February 14, 2012 | By Elizabeth Galpin, PAYG Solutions, UK
They’re all subtly different, they all have a place in society in both developed and emerging markets, and it seems like everyone is after a piece of the pie.
This paper discusses how they differ, in what respects they are similar, and the challenges each is facing within the respective target markets.
• Mobile Wallets are mainly all about using your mobile for shopping, with opportunities for marketing, inclusion of loyalty and reward programmes and using all of these to convert customers from browsers to shoppers;
• Mobile Banking is all about extending services to existing customers (who already have a bank account with that institution) to include mobile features; and
• Mobile Money aims to extend the reach to unbanked customers, or to expand financial services to new customers – in other words it’s all about reaching a whole new demographic, thereby increasing the customer base and providing it with a whole range of services.
It’s all that simple…or is it?
In developed countries, the emphasis is most definitely on mobile wallets, with the opportunity to provide a way of rolling payment, vouchers and marketing into a single solution. Although ‘Send Money’ (especially international remittance), is perceived as being required, it doesn’t appear to be at the top of the Agenda. Having said that, one of our Kenyan business associates recently remarked to me that ‘M-PESA has been the solution to so many problems we never knew we had’ – what a profound statement that was of hers! In the same way, I can see that a successful P2P mobile money proposition in the West could provoke a similar reaction – we have online banking, and we have mobile services linked to our bank accounts, but nothing, that I know of (yet), which allows you to send money quickly and conveniently from your mobile phone. Recently my son phoned to say that he was really keen to come home and see me for my birthday, was at the station, but didn’t appear to have any money in his account to pay for his train ticket. We resolved the problem, but I couldn’t help but think how much quicker and simpler it would have been to whip out my mobile and select the ‘send money’ option from my mobile money app….
It’s generally simpler to implement a completely new system, rather than one that relies on replacing an older solution, or requires complex integration to existing solutions. My thinking here is that it is simpler, technically at least, to put something in place to serve the underbanked, many of whom have not had access to any sort of technology until the mobile came along and revolutionised their ability to communicate and do business.
Contrast that with developed markets, where 80 – 90% of the population have had bank accounts for several decades, IT systems have been growing up and shaping business since the 1970s as have land-lines, faxes, then emails and the Internet.
I think most people accept that one of these days, we will routinely be using our mobile phones for transacting. That probably applies in both developed and emerging markets; it’s just the implementation models that differ. Mobile money implementation faces challenges everywhere; in developed markets solutions are being targeted at smart phones, and the challenges are generally around integrating with existing financial solutions. In emerging markets, the challenges are not focussed around integration, as they are by and large closed loop systems, but on how to encourage adoption of the services. It is still generally assumed that the target phones are likely to be at the lower end of the spectrum, and as a result USSD solutions seem to be winning the battle over and above apps. Apps can either be delivered to customers on the Sim Toolkit (limited to MNO led models, requires a SIM swap and is problematic to update), or J2ME apps which need to be downloaded, or can be pre-loaded on the phone. Pre-loaded apps on the phone prevents the need to download the app onto the phone, and generally gets around any compatibility issues between the app and the phone model, but the problem with menu updates still remains. USSD provides a much less friendly user interface, but runs on nearly all handsets. Establishing agent networks remains, in my books, the most challenging, and the most likely to affect the success (or not) of any mobile money implementation. I won’t dwell anymore on any of these topics – all are well documented and hotly debated.
The models and underlying technologies differ between the different mobile money implementations, and I do think that it isn’t quite as clear cut as the ‘emerging market’ model and the ‘developed economy’ model.
In Kenya , the M-PESA Send Money payments solution struck a chord, due to a massive need for a ‘send money home’ solution. There is an inherent culture in Kenya , whereby young people and men leave their homelands and go and work in urban areas to earn money, some of which is sent back to their families in the rural areas.
Out of this ‘send money’ proposition an entire ecosystem evolved, as people realised the benefits of moving away from cash. That same ‘send money’ culture is not necessarily replicated throughout Africa , although there is a definite realisation that cashless banking is beneficial to everyone.
The collective wealth of people at the bottom of the pyramid (BoP) has been realised – M-PESA provided tangible evidence of that, and as a result many financial institutions have joined in the race to implement their cashless banking solution targeted at this majority market segment.
A complex array of reasons have prevented identical similar M-PESA success story in the rest of Africa, BUT there is a definite move towards cashless banking, be that mobile money, prepaid solutions or agency banking. Almost without exception, every emerging market now has several solutions which are being rolled out to provide mobile banking facilities to all market segments, including BoP.
Dealing with cash-only transactions severely limits your options in terms of how you can grow your business. The mobile, coupled with cashless banking and mobile PoS Devices, means that businesses in Africa can now start to introduce systems which have hitherto not been possible. These include:
• Analysis on customers’ spending habits
• Loyalty / reward schemes
• A means of being able to maintain contact with customers using targeted text message campaigns
• Savings and loans via a mobile money account (Addressing the Cash-flow challenges that constitute a great hindrance to SME growth in emerging markets.
I’m undecided whether the ‘send money’ is a compelling need in all cultures in emerging markets, and should form the underlying basis for all mobile money implementations. A need to keep your money safe and sound in an account of any type is a definite bonus. In developed markets, the competition is to see who can roll out the most successful mobile wallet – linked to spending your money on goods, with the focus on international remittance as next in line. I wonder if the emphasis on mobile money in emerging markets should be more focussed on a ‘buy goods’ and ‘pay bill’ solution, rather than a ‘Send Money’. Because of the enormous success of M-PESA in Kenya , there are now many M-PESA clones being implemented in several emerging markets, of which many are struggling to gain traction. If we look at the inventive ways in which ‘send money’ and ‘pay bill’ are used in Kenya to provide answers to a variety of business requirements, I should think this could the subject of a thesis all on its own. But the infrastructure needed to establish the Agent network to service an entire country, in order for a ‘send money’ solution to be as successful as M-PESA in Kenya , is vast and expensive.
It therefore puzzles me that so many mobile money implementations focus on a ‘send money’ proposition. The concept of a mobile money account is brilliant and useful, with multiple benefits, but whether you use that account first and foremost for your savings and with which to buy goods and pay bills, and then eventually to send money to your family, once the agent (or merchant) infrastructure is sufficiently developed – that’s the question I’m currently pondering.
Here are a few examples of mobile money implementations in emerging markets
Virtual Account no. linked to mobile phone no. This is the M-PESA model, where a virtual accout (also known as a stored value account) is created for each registered customer, with their mobile number essentially becoming the account number. For an MNO-led model there is a need for a trust account to be set up between the MNO and a banking partner. Registration of customers is via an Agent network, with the agent being trained to carry out KYC (Know Your Customer).
Physical Bank Account created, which is linked to Mobile phone no. of the customer. This is a hybrid mobile money / mobile banking model, and hasn’t proved to be as popular as the previous category, possibly because the requirement to go to a bank to register prevents customers from adopting the service.
Agency Banking model. Customers have a stored value account, linked to their mobile number, and customers are notified about activity on their account via SMS, but they tend to go to their nearest agent in order to transact. This could be because they don’t have USSD / STK / free format SMS functionality on their phone to allow them to transact, because they aren’t sufficiently confident to use those tools, or because they are illiterate. Or the solution may not provide a means for the customer to transact on their mobile phone. Either way, most or all of their transactions are channelled through the agents.
Mobile money, mobile banking and mobile wallets in developed markets
Mobile banking – allows the customer to access their bank account details from their mobile phone, and sends texts to inform them of certain transactions / activity on their bank account. This really is quite different to mobile money – just another communication channel, and an extension of internet banking.
Use of airtime to pay for goods – this really isn’t mobile money either, but has to be mentioned here for the sake of completeness. The MNOs are providing more and more services which can be paid for by the customer’s airtime. These services are generally textbased, and include Vodafone’s TextGiving service, Etisalat’s mParking service and iPhones iTunes to download apps or music. The way in which these services are billed depends on whether your contract with the MNO or prepay or post-pay. If the former, your airtime balance will be immediately debited, and if the latter, the transaction will be added to your bill, which will be paid by direct debit at the end of the month.
Mobile Money services such as Square and Google wallet
Google Wallet allows the customer a choice of a prepay card (stored value account) or a physical Bank Account (provided by MasterCard). It also combines loyalty schemes and utilises NFC (near-field communication) technology to complete the transaction. Aimed primarily at people with Smartphones, in order to benefit from the complete shopping experience, this brings together a complex set of technologies to provide a payment platform. Recently there has been an alliance between Google Wallet and T-mobile, which is an interesting development, and even more recently there have been some security scares, with the wallet being hacked.
Square. In October 2010 Square launched its square card reader to small businesses, which enabled iPhone, iPad and Android users to use a credit card to pay for purchases via their mobiles. Square Register, a second generation product, has since been launched. Once a customer has paid with a debit or credit card, they are able to download the square app from an email. They add the business to their CardCase, which means they no longer have to produce that card to make any future payments at that store. Of course, that now opens up endless marketing opportunities for the store, because it is possible to detect when the customer is now in-store. Information such as ‘special of the day’ loyalty offers can be sent to the customer’s mobile, and the solution has literally become the CRM tool for small businesses.
Isys, which has parent companies ATT, T-Mobile and Verizon, and is a network to allow consumers to use their phone for payments and reward cards, is a direct competitor to Google Wallet. When initially launched it seemed as though Isys would be a competitor to credit card companies, but it seems to have changed its strategy, and is now supporting payments from major credit card companies such as Visa, MasterCard and American Express.
The solutions and the way in which they are rolled out, differ radically between emerging and developed markets. Only one thing is certain. Mobile money is here to stay, and will continue to go from strength to strength. The eyes of the world are watching and waiting to see how the various scenarios unfold.
Send Money. There is a need for a peer-to-peer solution. I know of several initiatives to develop and launch a P2P mobile payment solution and I firmly believe that in the case of domestic remittances, if and when this ‘catches on’ people will realise how useful this service is, but the bigger prize is within the international remittance space. The movement of money across the world is well documented and researched, the cost of international remittance is generally high, and it is widely felt that there is scope to trim these transaction costs and still make a healthy margin, if sufficient volumes can be processed.
Top-up There is always a need to top-up your mobile wallet. In emerging markets, the ‘cash in’ methods tend to be:
- Government payments or salaries made directly into mobile accounts
- Loans paid directly into mobile accounts
- By visiting the agent and paying money into the mobile account
In developed economies, if the wallet is linked to a prepaid account, it will usually be topped up by making an online transfer from an existing Bank / current account. If the wallet is linked to an existing bank account, then salaries have probably been paid into that account, or an online transfer has taken place. It is rare that customers would ever physically visit a bank or agent to transfer money.
Direct Debit Payments. To my knowledge, no mobile money system for emerging economies has provided a standing order facility, so that bills can be paid at regular intervals. I also don’t see that mobile wallets in developed countries will provide that facility – it will be assumed that you use your regular current account to do that. But in emerging economies, there is a definite need for regular bill payment, so I’m hoping that this will be introduced as a facility at some stage.
NFC. An absolute necessity in developed markets, is the use of contactless technology. We haven’t seen too many successful NFC implementations in emerging markets, but given that NFC is merely a technology that sits on top of the wallet, there is no reason why NFC won’t become equally as popular in emerging markets, as more smartphones are sold in those countries. NFC is the communication means which enables the transaction to take place quickly. That same transaction could take place using SMS or a Java app (selecting an option from a menu), USSD or on a PoS device. NFC merely enables a swift and painless communication to be initiated between the mobile phone and the terminal.
Because NFC only acts over a very small physical space, the chances of erroneous transactions being processed is highly unlikely (that would not be the case if wi-fi was being used – the transaction could easily be charged to the wrong mobile phone account). In developed markets, we are used to ‘chip and pin’ transactions which are swift, and anything that took longer, or required more effort, would not be well received; hence the need for NFC technology when using your phone to transact. In emerging markets, where people are used to a slightly more time-consuming ‘send money’, ‘buy goods’ or ‘pay bill’ service, NFC readers in stores would definitely be welcomed with open arms for the ‘buy goods’ solution.
Prepaid Cards. I recently read David Schropfer’s white paper on Google Wallet and the new payments ecosystem. The biggest eye-opener to me was the revelation on how much money companies make from writing off liabilities as a result of prepaid cards not being used, or small unspent amounts on the cards not being used. A phenomenal amount! I can’t see them wanting to lose out on that money – is that a disincentive for them to replace prepay cards with mobile wallets, I wonder?
And that led me to wonder about what MNOs make on unused prepay SIM cards. In the first instance they expire, and in the second instance, people move from a prepay model to a contract model, very possibly never bothering to spend the money that is left on their prepay. I’d be very interested to find out that information, for sure!
In emerging markets, using the M-PESA model, the difference is that the bank account behind the mobile money account is a trust account, which means that the MNO does not own that money, and cannot therefore ever write off the liability of any mobile money accounts no longer in use. That money can go to charity, but it cannot go to the MNO.
Leveraging Mobile Money in emerging markets
In emerging markets, the technologies exist to enable businesses to play catch-up (to developed markets) quite quickly, provided that customers have moved to cashless banking. Even for non-smartphones, there are technologies available which will enable the actual location of a mobile phone to be detected. That, coupled with software to enable retailers to analyse their transactions, their customers’ spending habits, and to inform them (via SMS) of any special offers, means that emerging markets could quite easily be just as effectively using mobiles as a marketing tool, as in developed countries.
In developed markets, it’s safe to assume that if you have covered android and iPhone / iPads, then you’ve probably managed to reach a large percentage of your target market. There is much reliance on in-built smartphone technology (positioning software so that you can see when your customer is in the vicinity of your shop), the need for internet / GPRS and so that probably excludes non-smartphone users from using your wallet anyway.
As you can see there have been enormous advances in technology over a very short time. With so many solutions available, the biggest challenge to distributors and implementers of these technologies is to match the most suitable solution to the most appropriate requirement.
It’s an interesting space, with much to play for – no wonder so many major players are all clambering for a piece of the pie!