Thursday, June 25, 2009

Mobile payments' transaction costs

I recently had a discussion on what the pricing should be for mobile payment transactions. Of course, the right answer is "what the market will sustain." In other words, what is the value delivered by mobile payments to subscribers. But before this discussion can be had, one should have a crisp understanding of the cost of these type of transactions. If the price is less than the cost, delivery of the transaction will not be sustainable.

Below is a list of the different sources that will contribute to the ultimate cost of the solution. This is not comprehensive list and I would not like to put specific values to each as they tend to differ from one deployment to another, but I hope this will get the ball rolling, and stimulate further discussion:

  • The first contribution is capital cost. It is impossible to offer these services without investing in systems, infrastructure and equipment. I have found that this is the cost element that is most vigorously attacked. Mobile payment operators are of the opinion that if they can cut this to the bone they will be able to deliver a cheap service. The contrary is true: spend on the installation and the rest of the cost will be lower.
  • Registration costs are often bigger than expected. Preparation of registration material, the people required in support of the process and of course marketing cost all contribute to this. It may be a good idea to ensure that the subscriber pays for this.
  • We have found that the biggest cost is often the cost of support. The cost of a call center, support center, people that reset errors and technical support. This is often under-estimated and sometimes escalate if the system selected is not meeting the need. This cost is a recurring cost and should be balanced with capital cost. If the right investment is made in the beginning, operational support will be much less.
  • Cost elements that are often not catered for (or not properly understood), include the cost of compliance, the cost of fraud and theft, the cost of lost opportunities etc. Systems that does not work or allows loop-holes for fraudulent attacks etc. will ultimately be more expensive than others.


aline said...

I am working on an assessment of these costs in Africa and would be very interested to share views with you.

Martin said...

Very interesting article. I agree completely, the cost of support (resolving problems) are way higher if the right investment is not done during planning and development phases of the infrastructure.