Banking on mobiles: Operators are rolling out new services, but may face a shallow market

Mobile network service providers in Papua New Guinea have rapidly emerged as catalysts for growth since market liberalisation in 2007. This has cemented the telecommunications sector’s role as a fundamental component in meeting national development goals.

Nowhere has this been more important than in PNG’s rural areas, home to 85% of its population. The proliferation of mobile network coverage across 70% of PNG’s 425,000-km landmass and off-lying islands has, however, overcome great obstacles that have challenged its governments for decades and represents a tangible mechanism for social and economic change.

WEALTH OF POTENTIAL: While PNG is host to thriving urban and industrial centres, its rugged terrain and varied geography have rendered many rural communities isolated because of inadequate infrastructure. In many such areas people are largely dependent on subsistence agriculture and remain outside both the formal and informal economies. Yet the growth of mobile subscribers since 2007, which hit 1.9m in 2010 at a penetration rate of 30%, has demonstrated the nation’s growing economic potential.

This has not gone unnoticed and in line with strategies already successfully deployed across developing economies in neighbouring Asia and distant Africa, PNG’s growing affinity for the mobile phone has revolutionised access to services.

NEW SERVICES: With the largest national coverage and market share, Irish-owned firm Digicel PNG has been at the forefront of pioneering service delivery through its mobile phone network. Developed by Australian firm mHITs in conjunction with PNG telecommunications provider DataNets in 2008, Digicel’s Easipawa (“Easipay”) service was launched in 2009. The program allows its subscribers to purchase pre-paid electricity by using their Digicel pre-paid airtime credit.

This revolutionised the market, providing its network users the means to recharge their pre-paid PNG Power electricity metres 24 hours a day via SMS vouchers sent to their phones. Previously, electricity vouchers were available only during business hours from selected and stores and agents that were few and far between. This was an inconvenience for those on the grid.

The market’s response was overwhelmingly positive and Digicel reported a customer database of 68,000 in 2009. By 2010 it was processing 7000 transactions per day at PGK0.70 ($0.33) each, showing a potential monthly revenue of PGK147,089 ($70,000). Today it is reportedly responsible for 60% of all pre-paid electricity purchases in the nation.

Its potential grew further in May 2012 when it expanded its partnership with Bank South Pacific (BSP) to accommodate voucher payments deducted directly from subscriber’s bank accounts, rather than their Digicel pre-paid credit, or added to their post-paid bills.

Though the move was undoubtedly successful, its impact was restricted by the fact that just 12.4% of households had access to electricity in 2010. Current development goals project up to 10.5% annual growth to reach 70% of households by 2030, indicating massive future expansion, but the market has recognised the potential to do this, leading to a large-scale roll-out of services through PNG’s financial institutions.

MOBILE BANKING: In 2009 BSP became the first financial institution in PNG and the greater Pacific region to provide mobile banking via SMS to its customers. Initially, this was an exclusive partnership with Digicel, but was later introduced to BeMobile and Citifon that allows BSP customers to transfer funds, check their account balances and transactions, and to buy mobile phone credits from their respective carriers.

Consequently, Digicel PNG CEO John Mangos reported that the mobile carrier was processing 25,000 transactions per day in 2011, and BSP recorded more than 180,000 of its customers were now using its mobile banking facilities. In the interim, BSP also introduced salary notification services and partnered with BeMobile, while the National Superannuation Fund ( NASFUND) and Nambawan Super launched their own mobile-based balance checking services via Digicel.

None of these services are unique to PNG, but its pace of development has surprised many and has joined Kenya and the Philippines in the mobile money industry’s success. Moreover, as PNG’s telecom providers have expanded and accelerated their roll-out of WiMAX and 3G services in 2012, demand is expected to grow. PNG’s newly connected population’s adoption of new services bodes well for future technology and the mobile carriers that are uniquely placed to benefit.

Growing network coverage has mitigated or eliminated the requirement for institutions to invest in hard infrastructure in remote or potentially low-yield regions. Utilising the network has reduced logistical and financial transaction costs and strengthened transparency and accountability. For the network providers, this substantially enhances average revenue per user and reduces churn, building brand loyalty through its value-added services. However, PNG’s mobile network providers have only begun to tap their real potential.

Despite BSP’s nationwide presence, the Asian Development Bank estimates that just 15% of PNG’s population has access to the formal and informal banking sector. In 2009, the nation had less than three commercial bank branches for every 100,000 people. While BSP have moved to fill this market gap in part by rolling out wireless rural branches, which it hopes will create 200,000 new customers over the next three years, banking services still require an account, paperwork and identification documentation.

SEND MONEY QUICK: Previously, Post PNG had provided an alternative with its long-running Salim Moni Kwik (“Send Money Kwik”, or SMK) service, but the programme was limited to facilities with fax capabilities, making it inaccessible to many. July 2011, however, saw with the launch of mobile banking services in the form of Digicel’s Cellmoni and Post PNG’s MobileSMK.

This is not a guarantee of uptake. “There are only handful of countries where mobile money services have been an unmitigated success, but on the surface, PNG fits the profile of a country where mobile money could really take off,” Greg Lipscomb of Digicel PNG’s business development solutions manager told OBG.

Free to register, and with no identity card or minimum balance required, subscribers to Digicel’s Cellmoni service are able to pay bills and send or receive money that can be cashed through a network of agents. “With MobileSMK you don’t need a bank account,” Brandon Thomas, Post PNG’s project manager said to Business Advantage. “This is why MobileSMK is so significant, because it opens up the formal financial services to anyone with a Digicel phone.”

Both services will help to tap PNG’s unbanked population and provide a viable mechanism that caters to the country’s growing urban-to-rural remittance flow. Post PNG’s financial services general manager, Kenei Gumaru, reported that it had processed PGK1m ($475,900) in the first month and it received a boost in September 2011, announcing a partnership with financial services firm Moni Plus. Plans have been announced to partner with Western Union for overseas money transfers as well.

PNG’s Small Business Development Corporation has identified access to affordable credit as the single biggest obstacle faced by the informal economy – and one that these services would help to mitigate. However, telecoms companies will need to be careful when straying beyond their core business, as there are vastly different microeconomic and cultural factors behind the success of mobile money initiatives in other countries, notably Kenya, that do not exist in PNG.

Digicel’s Cellmoni service, for example, is reporting slow uptake. However, the company is also drawing revenue from Post PNG as host to the MobileSMK application on its platform. Since no more than a few competing alternatives are likely to become available soon, the firm remains confident.

Word of mouth is critical. “Mobile banking is a bit like social networking in terms of its marketing and growth because word of mouth and whether someone’s friends are using the service can greatly impact service adoption,” Digicel’s Lipscomb told OBG. “Building a critical mass of users is crucial. However, services like Easipay have shown that user education and quick service adoption is possible in a country like PNG, when you have a compelling mobile service to offer.”

RIDING MOMENTUM: Kenya remains the industry’s standout success story, with 73% of mobile subscribers using mobile money customers and transfers equivalent to around 11% of GDP each year. Yet Kenya is also a far older and more mature market.

BSP and Post PNG’s comparative successes arguably underline the obstacles facing new market entrants in PNG, in which educating the consumers about financial literacy is as integral as explaining the technology’s functionality. But an estimated 90% of Papua New Guineans are without access to basic financial services and the rapid, sustained uptake of services such as Digicel’s Easipawa indicate the market is ready to adopt services if they are useful and properly targeted. As PNG’s economy gains further momentum, all eyes are on the expanding services being offered by its mobile providers.