In March 2007, Safaricom, the leading mobile operator in Kenya, launched M‐PESA, an SMS‐based money transfer system that allows consumers to deposit, send, and withdraw funds using their mobile phones. Use of M‐PESA quickly skyrocketed, reaching more than 35 percent of Kenya’s adult population. But the service has not scaled globally. Informilo examines the reasons why.
M-PESA resonated so strongly with consumers because in emerging economies like Kenya’s only a small percentage of the population has a bank account or a credit card. A much larger number of people have a mobile phone or access to one than those who can visit an ATM or a bank branch.
There are only 2.2 billion banked people on earth but 5 billion mobile phones. The demand is there. The technology exists, as does the proof of concept. So why hasn’t M-PESA scaled?
Kenya represents something of an anomaly – “the perfect coalescence of latent demand, a dominant mobile operator and a progressive regulator,” according to a report written on behalf of the GSMA, an industry association representing some 800 mobile operators. In most of the rest of the world, building global mobile money services is much more difficult.
Consumer trust, a regulated banking environment, scalable technology platforms and fail-safe interoperability, which requires partnerships between principal players, are all necessary elements for building global mobile money services. The trouble is that mobile operators would like to own this space. So would banks.
Add regulatory issues and a host of other providers entering the market, including Ericsson, Apple, credit card companies, PayPal, Western Union and venture start-ups like Obopay, and the picture starts getting crowded and complicated.
“Right now there is a battle going on for middle earth,” says Alastair Lukies, chief executive of Monitise Group, a six-year-old British company that provides the technological glue that allows the various players to interoperate. “By that I mean the infrastructure agreements, the heavy lifting and wiring–all the things that need to take place to support mobile money services.”
The potential is huge. Worldwide, the number of users of mobile banking and related services is forecasted to reach 894 million users in 2015, according to Berg Insight. It is no wonder then that mobile money will be one of the big areas of focus at this year’s Mobile World Congress, which takes place February 14-17 in Barcelona.
In the past two years many of the leading players in both the telecom industry and the financial sector have intensified their efforts to bring financial services to the world’s unbanked populations. Indeed, a report sponsored by the GSMA,cites operators from Afghanistan to Zambia who either already have or want to launch mobile money services.
Mobile Operators Mobilize
Fifteen months ago the GSMA launched the Mobile Money for the Unbanked (MMU) Fund, with funding from the Bill and Melinda Gates Foundation. The fund has extended grants to operators around the globe, including Cellcard in Cambodia, Digicel in Fiji, Orange in West Africa, Safaricom in Kenya, Tata Indicom in India, Telenor in Pakistan, and Tigo in Africa.
Cambodia’s Cellcard, for example, will be using its grant to provide financial services such as money transfer, bill payment and airtime top-up to working-class migrants who need to send money home to families in rural areas Cambodia has a population of over 14.5 million. Some 22 percent live in urban areas, but less than 4 percent of the population has a bank account. The majority of payroll is given in cash, making recipients walking targets for thieves.
Analysts say the Asia-Pacific area is expected to become the most important regional market, accounting for more than half of the total user base, although mobile banking is also anticipated to pay a key role in bringing financial services to people in the Middle East and Africa.
Banks Embrace Mobile Money
Banks are also getting involved. For example, Equity Bank and Safari.com have partnered on M-KESHO, a service which allows Safari.com customers to deposit money in accounts with the bank, one of the country’s largest financial institutions. With M-PESA, customer’s money can only be accessed through mobile technology. M-KESHO is a stepping stone for M-PESA customers into formal banking institutions. In addition to storing money with Equity Bank, M-KESHO customers will be eligible to earn interest on deposits and have access to microcredit, short term loans“If banks are not in the vanguard, other providers with strong customer relationships will step in,” says Monetise’s Lukies. The same goes for mobile operators. “For customers it won’t be a question of having no mobile wallet or one mobile wallet,” he says. “Banks, mobile operators, handset manufacturers will all be offering them mobile wallets.”
For example, Obopay, a mobile payment service that is rolling out across the globe which allows users to send and receive money via text message and the Internet. Unlike some mobile-money transfer services operated by the banks and mobile operators in developing countries, Obopay’s is not tied to any bank or operator, broadening the appeal.
The many new mobile money services being announced are facing political, regulatory or commercial challenges as they bring their services to market. "Every country has different regulatory structures and its own set of local market conditions that service operators need to plan around,” Howard Wilcox, a senior analyst at Juniper Research, wrote in a report on mobile money. “Nonetheless, we see this as a growth market because of the ubiquity and convenience of mobiles which offer realistic prospects of financial service access for those without traditional banking services."
A number of players are stepping in to help smooth the way for telcos and banks in emerging markets. Monitise, which works with banks and operators in both emerging and developed markets, is among them. And, earlier this month Swedish telecommunications equipment provider Ericsson announced Ericsson Money Services, a new business line that will offer mobile financial services.Through Ericsson Money Services and its Money Interconnect Service, mobile operators, financial institutions and other service providers wishing to extend their offering with mobile money services, will be able to connect to a real-time, cross-border, cross-currency switching network.
In Europe and North America, mobile money will serve as an extension of existing online banks as mobile handsets become more widely used for internet access. By 2015, Berg Insight forecasts that mobile banking will attract 115 million users in Europe and 86 million users in North America.
Tap and Pay
But contactless payment via mobile is expected to quickly follow.
Verizon Wireless, AT&T and T-Mobile USA are working with Discover Financial Services and Barclays to introduce a mobile near field communication (NFC) system called Isis by 2012, while Google’s new phone will include an NFC chip and the next versions of Apple’s iPhone and iPads are supposed to integrate them an NFC system as well.
Apple could leverage its base of millions of iTune users to operate as a closed payment system, displacing banks and credit cards in much the same way that Paypal has done online, say analysts.
Visa Europe and Wireless Dynamics announced January 25 that they have developed a contactless payment solution that will bring Visa contactless payments to iPhone users across Europe. On Feb. 8, Monitise announced a new partnership with Visa Europe that covers the roll out of a mobile technology platform that will enable Visa to handle contactless mobile payments, mobile alerts, peer-to-peer payments and m-commerce transactions.
In order to make NFC-based mobile payments work, telecom operators have to cooperate with each other and with the financial community. All sides have to agree on what business model to adopt, how to share revenues and how to acquire and retain those customers.
It will clearly take some time for the market to decide which technologies and business models work best for consumers in different regions. Getting all the players to agree is not as easy as beaming a signal from a mobile phone. If it were, we’d all be using mobile wallets by now.