Page 337 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

the revenue they earn from cash-in or cash-out transactions . 2) Loss of revenue from other high-revenue
35
transactions in markets like East Africa, where, generally, mobile money account-based service provider
operators offer account-based mobile money and earn the highest margins from P2P transfers (as opposed
to cash-in or cash-out transactions); so prevalence of direct deposits in such markets lead to decreased margins
for the providers. While this might encourage providers not to offer OTC at all, the question remains: If OTC
36
users were not offered the opportunity to transact using OTC methods, would they use the system at all,
and if so, how would it affect their rate of adoption?

An accurate analysis of the impact of OTC on total revenues should also consider some of the benefits it offers.
Pakistani and Latin American providers have used OTC models from the beginning, and this has resulted in
reaching high volumes of transactions relatively quickly.
While there are clear examples of how OTC can decrease profits due to agent commissions , it can also help
37
increase the volume of transactions in the short term as no SIM or phone is required to transact, and might
even be able to appeal to a larger market of mobile money users who are not interested in accounts because
they fear that they might get locked into using one. Both of which would increase revenue for the provider.
As a result, a comprehensive analysis on the impact of OTC on total revenue and profit should be undertaken.

3.5 Problem 5: OTC creates volatility in market share

As EasyPaisa realised when it launched in Pakistan, OTC transactions do not require the user to have a specific
38
SIM card in their phone; in fact, it does not require them to have a SIM card, or even a mobile phone. This makes
the potential market much larger, and means that providers can conduct transactions for the subscribers of
their competitors. While this can be an advantage for an early adopter in the beginning, as their rivals employ
the same tactics, it quickly turns into an issue. The barrier to entry for subsequent providers is much lower than
it would be if the market ran on a registered account basis. Competitors can approach agents and offer them a
better commission for selling their service instead. In economic terms, the service offered is “substitutable”.
39
This is certainly a disadvantage, and very much how the market has evolved, particularly around agent
commissions, in Pakistan. However, in Bangladesh we do not observe this trend at all, and in 2014 when
40
InterMedia interviewed 1,209 unregistered mobile money users, 94 per cent of them reported using bKash,
meaning that even in this heavily OTC-based market with many competitors, bKash has managed to maintain
extreme dominance. This means while an OTC methodology theoretically could result in high client churn,
it is certainly not an inevitable outcome in some markets.

4 The irony of OTC: It’s client-centric

A mobile money user may have a mobile money account, yet forget their identification and decide to ask the
agent to conduct an informal OTC transaction. And yet, the next time, the same mobile money user might
have their identification, but there is a line at the agent, or the system is down, so they leave their cash with
the agent to conduct an OTC transaction for them at a later time. These types of behaviours make trying to

35 Graham Wright. Over The Counter Transactions – Liberation Or A Trap? Part III, Dec. 2014. http:// blog. microsave. net/ over- the-
counter- transactions- liberation- or- a- trap- part- iii/
36 MicroSave. The OTC Trap – Impact on the Business Case for Uganda’s Mobile Network Operators, 2014. http:// blog. microsave.
net/ the- otc- trap- impact- on- the- business- case- for- ugandas- mobile- network- operators/
37 MicroSave. Over The Counter Transactions – Liberation Or A Trap? – Part III, 2015. http:// blog. microsave. net/ over- the- counter-
transactions- liberation- or- a- trap- part- iii/
38 See http:// digitalmoney. shiftthought. co. uk/ easypaisa- pakistan- a- 5- year- journey- from- otc- to- digital- money/
39 MicroSave. Over The Counter Transactions – Liberation Or A Trap? – Part II, 2015. http:// blog. microsave. net/ over- the- counter-
transactions- liberation- or- a- trap- part- ii/
40 Maha Khan and Mike McCaffrey. The Powerful Agents & Fractured Markets of Pakistan, June 2015. http:// www. helix- institute.
com/ blog/ powerful- agents- fractured- markets- pakistan- 0

309