How EcoCash is Altering Zimbabwe's Financial Landscape.pdf

8/14/2019 How EcoCash is Altering Zimbabwe's Financial Landscape.pdf

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Big ambition meets effective execution:How EcoCash is altering Zimbabwes financial landscapeAuthor: Phil Levin


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The MMU programme is supported by The Bill &Melinda Gates Foundation, The Mastercard Foundation and Omidyar Network.

Contents

Figures

INTRODUCTION

PART 1 Seeing a strategic opportunity

PART 2 Strive Masiyiwas big bet

PART 3 Starting simple, building a foundation

PART 4 Moving beyond P2P money transfers

PART 5 Conclusion

FIGURE 1 Formal financial service penetration in Zimbabwe

FIGURE 2 Econet Services organisational structure

FIGURE 3 EcoCash customer acquisition expenditure by category

FIGURE 4 User and agent growth over time

FIGURE 5 Bank interoperability volumes (USD)

4

6

9

12

17

22

7

11

13

14

19


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4 GSMA - MOBILE MONEY FOR THE UNBANKED BIG AMBITION MEETS EFFECTIVE EXECUTION 5

IntroductionJUST 18 MONTHS AFTER launch, theresults are impressive: 2.3 millionZimbabweans have registered forEcoCash mobile money accounts,outnumbering all of Zimbabwestraditional bank accounts combined.Over 1 million of these accounts areactive3and push US$200 million ofvolume over the EcoCash platformevery month. When annualised,that volume represents an amountequivalent to 22% of ZimbabwesGDP.4This case study highlights howbig ambition matched with effec-tive execution has allowed EcoCashto fundamentally alter the nanciallandscape in Zimbabwe in such ashort period of time.

EcoCash is part of Econet Services, anindependent company set up in 2012

by Zimbabwes largest mobile networkoperator, Econet Wireless. EcoCashsfast start has been achieved through aneffective operational strategy, but alsothrough an unusually large investment in

mobile money. Excluding customer sup-port, EcoCash staff number 110 full-timeemployees and EcoCash represents thelargest component of Econets marketing

budget. Econets le adership justie s thisinvestment as necessary to achieve equally

big ambitions. The vision extends farbeyond P2P money transfer: Econet wants

to completely alter how nancial servicesare delivered in Zimbabwe. Their goal is to

become the dominant payment infrastruc-ture in Zimbabwe by making EcoCash theprimary way people pay for goods andservices from sweets to school fees.

FINDING A STRATEGIC OPPORTUNITYThe rst part of the case study examinesthe economic challenges in Zimbabwe thatspurred Econet to create EcoCash. Aftera volatile decade of currency collapse,hyperination, and widespread mistrustof the formal nancial system, EcoCashsees strategic opportunities in Zimba-

bwes booming informal economy, where

payment services are lacking and mobilephone penetration is high.

ECONETS BIG BET

Big ambition requires sizeable investmentand senior-level vision and commitment.At Econet, this commitment comes directlyfrom group level leadership, led by founderand Executive Chairman Strive Masiyiwa.In the second part of the case study, we willdiscuss the Econet Wireless Group (EWG)strategy to push aggressively into nancialservices. The EWG recognises the need t odiversify out of the core telecom business inZimbabwe, where voice ARPUs are undercompetitive pressure, and t o create newlines of business with signicant revenuepotential. Consistent with Econets long-term commitment to revenue diversica-tion, EcoCash has been housed withinEconet Services, a separate company fromEconet Wireless (the MNO) with its ownC-level management, budget, governance,and dedicated staff.

STARTING SIMPLE, BUILDING A

STRONG FOUNDATIONThe third part of the case study examineshow EcoCash has built up its service. Itslong-term goals are ambitious, but Econethas opted to start with a simple use casethat lls a basic consumer need: sendingand receiving money. They have also chosento sacrice short-term protability in orderto build a robust distribution network andattract customers. For example, EcoCash ispaying out 80% of revenues in the form ofagent commissions to build a strong andcommitted agent network. Here we will seehow a combination of aggressive promo-tions, ground-level subscriber engagement,and agent incentives has allowed EcoCash torace to 2.3 million subscribers in 18 months.

MOVING BEYOND P2P MONEY TRANSFERS

Finally, we examine how EcoCash plans

to transition from a simple money transferproduct to becoming Zimbabwes domi-nant payment infrastructure. Here, Eco-Cash sees two major opportunities: retailpayments and payment ows between the

banked and the unbanked. To seize theseopportunities, EcoCash is working within,rather than outside, Zimbabwes nancialinfrastructure. With the help of bank-gradetechnology, EcoCash is integrating withZimbabwes nancial institutions to facili-tate formal payments between banked andunbanked customers. To crack retail pay-ments, EcoCash is combining an aggressivemerchant acquisition drive with focusedcustomer messaging.

ECOCASH AT A GLANCE

(APRIL 2013)

Operator:Econet Wireless Zimbabwe

Launch date:October 2011Product: Wallet-based mobile mon-

ey service offering P2P remittance,merchant payment, bank interoper-

ability, bill payment, bulk payment,payroll, and other services

Users:2.3m with over 1m90-day active

Volume:$200m per month

5 KEYS TO SUCCESS

The rapid growth of EcoCash is

the result of five key strategies:

Finding the pain point:Iden-

tifying specific pain points in themarket allowed EcoCash to meet

customer needs in a targeted way.

Taking a long-term view: Long-

term vision and commitment fromshareholders allowed EcoCash to

focus on the foundations of the busi-

ness rather than short-term profits.

Keeping mobile money sepa-

rate:Creating a new company with

dedicated staff and governancegave EcoCash the focus and finan-

cial resources it needed to succeed.

Starting with a simple product:Despite broader long-term ambi-

tions, EcoCash began by laun-

ching a product with a simpleand clear proposition: Send

and receive money.

Embracing the financial ecosys-tem:EcoCash is working within

the existing financial ecosystem and

focusing on interoperability to cre-ate linkages between Zimbabwes

banked and unbanked populations.

3On a 90-day basis

4CIA World Factbook,nominal GDP,

2012,https://www.cia.gov/library/publi-

cations/the-world-factbook/geos/zi.html

31%THE PERCENTAGE OFZIMBABWES ADULTSWHO REGISTEREDWITH ECOCASHWITHIN 18 MONTHSOF LAUNCH.


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PART 1

Seeing a strategic opportunityHYPERINFLATION AND THE CURRENCY CRISISOnce a major player in the SouthernAfrican economy with a well-developednancial services sector, in 1998 Zimba-

bwe descended into a volatile decade ofhyperination, currency collapse, highunemployment, and loss of condence inthe banking sector.

Driving this economic upheaval was thecollapse of Zimbabwes currency, whichcaused ination to rise by an unfathomable231,000,000%.5Prices in shops and restau-rants rose exponentially, changing by thehour or even the minute, peaking duringthe evening commute.6

Money held in bank accounts becameworthless as quickly as people queued towithdraw it. Banks responded by im-posing withdrawal limits on accounts,prompting bank customers to open multi-ple accounts to access more cash.8Mean-while, the government printed more andmore bills, including a hundred trillion

dollar note so worthless it would not evenbuy a loaf of bread.

In 2009, the local currency (Zimbabweandollars) was abandoned and replaced witha multi-currency system dominated by theU.S. dollar. This shift has stabilised ina-tion, but it has created new challengessuch as coin shortages.

THE MOVE TO THE INFORMAL ECONOMYOne of the results of hyperination wasa dramatic rise in unemployment, whichpushed people out of salaried jobs and intothe informal economy. The majority of theemployed (84%)9still work in this sector,which can bring in more money than a low-wage job in the formal sector. This is not aminor, underground economy US$2.8 bil-lion passes through Zimbabwes informalsector each year, and in 2009 it accountedfor more than half (52%) of the countrysproductive output.10

THE BANKS LOSE CONFIDENCE

The impact of hyperination on consumertrust in Zimbabwe has been profound, es-pecially faith in nancial institutions. Whenthe multi-currency system was introduced,it was difcult for banks to assign value

to account balances of largely worthlessZimbabwean dollars, and many customershad their balances completely wiped out.11A certain segment of the public still blamesthe banks for this and are reluctant to opennew accounts. This view is particularlyprevalent among the ex-banked roughly12% of the population who have had a bankaccount in the past, but are now choosing touse informal nancial services instead.12

SEIZING THE OPPORTUNITIESWith 8 million subscribers and 70% GSMmarket share,13Econet has a reach manytimes greater than the formal nancialsector and a high level of consumer trust.Econet management knew there was an op-portunity to play a role in nancial servicedelivery, but wanted to address Zimba-

bwes most acute pain points.

HYPERINFLATION BY THE HOUR7

At the peak of hyperinflationin July 2008, a Coke bought

at 8 a.m. cost ZIM$50 billion

At noon, the same Coke costZIM$100 billion.

By 7 p.m. that day, the sameCoke cost ZIM$150 billion.

THE ZIMBABWE OPPORTUNITY

Bring payment services to the informal economy

Zimbabwes economy is rebounding and the informal economy is thriving, but cash is still

king. Most of Zimbabwes employed work in the informal sector and do not have access topayment services.

Replace cash in the retail environment to solve the change problem

Introducing electronic payments would allow consumers to pay exact prices instead of round-ing up to the expensive $1 minimum currently required with cash.

Bridge the formal and informal economiesEcoCash is not only a product for the unbanked cashless transactions also need to appeal to

wealthier, banked customers and provide a practical way for money to be transferred between

people in both sectors.

FIGURE 1

Formal financial service penetration in Zimbabwe

9Zimstat,2011 Labour Force Survey,p.113, http://www.zimstat.co.zw/

dmdocuments/Laborforce.pdf.

10Albert Makochekanwa,2013,

Measuring the second economy in

Zimbabwe,African Journals Online,

p.51, www.ajol.info/index.php/boje/

article/download/85407/75332.

11Ahmed Dermish,Ben Hundermark,

Caitlin Sanford,2012,Mapping the

Retail Payment Services Landscape,

FinMark Trust,p.17, http://www.cenfri.

org/documents/Payment%20systems/

BFA%20country%20studies/RPS_Zim-

babwe.pdf.

12 Ibid.,p.9

13Estimate from IHSecurities,Econet

Wireless 1H12 Earnings update,http://

www.ihsecurities.com/images/pdf/lrg/

Econet_1H12_Earnings_Update:_Valu-

ation_Disconnect.pdf

5The Economist,27 April 2013,

In dollars they trust,http://www.

economist.com/news/finance-and-

economics/21576665-grubby-green-

backs-dear-credit-full-shops-and-empty-

factories-dollars-they.

6Hyperinflation in Zimbabwe,http://

en.wikipedia.org/wiki/Hyperinflation_

in_Zimbabwe (accessed 8 June 2013).

7As cited in Ahmed Dermish,Ben

Hundermark,Caitlin Sanford,2012,

Mapping the Retail Payment Services

Landscape,FinMark Trust,p.11, http://

www.cenfri.org/documents/Pay-

ment%20systems/BFA%20country%20

studies/RPS_Zimbabwe.pdf.

8 Ibid.,p.17.

40% OF ADULTS ARE FINANCIALLY EXCLUDED

24% OF ADULTS HAVE A BANK ACCOUNT

38% USE FORMAL FINANCIAL SERVICES

14% USE NON-BANK FINANCIAL SERVICES

22% USE INFORMAL FINANCIAL PRODUCTS & SERVICES

12% EX-BANKED:USED TO HAVE A BANK ACCOUNT BUT NOW CHOOSE NOT TO


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SERVING THE PAYMENT NEEDS OF

THE INFORMAL ECONOMY

With most employed people working inthe informal economy and 65% of businesstransactions moving through this sector,

bringing the informal economy into aelectronic transaction system would cap-ture massive amounts of payment ows.Current alternatives, such as transferringmoney through bus companies, can be in-convenient, slow, insecure, and expensive.Mobile money, on the other hand, ts the

needs of the informal economy becauseit does not require customers to have abank account something many Zimba-bweans are reluctant to embrace again.Part 3 will describe how EcoCash builta critical mass of subscribers and agentswithin this i nformal economy.

REPLACING CASH IN THE RETAIL ENVIRON-MENT AND SOLVING THE CHANGE PROBLEMThe switch to the U.S. dollar has helped tostabilise ination, but it has created whatis known in Zimbabwe as the changeproblem: $1 minimum transactions. Theweight of U.S. coins makes them expensiveand difcult to import, so with little U.S.change available, goods that used to cost 99cents or less now cost a dollar. Sometimesmerchants offer credit notes or even sweetsas change. Shoppers are often forced to buyadditional, non-essential items essentiallyimpulse buys to bring their total purchaseto one dollar. In a nation where the averageperson lives on less than two dollars a day,a dollar is still a lot of money. As one jour-nalist put it, Once worth too little, money

in Zimbabwe is now worth too much.14

EcoCash aims to solve the change problemby replacing cash in the retail environ-ment. Using mobile money would allowcustomers to pay the exact price electroni-cally, eliminating the expensive headacheof the $1 minimum.

The change problem may be unique to Zim-babwe, but the bigger challenge penetrat-ing the retail environment will resonatewith any operator trying to expand theutility of their mobile money service. Part 4will reveal some of the tools and merchantincentives EcoCash is using to crack thisnotoriously difcult problem.

BRIDGING THE FORMAL AND

INFORMAL ECONOMIESThe formal and informal sectors do not livein complete isolation from one another.Wealthier, banked Zimbabweans supporttheir unbanked extended families and so-cial networks, and unbanked Zimbabweansstill need to make payments into the formalsector, such as utility bills and school fees.

Econet management recognised that Eco-Cash should not only be a product for theunbanked it needed to appeal to peopleoperating in both economies and providea practical way for payments to be made

between them. Part 4 will explore how

EcoCash is interoperating with Zimba-bwes existing banking system to createthese linkages.

Where does EcoCash see thegreatest opportunities?

QUESTIONS FOR OPERATORS

What are the unmet financial ser-vice needs and true pain points in

your market? How similar are theseto Zimbabwes?

14Lydia Polgreen,24 April 2012,

Using U.S.Dollars,Zimbabwe Finds

a Problem:No Change,The New

York Times,http://www.nytimes.

com/2012/04/25/world/africa/using-us-

dollars-zimbabwe-finds-a-problem-no-

change.html?pagewanted=all&_r=0.

THE VISION FOR ECOCASHcomes straightfrom the top led by Mr Strive Masiyiwawho is the founder and Group ExecutiveChairman. Mr Masiyiwa is a pioneeringZimbabwean entrepreneur who originallydrove adoption of mobile telephony in his

home country by forming Econet Wireless,the rst privately-owned MNO in Zimba-

bwe. EWGs approach to EcoCash sharesthe same long-term commitment, majorinvestment, and broad social view that ap-plied to the founding of its parent company.

Econet has never been just about themoney. From the beginning, the companyhas been motivated by meeting needs thatimprove peoples lives. At that time of itsfounding, 70% of Africans had never hearda telephone ring.15Today, Econets invest-ment in services, equipment, infrastructure,and customer education has helped to pushmobile penetration in Zimbabwe to almosthalf the population.16

PART 2

Econets Big Bet

15Mfonobong Nsehe,24 February

2013,Five Lessons From Zimbabwes

Richest Man,Strive Masiyiwa,Forbes

Magazine,http://www.forbes.com/

sites/mfonobongnsehe/2013/02/24/

five-lessons-from-zimbabwes-richest-

man-strive-masiyiwa/

16Estimates from GSMA Intelligence.

While penetration on a SIM basis is

close to 100%,it is c loser to 50% on a

unique subscriber basis.

Twenty years on, Econet sees another wayto make a big difference through technolo-gy: inclusive payment services that fulllthe nancial needs of the poor in Zimba-

bwe. Still a believer in strong and focusedlong-term investment, this time they are

counting on mobile nancial services andEcoCash specically to meet those needs.

DECLINING VOICE REVENUESSPUR DIVERSIFICATION

Econets nancial services push was drivennot only by a desire to achieve a social im-pact, but also by an equally strong businessneed to grow new revenue streams.

This business need stems from the stateof the core GSM market in Zimbabwe.ARPU growth in core GSM services hasplateaued in Zimbabwe and in a numberof markets across Africa as competition hassaturated the market. Although the numberof connections in Zimbabwe continues to


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rise as new subscribers sign on (as of Q12013, just under 50% of Zimbabweans hadcellular connections, with an average oftwo SIM cards per subscriber), revenue persubscriber is tapering off. Average revenueper unique mobile subscriber in Zimbabwedeclined by 9.6% from US$15.52 to $14.95

between Q4 2011 and Q4 2012, much of thisdriven by declining voice ARPUs.17

To Econet, the best hope for long-termgrowth is diversifying into nancialservices, data, and other overlay servicesthat drive ARPU growth.

ECONET SERVICES: A NEW COMPANY

TO FOCUS THE VISIONWhile most MNOs have recognised thevalue of services such as mobile money,Econets level of strategic commitment

in this area is unusual. Its commitmentmanifests itself not only in nancial invest-ment but also in how it has organisedand structured the company. Rather thansimply create a new department withinEconet Wireless, the EWG has establisheda completely new entity Econet Services 18 to house and focus on overlay services,of which EcoCash is one.

As a part of Econet Services, EcoCash has itsown governance, management team, budg-et, and resourcing. While strong linkages toEconet Wireless (the MNO) still exist, andsome resources are shared between the or-ganisations, Econet Services is able to forgeahead independently of Econet Wireless.

ECONET SERVICES IS ASTRATEGIC RESPONSE TOA STRATEGIC CHALLENGE:DECLINING VOICE ARPUS.

Why start fresh?

DARLINGON MANDIVENGA

CEO,ECONET SERVICES

Governance

Operating budget Customer support (e.g. call center) Sales & distribution

Product development

Network infrastructure Audit

Some fraud controls Some marketing Retail service centers

SHARED WITH ECONET WIRELESS

EXCLUSIVE TO ECONET SERVICES

future revenue stream. 3G networks are notexpected to provide a return on investmentin the rst year of operation, nor is Econetexpecting an immediate ROI from their mo-

bile money business. Likewise, Econet doesnot see mobile money supporting its coreGSM business. Rather, they want nancialservices to be a core future revenue streamthat offsets anticipated pressure on the corevoice business. Their aggressive organisa-tional positioning and heavy resourcing allstem from this basic belief. Econet ServicesCEO Darlington Mandivenga is quite frankin saying that he does not think EcoCashwould have achieved its initial successwithout such a high level of investment.

EcoCash has been built to be protable only

at signicant scale and with a high level ofcustomer activity over a range of productsand services. Despite the large user num-

bers, senior management does not expectEcoCash to break even until three yearsafter launch. As described in Part 3, thedomestic P2P business was purposefullydesigned with thin margins. EcoCash plansto recoup its investment from what it seesas a larger and more protable ecosystem

built around banks and retailers. This strat-egy is discussed further in Part 4.

17Estimates from GSMA Wireless

Intelligence

18Econet Services also operates

in Econet Group markets outside of

Zimbabwe.

19Claire Pnicaud,2013, State of

the Industry:Results from the 2012

Global Mobile Money Adoption Survey,

GSMA Mobile Money for the Unbanked

Programme,p. 13,http://www.gsma.

com/mobilefordevelopment/wp-content/

uploads/2013/02/MMU_ State_of_in-

dustry.pdf

ECONET SERVICES (381 FTE)

CUSTOMER CARE FOR ECO-CASH & ECONET SERVICES

(173 FTE)

ECOCASH(110 FTE)

SALES & DISTRIBUTION(60 FTE)

OPERATIONS & PRODUCT(40 FTE)

OTHER(10 FTE)

OTHER ECONET SERVICESSTAFF

(98 FTE)

Given the size of the opportunity thatEconet sees in mobile money, creating aseparate company helps to ensure the rightlevel of focus on mobile money within t heoverall business. GSMAs Mobile Moneyfor the Unbanked Programme (MMU) con-ducted interviews with 2012 GSMA MobileMoney Sprinters leaders of some of thefastest growing mobile deployments inthe world and it emerged that successfulservices tended to create an organizationalseparateness for mobile money.19As a mo-

bile money sprinter, Econets organizational

choices are not unique, but it has takenit a step further by establishing separategovernance and by housing the majority ofthe functions of the mobile money team in anew and distinct organisation.

Second, incubating a business with long-term goals within a telecom business withambitious short-term GSM targets canmake it difcult to achieve the objectivesof both businesses. It can be a challenge forany MNO to allot the requisite resourcesand attention to mobile money serviceswhen its core GSM business is much largerand initially more protable. Patience iseasier to manage within a separate organi-sation, and Econet Services anticipates a3-year path to protability for EcoCash.

TOP-LEVEL TALENT WITH A MIX

OF BACKGROUNDSAnother major investment was recruitingand hiring high-calibre executives that

bring experience from a range of relevantindustries and African markets. Econet Ser-vices CEO Darlington Mandivenga brought

telecom experience from senior executivepositions in the Econet Group in vari-ous African countries, including Nigeria,Kenya, Zimbabwe, and Burundi. EcoCashsenior staff include former executives inthe payment industry, FMCG, and fromnancial regulators.

WHY SUCH A BIG INVESTMENT?THE BUSINESS CASE FOR ECOCASHEconet seems to think about mobile moneydifferently than many operators. Theirapproach to mobile money shares morein common with a t ypical approach to

building a data network than launching avalue-added service. It is a long-term, am-

bitious investment targeting a substantial

FIGURE 2

Econet Services organisational structure

* 80% of customer care resources

are dedicated to EcoCash

ECONET SERVICES CEO

DARLINGTON MANDIVENGA


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PART 3

Starting simple,building a foundationECONET RECOGNISED EARLYon that massuptake of mobile money would be won orlost on eld activities distribution andmarketing rather than the development ofnew product features. This initial focus was

on building a robust distribution channeland acquiring a critical mass of users.

It began by building a broad network ofagent outlets, particularly in semi-urbanand rural areas where users cash-out thetransfers they receive. It also had to ensurethat the agent network had sufcient cashand oat liquidity to meet the demandsof its rapidly growing customer base, andfor this they provided bonuses and specialincentives to motivate them to invest inEcoCash and educate new customers.

Econet also understood that simply mak-ing the service available was not enough;it would also have to take an aggressive

approach to customer acquisition andundertake extensive eld activities to reg -ister and educate customers aboutthe value of EcoCash.

With over 1 million 90-day active users and4,000 active agents in only 18 months, theirefforts are clearly paying off. How did theyreach this point so quickly? By employingthree key strategies.

STRATEGY #1: START SIMPLE

EcoCash launched with a simple prod-uct: a basic USSD interface that allowedcustomers to deposit, withdraw, and sendmoney from their mobile phone or agentoutlet. The initial focus on P2P transferswas driven by two inputs: a survey ofexisting money transfer options for Zim-

babwes large informal sector and qualita-tive customer research conducted priorto launching the product. The survey of

existing options, including cash transfersthrough bus companies or the post ofce,revealed that EcoCash could provide a bet-ter offering in a range of areas, includingprice, security, and convenience.

The initial customer message was simple:Send and receive money. By launchinga product with a simple value propositionand mass appeal, EcoCash has been ableto focus their efforts entirely on go-to-market activities.

It is no secret that EcoCash wants to movebeyond being a simple P2P service, and itis difcult to imagine the company tak-

ing it slow. However, the foundations of afunctioning mobile money service take timeto build and require buy-in at all levels:consumers, agents, and the regulator.EcoCash leadership knew that to achieve itslong-term goals, the company had to takea collective breath and start simple.

STRATEGY #2: BRING THE SERVICEDIRECTLY TO USERSSince EcoCash launched in 2011, Econet hasdevoted a large proportion of its market-ing budget to EcoCash comparable towhat they would spend to launch a datanetwork. In the rst two years, EcoCashwill represent the largest share of Econetsmarketing budget.

BTL AND BRAND AMBASSADORSAbove the line (ATL) advertising, suchas radio, TV, and print, was used t o raiseinitial awareness of EcoCash, but given thenovelty of the service, Econet believed be-low the line (BTL) activities would be moreeffective at educating consumers aboutthe service and convincing them to try it.Brand ambassadors, EcoCashs 300 eldstaff, were at the core of this strategy. Brandambassadors were assigned to high trafcareas and economic centers of the informaleconomy, such as rural trade centres. Theobjectives were to educate people aboutEcoCash and to register new customers.Generally, a brand ambassador was ex-

pected to register 2530 subscribers per day.Approximately 75% of EcoCash users werebrought into the service by brand ambassa-dors rather than EcoCash agents.

How did EcoCash manage its brand am-bassadors? EcoCash core sales staff eachmanaged a set of brand ambassadors andallocated them to strategic areas wherethe EcoCash agent network was being

built or fortied. Rathe r than working forcommission, brand ambassadors werepaid a at salary, which was intendedto motivate them to take their customereducation role seriously. By not tying sal-

LESSONS FOR MNOS:

BUILDING A FOUNDATION

Start with a simple product

Customers need to be educated ona simple value proposition that fits

their needs. Keep the product simpleand the message clear and relevant.

Focus on BTL

ATL can drive awareness, but rapid

customer acquisition requires exten-sive field presence and investment.

Kick-start the agent networkFocusing on short-term margins canstifle growth. Generous benefits

for the initial core agents, such as

bonuses and special incentives,can help to ensure a positive initial

customer experience.

FIGURE 3

EcoCash customer acquisitionexpenditure by categoryTotal = $6.3 million

AGENT COMMISSIONS FOR REGISTRATION

PROMOTIONS (EG 100 X100 X100)

BRAND AMBASSADORS

AIRTIME BONUSES FOR REGISTRATION

ATL CAMPAIGN

$1.5M

$0.3M

$0.5M

$1M

$3M 75%THE PERCENTAGEOF ECOCASHUSERS REGISTEREDBY BRANDAMBASSADORSRATHER THANAGENTS.


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ary to registration numbers, Econet couldencourage the brand ambassadors to focuson the quality of registered users ratherthan simply quantity. Brand ambassa-dors were extensively trained and closelymonitored by Econets core sales team toensure high-quality customer engagement.Close monitoring is only one approach tomanaging eld staff: other operators haveapproached this same problem by tying

brand ambassador commission to custo-mer activation.

PROMOTIONSEconet launched aggressive promotionsto attract subscribers and encourage them

to use the service. Airtime bonuses luredinitial customers to the service custom-ers who registered for EcoCash received$1 in free airtime. With over 2 million

bonuses paid, this was a costly incentive,but Econet management believes it waseffective in encouraging registration. Otheroperators have tried a different approachto airtime incentives: offering discountswhen purchasing airtime with mobilemoney. While this approach can boost reg-istration and initial adoption, it runs therisk of customers perceiving mobile moneyas an airtime purchase service rather thana nancial service.

The next step was to encourage customeractivity. Econet launched a major promo-tion focusing on usage rather than justregistration. Anyone who used the servicewas entered into the 100 x 100 x 100

promotion, which gave away $100 to 100people for 100 days. Then, on the 100thday, one user received a grand prize of$100,000. This was Zimbabwes largest cashpromotion ever, and proved to be effectiveat driving up transactions and maintainingactivity over time. During the promotion,activity rates (on a 30-day basis) went upfrom 20% to 30%, peaking at 34% by theend of the promotion. Activity rates amongthese customers did not dissipate in thethree months following the promotion.

STRATEGY #3:

KICK-START THE DISTRIBUTION NETWORK

Econet had to quickly build an agent

network to contend with the deluge of newEcoCash users brought in through the eldactivities and promotions described above.However, it had to carefully control thegrowth of the network in order to man-age the ratio of active subscribers to activeagents, and to ensure agent quality. Toofew agents would have reduced servicecoverage across the country and createdlong queues where it was available. Toomany agents would have had two nega-tive effects: it may have forced EcoCash tocompromise on quality and it would havespread the commission benet too thinlyacross a large network and reduced theincentive to invest in the service and edu-cate customers. This controlled distributionchannel growth has allowed EcoCash tomaintain a ratio of 250600 active subscrib-ers per agent and ensure these agents meettheir standards for quality. These gures

are comparable to other mobile moneysprinters, which on average had 275 activesubscribers per agent.

80% OF REVENUE DISBURSED

IN AGENT COMMISSIONSEconet has made a strategic decision tosacrice short-term margins and payout 80% of its revenue in agent commis-sions. This has provided agents with strongliquidity and motivated them to makehigher capital investments and open newoutlets, which has allowed the network t ocope with rapidly growing customer num-

bers (seeBefore and After EcoCashboxabove). Some agents have even found it ad-vantageous to extend their operating hoursto capture additional transaction revenue,with a few even operating 24-hours.

EXTRA PERKS FOR TOP PERFORMERSOne of the most innovative EcoCash incen-tives has been to award top-performingagents with solar kiosks. Operated byagent staff, these kiosks have allowedagents to quickly expand their footprintinto high trafc areas. In addition toattracting foot trafc, these solar kiosksprovide solar charging for mobile phonesto avoid any lost mobile money or GSMusage due to dead batteries.

IS ECONET OVER-INVESTING IN

THE FOUNDATIONS?

Observers may see Econets push tobuild the foundations of EcoCash as an

over-investment. Can operators withoutEconets deep pockets draw lessonsfrom its approach?

Econet views the distribution channel andcustomer acquisition in much the sameway as they view building a data network:a foundational investment that will pay off

FIGURE 4

User and agent growth over time

BEFORE AND AFTER ECOCASH:

THE EFFECT OF 80%COMMISSION PAY-OUTS

Phiten Moyo is a co-owner of

Celzone Investments and has

been operating in the peri-

urban areas outside Harare for

over a decade. Prior to Eco-

Cash, his primary business was

selling Econet airtime recharge

cards. After EcoCash, his

business focus and fortunes

changed completely

Sold Econet Wireless airtime

9 outlets and 10 employees $12,000 in capital $4,000-5,000 in revenue

Focuses on EcoCash 17 outlets and 30 employees

$100,000 in capital

(reinvests his commission each month) $25,000 in revenue with a

30% profit margin

AFTER ECOCASH

BEFORE ECOCASH

THERE IS NO BUSINESSLIKE THIS IN ZIMBABWE

PHITEN MOYO,IN FRONT OF

ONE OF HIS 17 OUTLETS

SOLAR KIOSK ECOCASH AGENT

Over 170 kiosks are now

live with 1,000 more

being deployed

GET YOUR PHONE CHARGED HERE FOR FREE

1,200,000 4000

3500

3000

2500

2000

1500

1000

500

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

0

ACTIVEUSERS(90-DAY)

ACTIVEAGENTS

MONTHS AFTER LAUNCH

ACTIVE USERS

ACTIVE AGENTS

1,000,000

800,000

600,000

400,000

200,000

0

MONTH10

575ACTIVE USERS/

ACTIVE AGENT

MONTH18

254ACTIVE USERS/

ACTIVE AGENT


9/13


10/13


formal sector in the form of retail payments,school fees, and utility bills.

However, EcoCash believed that wealthier,banked customers would use mobile moneyservices differently than their unbankedcounterparts. Instead of making transactionsthrough traditional mobile money agents,EcoCash anticipated that they would wantmore convenient payment options.

Bank interoperability meets this need forconvenience by creating a direct link witha customers bank account, allowing themto load their EcoCash wallet directly fromtheir phone. This creates a clear valueproposition for a new set of customers andprovides a convenient and practical way formoney to be transferred between Zimba-

bwes formal and informal sectors. Attract-ing active, high-value banked customershas the added benet of injecting liquidityinto the mobile money system.

SPEEDY INTEGRATION WITH THE BANKSTHROUGH A SWITCHMNOs have found bank integrations totheir mobile money platforms to be costlyand time consuming. Some report thata typical integration might require sixmonths (or more) of t echnical developmentas both the mobile money platform vendorand bank decide how to create a secure andreliable interface between the two systems.EcoCash has managed to avoid these timelyand costly procedures, however. In just sixmonths, it has integrated with 10 banks inZimbabwe, ve of which are already live.

How did EcoCash accomplish this?Instead of connecting directly to each

bank through their core mobile moneyplatform (Comvivas Mobiquity), Econetopted to purchase a bank-grade switch,Postilion from ACI Worldwide, based onISO 8583 standards. The Postilion switchacts as an intermediary layer between themobile money platform and the bankingplatforms, allowing instructions to betransmitted through commonly accepted

banking sector standards ra ther thanthrough a bespoke integration. Integratingnew banks has become routine, and thetechnical process now only requires oneto three weeks of work. The majority oftime is now spent securing bank ap-provals rather than engineering complextechnical connections.

THE EARLY RESULTSEcoCash registers approximately 200 cus-tomers per bank each month. Small totals,

but these have been very active, high-valuecustomers who are transferring on average$145 per month between their bank account

and EcoCash wallet. The banks are alsohappy because queues are shorter and their

banking halls are less congested.

Despite the quick growth of the mobilemoney industry in Africa, building a scaledretail payment business has proven elusiveto most operators. As of June 2012, retailpayments accounted for less than 1% oftotal mobile money transactions globally.21MNOs are learning that simply adding apay merchant menu item to a mobileinterface is not enough.

Accepting retail payments is a two-sidedmarket: customers will only load theirwallets to purchase everyday items if theyfeel there is widespread merchant accept-ance, and merchants will only offer digitalpayments if they feel there is sufcientcustomer demand.

Retail payments took decades to gain fullacceptance in western markets, with com-panies like Visa and MasterCard focusingexclusively on certain pieces of the prob-lem. Econet has made a major investmentin cracking the retail payment business;in fact, the scale of its investment may beunprecedented for an MNO.

CHALLENGE #1: FORM FACTORProblem:USSD-based payments are muchslower than cash at the checkout and do notprint receipts. Retailers, especially largerones, fear that digital payments will createqueues and confusion at the tills.

EcoCashs planned approach:EcoCashhas purchased and distributed 10,000point-of-sale (POS) terminalsto largemerchants. This is a huge increase overthe 4,800 terminals currently in Zimba-

bwe. The POS terminals are USSD- andSMS-enabled to work in areas withoutdata coverage. Transactions are initiated

on the customers phone, which thencommunicates with the merchant POSterminal via the EcoCash network to print

a receipt. For agents that double as retail-ers, merchant accounts are separated fromagent accounts to simplify record keep-ing. EcoCash calls this transaction ow avirtual debit card. The POS terminals areNFC-enabled to prepare the retail paymentsolution for the expected proliferation ofsmartphones in the coming years.

It is not economical to provide smallermerchants with $400 POS terminals, soEcoCash has designed a lower-overheadsolution for them. These smaller mer-chants interact with customers througha phone-based USSD interfaceratherthan a POS terminal. These merchantsare provided ve-digit merchant paynumbers and signage, to make it clearthat customers can pay using EcoCashand prevent mistakes in keying in 10-digit telephone numbers.

Can EcoCash crackretail payments?

FIGURE 5

Bank interoperability volumes (USD)

INTEROPERABILITY ISCENTRAL TO THE VISIONFOR ECOCASH.

CUTHBERT TEMBEDZA,

CEO OF ECOCASH

Interoperating with the banks

MOVING QUICKLY IN A REGULATED ENVIRONMENT

As EcoCash expands its remit it will rely on another foundational element it has developed

in its first year of operation: an open and constructive working relationship with the Reserve

Bank of Zimbabwe (RBZ), which oversees the National Payments System. RBZ has madefinancial inclusion a priority and supports EcoCash as a powerful force in that effort. RBZ

Governor Gideon Gono notes that empirical evidence suggests that improved access tofinance is not only pro-growth, but also pro-poor, thus making it a means to achieving income

quality and poverty reduction.20In the absence of an existing mobile money regulation, RBZhas employed a test and learn approach. Open and frequent engagement between the

parties allows EcoCash to operate safely under the oversight of RBZ while RBZ gains a greater

understanding of how to regulate the new business

BANK TO WALLET TRANSFER WALLET TO BANK TRANSFER

0 200,000

NOV-12

DEC-12

JAN-13

FEB-13

MAR-13

APR-13

400,000 600,000 800,000 1,000,000 1,200,000

60%monthly growth

$145AVERAGE MONTHLYVALUE USERSWITH LINKEDBANK ACCOUNTSTRANSFER BETWEENTHEIR BANKACCOUNT ANDECOCASH WALLET

USE OF A BANK-GRADE SWITCHALLOWS ECOCASHTO INTEGRATE WITHBANKS IN JUST

1-3WEEKS

How is EcoCash respondingto the challenges of retailpayments?

SMALLER MERCHANT WITH USSD INTERFACE

20Herald Online,24 June 2011,

Banks still shun rural areas: RBZ,

http://www.herald.co.zw/index.

php?option=com_content&view=arti

cle&id=13423:banks-still-shun-rural-

areas-rbz&catid=41:business&Item

id=133#.UbXgfefVB8E

21 Claire Pnicaud,2013 ,Stat e of

the Industry:Res ults from the 2012

Global Mobile Money Adoption

Survey,GSMA Mobile Money for the

Unbanked Programme, http://www.

gsma.com/mobilefordevelopment/

wp-content/uploads/2013/02/MMU_

State_of_industry.pdf


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CHALLENGE #2: MERCHANT ACCEPTANCE

Problem:In other markets, merchants havebeen reluctant to accept digital payments.Why should they pay a fee to accept a pay-ment something that used to be free? Mer-chants also sometimes fear that terminalsmay not be well supported by the supplier.

EcoCashs planned approach:EcoCashrecognised that selling the proposition to

QUESTIONS FOR OPERATORS

1. Should mobile money servicesexist outside of the bankingsystem or actively try to

integrate with it?

2. Are mobile money operators

in a good position to introducedigital retail payments into their

markets? What level of invest-ment is required to succeed?

retailers would be a challenge, so it hascreated a dedicated company, PayBay,to focus exclusively on this problem.PayBaystaff spend all of their time con-vincing retailers of the benets of recei-ving digital payments, including reduc-tion in cash handling costs, associationwith the EcoCash brand, and increasedcustomer trafc.

A second company, TPS (Transaction Pay-ment Solutions), has been established toprovide a high level of technical support toPOS merchants. TPS trains merchants, setsup new terminals, and provides supportand maintenance for existing terminals.

This support structure is intended to easemerchant fears about the reliability andhassle of POS terminals.

POS terminals can be a signicant capitalinvestment, especially for smaller retailers,so EcoCash has set up an affordable feeand leasing structure:Retailers pay eithera at monthly minimum fee or a smallpercentage of purchases made through Eco-Cash, whichever is greater. Retailers doinga moderate level of purchase volume willonly pay the small percentage fee and thePOS terminal will come at no cost.

Zimbabwe has experienced a proliferationof single-issuer POS terminals and retailershave accumulated a collection of different

bank terminals behind the counter. EcoCashplans to make its POS terminals compat-ible with Visa, Mastercard, and several

banksto help retailers move closer to asimple one-terminal system.

CHALLENGE #3: CUSTOMER NEEDProblem:To customers, electronic retailpayments require a signicant behaviourchange. Why would a customer wantto load cash in an eWallet to pay foreveryday items?

EcoCashs planned approach:EcoCash isresponding to this issue with a marketingcampaign, Live Life the EcoCash Way,which highlights the change problem andpromotes the benet of paying exact prices.

For banked customers, EcoCash is makingit possible to instantly load a wallet froma bank account.A user with an attached

bank account can load their wallet at theretail point for the exact amount and payinstantly. This solves the challenge of ex-pecting users to pre-load their account.

Finally, EcoCash is promoting retailpayments to people who receive money

transfersby explaining that they can payfor goods electronically with received fundsinstead of incurring cash-out fees. Therehas also been a push to sign up cash-outagents and EcoCash merchants.

Will Econet be able to provide workablesolutions to the retail payment problemand stand as a positive example for themobile money industry? With Econetslevel of investment and the change problemproviding a unique customer motivation,the conditions in Zimbabwe are about as fa-vourable as they would be anywhere in theworld. Any MNOs thinking of launchingtheir own retail payment initiatives shouldkeep a close eye on this story.

POS TERMINALSAT $400 EACH = $4M

SPENT ON THE

LIVE THE ECOCASH WAY

MARKETING CAMPAIGN

NEW COMPANIESPAYBAY FOR MERCHANT

ACQUISITION AND TPS FOR

MERCHANT SUPPORT

DEDICATED STAFFSPLIT BETWEEN PAYBAY

AND TPS

Adding a pay merchant menu itemis not enough to crack the retail pay-

ment business. This is what EcoCash

is investing in the opportunity.


12/13

The MMU programme is supported by The Bill &Melinda Gates Foundation, The Mastercard Foundation and Omidyar Network.

THE ECOCASH STORY SHOWSjust howquickly a mobile money operator can scaleits service when there is a conuence ofmarket need, effective operational execu-tion to build strong foundations, and far-sighted commitment (and resourcing) fromtop leadership. In a short time, EcoCashhas become a signicant part of Zimba-

bwes economy. When annualized, the $200million in monthly EcoCash transactionvolume represents an amount equivalent to22% of Zimbabwes GDP.22By continuingto push integration with the banking sectorand by greatly expanding acceptance ofdigital retail payments, EcoCash seeks to

become an even greater part of the nationalpayment infrastructure.

We hope this case study will provoke ahealthy debate about the size of the oppor-tunity for mobile money operators and howfar they should go to seize it. Will Econets

big ambitions end in disappointment andoverzealous investment? Or will Econetend up playing a central role in rebuilding

Zimbabwes agging nancial infrastruc-ture and bringing the blossoming informalsector back into the fold? Either way, thiswill be a story to watch with signicant les -sons for the rest of the industry.

22Zimbabwe GDP estimate from CIA

World Factbook https://www.cia.gov/

library/publications/the-world-factbook/

geos/zi.html

PART 5

Conclusion

ACKNOWLEDGEMENT

We are grateful to Sandy Pedersonof Seed Edit (seededit.com) for

significant help in writing and editingthis case study and to the hospitality

provided by the Econet team.


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For further information please [email protected] London OfficeT +44 (0) 20 7356 0600

Documents

How EcoCash is Altering Zimbabwe's Financial Landscape.pdf