Cash and carriers

Guy Matthews looks at the take-up of mobile money services around the world and considers it benefits and pitfalls. It is an opportunity tha carriers are equipped to exploit.

The use of mobile telephone networks by individuals looking to send money abroad or make small payments on a more local basis is undergoing a surge in popularity.

Analyst firm Juniper Research estimates that by 2014 there will be over 500 million people worldwide regularly using mobile money services, in so doing bypassing traditional banking processes; this will equate to a market worth $65 billion annually by volume of transactions.

“Two years ago there were only a few mobile money deployments,” says Frederic Schepens, senior vice president of mobile money services at BICS (formerly known as Belgacom International Carrier Services), a pioneer in enabling wholesale customers to process mobile money transactions. “Today, according to the GSMA’s estimates, there are around 80, with about another 80 in planning phase. It’s gone through tremendous growth.”

The international side of the market is being driven by expatriate workers remitting money back home on a monthly basis, in the main from the developed economies where they are employed, to their families in poorer parts of the world. For many of them, mobile money represents a cheap and easy alternative to conventional international money transfer services. Africa, the Middle East, the Far East and the Indian subcontinent have been identified by Juniper as the primary destinations for this sort of traffic.

Within countries in these regions, where perhaps less than 10% of the population has a bank account but where a majority now has access to a handset, mobile networks are also becoming popular as a medium for settling minor transactions, sometimes informally through the exchange of prepaid airtime, at other times through the more official means of a mobile wallet service.

This melting pot of activity represents a fertile opportunity for those in the telecommunications sector – particularly for mobile operators addressing economically emergent markets, and seeing the chance to add profitable new services to their offer in places where annual revenue per user is problematically low. 

Not for the faint-hearted

Mobile money is not, though, an opportunity for the partially committed or faint-hearted. It demands that the service is accountable to financial regulation, which is generally several orders of magnitude stricter than telecoms regulation and liable to differ wildly from country to country. All players in the mobile money sector must also bear the scrutiny of banks and governments, anxious lest the world of mobile transactions slip beyond their control and descend into a free-for-all black economy, and haven to petty as well as organised crime.

There has been good cause for this anxiety. Simon Cavill, CTO of Mi-Pay, a provider of money transfer services to mobile operators as well as financial institutions, explains that mobile money is part way through an evolutionary process from virtually unmonitored “Wild West” to proper regulation. “Across the developing world, people are getting mobile phones in large numbers – around 99% of which are prepaid and topped up regularly, maybe once a day, with payment in cash,” he says. “Economies in places like Africa have been limited until now by what’s known as the ‘cost circle’, which is the distance somebody will typically be prepared to walk to make a payment for something, usually something like 20 miles. Now if both parties have got mobiles, one person can text prepaid airtime to another to settle a debt.” This basic system, he says, has been in existence for some years, but is now starting to develop a stage further: “People now have two separate phone accounts, one for calls and one for payments,” says Cavill. “You give money to a shopkeeper, acting as an agent, and it can be cashed elsewhere. The agents become a sort of mobile ATM, and you can use them to pay bills and taxes too, and transfer money abroad.” 

Tiny transactions 

The prototypical banking system thus created has proved a huge hit among the developing world’s “unbanked”, but is a cause of growing concern for financial institutions and governments with no effective means of tracking this traffic. The world of mobile money is in the main made up of a large volume of tiny transactions – too tiny to allow individual examination, but cumulatively a major economic force. Cavill claims, for example, that around 20% of Kenya’s GDP now passes through mobile phones.

“Many of the developing countries where mobile money is taking off are beholden to the World Bank, which wants them to do a better job of managing things like money supply – not easy to do when so much of the economy is now mobile,” he says. “Now banks are looking at consortia to run officially recognised mobile money schemes in a controlled way, and the pendulum is swinging away from mobile operators. This is no longer a market for making a fast buck. It needs volumes, and any returns are going to be long term. It’s a more and more regulated sector.”

Howard Wilcox, a senior analyst with Juniper Research, agrees that life can be tough for what he terms “mobile operators playing as banks”. “Abiding by rules and regulations, and adhering to KYC [Know Your Customer – an initiative designed to encourage operators to better monitor customer identities], is not easy where the service provider may not even know the name of their prepaid customer – let alone any other details,” he says. “In many cases the user will not want to give a whole lot of information out. The MNOs at least are in a better position as regards trust than the banks since they have a brand that’s recognised. M-Pesa [Kenyan mobile money deployment] has had outstanding success with its brand, which is very well known even in really rural areas.” 

If the mobile money market is to mature further beyond its unregulated past, then it will also have to tackle the issue of interoperability between the myriad of different deployments.

“It’s a complex market, with most deployments proprietary and unable to speak to each other,” says BICS’ Schepens. “This is one of the reasons we created our Homesend remittance hub, to provide interoperability. We get the interconnection in place, then manage the settlement side too. If you imagine all of the 80 existing mobile money deployments seeking to manage their own interconnection with each other, you’ve got a spaghetti. Our hub solves all that in one shot.”

Schepens says typical Homesend customers are mobile operators wanting to offer mobile wallet services, but also banks and NGOs.

“We’re seeing encouraging signs from the central banks, which are now looking at the whole area of micro-payments,” he says. “They are generally taking a very prudent approach to the technology – which is a good thing.”

He says BICS also plays a part in helping mobile operators face regulatory demands on crime prevention: “Different countries have different rules on combating money laundering and the funding of terrorism,” he says. “This means operators have got to watch what’s happening at both ends of the transaction. Our hub acts as a watchdog for suspicious transactions. A lot of misuse is very traceable. If 1,000 SIM cards are suddenly sending money to one person, it will be pretty easy to pick up.”

Screening for misdemeanor, he says, takes different forms: “There’s filtering of traffic, both for sending and receiving, plus checking against commercial watch lists put out by financial authorities, and taking account of all the directives coming out of various regions. We present this as an easy solution to the customer, although in fact Homesend is probably the most complex hub we operate. It needs to be both bank and carrier-grade. It’s not like a telco just connecting a few parties together.”

For the future

There are many carriers, as well as pre-paid calling card specialists and other types of service provider with a global footprint, currently eyeing entry to the mobile money market with a view to playing the role of wholesale enabler. Not all are equipped to succeed, believes Schepens: “There are many layers of complexity, and a degree of liability which means you need to be a strong company with a lot of market experience,” he says.

He anticipates a future where the telecoms industry has collaborated on a universal mobile money solution, with interconnection between providers taken for granted: “Mobile operators are looking at this,” he says. “And there’s a lot of interest from the banks. I’d say it’s a good two years though before you’ve got seamless transactions from one operator to another.”

It is worth noting that the success of many mobile money schemes in places like Africa and Asia-Pacific has been rooted not in their sophistication or high level of evolution, but rather in their simplicity and ease of use.

Rob Mathot, regional director for sub- Saharan Africa with vendor Airwide Solutions, has worked with a number of mobile operators on issues like security and management of traffic: “The success of mobile money in Africa has shown the industry that using simple channels of communication are key when enabling mobile money services,” he says. “Unstructured Supplementary Service Data (USSD) and SMS services work on the most basic mobile phones, without the need of any provisioning or application downloads. Furthermore both services are well understood by the subscriber.”  

Developed economies

There may even be a lesson here for those looking to popularise mobile money services in developed economies, where take up is not driven by the same hunger for hitherto unavailable financial services.

“The adoption pattern of developed markets and emerging market varies significantly,” agrees Hannes Ametsreiter, CEO of Telekom Austria, who describes Austria as one of the most advanced mobile payment and mobile commerce markets in Europe: “A huge variety of services, from mobile parking and transportation ticketing to cashless payment at vending machines, has emerged in Austria since the first service – transportation ticketing – started 10 years ago.”

In developed markets, he predicts, mobile payment services will not substitute existing banking systems, but develop in niche market areas: “Emerging markets will remain a fertile ground for mobile banking services,” he predicts. “In both markets various players, from mobile operators to financial institutions, are establishing their roles along the value chain and through services offered.”

Pioneering mobile money deployments

Somalia: Somali financial services provider Dahabshiil Somalia is emerging as one of Africa’s largest money transfer companies. It was born out of the disaster of Somalia’s civil war, allowing the country’s expatriates to send money home to relatives after hostilities broke out in 1988. The company, which now offers both mobile and regular money transfer services, has bases in over 40 countries including Australia, the UAE and the UK, as well as offices in DR Congo, Uganda, Rwanda, Sudan and Ethiopia. In its home market of Somalia, it is responsible for handling around half of all money received into the country from abroad. 

Kenya: On a continent where mobile money services are becoming ubiquitous, Kenya remains a paragon of imaginative deployment and high rates of take-up. Local operator Safaricom and Vodafone collaborated back in 2007 to bring mobile money to the country, under the MPesa brand. Zain Kenya, now owned by Bharti Airtel, also has a popular service called Zap, while France Telecom’s Orange Money division is to launch services with Telkom Kenya, allowing users to send money from abroad, carry out electronic banking and pay for goods and services online, as well as transfer funds locally.

Haiti: Pre-earthquake, only 10% of Haitians had a bank account. Many of the country’s banks still lie in ruins following the disaster, making this proportion effectively even smaller now. West Indian mobile operator Digicel launched mobile phone services in the country in 2006, and has since driven adoption from 5% to 35%. Now it is poised to launch mobile money services in partnership with an NGO and a local bank. Digicel already has experience of launching mobile money services, having recently done so in Fiji. 

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