Page 192 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

Figure 6 – Overview of In-House Merchant Acceptance Model

In deployments by MMOs with a dominant market position, there is little appetite to outsource merchant
activities. In fact, interviews with donor representatives highlighted the strategic importance of merchant
relationships as strategic differentiators for MMOs, driving the desire to manage these activities in-house.
In deployments, where market dominance is not enjoyed, pressures will emerge to enable acceptance of
other payment types to achieve network effects. This will drive inter-operability at the POI and support the
emergence of neutral third party players able to cost effectively support the acceptance of several payment
types, thereby enabling open loop functionality to expand acceptance.

It should be noted that M-PESA originally pursued the acquisition of merchants leveraging a third party
provider, Kopo Kopo, Inc. In this case, the motivation for using a third party may have been the need to
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define a path forward into merchant acceptance for a first mover. However, a point was likely reached where
Safaricom, given its monopoly, could move activities in-house and not have to share revenues. In this case, not
having to support another payment type negated the downside of moving these activities in-house. Currently,
Safaricom uses its own direct sales representatives (DSRs) and offers them a tiered commission structure tied
to merchants acquired and corresponding volume to incent more aggressive merchant acquisition. ZAAD also
uses its own employees, known as "dealers" to recruit and supervise merchants, allowing them to quickly
identify weaknesses in their supply of services to the merchant and in their value chain.

Pricing within this model varies by deployment. ZAAD does not charge merchants a fee for payment acceptance,
though it was poised to change its fee structure and never did. ZAAD also provided its handsets to merchants
for free, dropping this approach when merchants demonstrated a willingness to pay for the POI to accept
payments. M-PESA charges for Lipa Na M-PESA for the same reason that there is demand from customers to
use merchant payments. 9
With respect to transaction processing and funds settlement, in closed loop systems, MMOs track all transactions
in their book of record – credits and debits are tracked and appropriate entries are made to reflect the prices
of goods and services as well as subsequent transfer of value. In such a closed loop system, there is no need
to transfer funds to another bank. All funds are held in pool accounts and adjustments are made to accounts
in the corresponding book of record.

8 Wills, Adams (2011), “Case Study: Kopo Kopo," GSMA Intelligence Mobile for Development, http:// www. m4dimpact. com/
analysis/ case- studies/ kopo- kopo
9 Camner, G., Pulver, C., & Sjöblom, E. (2009). What makes a successful eMoney implementation? Learnings from M-PESA in Kenya
and Tanzania. London: GMSA, available at: www. gsmworld. com/our-work/mobile_planet/mobile_money_for_the_unbanked/,
accessed. ; Pénicaud, C., & McGrath, F. (2013). Innovative Inclusion: How Telesom ZAAD Brought eMoney to Somaliland. GSMA
eMoney for the Unbanked blog. http:// www. gsma. com/ mobilefordevelopment/ wp- content/ uploads/ 2013/ 07/ Telesom-
Somaliland. pdf

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