Enterprise brands vs Consumer brands

Anyone interested in mobile banking and payments would agree that one is confronted by so many brands. Regional groups, small companies, great ideas, innovative products. As you start unravelling the puzzle, it becomes more and more complex and confusing. Who should you be talking to and why? What I have seen happens is that some-one new to the industry starts talking to every-one and the more they talk the more confusing things turn out to be.

So here is my advise: decide if you want to find a consumer product that you may want to use or re-brand or partner with, or if you are looking for an enterprise brand - a company that will help you to develop your own mobile banking strategy and help you deploy your own product. This is one of the first decisions that must be taken.

Consumer brands are usually somewhat regionally baised. For instance MTN banking is a Africa, Middle East brand, whereas m-Pesa is of course well-known in Kenya, while mChek is predominantly and Indian brand. These companies offer specific products to end-subscribers and they have lot to offer in terms of their actual consumer products.

On the other hand, when considering a enterprise brand, it is important to be clear about the ability of the company to support your own specific needs. You should ask yourself if they will be around in future to support and enhance your investment in mobile banking. It is important to select a company with critical mass and with good procedures in support of enterprise companies. Few of these are around.

The most dangerous companies are those with a consumer brand and trying to be enterprise solutions too. You would not know if they are helping you or competing against you.

Difference between encrypted and ordinary SMS mobile banking

The use of SMS infrastructure for mobile banking makes a lot of sense. Many deployments with this (very popular) mechanism is available in many countries. This type of mobile banking is rather easy to implement and can be accessed on any handset, in any country and with (if not low) at least predictable cost. It is relatively easy to deploy and extend and can be made available to any market within a short timeframe. As a matter of fact, the neighbour's son that recently completed that computer diploma thing, can probably do the integration.

Unfortunately, it is also basically not secure, can easily be hacked, the service is not reliable (or predictable) enough (for banking). The user experience is open for interpretation and consumer protection is therefor also difficult. Support costs and training is always a challenge.

Encrypted SMS deployments while significantly more complex solves all of the above problems. Consumers are presented with an easily understood menu on any handset (the same format as all of the other services on the handset). The solution works on any handset is available from anywhere in the world and is almost un-hackable. This type of infrastructure utilise the most advanced encryption technology (piggy-back on inherent GSM security primitives) and is the basis for most of the success stories around (including mPesa, MTN Mobile money, Smart Money and mChck).

One should be careful to distinguish between SMS mobile banking and encrypted SMS mobile banking. The only similarity is the actual carrier technology.

Do you speed up when you hear the bell?

I started working on mobile banking and payment solutions in 1999. This is now ten years ago. If someone told me that this would be a marathon, I would not have believe them. During those early years, I came to realise that this is going to be a long journey and we structured ourselves accordingly. Growing our capacity in line with the market. Today, because of this strategy we are a very healthy business and able to serve our customers well.

The question is when to really start accelerating. If it was a race, we would be listening to hear the bell indicating the final round and if we paced ourselves well, we would still have capacity to speed up. It would be interesting to debate how this bell would sound in the mobile banking race. My view is that it would be number of transacting subscribers. When this industry produces somewhere between thirty and fifty million active subscribers, the bells would go off. When this bell starts ringing it will be up to those companies with enough resources to define the new industry. We definitely intend to be in the final pack.

Some thoughts on Mastercard's P2P payment platform

MasterCard recently announced the launch of a mobile-based service for P2P transactions. (Read more here). This is a great idea and makes a lot of sense. The concept is that you register your MasterCard for the service. You could then use your phone to send money from your MasterCard to any other MasterCard. The money is merely debited from your MasterCard and credited to the receiver's MasterCard. Makes you think why nobody thought of this before.

The fact is that it has been thought of before (many times). Read about the previous attempts here, here and here. If you take some trouble you will find much more references and these are the ones that have been reported on. I do know of a few projects that were attempted but nothing was ever published about them. So what went wrong? Why is it not a roaring success?

The simple answer is: "the business case". The thing is that all MasterCard's are issued by banks on the understanding that they get paid for each transaction done with the card. This payment is a share of the merchant fee (also referred to as the interchange fee). In other words, merchants pay for every payment received by means of a card. In P2P transactions the merchant is absent and it is always difficult to find some-one to pay enough to satisfy two banks.

More about the Mzanzi Accounts

David Porteous (Bankable Frontiers) gave a very good presentation on the Mzansoi account scheme at the recent MMU summit. Although I am quite familiar with the scheme, it once again enforced a number of lessons regarding the roll-out of transformational banking. I do not have all the statistics at my fingertips, but let me summarise the scheme and then I will make some conclusions.

The Mzansi account scheme is a special type of account developed by all the major South African banks and launched at the same time by all during about 2003/2004 timeframe. The vision with this scheme was to provide a low cost bank account on a non-competitive basis that would ensure access to more people to the banking system. The program was very successful with large numbers of bank accounts being opened and the co-brand becoming well-known. However, the usage profile was quite low with one-time cash-withdrawals the primary transaction. It is also my understanding that although average revenue per account per month is about $1.50, most (all?) banks run this scheme at a loss.

What is the conclusions for mobile banking?

• First it is possible to launch transformational bank accounts (with full KYC compliance) and ensure massive take-up: especially if a need exists and proper marketing support is given.
• It is possible to generate revenue from these accounts at a level that can drive a business case, providing costs can be reduced to acceptable levels.
  
• It is important to provide additional utility (like bill payments, money transfer, airtime purchase etc.) to ensure improved loyalty and to generate additional revenue. These services can only be provided by means of mobile phones.

The Mzansi "experiment" in South Africa serves as a great case study for transformational banking and is more evidence of the need that exists at the bottom of the pyramid.

Have you seen it?

I remember the first time I read about "browsers" and "crawlers". I have never seen or used the Internet during that time (late eighties) and I did not have a clue what a browser is. The picture that I had of a browser was not even remotely what it turned out to be when I saw the Internet in action at a later stage. I was reminded again this week of the difference between learning about something and actually seeing it. It is almost amusing what models people build in their heads of what mobile wallets are and how they work. We that have seen these systems in operation have a clear understanding of how they work, what should be considered when working with them and what can go wrong.

It struck me recently that many people speak of these systems on the basis of what they have read and what others have told them. Some of these people project themselves as experts and even speak at conferences. When you hear an expert speaking about mobile wallets, do yourself a favour: Ask them this simple question: "Have you seen it".

Groupwide deals

Fundamo recently announced that they concluded a deal with MTN for the deployment of their wallet solution to all 23 country-operations in the group. Progress has been swift with ten countries already deployed and a further five in process. It has been rumoured that other large mobile operator groups are also looking at groupwide deployments of wallet solutions. The question is what makes groupwide deployments different than individual country deployments and what is required to be able to deliver on such deals.

Groupwide deployments are different to individual deployemnts and more complex because of the following reasons:

• Groupwide deployments usually require the incapsulation of some groupwide standards that must be adapted through extensions for individual countries. This is not as easy as it may seem.
• Groupwide collaboration on lessons learned, innovation and also inter-operability must be incorporated in all of the projects. This leads to a lot of project overhead.
• Commercial contracting though centrally based acquiring departments are usually significantly more complex than smaller individual contracts. Because of the size of these deals, suppliers are usually under bigger pressure with more exposure from a liability perspective. Delivery within these types of contractual frameworks are much more onerous on suppliers
• If suppliers can define groupwide blueprints and use economy of scale on these projects, deployments can be quicker and more predictable.

The deployment of Groupwide solutions are significantly more complex, but if done properly can deliver many benefits.

The five stages of Bank Adoption

Having now worked with many banks in many countries during my ten years in the industry, I believe that I now have enough raw data to postulate five phases of Bank Adoption of mobile banking. This is still theory and it would be good to test it with other experiences and this is why I am publishing it in an untested format.

The five stages of bank adoption of mobile banking is as follows:

• Phase One: Denial. During this phase the bank vehemently deny that they would ever need mobile banking. They explain why customers do not want to do transactions from silly things like mobile phones.
• Phase Two: Experimentation. A few young people in the IT department convince some managers to experiment with unimportant things like alerts. Take-up is slow especially because no marketing budget is spent on this. This fuels the opinions of skeptics.
• Phase Three: Collaboration. Marketing executives seeing that this is not going to go away start collaborating with (especially) mobile operators. Many different models for this exist, but all produce a solution partly mobile operator, partly bank. The marriage is uneasy but executives try to make it work and limited success is seen.
• Phase Four: Mainstream. The realisation suddenly dawns that it would be impossible to do banking without mobile banking. The bank starts investing heavily leveraging existing infrastructure. Existing Internet banking or ATM solutions are ported to many different types of handsets. Marketing budgets are spent on this new thing and uptake is good. The business case is however under pressure and doubts are raised regarding security
• Phase Five: Maturity. After lots of experiences banks realise that this is not a channel play, this is not an extension of classic banking, but a totally new thing. The CEO realises that many existing truths must be changed in order to grasp the full context of what mobile will do to banking. I think that this is the end state

Anyone out there that can re-enforce this theory with their own experiences?

When is an Idol an Idol?

The local version of Idols (South Africa) had an "interesting" result this month. It turned out that not all of the SMS's to vote for the winner was delivered in time. A few hundred thousand SMS's that was sent in time, was not counted as it was delivered after the cut-off time. In an unprecedented move, MNet (the local franchisee of Idols), recounted the votes and declared another Idol the Idol (read more here).

This problem was obviously a result of infrastructure somewhere that could not cope with the volumes (or something else). We that work in the infrastructure understand the complexities of routing messages through many infrastructure components in order to ultimately deliver a service to consumers of an acceptable quality. However, many single points of failure exist and problems like this (very high profile) situation can occur.

This incident made me realise again how complex it is to design a Financial System of acceptable quality that must run on such an unpredictable network. The challenges to ensure reliability (and recovery) in a real-time payment system installed in an environment that is fundamentally unstable (have many single points of failure) is huge. In many discussions that I have had in the industry, very few practitioners understand the problem, and even less have designed solutions that are able to cope in these environments.

Carol at MMT09

I had an opportunity to listen to Carol Realini's video-cast at the MMT09 event organised by Clarion in Johannesburg recently. I have always been a fan of Carol and respected her for the impact that she had in the IT industry. I was also amazed about the amount of money that she was able to raise to fund Obopay. After her presentations, I had two lasting impressions: She can talk up a storm and Obopay is struggling to define itself.

I am absolutely of the opinion that successful companies are very crisp about what they are and how they position themselves. It is extremely dangerous to be everything to everybody. This is why the Obopay story was so confusing. Carol projected a company that will be delivering solutions in emerging economies and in the first world, a company that is open to contract on commercial terms that is anything (from licensing to ASP or revenue share). According to my understanding, Obopay can be a consumer brand or a technology brand. I am sure she said that she would be happy to partner with banks or with mobile operators, while she wants to bank a billion unbanked subscribers she will also go after the existing banked market-segment. And more.

This means that it is difficult for her to fit into the eco-system as one does not know if Obopay is competing or collaborating... and what Obopay may decide to be tomorrow. Maybe this is what happens if you have millions of dollars to spend.