Navigating the Dynamic Landscape of Sub-Saharan Mobile Money Markets: A Solar Charging Station Pilot Experience
A blog by Jon Ridley, a Frontier Tech Implementing Partner.
This post is the first of two blogs which capture learnings from our pilot — ‘IoT-enabled household battery distribution via micro-retailer networks’.
The rapid expansion and adoption of mobile money across sub-Saharan Africa have significantly and positively impacted financial inclusion in the region. However, saturation, competition and digitisation of mobile financial services present a growing challenge for mobile money agents (MMAs). MMAs face growing competition and dilution of commissions, and 4R Digital, with support from FCDO’s Fronter Tech Hub Programme, piloted a solar battery charging station to address the following dual challenges:
establishing a new source of revenue for MM agents
enabling access to affordable clean energy on a fully commercial basis to lower-income households
4R Digital piloted a solar charging station project in Senegal in 2022, a market test that has significantly influenced our product design and evaluation of market readiness. The pilot involved installing charging stations at the shops of two participating MMAs – the first based in Fimela and the second in Kayemor.
Throughout the non-commercial pilot, these agents offered free battery swaps to determine customer utility and willingness to pay. These units served a dual purpose: providing extended lighting hours and a convenient solution for customers to charge their phones independently without incurring additional costs for charging services. Moreover, the agents themselves utilised these charging stations to power their kiosks, leading to extended operating hours and improved service availability.
Our proposed service delivery model is a collaborative effort that brings together a consortium of partners - mobile money providers, mobile money agents, and 4R Digital. By leveraging each partner's unique resources and capabilities, we can collectively overcome the challenges that would otherwise be difficult for any single entity to tackle. This partnership approach is designed to facilitate rapid scaling of the initiative. While the Pay-As-You-Go (PAYG) pricing model can help optimise system costs for agents, the revenues are determined by two factors: the number of customers an agent can retain, and the price per battery swap charged to customers. A careful balance between these two factors is crucial to the financial viability and scalability of the initiative.
Encouraging insights from the Senegal pilot demonstrated the utility of the product for customers. Feedback from agents was that they would be willing to offer the service on a commercial basis, and customers would be willing to pay for the battery swaps. Aside from being a desirable product for customers, the project involved establishing a technically feasible design that represents a commercially viable offering. The pilot also enabled us to assess market readiness in Senegal and explore conditions within and across markets in Sub-Saharan Africa conducive to scale. Based on our pilot experience and market research, we have identified two critical elements for enabling such rapid scaling: the maturity of the mobile money market; and the size of the battery unit's customer base.
Maximising agent revenues over the PAYG period will strengthen repayments and scalability
One of the key considerations in this model is establishing a pricing structure for battery rentals that covers the charging station’s costs and ensures a stable and reliable surplus for MMAs. This surplus covers the charging station costs and provides additional profits, positively impacting MMAs’ businesses. The business model becomes unviable for agents when the swap price drops too low and can't cover these costs or customers wait too long between swaps generating insufficient revenues.
Given the model's capital-intensive nature and long-term financial commitments, there are inherent risks for the agents. Fluctuations in the repayment amount can significantly affect the commercial outcome, making the model sensitive to price changes. These factors directly impact the success of our partnership model, as the profits of both the agents and the mobile money providers are closely linked.
The primary objective of our partnership model is to create a new and sustainable revenue stream for MMAs. The agents commit to repaying the cost of the solar charging stations over a three-year period. Research during this project phase involved benchmarking to establish an initial pricing structure for testing during upcoming commercial pilots. While the optimal price points differ across markets, our experience indicates that between $0.15 and $0.20 per swap would enable agents to generate profits from the sale of energy services from the first year while remaining affordable for battery unit customers. This model covers the cost of the station and battery units while also ensuring that the energy supply remains affordable for the end users.
Market Maturity and the Impact of operators fighting for market share through price wars
Our experience conducting the pilot in Senegal was positive and highlighted the crucial role of mobile money market maturity as a key factor that could impact the scalability of the commercial opportunity. The GSMA’s State of the Industry 2023 report highlights the potential impact of increasing competition and regulatory measures, such as taxation and zero rating, adding price pressure and impacting the profitability of mobile money providers and agents. Operators have rapidly expanded mobile money across sub-Saharan Africa; however, no two markets are the same, and the business models constantly evolve in dynamic environments.
An analysis by EY in 2020 categorised mobile money markets at varying stages of development as emerging, growing, or mature (1). While market dynamics have shifted since the analysis, we believe that the broad categorisation still holds true and provides valuable indicators to assess potential risks to scaling the charging stations.
Emerging Markets: Potential and Challenges
Emerging mobile money markets, characterised by low but growing mobile money penetration, offer exciting potential for our solar charging stations. However, they also present unique challenges. A lack of established competition can make customer education and market development difficult. Yet, these markets can provide early entry advantages and, given their untapped potential, can offer significant long-term growth opportunities. According to data published by the GMSA in their 2022 Mobile Money Prevalence Index (2), this group includes markets such as Mauritania, Chad, and Niger. Some of these markets are also characterised by having low electrification rates, especially in rural areas but weak MMA networks in these locations could present challenges to achieve scale.
Growing Markets: Scaling Amid Competition
Growing markets, characterised by the rapid adoption of mobile money, present opportunities for scale but also come with increased competition. Our experience in Senegal indicated the price pressures that can ensue in such markets. With Mobile Money Providers invested in a growing market share of core services, resources for diversifying the offering and providing energy services could be limited. Such considerations are more pronounced in markets with lower effectiveness of mobile money regulatory frameworks. The GSMA’s Mobile Money Regulatory Index (3) provides valuable and specific insights into the enabling environment. While competition can drive innovation and market expansion, it can also exert downward pressure on prices in markets with a weaker enabling environment, affecting the business model and agent revenues. Carefully monitoring market dynamics and employing flexible pricing strategies can help navigate these challenges while capitalising on the growing customer base. In growing markets, partnerships with an organisation at a particular stage, diversifying their offering versus investing primarily in gaining market share, is an important consideration. Additionally, our experience in Senegal indicates that the convenience of local locations for battery swaps is an important factor for customers, especially when available at the same shops where they can purchase other products and services. Strong rural agent networks are especially important in such markets to reach underserved energy customers.
Mature Markets: Stability and Innovation
Mature markets with high mobile money penetration offer stability and potential for innovation, as mobile money operators and agents can benefit from diversifying revenues. Supported by a strong enabling environment and regulatory framework, mobile money providers in these markets are typically keen to differentiate their services and may be more interested in partnerships. To thrive in mature markets, providing value-added services, such as our leasable battery units, can be a key differentiator. A subset of these mature markets are also home to significant populations lacking access to electricity, indicating demand. Malawi, Tanzania, Ethiopia, Kenya, Uganda, Nigeria, and Cameroon are examples of where this is the case and the opportunity exists to establish energy provision channels through MMAs to address supply-side constraints.
Based on our experience during the pilot, Senegal was a growing market in terms of fast mobile money customer adoption and increasing competition between providers looking to gain market share. Like other key growth markets, new entrants have since led to a situation involving competition for market share, creating downward pressure on prices. This is directly impacting agents as MMP profits and MMA profits are linked. This experience has taught us the importance of a nuanced understanding of varying mobile money market stages in Sub-Saharan Africa and how this understanding influences our strategic considerations.
The Role of the End-Customer Base in Scaling Sustainable Energy Solutions
This blog so far had been focused on market dynamics impacting the case for MMAs to provide a daily rentable battery service to their customers, addressing energy supply-side constraints. To address demand, end-customers must equally have the necessary incentives (cost, utility, convenience) to adopt the service at a scale that enables a viable and sustainable model. In scaling our solar charging station initiative, understanding the size and needs of the end-customer base is crucial. The demand for our leasable battery units directly correlates with the number of people who lack access to affordable clean energy, forming a critical component of our market analysis and metric for understanding and achieving scale.
It is our view that daily rentable batteries could meet the energy needs of underserved communities in markets at all stages of maturity if the necessary incentives are in place. Let's consider the case of Senegal. The International Energy Agency (IEA) estimated in its World Energy Outlook 2021 report that about 30% of the population (5 million people) lack access to electricity, predominantly in rural areas (4). The gap is especially pronounced in rural areas, where less than 50% of the population lacks access to electricity, underscoring the need for affordable energy solutions. In Ethiopia, a mobile money emerging market, 59 million people lack access to energy, highlighting the potential for affordable clean energy solutions. While Kenya is a mature mobile money market, 12 million people still lack access to electricity. The gap is closing with the success of PAYG, and solutions such as leasable batteries that offer further flexibility can serve customers at the base of the pyramid who remain underserved.
In addition to mobile money market maturity and readiness, the addressable market size significantly influences the solution's scalability, as a consistent customer base leads to stable revenues for agents over the PAYG period. Understanding these dimensions and the route to market enables the consortium to select the channels for scale that represent the best financial case for agents and the highest impact for energy customers.
(1) EY Parthenon Newsletter “#Payments Volume 26” https://www.ey.com/en_gl/banking-capital-markets/how-africa-s-growing-mobile-money-market-is-evolving
(2) GSMA Mobile Money Metrics “Mobile Money Prevalence Index 2022” https://www.gsma.com/mobilemoneymetrics/#prevalence-index?y=2022
(3) GSMA Mobile Money Metrics “Mobile Money Regulatory Index 2021” https://www.gsma.com/mobilemoneymetrics/#regulatory-index?y=2021
(4) IEA Access to Electricity Dataset 2022 (SDG 7.1.1)
If you’d like to dig in further…
📚 Read the second blog of this series — “Knowledge insights from the application of 4R Digital’s Carbon Value Exchange (CaVEx) protocols to enable the generation of carbon credits through battery rentals by MMAs”
