Date: Thursday 10 May 2012

We will take a look at the lessons learnt from the first decade of mobile money and discover what will be the defining features of the second wave of deployments.

At this point in the journey, the focus is on collaboration and practical implementations of technology. It is essential take into account not just the emerging and the developed markets but the substantial middle ground. In this space the focus is on bridging mobility and financial services to bring useful applications to vertical markets; government, corporate, insurance, retail, microfinance.

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Evolving Mobile Money: Interview from MWC2012

Mobile money has huge potential for emerging markets like Indonesia where there is a high percentage of migrant workers who have left their homes in rural areas in search of better income in the cities. The population of Indonesia is 230 million, of which more than 60 million are unbanked. There are also more than 25 million migrants within Indonesia. People are already sending money from cities to rural areas, however there is a limited number of existing services and the associated fees are quite high, usually between 5 and 10% of the transaction volume.

Another reason why Indonesia is a great market for mobile money is because of a very high mobile penetration rate. There are already over 230 million mobile phone users in the country, most of which are prepaid. Indonesians have a history of embracing new technologies, they are the second largest number of facebook members in the world after the US, and the main point of access if through the mobile phone.

So what challenges need to be overcome to launch a successful mobile money service. Firstly, meet all regulatory requirements, this is essential in any country. It is also important to target the right customers – the migrant, unbanked customers will see huge benefits in a mobile money deployment. Once launched, Promotion can play a huge role in encouraging adoption. The potential to combine the power of promotion with mobile money is an emerging trend from innovative operators and financial service providers around the world.

eServGlobal and mCoin are working together to build a service which brings unique value to the Indonesian market. We are building a service which is focused on consumer to consumer domestic money transfer, geographical and ethnic specificities and promotional activities.

I’m referring to ordinary customers. Those people who are completely out of the technology and finance domains. These people in their majority still use their phone to make and receive calls and in the best case surf the internet.

Relatively speaking, mobile payment services are still in a nascent stage and new in the payment space. All payment ecosystem stakeholders need to address the trust issues consumers have toward mobile payment services. Pushing out a digital mWallet is not enough to convince a customer to switch from their leather wallet to a mWallet.

Ordinary customers’ perception of mobile payments and mWallets need to be changed. Customers need to be assured that the new payment systems and mobile payment services are as secure as their current payment instruments. mWallets must become an everyday tool that will bring new benefits and purchasing experiences in addition to the dematerialisation of the leather wallet. The mWallet should become an everyday tool that will be seen as a lifestyle commodity and will influence the customer perception of value.

Customer value can be created by combining online visibility of all customers’ accounts, payment instruments with mobility. Mobility and visibility will enable customers to better control their expenditures and make informed decisions before making a purchase.

Real use cases need to be expressed in a language comprehensible to ordinary customers, showing concrete benefits and explaining how customers can save time and money, not just relying on the convenience and ease of contactless mobile payments and telling the customers how fancy and easy to use mobile payments are.

Before asking when ordinary customers will start using mWallets? Or when mobile payment adoption rates will reach the inflection point? We need to come up with simple answers expressed in a language comprehensible by ordinary customers to the following 4 main questions:

1) What is a mWallet?

Does the mWallet simply dematerialise all plastic or paper credit, debit, membership and loyalty cards from people’s leather wallets or is the mWallet is something more?

The extent of the value proposition offered by mobile payment services is yet to be clearly defined and explained. A mobile payment service is an instrument that enables customers to better control their finances and enjoy a better shopping experience.

Providing online and anywhere visibility of accounts and payment instruments (credit & debit cards and all other type of stored value accounts) from different service providers is not enough, as customers will still have to use separate tools to get the information and efficiently manage budget planning and control. The integration of all customer bank accounts, credit cards and all other type of stored value accounts into a single mWallet with built-in budget planning and control as well as shopping/purchasing applications will empower customers to manage their finances in a more proactive way and have a better shopping experience.

Everyday customers should be educated to understand that the mWallet is most valuable if it becomes an intelligent and customizable payment tool with multiple payment instruments and built-in budget planning and control tools. I prefer to call it a personal budget control and purchase advisor that can not only make customers’ lives easier, but also help to save both time and money.

mWallets with budget planning and control built-in applications will also have positive side effects. It can be safely assumed that not every customer will be able to fine tune such applications to get the desired results. This is why consulting services could be proposed for people that would like to be advised and assisted to fine tune their budget planning and control application at initial stages.

Integration of budget planning and other kinds of value add applications into a mWallet offer customers unprecedented power and interactivity, customers can take wise decisions instantly, everywhere and anywhere without opening up other applications or a web browser to find the required information.

The mWallet and all associated applications should preferably be stored on the cloud to allow customers to use their mWallet from any connected devices for any type of mobile payments like P2P and remote payments and not only for proximity payments from their mobile phones.

2. Do I need to change my phone if I want to start using a mWallet?

Of course many options are possible to facilitate mPayments such as an NFC sticker, NFC enabled SDCard and NFC enabled SIMCard. This means not all customers will have to change their mobile devices/phones in order to be able to use NFC enabled payment services.

On the other hand, other technologies can be used to perform P2P, remote and proximity payments without the need to change the mobile handset.

3. What do I need to know about security?

Given the relative newness of the mobile payment industry and mobile device security in general, fraudsters will definitely attempt to exploit all weaknesses. This is why the customers should be provided with simple answers expressed in easy to understand terms. The common security questions which must be addressed are:

Will the electronic payment cards and mWallet issuers offer the same insurances as currently offered by banks for traditional payment cards?

Is NFC secure enough?

What if I will loose my phone or my phone is stolen?

I believe that customers will only adhere to mobile payments if they can access the same insurance coverage available for traditional payment cards and services, allowing them to block a card in case of theft or loss.

4. Is the mWallet free of charge of payable service?

If Freemium who will be responsible for mWallet application management, support and QoS?
TSM
MNO
Bank
etc

If Freemium, the service provider that offers the mWallet must clearly define the services perimeter, rights and responsibilities of each party.

If Freemium who will support the mWallet application evolution, management and support as well as provisioning costs?

Regardless of who will own the customer and if the mWallet services will be Freemium or Premium, service providers that provide mWallet services will have to collaborate with specialized companies that will be able to provide such support.

As the world is not black and white, there will definitely be freemium and premium mWallet services. Customers that use the freemium mWallet services will pay in one way or another, as someone will have to support and evolve the mWallet services. It is not a secret that freemium services are not always high quality services, that’s why there will be freemium as well as entry level and premium payable mWallet services.

The question is, is anyone out there ready to pay for entry level or premium payable mWallet services? I believe that there are customers ready to pay for a service that will make their life easier and help them save time and money. Many people will argue that tools such as Microsoft Money, Mint, Budget Pulse and even an Excel spreadsheet, will do the job. Yes, but here we are talking about customer experience and adoption of mobile payment services. Again, the industry should provide customers with simple answers expressed in easy to understand language to the following questions:

Why should customers pay additional money on top of credit/debit card fees?
Will mWallet pricing be affordable and offer services worth paying for?
What are the benefits of using the mWallet services?

In my opinion, there will be plenty of customers ready to pay for mWallet services providing that the mWallet will feature additional value added services on top of basic services such as payment instrument dematerialisation.

The following value added services will present real value for certain customers ready to pay for mWallet services.

• Enable the customer to define monthly budget per retail category (e.g. €150 Gas, €800 food, €200 entertainment, €200 eating out etc)
• Enable the customer to assign a payment instrument per retail category or per retail category associated to a type of merchant
• Notify the customer when she/he reaches a threshold (per retail category and/or generic) or has insufficient funds to clear the transaction
• Notify the customer when the purchase will in lead to overdraw of the account, which may lead to the cases where scheduled bills will be not be able to be paid
• Enable the customer to configure and generate scheduled or on demand expenditure reports
• If the purchase amount is significantly higher than the customer’s credit limit (setup by bank or customer itself per retail category or generic credit limit), and requires the credit limit to be raised, then it should be done interactively and online and the customer should validate or refuse credit limit changes
• When paying by prepaid cards provides more value and there are no sufficient funds on the debit card, automatic prepaid debit card top up is worthwhile when the customer is in proximity to particular stores that announce very good deals

When mWallet services are combined with loyalty programs associated to customer’s payment instruments the following value added services will also present a real value for the customers:
• Show the customer how many reward points they will gain if buying a specific product, by simply scanning the product barcode
• Show to the customer how many reward points they will gain if buying multiple products, by simply scanning the products barcode
• Provide an immediate purchase transaction summary including rewards points accrued or redeemed as part of the purchase
• Let the customer redeem his rewards points instead of paying with his mWallet payment instruments
• If the customer has one or more payment instruments that can be used to perform the purchase or pay for a service then select the payment instrument that will provide the maximum value, in terms of accrued reward points or a more advantageous interest rate
• If the customer has one or more payment instruments, then select the payment instrument that has a coupon that could be applied to this purchase. Allow the customer to choose if there is more than one
• Only couponing programs that do not require permanent customer involvement will present a real value, more exactly automatic coupon selection according to the available payment instruments at the POS without the customer having to remember

Other type of mWallet integrated applications can be also very useful for the ordinary customers. For example:

Use of mobile device to scan the goods while shopping & access online information about the rewards offered for each product. It’s up to the customer to select his preferred products with less or no rewards at all or chose product with more rewards.

Transaction history offered by banks or credit card controlled VAS is not detailed enough, as the customer can see only the merchant and the amount. These transaction histories are not enough to efficiently control the budget as no analysis is possible per type of purchased product or retail category. eReceipts integrated into the mWallet transaction history offers higher transaction history granularity enabling the customer to define better budget management rules and get more detailed expense reports. eReceipts will also feed price comparison platforms.

Integration of all above mentioned application into a mWallet offers customers unprecedented power and interactivity, customers can take wise decisions instantly, everywhere and anywhere. The mWallet and all associated budget planning and control, shopping/purchasing applications should be stored on the cloud to allow customers to use their personal budget planning/control and shopping advisors from any connected device not only their mobile phone.

So, what are the next steps? When will ordinary customers start using mWallet and mobile payment services? When will mobile payment services take off and reach the inflection point?

Personally, I am ready to start using a mWallet right away. If I could store everything I have in my leather wallet in a mobile device, even better to store everything on the cloud and access my mWalllet from any connected devices. But what about my keys, phone charge and other objects? In any case I will have to carry a handbag, surely the bag will get smaller and lighter. But I don’t think we will be able to store everything on our mWallet in the near feature.

Lessons learned from other businesses show that putting all your eggs in one basket is not a good start. As already experienced with mobile data technologies, betting on a single technology for the short and medium term is not economically viable. This is why in almost all networks, MNOs have a mix of 3G, EDGE and GPRS technologies that enable them to provide good coverage and still have economically viable business model.

The mobile payment ecosystem should not wait for massive NFC deployment; there should be a mix of technologies and methods to enable any type of mobile payments.

Smartphone penetration in the developed market varies between 20% and 40%, but how many of those Smartphones are NFC enabled? And how many of those Smartphones provide sufficient processing power and are capable of running secured mWallet applications with built-in budget control and shopping/purchasing built-in applications?

Not all merchants would be willing and capable of investing or replacing their infrastructure with NFC enabled POS. This why services providers that plan to launch mobile payment services will need to support alternative technologies for proximity payments that offer similar user experience (QR codes, ultrasounds, etc). In my opinion this is the only way to attract more merchants and customers to use mobile payment services mWallets and reach a critical mass.

Banks should open up access for mWallet services and alternative payment instruments in the same way they did for credit cards in order to encourage the customers to change their leather wallets to mWallets.

To conclude, I would say that the mobile payment services inflection point will be reached in the next 7 years. It took almost 6 years for M-PESa to become of the most known success story, but we should not forget that Safaricom had all the ingredients to make M-PESA a success, while in developed markets there are already widely acceptable payment instruments.

Get used to it. Mobile phone companies are targeting special offers to small groups of customers in a move aimed at boosting revenues and profits.

The initiatives are part of a trend towards the greater use of business analytics by utilities that promises more relevant promotional offers, but which has the flipside that customers can no longer be assured they are getting as good a deal as their neighbours.

Telcos targeting special offers | Stuff.co.nz.

The most important mobile payment infographic. Ever. compliments of
MobilePaymentsToday.com

Even though the Bank of Ghana has played an active role from the earliest days by prohibiting exclusive partnerships and pushing for a many-to-many model, we can clearly see that interoperability remains the key to solving the challenges mentioned in the CGAP article (viable agent network and robust technology).

Ghanian mobile money market challenges can be overcome by implementing an open, trusted, scalable and interoperable infrastructure managed by a Trusted Third Party Manager (TTPM). The TTPM has the role of bridging the legacy financial and mobile money infrastructure in order to build a new generation Mobile Financial services ecosystem.

TTPM services should cover the following aspects: provide a single technical and commercial point of contact for all players within the Mobile Financial services ecosystem, build a viable and dense Agent Network by developing and growing a distribution network within the country and enrolling new agents, provide intra-network settlement services, promote the interests of all the stakeholders in the value chain and facilitate a secure business for all.

In many markets Banks, Bank Spin-offs and/or joint ventures and Central Banks are very well positioned to play the TTPM role as the Banks and Central Banks have the inter-bank settlement competencies. The case studies from markets where mobile financial services become mature clearly show that interoperable mobile financial services ecosystems drive greater adoption and usage and increase the number of transactions.

Moreover, the government has indicated that it would like to start processing wages and subsidies electronically, which has the potential to drastically reduce fraud and streamline delivery.

Finally, with the advent of the national ID program, customer identification is set to become feasible in India:- something which has been a major hindrance in the past.

However, with all of these developments, one key question remains: how will banks and operators make any money off this service?

I gave a somewhat controversial presentation at a conference in Mumbai, and I’d be interested to hear your feedback on it.  Do you think that in India, where the average region is the size of many countries, a closed loop system has a future?  Or, do you think service providers will ultimately sacrifice margins in exchange for scale?

Margins and Scale in Mobile Money in India

Not too long ago,  I received a MMS message promoting a new coffee shop near my office. Being a coffee lover and a bargain hunter, this was a message worth reading before deleting.  The MMS message included 2D BarCode and a promise of a free cup of coffee for giving the new shop a try. So, also being curious about how this form of a proximity payment can work in practicality, I headed to the shop.

The telco operator and the retailer had put together a program that was well rolled out. The shop staff were familiar with the MMS promotion and knew exactly how to perform the payment. My only discomfort with the process came when it was time to hand-over my iPhone to the waitress to pay the bill!  I’m not sure how you would feel, but I have to admit to ‘separation anxiety’.    Those of you who have lost phones before may relate to my moment of angst.  So, I chose to follow the waitress to the back of the shop to observe.  Next to the cash register, a Nokia camera phone was strapped to a special stand to make it easy for the staff to capture the image to confirm the payment.  The staff seemed at ease in handling the payment and certainly for me it was painless…  except for the part about being separated from my mobile phone.

With 113 live deployments and 88 planned deployments across the globe, the momentum currently propelling mobile financial services is proof that mobile money can indeed, make money. It also demonstrates that there is a viable alternative to legacy financial systems, providing financial services to unbanked people throughout the developing world.

The only question which remains in doubt is when these services will make money?

A recent CGAP survey found that 70% of respondents believe that mobile financial services will be a significant source of revenue for Mobile Operators and will generate large profits over time.

So, what are the necessary ingredients? And what can be done to make mobile financial services profitable? Feedback from industry experts combined with informal primary research performed, clearly shows that reaching a critical mass is a key factor.

Today, mobile financial services are achieving profitability in markets where the service providers have reached a critical mass and offer mobile financial services to at least 50% of the population. A good example is Safaricom Kenya’s M-PESA service. M-PESA  generated USD 47.2 mil in profits in 2010 and we know Safaricom’s overall profits for 2010 were USD 261.9 mil. In this scenario M-PESA is generating 18% of all Safaricom profits.

But, not all mobile financial services service providers are capable of replicating the Safaricom success story.  One of the main reasons is due to the difficulty in attracting enough customers to make the business sustainable.

So, what should service providers do to reach a critical mass? Undoubtedly the agent network is a threshold requirement to achieving scale. A well-developed and dense agent network with the capability to serve all the customers where they live and work is a key pre-condition.

Are all services providers capable of investing and building a dense and well-developed agent network? And how can they achieve such a network without investing a lot of time and money?  Cooperation is the key. All stakeholders in the mobile financial services ecosystem need to work together and build up an open and interoperable environment. They should interconnect their platforms and build a shared and open agent network.  Another barrier is the fragmented nature of mobile financial services deployments. The current ecosystem is fragmented mainly due to the fact that most service providers choose to roll out walled-garden systems. Lack of interoperability between these systems will continue to limit the mobile financial services usefulness. In the absence of interoperability at both domestic and international levels, the required scalability is unachievable.

The major stakeholders within the current ecosystems (MNOs and Banks) do not think that interoperability is a must for now. They believe the interoperability will be necessary and crucial in the medium to long term. Taking into account that the number of mobile money platforms deployments is constantly increasing each year, especially in emerging markets, interoperability is critical now, and it is in stakeholders’ best interest to implement this feature as soon as possible.

It is crucial that stakeholders recognize the benefits that the interoperability will bring, not only to the market as a whole, but also to their customers.

Customers of any service provider should be accepted at any cash agent. Customer should also be able to send money to other customers and pay merchants regardless of which service provider they are with, much the way VISA and MasterCard merchants accept payments from any issuing bank.

It is important to recognize that, without an interoperable mobile financial services ecosystem, customers will develop their own methods to meet their needs, most likely through multiple SIM ownership and the creation of parallel uncontrolled networks and services.

A viable solution for interoperability will only emerge by creating and using common standards and interoperable business models for mobile money services, otherwise all stakeholders will miss business opportunities. The case studies from Japan, Singapore and other countries where open and collaborative approaches were implemented, prove the efficiency of an open space interoperable mobile financial services ecosystem.

Experts have already identified that inter-network mobile financial services traffic will be the next big innovative aspect in the mobile money industry and a contributing factor to the mobile financial services take up.