The Delta Perspective

January 2009

Mobile Commerce in MEA:

A Current Reality
Author Javier Alvarez - partner: jav@deltapartnersgroup.com
Bart Janssen - principal: bj@deltapartnersgroup.com
Guido Arons - associate: ga@deltapartnersgroup.com
Delta Partners Intelligence Unit

Globalization and the

unprecedented growth
of mobile telephony in
the MEA, bring with it
the chance to facilitate
m-commerce activities
across new frontiers. The
potential applications for
these developing economies
are far and wide, with
opportunities to improve
and transform the
lives of millions.

Key highlights for 2012

• Large gap between mobile and banked customers; Mobile subscribers to

exceed number of bank account holders by 200 million in the MEA region
• Considerable market potential of US$1.3 billion for m-commerce services
expected in the MEA region; Regional split of 58% and 42% between Africa
and Middle East respectively
• Revenue potential for m-remittances expected to touch US$385 million and
US$260 million in Middle East and Africa respectively
• Revenue potential from m-money activities to have a larger impact in Africa
and estimated at US$480 million as against US$155 million in Middle East.
This is due to the wider gap between the ‘unbanked’ and the ‘wirelessly
connected’, coupled with a larger population
 Derivatives of M-commerce
The rapid proliferation of mobile telephony coupled
with the speed of adoption of technologies, has led
to an unprecedented acceleration in the deployment
of m-commerce activities across the globe.

The concepts of buying goods and
services, money and airtime transfers,
payment of utility bills and various
other mobile centric transactions,
have not entirely been new features
to the wireless world.
Owing to the transaction type and
vehicle, the origins of m-commerce
are ambiguously differentiated under
broad categories. The taxonomies are
each derived based on the nature of
business and customer interactions
and also to some extent the level of
personalization.
• Remittances, often the most popular
transaction mode in emerging
economies, includes the sending and
receiving of funds, domestically and
across international borders
• Payments are based on transactions
over text based mechanisms,
between a user and retailer. For
example, purchase of items such
as train/bus ticket, general utility
and food items, airtime recharge,
prepaid top-ups through text-based
or voice enabled transactions, fall
within the paradigm of m-payments.
• Banking, on the other hand, can be
said to encompass, a broader array
of mobile account management
as well as mobile financial
information needs.
Keeping the characteristics of MEA,
set in the backdrop of high migrant
population in the region, our paper
centres on the scope, benefits,
and opportunity of m-commerce
applications. Thus, we focus on the
two classifications; m-remittance
related activities with other facets
of m-commerce clubbed under
‘m-money’.

Exhibit 1: Classification of M-Commerce

Source: Delta Partners Analysis

2
 Assessing the opportunity
for M-Commerce in MEA
For about a decade, mobile transactions have been
earmarked as a promising business opportunity, both
for mobile operators and banks.

M-Commerce solutions act
as an alternate for uplifting
the underserved population
It is true that in developed markets,
M-commerce has not been able to
live up to its expectations in terms of
delivering the ‘Holy Grail’ in revenues.
However, in emerging markets, the
reduced presence of the conventional
branch-led retail-banking model offers
a golden opportunity for operators who
manage to get the business model right.
In these developing countries, large
segments of the population present
unpredictable and irregular income
patterns, as low-income urban and
rural dwellers continue to remain
under or un-banked. The large gap
between number of mobile users and
bank account holders has helped in
the creation of a lucrative potential for
provisioning of m-commerce facilities.
With mobile operators increasingly
adopting innovative business
models to address the ‘Bottom-of-
the Pyramid’ efficiently, the pace of
mobile penetration will only continue
to outstrip the penetration of bank
accounts. Delta Partners believes that
there would be an additional 200
million more mobile customers than the
traditional bank account holders in the
MEA region alone by 2012.
The advantage of developing a
market towards m-commerce is that
it continues to drive the economic
system toward a cashless transaction
environment. Several operators,
especially those in emerging economies
have come to realize the importance
and potential that lies captive in these
service offerings. The most successful
international cases are presented by the
operators in Philippines (Globe Telecom
and Smart Communications), and is fast
being adopted and tailored by operators
in other parts of the world.
In Africa, ever since the successful
launch of Safaricom’s M-Pesa in Kenya
(launched in early ‘07, has over 4.1

Exhibit 2: Bank and Mobile Penetrations in MEA: 20071

1
Note that mobile penetration is defined as the number of active SIMS/population (so can exceed 100%); bank
account penetration is the % of people that has a bank account (so cannot exceed 100%); To compare like to like
we have divided the mobile penetration by a factor of ‘1.3’ (dual SIM effect)
Source: Delta Partners Analysis

3
 million registered users with more
than 5000 partnering agents and 110
‘Pesapoint’ ATMs across 46 towns),
various operators in variety of sizes
have jumped on the bandwagon. As
it stands currently, operators in MEA
such as MTN (who already introduced
MTN Banking in South Africa at an
earlier stage), Zain, Etisalat, Orascom
and Orange are rolling out their
respective solutions to capture
this opportunity.

Exhibit 3: Examples of M-Commerce Services in MEA and Selected Emerging Markets

*
To be launched
Source: Delta Partners Analysis;

Exhibit 4: Mobile and Bank Account Penetration (%) for Select MEA Countries

Source: Delta Partners Analysis

4
 The ‘Delta Partners’
Point of View
The promising growth in m-commerce services
is strongly driven by the latent need for banking
solutions for those unaddressed by the financial
sector thus far.

Most banks have traditionally focused thriving m-commerce solutions are

on the high-end customer segment
limiting themselves to a small
proportion of the developing countries
population. Mobile operators, on
the other hand, despite entering the
same markets decades later, have
created unmatched inroads across
various levels of the socio-economic
strata and succeeded in surpassing the
banked population.
Furthermore, the factors that help
create a positive environment for
(i) presence of an addressable rural
population (ii) poor infrastructural
(transport/power) backbone (iii) high
proportion of mobile phones as the
communication device (iv) presence
of migrant population (Refer Exhibit
5). For instance, the presence of
favourable demographics and reliance
on cash for everyday subsistence by
low income groups in the Philippines,
led to the popularity of m-commerce
services of both operators, i.e. Smart
and Globe.

Exhibit 5: Socio-economic Enablers to M-Commerce

Source: Delta Partners Analysis

5

2
Assumptions:
• Mobile penetration growth rates decline
from 41% between 2002-07 to 9% up till
2012 in Africa
• Mobile penetration growth rates decline from
28% between 2002-07 to 10% up till 2012
in Middle East
• Penetration of m-commerce services to reach
25% of total mobile users by end of 2012
in MEA
6
Globe Telecom introduced its services
in Philippines with a focus on the
high end market and an emphasis
on postpaid services. However, the
presence of a large population in
the middle and low income tiers in
the country was difficult to ignore.
In October 2004, Globe Telecom
launched its first micro-payment
services, called G-Cash, a service
designed to convert and link a user’s
mobile phone to a bank account.
The principal transaction types were
those between a phone-to-phone
and phone-to-bank account. On
activation, the product enabled
subscribers to engage in a plethora of
mobile transactions ranging from (i)
cash deposits/withdrawals (ii) credit
transfer to prepaid accounts (iii)
airtime transfers (v) cashless purchases
(vi) payroll credits (vii) international
remittances. In addition to the above
services, G-Cash also provided for
micro-finance in agreement with
the ‘Rural Bankers Association of
the Philippines’ (RBAP). The costs of
service of the G-Cash ‘suite’ typically
vary with the transaction type. For
instance, SMSes for inter account
transfer cost PHP 1 (US$0.02) each,
while cash deposits and withdrawals
incur a fee of 1% on the transaction
value. The success of this platform can
be proven by the number and volume
of subscribers and transactions
running on it. Presently, over 1.2
million subscribers are estimated to
be on this system. Additionally, the
transaction value is believed to be in
excess of PHP 3 million (US$60K) each
day, spanning 400 accredited partners
and 3000 outlets.
Taking into account the key learnings
from the Philippines success, MEA
operators could achieve positive
market impact, owing to the
similarities in demographic set-up.
We feel the immediate opportunity
lies in bringing financial services to
the telephonically connected yet
unbanked population. We estimate
this market to have a considerable
potential of US$1.3 billion by the year
2012 in the MEA region alone, with a
split of 58% and 42% between Africa
and Middle East respectively2 (Refer
Exhibit 6)
Remittance flows are driven by
the degree of globalization and a
growing trend towards multi-spatial
households. As the growth of migrant
workers increases, this drives the
global demand for money transfers.
According to the World Bank, the
global remittance market in 2007
was estimated at US$337 billion,
registering healthy CAGR of 13%
from 2003-07 with a y-o-y growth in
2007 of 19%. Strong net remittance
inflows were registered especially in
the developing continents, with Africa
(US$29 billion), Latin America (US$49
billion) and Asia (US$62 billion)
registering strong net inflows of
remittances. In the 2007, the Middle-
East registered a net outflow of
US$13 billion (US$29 billion outflow
vs. US$16 billion inflow).
Needless to say the measure of market
potential operators can largely achieve
will depend on a combination of
market skill and intrinsic will of all the
stakeholders involved.
(a) Available Strategic Options
In order to execute m-commerce
offerings successfully, operators will
first need to gauge and understand
the direct benefits of potential
revenues and indirect benefits
of improved customer retention
and loyalty. Having said that, the
successful launch is linked to an
operator’s long-term vision and
marketing strategy.
 Exhibit 6: M-Commerce Market Potential for MEA Region in 2012 (US$)
Source: Delta Partners Analysis
In order to decide upon the best
way forward, these benefits need
to be assessed against investment
requirements in the near-term and
the long-term future. Based on the
operator’s overall strategy alignment,
the initiative can be classified into
(i) Core (ii) Add-on or iii) Limited
involvement. (Refer Exhibit 7)
Exhibit 7: Operator’s Strategic Choices
Source: Delta Partners Analysis
(i) Core - Under this strategy, mobile
operators (potentially after a soft
launch) offer an exhaustive portfolio
of m-commerce services, whereby
the portfolio of m-commerce services
becomes a core element of the
operator’s value proposition. Hereby
the operator adopts a dominant
7
 Exhibit 8: Case Study (M-Pesa)
Source: Delta Partners Analysis
position in the overall value chain.
One such example of a successful case
is the launch of M-Pesa service by
Safaricom in early 2007. (Refer
Exhibit 8)
(ii) Add-on - In this set-up,
mobile operators would consider
m-commerce as a driver for ‘Value
Added Services (VAS)’ and develop
partnerships with banks, retailers,
and utilities in order to leverage
the competencies required. An
example of this would be the mobile
micro payment service launched
by Vodafone in partnership with
HSBC. The service is a method for
money transfer by which subscribers
can transfer money, by depositing
money into their Vodafone Cash
accounts and withdraw money from
it from designated ATMs. While, the
Vodafone Cash account differs from
the bank account, services can be
availed of at all the Vodafone and
HSBC branches in Egypt. Typically, the
cost of the service is EGP 0.30/call, i.e.
US$0.0054/call for balance enquiries
8
and transfers while withdrawal incurs a
fee of 2% on the transaction amount.
(iii) Limited involvement - This
strategy would result in operators
reaping the benefits from increased
data traffic or wholesale activities such
as hosting of 3rd party operators,
MVNOs or banks. Though this
option has the lowest risk profile,
the financial returns are likely to
be limited. Tier II operators may be
interested in such options as these
help ride on the twin benefits of
low risk exposure and idle network
capacity. For instance, in 2006, an
MVNO called mBank mobile was
launched in Poland. While mBank was
responsible for performing payments
and providing for payment related
information, Polkomtel
sold airtime. Additionally, Dutch
Rabobank bank launched an MVNO
for m-commerce services.
(b) Aiming towards the Best Fit: Which
Model should an Operator Adopt?
Based on the operator’s strategic
 choice out of the above three options,
the four business models that exist
are: Mobile Operator dominated, Bank
dominated, Hybrid and Independent
third party (Refer Exhibit 9).
In our opinion, the mobile operator
dominated model has in it various
advantages over the bank dominated
ones, especially in developing markets.
Additionally, the full control of
m-commerce interface, which allows
operators to provide fully secured
transactions, also has in it the ability
to appeal to consumers at large. Thus,
the mobile operators can leverage
upon their existing strengths of:
• Robust national infrastructure
• Significant experience in managing
expansive distribution network
• Experience in running high volume/
low value transactions
Exhibit 9: Four Possible Business Models in M-Commerce
Source: Delta Partners Analysis
However, banks do have a slight
advantage when it comes to customer
trust in such financial solutions. Hence,
market assessment is crucial before
deciding on a certain model while
success is never solely decided by
the model chosen but the operator’s
implementation. In the high-growth
economies of MEA, we believe that
operators with a strong brand name
and wide distribution network should
capitalize on the head-start they
enjoy vis-à-vis the banks and adopt
the mobile operator dominated
model. This would enable them to
acquire a sizable chunk of the US$1.3
billion m-commerce opportunity by
2012, while also strengthening the
companies’ overall positioning
in the market.
9

3
KYC: Due diligence and bank regulation,
which financial institutions and other
regulated companies must perform to
identify their clients and ascertain relevant
information pertinent to doing financial
business with them.
Exhibit 10: Challenges to Overcome with Key Stakeholders
Source: Delta Partners Analysis
10
(c) Managing Stakeholder Interest
The evolutionary roadmap of
m-commerce activities is expected to
bring with it advances in technology,
improved security systems and a wider
range of service offerings. Despite
all the changes, the crucial factor
for the success of an operator driven
m-commerce initiative, would be the
roles played by the remaining key
stakeholders of the ecosystem, i.e. the
consumer, the distribution network
and the regulatory body (Refer
Exhibit 10).
(i) Consumers - The most important
group of stakeholders to be actively
managed. Affordability, accessibility
of services and convenience of use are
the leading two criteria in ensuring a
good consumer experience.
(ii) Distribution Network - The
active management of the distribution
network is a necessity in achieving
sufficient traction for service take
off and post-launch acceleration.
Since these distributors are the final
interface to the end-consumer, they
need to be adequately incentivized
for them to consider pushing
m-commerce products and services
more effectively. Low-start up costs,
attractive commission structure,
simplicity of execution, reliable and
hassle-free processes all add to
improving the overall comfort level of
this group.
(iii) Regulators - Compliance with
the regulatory climate in each country
is a necessity. The two key aspects
in m-commerce service provisioning
are to ascertain legality of financial
transactions coupled with professional
management of the ‘funds in float’.
Some effective ways in governing the
above can be:
• Complying with official ‘Know Your
Customer (KYC)3 procedures
• Developing robust processes and
protocols in co-operation with
financial systems, in order to ensure
highest levels of security and risk
management tools.
Conclusion
The most important and widespread advantage of
m-commerce solutions for an operator in emerging
markets is to capture the unofficial cash flow in
the system.

For the consumers, it eliminates the need to carry physical cash, minimizes
money-laundering opportunities, improves savings and eases money transfers.
Additionally, the system brings with it long-term tangible benefits for the
government as well. A larger segment of banked and connected population
leads to decrease in poverty levels, improved quality of life, increased tax
collections and enhanced consumption and GDP levels.

The largest beneficiaries in this regime, especially in an operator dominated

model, are indeed the mobile operators themselves. In our opinion,
m-commerce enables them to increase penetration rates and total revenues,
strengthen and broaden their overall value proposition, maximize network
utilization, improve ARPUs, introduce new VAS revenue streams and
reduce churn.

Delta Partners believes that leading operators in the emerging markets of

MEA are best positioned to leverage upon all the benefits of m-commerce,
and would do well to act fast and create a competitive edge for themselves.
However, the success of this endeavor rests upon striking the right balance
between operator commitment and collaboration by other entities of the
value chain.

11
 Delta Partners is the leading integrated management advisory and investment firm specialized in the Telecoms, Media and Technology

(TMT) sector in high growth markets, with more than 100 professionals operating across the Middle East and Africa from its offices

in Dubai and Johannesburg, and through its three highly synergetic business lines:

Advisory: Delta Partners, as the largest advisory team specialized in telecoms in the Middle East and Africa, operates in more than

25 markets in the region, partnering with C-Level executives in telecom operators, vendors and other TMT players to help them

address their most challenging strategic issues in a fast-growing and liberalizing market environment.

Private Equity: As a fund manager, Delta Partners manages an $80M private equity fund, targeting investment opportunities in the

TMT space in the Middle East and North Africa. Delta Partners private equity business unit leverages the Group’s unique TMT industry

expertise to create value for its investors throughout each stage of the investment cycle, from deal sourcing, to opportunity analysis,

and support to portfolio companies.

Corporate Finance: Delta Partners provides corporate finance services and has been involved in several telecom transactions in the

region. As true industry specialists, the firm offers a differentiated value proposition to investors and industry players in the region,

either to the seller or buyer side of the transaction. Delta Partners actively leverages its close link to Delta Partners’ private equity arm

to access the investor community as well as top-level financial talent.

At Delta Partners we deliver tangible results to clients and investors through an exclusive sector focus, and a unique approach to

services, combining strategic advice and hands-on pragmatic approach.

12