The Magic of Mobile Money Stickiness in Reducing Churn

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At the recent Mobile Money conference in Dubai, there was a presentation by M-PESA that gave some interesting insights into customer loyalty. The presenter mentioned in their introduction that when mobile number portability (MNP) was introduced in Kenya last year, some predicted that 1 million Safaricom customers would port to competition. They lost only 30 thousand subscribers. Customer attachment to M-PESA was quoted to be a key reason for this success.
 
In a panel discussion during the same conference, one speaker eluded to the fact that some operators were willing to subsidize transaction fees as a measure to create a loyal base of mobile money users. The implicit reasoning for this measure is that churn reduction could be seen as more valuable than generating immediate profits from mobile financial services. This is of course dependent on a variety of market and operator specific factors, but activating registered mobile money users is the main route to locking customers to the network.
 
In a presentation from CGAP last year, a threshold of 20% of voice customers need be active mobile money subscriber before any meaningful impact on revenue from indirect benefits such as churn reduction can be seen.
 
In either case, the aim to use mobile financial services to reduce churn is proven to be one key element in operator strategies for mobile financial services. From a pure financial perspective it is easy to see why. Decreasing churn by 1% could yield a revenue improvement of 0.6% to 0.8%. Expressed differently; retaining a voice customer in a $7US ARPU market with 3% monthly churn would preserve approximately $250US in lifetime value, inclusive of a saving on subscriber acquisition costs. To generate the same amount of revenues from a mobile money user would require the user to pass $350US through the system every month for 3 years (the average lifetime of a voice customer) and pay the operator 2% in fees. Safaricom generated $13US in annual revenue per registered M-PESA user last year.
 
Reduced churn will be achieved by offering compelling mobile money services that provide users with a reason to continuously use it. Service innovation delivers this customer stickiness. Safaricom’s M-PESA strategy for the past two years has been “more innovation”, which in my book translates to “more stickiness” and thus lower churn. Recent analyst data show that Safaricom’s monthly churn level has remained at 2.3% for the past 18 months.
 
All in all, churn reduction delivers major benefits to operators and as such should be key considerations when crafting mobile financial services strategies, business plans and road maps.

 

Posted by Peter Slanina on 4 Dec, 2012
Peter Slanina's picture

Written by: Peter Slanina

Strategic Business Advisor, GCU MTN. Peter supports the account team with business development within strategic areas such as M-commerce. He has more than 15 years of management consulting and marketing experience, having helped operators across the world to craft business strategies, produce business plans and develop new service concepts. His advice is based on fact-based analysis and a healthy dose of creativity.
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