As you review the businesses I briefly described in yesterday’s post, you may want to keep the following in mind.

First, in every case, there is always a bank in the picture – holding funds, issuing e-money, issuing an account – and the bank’s role itself and what the bank charges for its services is an interesting aspect of the business model.

Second, because we are talking about businesses that serve people who live largely in a cash economy, distribution networks are extremely critical. Charging customers to convert cash to electronic and vice-versa is part of the revenue pie.

Third, mobile network operators are uniquely positioned in this business. For example, let’s take a MNO as a money service provider. If (1) the MNO runes that business as a stand-alone P&L (and not another telecom product) and (2) they can make use of their existing distribution, then they are likely to see mostly variable costs. As illustrated in the chart, in a typical mobile money business, MNOs may incur marketing and agent/distribution commission costs with heavy spend upfront on marketing and increasing on agent commissions as their distribution network grows.

Third, regulation and what the regulator will permit set up incentives for what kinds of partnerships businesses strike, if any.  Philippines, India and Kenya are countries where the impact of regulation on business models is quite explicit.

Yesterday I listed five  business arrangements. There is a sixth business worth mentioning. You don’t see much of it and, frankly, it is not entirely a new business to begin with: a bank pursuing an agent+mobile channel as an alternate to branches. While not an entirely new business model, we know that this “mobile+agent” model presents a unique set of challenges for banks. It is not business-as-usual for them. It is not only fee-based transaction products, but the service is being delivered at scale to people transacting at low values. It is no surprise that we see banks and microfinance providers having limited success with this channel. Basix’s bank in India has set-up a distribution network and they have been successful in servicing loans through that channel. Tameer Microfinance Bank had modest success with agents in the slum of Orangi in Karachi but that channel has now been scaled-up in their tie-up with Telenor.