The SIM Summit

I attended the SIM Summit in Prague last week. It was quite interesting from a number of perspectives for me. I had the distinct feeling that some of the delegates were looking at finding a reason for having a SIM card in a phone. On the Wednesday-afternoon I presented a talk during the "mobile payment" portion of the conference. I shared the platform with some of the older companies in this space (paybox, SK telecom) and some of the newer ones (Monetise).

The usual questions on why it is taking so long and why we have not seen the "google" of mobile payments yet where asked. I almost had the feeling that critics were saying that one should stop working on this type of solutions since it does not seem to deliver any benefits. In the meantime, the discussions on the "ecosystem" of NFC payments almost reached fever pitch at some stages. Every-one was talking about their pilot projects and what they have found. Yet it was clear that almost no phones would be available for this kind of thing (estimates were that not even 20% of phones will be NFC enabled by 2012), that nobody really knows where and what the business model for mobile NFC will be.

For me, though, mobile payments and banking is succeeding dramatically. From where I am sitting and what I am seeing a massive revolution is happening and growth in mobile payments is at a rate that have never before been seen in financial services before. If we compare any other change in financial services with mobile payments, none is happening at the rate of mobile payments. Look at how long it took credit cards to become mainstream, or ATM's or Internet banking (and how much has been invested before it was successful). In countries like South Africa, DRC and Nigeria (where we have deployed solutions) and others like Austria, Slovenia, South-Korea and (of course) the Philippines, it is clear that mobile payments are delivering good solutions to subscribers, stakeholders and banks.

Failures like Simpay and others should not be taken as the template for this industry.

Utilising Agents to distribute low cost Banking

One of the biggest challenges of bringing low cost banking to rural areas are the cost of distributing banking products. It takes a lot of time and effort to get someone to open a bank account - especially given the stringent regulatory requirements. I have seen some instances where banks have a requirement to have a photo-copy of this and that, as well as firm identification, in addition to a form that must be filled in and signed - quite a cumbersome and difficult process.

So some companies have started deploying a mechanism where agents are utilised to distribute these bank accounts. This means that some-one works on a commission basis to get people to open bank accounts. These agents do not earn a fixed salary, but rather get paid for each account that is opened by them. Great idea! Often this is also a mechanism to create work for people that do not have work. I have always been intrigued by this approach. I do subscribe to creating work and getting the community involved with banking themselves, but I am not sure if the economies work. How many accounts do an agent have to open to be able to earn a living wage? This is especially difficult if the commission must be earned on a low cost bank account. All of the sums that I do make this approach a marginal employment for the agents and I am not sure if it will work.

Low cost banks have two remedies:

a. Enable an agent to open bank accounts, but also sell more lucrative products (that have better margins) - preferably products that require a bank account (like insurance, loan products etc.). or

b. Enable customers to open a bank account themselves (even on their phone) with no assistance and no photo-copies. This is possible, and have been implemented by Fundamo.

Mastercard and the GSMA

MasterCard is planning to pilot international remittances with mobile network operators. Indications are that a few pilots will be set up and run with the intention to learn and to ultimately roll-out in a big scale to other operators. One of the pilots will initially pair India's largest mobile operator Bharti Airtel with the State Bank of India corresponding with a mobile operator and bank sponsor in another country. For the pilot programme, the recipients of funds will be notified of cash transfers via a text message sent over the mobile networks. They will be able to access those funds via debit and prepaid accounts issued by local banks.

In another initiative a Vodafone subsidiary (the Kenyan mobile operator Safaricom) and Citigroup is planning to test a similar system under which Kenyan workers in the UK will be able to text payments instructions for money transfers to dependants back home. The recipient will receive a text containing a PIN which is then used to collect the cash at a choice of outlets.

What is the relevance of these initiatives? Should it be taken seriously and what should banks and mobile operators do in the light of these pilots?

I think that these initiatives (and others that are likely to evolve) will definitely succeed - as a matter of fact it has the potential to succeed spectacularly. Parties involved with this will benefit significantly because of the additional revenue that will flow out of business that they were not involved with traditionally. But the most interesting by-product of this will be the number of people that potentially could be drawn into the banking space. Consider how many people will now received money from abroad on a bank account (which they now need if they want to benefit from this system). I believe that the real advantage of this initiative is the market for ancilliary product that banks will now be able to sell to these consumers (ranging from saving to lending products, including risk product - like insurance).

Any bank that operates in developing economies (or have clients with interests in developing economies - like migrant workers and expats), should evaluate these initiatives carefully and develop strategies to get benefits from what is about to happen. It is advisable to contract and work with companies with experience in this space (like Fundamo - my company).

mobi VISA

I suppose Visa is as bank as one can get. Most banks are members of VISA - at least those banks that want to be taken seriously. VISA is the pioneer of payments in the world with new products and technology frequently being announced. dotMobi is an organisation that
specialises in the development and promotion of applications and websites for the mobile
device. It would be hard to find something more, well, eh,
mobile. So when VISA decided to invest in dotMobi, anybody interested in mobile banking should sit up and take notice.

VISA did buy a stake in dotMobi recently. Neither party were prepared to disclose more detail, but VISA subsequently registered a few domains - visa.mobi, electron.mobi, plus.mobi, etc. and a few more, but don't try and surf them, because VISA has not yet posted any content to the sites. In the meantime they have the domains.

What is the relevance of this move? Clearly some executives in VISA is of the opinion that the mobile space is important. Important enough to buy a stake in a company like dotMobi. What is unclear though is what the rationale is for VISA to invest in this company. Surely, dotMobi will allow Mastercard to also register mastercard.mobi and maestro.mobi. Also, even if VISA makes a nice return on their investment, should they not have applied their capital in a different way (like giving it back to shareholders, or even better cardholders)?

I have difficulty seeing any strategic reason for VISA to take up this equity. But then it is a definite sign that banks are starting to get more of an interest in the mobile space. Maybe this purchase may trigger a renewed interest in mobile banking.

What is mobile about NFC?

NFC is an acronymn for "Near Field Communication". (See the NFC Forum). Many projects are currently being conducted to prove the viability of utilising phones with RFID chips in payment procedures. The intention is that one would be able to "swipe" your phone instead of "swiping" a credit or debit crd at a point of sale terminal. The picture on the right is an experimental deployment currently being conducted by Gemalto.

In order to minimise the impact of existing payment systems, all of the deployments are basically an extension of existing card based payment schemes. The phone swipe at a terminal initiate almost exactly the same transaction to the issueing bank as if a card have been swiped. The effect of this payment could also be achieved by imbedding the NFC chip in your sunglasses or for that matter in your credit card. The system does not recognise that the chip is actually in a phone, it just respond to the NFC chip. This is great technology for a number of reasons. The speed of concluding a transaction and the reliability of the infrastructure are big advantages over existing card based transactions. But why are NFC payments sometimes refered to as mobile payments? Nothing is mobile about it.

The terminals that read the NFC chip is static, the payment is routed in exactly the same way than any (or all) existing card transactions are. So is it because a NFC chip can be embedded in a phone that we call it mobile payments? That would mean that if an NFC chip was embedded in watch, we would call it Timeous payments? A reason could be that we can carry the payment instrument (the NFC chip) around. The payment instrument is therefor mobile going with us from one terminal to another.... just as we currently do with our credit cards. So that would mean that we have been using mobile payment instruments all the time (by carrying our credit cards from one terminal to another with us).

True mobile payment instruments should enable the payer to perform a payment at any place. (For instance the payer should be able to pay for parking without having to be close to his/her parked car). NFC payments today (and for as long as one can imagine) will only be happening at points where NFC enabled terminals are installed. This is definitely NOT mobile payments.