agents

14. Difficult to generate enough revenue from low value transactions to adequately compensate agents

16. Easier to satisfy agents

17. Simpler

18. Captures more value

20. Difficult to generate enough revenue from high value transactions to satisfy agents

21. Less simple

22. Difficult to generate enough revenue from low value transactions to adequately compensate agents

24. Structuring the tariff sheet Cash-in P2P Transfer Cash-out Value-creating? Value-creating? Value-creating? Charge Fee? Charge Fee? Charge Fee? Best practice: charge only for ‘value-creating’ transactions

25. Creating a tariff sheet for MMU-PESA Guidelines Structure Value Tiered pricing structure Only charging for value-creating transactions Cheaper than Pesagram More expensive than the bus driver

26. MMU-PESA – Tariff Sheet Fee ($) Value Transferred ($)

27. MMU-PESA – Tariff Sheet Fee ($) Value Transferred ($)

28. MMU-PESA – Tariff Sheet Fee ($) Value Transferred ($)

29. Structuring the tariff sheet Mobiland Mobile Market Share GPRfone X Mobiphone Cellfone 24% 17% 50% 9% “When a money transfer is between two registered customers, those are two customers who are less likely to churn. Registered Customer P2P Transfer “When a money transfer is sent to an unregistered customer, we earn a higher margin. P2P Transfer Unregistered Customer

30. MMU-PESA – Tariff Sheet Fee ($) Value Transferred ($)

31. MMU-PESA – Tariff Sheet Fee ($) Value Transferred ($)

32. MMU-PESA – Tariff Sheet Fee ($) Value Transferred ($)

33. Scanning for risks

34. Scanning for risks Direct Deposit 1 “Occurs when the customer initiating a P2P transfer hands an agent cash, but provides them with the mobile number of the recipient rather than their own in an effort to avoid paying a transfer fee.”

35. Scanning for risks Direct Deposit 1 “Occurs when the customer initiating a P2P transfer hands an agent cash, but provides them with the mobile number of the recipient rather than their own in an effort to avoid paying a transfer fee.” Split Transaction 2 “Occurs when a cash-in, cash-out or bill payment is split into multiple smaller ones to minimize fees.”

36. MMU-PESA – Tariff Sheet Fee ($) Value Transferred ($)

37. MMU-PESA – Tariff Sheet Fee ($) Value Transferred ($)

38. MMU-PESA – Tariff Sheet Fee ($) All deposits must be made into a customer’s own account. Value Transferred ($)

39. Pricing Summary Attributes MMU-PESA Tariff Sheet Priced according to perceived value 1 Structured using tiers 2 Option to send to unregistered recipients 3 Fees only applied to ‘value creating’ transactions 4 Minimal risk of direct deposits 5 Minimal risk of transaction splitting All deposits must be made into a customer’s own account. 6

40. Agenda Segments Our Task: 1. Pricing a mobile money service 9:00-9:45 Task: design a tariff sheet and set of agent commissions. A. Valuing the service B. Structuring the tariff sheet C. Proofing against fraud Service: MMU-PESA, a new offering targeted at the unbanked Questions & Answers Features: Domestic P2P transfer Provider: Mobiphone, a GSM operator with 30% market share. 9:45-10:30 2. Setting mobile money commissions Country: Mobiland, a country with 20% bank penetration, and 4 competing mobile operators. A. Commissions 101 B. Overview of agent profitability drivers C. Influencing agent profitability Questions & Answers *If you as a question, you will remain anonymous to the group*

41. Commissions 101: do agents even need to be paid? what for? Help me register! And teach me! That takes up my staff’s time. Sell me e-money! That’s working capital I need to tie up in e-float. Buy my e-money! Holding cash is costly and risky. Show me a tariff poster! My wall space is very sought after. Principal: pay agents for every activity they perform, even if the MNO does not charge the customer a fee.

42. Commissions 101: how are the economics different from airtime? Airtime Mobile Money “As soon as I sell all my scratch cards, I’ve earned back my principal and also my profit margin.” “When I sell my e-money, I’ve made my principal back, but don’t get paid commissions until end of month.” Cash Flows “Once my airtime is sold, it’s gone. I can’t make money by accepting someone else’s and reselling it.” “For every cash-in transaction I perform, I can do a cash-out in turn; this means restocking less often.” Restocking Frequency “Everyone on my street sells airtime – I get no major lift in sales from selling this product.” “Selling mobile money differentiates my business – it generates additional foot traffic.” Foot Traffic

44. The agent incurs no labour costs

46. MMU-PESA – Agent Commissions All deposits must be made into a customer’s own account.

47. MMU-PESA – Agent Commissions MNO Profitability All deposits must be made into a customer’s own account.

48. MMU-PESA – Agent Commissions Agent Profitability Return on assets Daily profit (11%) (.30) Variables Float Restocking cost Volume of transactions per day Average commission value Average transaction value $1,000 $15 2 $60 $50 All deposits must be made into a customer’s own account.

49. MMU-PESA – Agent Commissions All deposits must be made into a customer’s own account.

50. MMU-PESA – Agent Commissions All deposits must be made into a customer’s own account.

51. MMU-PESA – Agent Commissions Agent Profitability Return on assets Daily profit 131% $3.60 Variables Float Restocking cost Volume of transactions per day Average commission value Average transaction value $1,000 $15 2 $0.60 $50 All deposits must be made into a customer’s own account.

52. MMU-PESA – Agent Commissions All deposits must be made into a customer’s own account.

53. Overview of agent profitability drivers What are the variables that drive an agent profitability equation? MNO Influence Agent Perspective Float “the less float I need to hold, the less amount I have tied up in working capital” 1 the amount of e-money and/or physical cash an agent must have on hand to transact. Restocking cost “the less time and money I spent balancing float, the better” 2 the cost an agent incurs to restock his cash or e-money float balance. Volume of transactions “the more transactions I process, the more I earn” 3 the volume of cash-in/cash-out transactions performed each day by an agent. Average commission value “the higher commissions I earn for each transaction, the better” 4 the average commission earned for performing cash-in/cash-out transactions. Average transaction value “the more transactions of a profitable value, the better” 5 the average value of cash-in/cash-out transactions performed by customers.

54. Influencing agent profitability drivers What are the variables that drive an agent profitability equation? Tactic #1: Leverage airtime distribution network to rebalance liquidity for agents on a regular basis. Float 1 the amount of e-money and/or physical cash an agent must have on hand to transact. VISIT SCHEDULE Restocking cost 2 the cost an agent incurs to restock his cash or e-money float balance. Volume of transactions 3 the volume of cash-in/cash-out transactions performed each day by an agent. Average commission value 4 the average commission earned for performing cash-in/cash-out transactions. Average transaction value 5 the average value of cash-in/cash-out transactions performed by customers.

55. MMU-PESA – Agent Commissions Agent Profitability Return on assets Daily profit (11%) (.30) Variables Float Restocking cost Volume of transactions per day Average commission value Average transaction value $1,000 $15 2 $0.60 $50 All deposits must be made into a customer’s own account.

56. MMU-PESA – Agent Commissions Agent Profitability Return on assets Daily profit 40% $1.10 Variables Float Restocking cost Volume of transactions per day Average commission value Average transaction value $1,000 $1 2 $0.60 $50 All deposits must be made into a customer’s own account.

57. Influencing agent profitability drivers What are the variables that drive an agent profitability equation? Tactic #4: Create different sets of liquidity requirements according to likely volume. Float 1 the amount of e-money and/or physical cash an agent must have on hand to transact. Restocking cost 2 the cost an agent incurs to restock his cash or e-money float balance. Volume of transactions 3 the volume of cash-in/cash-out transactions performed each day by an agent. Capital City Countryside Region Average commission value 4 the average commission earned for performing cash-in/cash-out transactions. Liquidity Requirement $1,500 $500 Average transaction value 5 the average value of cash-in/cash-out transactions performed by customers.

58. MMU-PESA – Agent Commissions Agent Profitability Return on assets Daily profit 40% $1.10 Variables Float Restocking cost Volume of transactions per day Average commission value Average transaction value $1,000 $1 2 $0.60 $50 All deposits must be made into a customer’s own account.

59. MMU-PESA – Agent Commissions Agent Profitability Return on assets Daily profit 49% $1.10 Variables Float Restocking cost Volume of transactions per day Average commission value Average transaction value $800 $1 2 $0.60 $50 All deposits must be made into a customer’s own account.

60. Influencing agent profitability drivers What are the variables that drive an agent profitability equation? Tactic #6: Market the service to drive up transaction volumes. Float 1 the amount of e-money and/or physical cash an agent must have on hand to transact. Restocking cost 2 the cost an agent incurs to restock his cash or e-money float balance. Volume of transactions 3 the volume of cash-in/cash-out transactions performed each day by an agent. Average commission value 4 the average commission earned for performing cash-in/cash-out transactions. Average transaction value 5 the average value of cash-in/cash-out transactions performed by customers.

61. MMU-PESA – Agent Commissions Agent Profitability Return on assets Daily profit 49% $1.10 Variables Float Restocking cost Volume of transactions per day Average commission value Average transaction value $800 $1 2 $0.60 $50 All deposits must be made into a customer’s own account.

62. MMU-PESA – Agent Commissions Agent Profitability Return on assets Daily profit 736% $16.13 Variables Float Restocking cost Volume of transactions per day Average commission value Average transaction value $800 $1 30 $0.60 $50 All deposits must be made into a customer’s own account.

63. Agenda Segments Our Task: 1. Pricing a mobile money service 9:00-9:45 Task: design a tariff sheet and set of agent commissions. A. Valuing the service B. Structuring the tariff sheet C. Proofing against fraud Service: MMU-PESA, a new offering targeted at the unbanked Questions & Answers Features: Domestic P2P transfer Provider: Mobiphone, a GSM operator with 30% market share. 9:45-10:30 2. Setting mobile money commissions Country: Mobiland, a country with 20% bank penetration, and 4 competing mobile operators. A. Commissions 101 B. Overview of agent profitability drivers C. Influencing agent profitability Questions & Answers *If you as a question, you will remain anonymous to the group*

64. Appendices

65. Influencing agent profitability drivers What are the variables that drive an agent profitability equation? Tactic #5: Help agents anticipate and prepare for events that will be strains on liquidity. Float 1 the amount of e-money and/or physical cash an agent must have on hand to transact. Restocking cost 2 SALARY PAYMENTS the cost an agent incurs to restock his cash or e-money float balance. Volume of transactions 3 the volume of cash-in/cash-out transactions performed each day by an agent. Average commission value 4 the average commission earned for performing cash-in/cash-out transactions. Average transaction value 5 the average value of cash-in/cash-out transactions performed by customers.

66. Influencing agent profitability drivers What are the variables that drive an agent profitability equation? Tactic #2: Create a layer in the distribution system above frontline agents, whose responsibility it is to manage liquidity in exchange for a fee... Float 1 the amount of e-money and/or physical cash an agent must have on hand to transact. Share of commission Cost of liquidity management Restocking cost 2 80% the cost an agent incurs to restock his cash or e-money float balance. Masteragent Volume of transactions 3 the volume of cash-in/cash-out transactions performed each day by an agent. Average commission value 4 Agent Agent 100% High the average commission earned for performing cash-in/cash-out transactions. Average transaction value Agent Agent 5 the average value of cash-in/cash-out transactions performed by customers.

67. Influencing agent profitability drivers What are the variables that drive an agent profitability equation? Tactic #3: Link agent e-wallet accounts with business bank accounts to create rapid, low-cost mechanism for loading e-money. Float 1 the amount of e-money and/or physical cash an agent must have on hand to transact. “Transfer $100 from my bank account to my True Money e-wallet” Option-1 Option-2 Restocking cost 2 the cost an agent incurs to restock his cash or e-money float balance. Volume of transactions 3 the volume of cash-in/cash-out transactions performed each day by an agent. + Average commission value 4 the average commission earned for performing cash-in/cash-out transactions. Average transaction value 5 the average value of cash-in/cash-out transactions performed by customers.

68. Benchmarks: fee as a percent of value transferred Fee as a % of Value Transferred Value Transferred Sample includes deployments from East Africa, West Africa, and Asia

69. Benchmarks: premium to send money to unregistered customers Premium Value Transferred Sample includes deployments from East Africa, West Africa, and Asia

70. Benchmarks: transfer fee as a % of end-to-end cost for P2P money transfer Transfer Fee as a % of Total Value Transferred Africa: Ghana, Kenya, Tanzania, Uganda Asia: Fiji, Afghanistan

71. Benchmarks: MNO gross margin on P2P transfer to registered customer (sum of fees minus commissions) MNO gross margin Value Transferred Africa: Ghana, Kenya, Tanzania, Uganda Asia: Fiji, Afghanistan

72. Benchmarks: Cash-out commission as a % of total commission Cash-out commission as % of total Value Transferred Africa: Ghana, Kenya, Tanzania, Uganda Asia: Fiji, Afghanistan