Fighting Poverty Profitably Full Report

Comparison between mobile money and current account costs 7 . As mentioned,
annual costs for mobile money accounts are generally 25%-50% of the costs of bank-held
current accounts, or $6-to-$15 vs. $20-to-$30. All categories of activity cost less for a
mobile money provider, with the largest difference in back office processing.
1, 2. Combined customer service and channel management costs are about 40%
lower – $4 compared to $7.
3. Back-office processing costs are about 95% lower – as low as $1.00 compared to
roughly $10. Paper statements, which cost banks roughly $9 annually, provide the
primary source of difference.
4. IT platform and application maintenance costs are about 65% lower – an
estimated $2 compared to $6.
5. Support functions also differ in cost. Banks generally have higher support function
costs than do providers of mobile money services (e.g., telcos), in part because
they carry significant risk management costs that telcos do not. Banks will allocate
some of these costs to the current account, according to allocation rules that vary by
bank.
Comparison of current account costs in developed
and developing countries
As mentioned, average annual costs for current accounts in Europe are $83, vs. $20-$30
in developing countries. A comparison between developed and developing country cost
structures illustrates how country-specific factors that providers cannot control influence
account cost: labor costs and overhead from real estate and capital equipment play a particularly
large role. Other factors that providers can influence, but that vary by country,
also matter – account churn and labor productivity are important examples.
In order to estimate annual costs of current accounts in developing countries, we extrapolated
them from the costs for similar activities in Europe. Exhibit 10 illustrates how we
did this.
The difference in costs has four primary causes: developing countries have higher churn,
lower productivity, lower overhead, and much cheaper labor.
1. Higher churn and account dormancy. Churn in the developing world is
roughly 150% higher than it is in Europe (i.e., corresponding to an average account
lifetime of 4 years of use vs. 11 years in Europe). The difference in the rate of account
dormancy is similar (i.e., corresponding to roughly 20% of all accounts lying
dormant versus only 8% in Europe). Thus, all else equal, both on-boarding and
account maintenance make a larger relative contribution to costs per year of use in
developing countries than they do in Europe.
2. Lower productivity. Employee productivity in the developing world tends to be
lower than in Europe, particularly compared to the most efficient European banks.
We estimate that developed country productivity is 50% of the European average.
This increases labor costs in the developing world, assuming equalized wages, increasing
the contribution of both on-boarding and use-maintenance costs.
7 Since current accounts and mobile money do not have equivalent functionality, their costs are not fully comparable. However,
since each may be a way of providing payment services to poor users, it is nevertheless instructive to compare costs.
FIGHTING POVERTY THROUGH PAYMENTS I SEPTEMBER 2013 www.gatesfoundation.org 31