The Health & Profitability of Agent Networks in Tanzania June, 2014 Presenter: Mike McCaffrey, Head of Digital Finance Africa – MicroSave Contact: Mike@MicroSave.net 1
Project Description Through the financial support of the Bill & Melinda Gates Foundation, MicroSave i s conducting a four-year research project in the following eight focus countries as part of the Agent Network Accelerator (ANA) Project: Asia Africa Kenya Bangladesh Nigeria India Tanzania Indonesia Uganda Pakistan Research findings are disseminated through The Helix Institute of Digital Finance. Helix is a world-class institution providing operational training for digital finance practitioners . 2
The Research Is Based On 2,052 Nationally Representative Agent Interviews Data collection Achieved Sample occurred in July/August 2013, using a random route 484, 24% 594, 29% methodology based on the displayed agent census. Red points represent agents Brand Fusion found in 2012 when it collected geo-spatial coordinates of 974, 47% mobile money agents. Blue ones are the ones Dar es Salaam Non-Dar es Salaam Urban Rural interviewed for this research. Sample Profile* Location Exclusivity Dedication Key Non-Dar Providers** Dar es Non- Non- Rural Exclusive Dedicated es Salaam Salaam Exclusiv e Dedicated Urban A 444 934 572 895 1055 1378 572 B 180 256 144 25 555 383 197 C 426 358 182 66 900 669 297 *Note this table shows results only for the top three providers. Numbers in this table sum to 3,496 as they represent all providers served by agents. i.e. if an interview was done with an agent serving three providers, it is counted three times in this table. 3 ** Provider names have been anonymized to maintain confidentiality.
Trends in Agent Profitability & Health Agent Networks are still growing rapidly, as providers vie for market share. This seems to be leading to networks that are increasingly shared between providers, and very profitable agents, who are struggling to manage liquidity for multiple providers. Competition is fierce in Dar es Salaam, driving non-exclusivity and therefore profitability of agents, which earn revenue from multiple providers. Different players in the ecosystem are offering novel solutions for liquidity management, and providers need to assess what is working best and scale it up to move agents farther from rebalance points. 4
79% Of Agencies Have Been Operating For One Year Or Less Major providers all report Age* Distribution Of Agencies aggressively growing their agent networks, and Three Years, 7% therefore there are many new agents in the market. Two Years, 14% However 70% of agents interviewed reported they thought they would Less Than One continue with the Year, 49% business next year, so the small percentage of agencies over two years old probably represents a One Year, 30% high-level of agency turnover as well. * Age here is defined as when the agency was opened irrespective of the providers served. Also note that 9% of respondents 5 have been excluded from the analysis as they did not accurately remember age.
The Lack Of Offerings Means Potential For Product Innovation Only about a third of Products And Services Offered In The Country agents are contributing 120% to client growth. This indicates a 100% 97% 100% high level of Sophisticated financial services agent-assisted have yet to be offered in Tanzania Percent of Respondents Over the Counter 80% on any meaningful scale from the Transactions agents or through handsets. (Direct Deposits). 60% 36% 40% 23% 20% 5% 1% 1% % % % 0% Account opening Cash-in (deposit) Cash-out (withdrawals) Money transfer Bill payments Airtime top-up Credit Insurance Savings deposits to a Welfare/Social payments bank 6 Products and Services
Daily Transaction Levels* Show A Healthy Business For Agents The most common band is Transactions Per Day 30% 21-30 transactions per day. It is intriguing that outside Median Transactions Per 25% Day the capital, urban and rural Percent of Respondents Dar es Salaam 35 areas are reporting similar Non-Dar es 20% transaction volumes, 30 Salaam Urban whereas one would expect Rural 32 the lower population density Total 31 15% in rural areas would result in lower volumes. This is slightly higher than 10% the frequency in Uganda (30), yet lower than that 5% of Kenya (46). 0% 1-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100 101-110 111-120 121-130 130+ Number of Transactions Dar es Salaam Non-Dar es Salaam Urban Rural Total 7 * Numbers represent transactions per day by selected provider, not overall volumes for the agency.
Providers’ Market Share Of National Agent Network Market Share While Tanzania is often cited as a highly Zantel, 1% Other, 0% competitive market, over half of agents serve Vodacom countrywide, and outside of Dar it is Tigo, 27% nearly two thirds of agencies. Tigo is focused in the capital and holds an Vodacom, 55% equal market share there with Vodacom. Airtel, 16% Dar es Salaam Non-Dar es Salaam Urban Rural Other, 1% Zantel, 2% Zantel, 1% Zantel, 0% Tigo, 20% Tigo, 23% Vodacom, Tigo, 39% 41% Airtel, Vodacom, Vodacom, Airtel, 16% 60% 64% 16% Airtel, 17% Agent market share is defined as the proportion of cash-in/cash-out (CICO) agents by provider. 8
Overall Agents Are Non-Exclusive, But It Varies By Area 84% of agencies in Dar are Exclusivity Of Agents By serving more than one provider. Vodacom still has the Location most dispersed network, 90% We expect non-exclusivity 84% making exclusivity more to increase significantly, prominent for now. 80% as subsequent providers expand across the 70% country. Percent of Respondents 60% 52% 50% 45% 38% 40% 30% 20% 10% 0% Dar es Salaam Non-Dar es Salaam Urban Rural Total 9 Exclusive Non-Exclusive
Agents Are Overwhelmingly Profitable* Only 4 % agents are making a 30% Median Monthly Profit (US$) loss as compared to 11% in Uganda Dar es Salaam 115 Profit Per Month 25% Non-Dar es Salaam Urban 95 Rural 95 Percent of Respondents 49% of agents are earning at Tanzania Median 95 20% least $US 100 per month in profits, compared to only 40% in Uganda. 15% Tanzania actually has a lower median revenue 10% than Uganda, but higher overall profitability due to low operational expenses (OpEx). 5% 0% Making losses Breaking even 1-50 51-100 101-150 151-200 201-250 251-300 301-350 351-400 401-450 451-500 501-550 551-600 601-650 651-700 701-750 751-800 851-900 901-950 >950 Profit (In US$) Dar es Salaam Non-Dar es Salaam Urban Rural Total 10 * Is calculated by subtracting expenses from total earnings from all the providers served.
Non-exclusivity Seems To Drive Profitability Location, Exclusivity, & Profitability While non-exclusive agents in Dar are more profitable For exclusive agents, those than non-exclusive agents outside of Dar, the major in Dar are actually less difference is shown to be generally between exclusive profitable than those and non-exclusive agents, regardless of their location. outside Dar, leading us to believe Dar is not the $199 driving factor of $177 Profit ($US) profitability. $80 $73 Exclusive Non-Exclusive Exclusivity 11 Dar Es Salaam Non-Dar Es Salaam Urban
Agents Predominantly Report A Balanced Need For E-Float & Cash Non-Dar es Salaam Urban Dar es Salaam Qualitative research shows agents take an apathetic Cash, 15% Cash, 15% approach to float management, preferring to E-float, 20% About the wait in the shop until a E-float, About the same, same, 66% 25% customer makes a 60% transaction which gives them the needed liquidity. Rural Total It is surprising that there is not a higher demand for cash in rural areas, as it is Cash, 16% expected that e-float is Cash, 20% generally sent from urban to rural areas, and then About the E-float, 22% About the E-float, 23% withdrawn as cash. This same, 57% same, 62% needs further exploration. 12
Rebalancing Is Easy For Agents In Terms Of Time And Money 69% of agents take 15 minutes or less to Time Taken To Nearest Rebalance Point reach their rebalance point. 45% Median Time Taken To 40% Reach Rebalance Point (In Minutes) 35% Percent of Respondents Dar es Salaam 15 Non-Dar es 30% Agents report denying five transactions 10 Salaam Urban per day due to lack of float. 25% Rural 15 Tanzania 10 20% 15% 6% of agents responses were not included here as they reported 10% they did not travel to rebalance. 5% % 1-5 6-10 11-15 16-20 21-25 26-30 31-35 36-40 41-45 46-50 56-60 71-75 76-80 86-90 96-100 121-125 146-150 Time in Minutes Dar es Salaam Non-Dar es Salaam Urban Rural Total Agents tend to pay little or nothing to rebalance: 81% have costs of less than US$1 13
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