The role of word-of-mouth in MFS adoption

I recently attended a discussion where the best ways to market Mobile Financial Services were discussed. Very valid ways of explaining the benefit of a new type of financial utility were mentioned. One could use Radio and printed media. Billboards and displays of the message on storefronts were also thought to be a good mechanism to sell the concept. Of course, if the budget allows for it, television is always a good marketing tool.

Experience seems to indicate that word-of-mouth almost invariably plays the biggest role in ensuring a fast roll-out. The need to engender trust in a foreign product is best accomplished by what people you trust tell you. If it is possible to get clients to start convincing prospective clients to join this works best and this is the way that a revolution is started. Some MFS operators have attempted to stimulate Word-of-Mouth campaigns by actually paying clients for signing up new clients. It turns out that the only way that it is possible to achieve a true Word-of-Mouth campaign is by delivering a product that meet the needs of clients. Actually exceeds the needs of clients.

The need for financial services in poor communities

What is it that is really needed by poor communities in as far as financial services are concerned? Do people with a low income and very little money really need financial services? Because if they do not need financial services, what are we busy with... this banking the unbanked thing. So, I thought that I would list the things that people need in communities with limited resources:

• They have the need to be able to receive remote payments electronically, without having to take a day out and to travel. Many people in poor communities need payments from families working in cities or elsewhere or use government grants as the means for subsistence. The act of receiving these payments are often expensive and complex.
• The ability to be able to save towards a target is not really available to poor people. Even if some-one cultivates the discipline, the actual mechanisms (putting cash in a bottle etc.) is not convenient or safe. Many people want to buy something big or are planning a major expense (e.g. sending their kids to university etc.). The only way that they can do this is by means of targeted savings.
• If something happens (like an accident or an unplanned expense for instance), poor people also need access to lending products.
• I do believe that poor people also need to be able to have a record of their financial transactions. This is important from a number of perspectives, but the most important is that such a transaction records will assist in financial education. It is (for instance) extremely difficult to produce and manage a budget, if no record of financial transactions exist.
  

Many studies seems to indicate that the need really exists, but what do you think?

Mobile payments' transaction costs

I recently had a discussion on what the pricing should be for mobile payment transactions. Of course, the right answer is "what the market will sustain." In other words, what is the value delivered by mobile payments to subscribers. But before this discussion can be had, one should have a crisp understanding of the cost of these type of transactions. If the price is less than the cost, delivery of the transaction will not be sustainable.

Below is a list of the different sources that will contribute to the ultimate cost of the solution. This is not comprehensive list and I would not like to put specific values to each as they tend to differ from one deployment to another, but I hope this will get the ball rolling, and stimulate further discussion:

• The first contribution is capital cost. It is impossible to offer these services without investing in systems, infrastructure and equipment. I have found that this is the cost element that is most vigorously attacked. Mobile payment operators are of the opinion that if they can cut this to the bone they will be able to deliver a cheap service. The contrary is true: spend on the installation and the rest of the cost will be lower.
• Registration costs are often bigger than expected. Preparation of registration material, the people required in support of the process and of course marketing cost all contribute to this. It may be a good idea to ensure that the subscriber pays for this.
• We have found that the biggest cost is often the cost of support. The cost of a call center, support center, people that reset errors and technical support. This is often under-estimated and sometimes escalate if the system selected is not meeting the need. This cost is a recurring cost and should be balanced with capital cost. If the right investment is made in the beginning, operational support will be much less.
• Cost elements that are often not catered for (or not properly understood), include the cost of compliance, the cost of fraud and theft, the cost of lost opportunities etc. Systems that does not work or allows loop-holes for fraudulent attacks etc. will ultimately be more expensive than others.
  

Different ways to integrate Card with Mobile

We live in a world that is controlled and dictated by credit cards - at least in the first world. It is impossible to consider a world without credit cards... no more restaurants or online purchases. But with the invention of mobile money schemes, it has become important to develop different ways of integrating credit cards with mobile phones.

The first integration that one usually sees is the connection of a card to a mobile so that alerts can be sent to the phone when the card is used.

The biggest challenge, of course, is to ensure that a credit card payment can be accepted (or received) utilising a mobile phone. Many solutions have been deployed and today mobile phone subscribers utilise their phone to pay for goods and services using credit cards - in a similar way to using your credit card on the Internet. Some solution providers have utilised different ways of making these transactions more secure and more innovations will happen.

Another approach is to issue a new type of card that is tightly integrated with the cellphone. Some of the more famous examples are Smartmoney in the Philippines and also Mobile Money in South Africa. Many more examples exist, for instance a recent announcement of Romania's Raiffeisen Bank, with a dedicated card that can be used to send money via mobile phones. (See here).

I am actually more interested in other innovative ways that a card can be integrated to a phone: Like being able to disable the card and again enable it via the mobile phone. This feature was recently announced by Veritec (they called it MTC - Mobile Toggle Card) (Read more here). I think that these type of solutions are really innovative and adds a lot of value. So are the ability to change your card PIN on the phone and to be able to link a new card on the phone. These and more functionality are all available on the Fundamo platform out of the box.

Mobile Money Summit introduces a spirit of collaboration

The number of press releases during the past three days emphasising new collaborations is an indication that the Mobile Money community is maturing. The fierce competitive spirit between different companies in the past has been replaced with a drive for open interfaces and creating networks of benefits for all connected parties.

This is a good sign and will lead to a massive growth in successful deployments and operations. By enabling the transactions generated by specific solutions to be made accessible to others the combined growth will benefit every-one. The Western Union announcements specifically is an indication of a willingness to collaborate and changes the dynamics of the different players. I would suggest that it is now important to look at mechanisms that will ensure more connections to as many players as possible.

Mobile Money Operators that do not inter-operate will become less relevant.

The sequence of financial inclusion

This must be attributed to Lawrence Yanovitch who spoke about it at the work-session that I attended at the WEF. I thought that it is a great framework for financial inclusion that I had to document it. (I have elaborated a bit on it myself). When we think of mechanisms to bring the underbanked into the banking system common wisdom usually dictated the implementation of micro lending. Mobile payments is now also something to be considered, but do we do this in conjunction with micro lending or not. And what about platforms for saving? How do they fit into this puzzle. So Lawrence suggested a sequence for financial inclusion:

1. The first component that must be provided is an effective payment system that can now be deployed by means of mobile technology. This payment system must be secure, easy to use and enable payments over a distance (money remittance). The system should support the needs of the subscriber to such a degree that a large percentage of the cash be taken up into the system.
2. This is then a logical transition to savings. With cash having been turned into electronic value, it will be easier to start offering savings products based on regular payments. These products should typically be targeted savings products with a monthly installment. Credit risk does not exist as it is a savings product, but the discipline of the subscriber to meet his/her monthly installments will be important.
3. The behaviour of a subscriber (and the history) with regards to payments and savings will provide mechanisms to start scoring credit, making the introduction of lending products easier.

So the sequence is: teach them to pay electronically, then to save and then offer them loans.

Tower Group's latest projection on mobile banking

In a recent report, the Tower Group reported that mobile banking has now become "mainstream". (Read here) In this report, it is predicted that the number of mobile banking customers will reach 10 million at the end of 2009. (I presume that this is in the US, as this number has been reached at least two years ago globally). The report also predicts 53 million by 2013.

Seeing that I know that Tower Group made such predictions previously, I thought that I would go and check it out. This is what I found:

The first time that I could find that Tower Group made any prediction was in June 2007 (Read here). According to this report 400 thousand people used mobile banking then and was expected to grow to at least 22 million by 2012 (or even higher). Then a report was produced in November 2007 (Read here) where it was predicted that a million subscribers would be reached by the end of the year with 40 million by 2012. In a quote that I saw, Tower Group indicated that the tipping point in mobile banking has been reached in 2008.

If I collate all these predictions and fill in the gaps - the predictions was pretty accurate and remained consistent. Something tells me that the current predictions will not be that off the mark.

Thinking about the ideal personal device for mobile payments

I have been using a Sony Ericsson K800 for a number of years now and it is the best camera phone that I have ever seen. The camera specs are more than good enough for my everyday needs and the user interface has been designed very cleverly. Window's based phones integrate best with my desktop for calender sync and the Blackberry is without doubt the best e-mail phone. The i-Phone is (as most would agree) best for multi-media, but not the best-best to manage e-mails or send text messages.

This makes me believe that the common wisdom that the phone will ultimately morph into everything. (Phone, GPS, Camera, Productivity, Multi-Media and Wallet), is not unnecessarily true. It may be possible to produce such a device, but the possibility exists that devices with a specific focus (this is a camera that you can phone on too, or this is a multi-media tool that you can also send e-mails on) will become more popular. If this is the case, I was wondering what a device would look like that has been designed first and foremost to be a mobile payment device and then a phone, etc. This is my take on some of the things that you would probably find on such a device:

• It would be branded in such a way to emphasise money.
• It would come standard with integrated and advanced proximity (NFC) technology
• The display would be geared towards statements (rather than multi-media)
• Advanced security components would be built into the firmware (maybe even some biometric capabilities)
• A portion of the device would be thin enough, so that it can be used at ATM's or POS's. In other words, the device can be swiped or something like that.

So what do you think?

Multi-currency in mobile payments: What does it mean?

Many vendors claim that they support multi-currency in their mobile payment/banking solutions. After giving it some thought, I was not sure what this mean. Or to put it differently, I am sure it means something different for different platforms.

I believe multi-currency support can be grouped under one of the following categories (arranged in degree of sophistication):

• No Multi-currency
• Different currency for different deployments. A specific deployment can be initialised with any of the supported currencies.
• The platform supports currency conversion transactions from one currency to another. This is implemented for transactions originating or terminating external to the mobile banking platform.
• Full support for multi-wallets with different currency, full multi-currency conversion during real-time transactions, with clearing and settlement capabilities.

It is clear that multi-currency can mean different things to different people.

Some thoughts on tax and mobile payments

I remember reading somewhere that a new fashion of clean-shaven faces emerged in Russia after one of the Tzar's started taxing beards. It is true that, while taxes are an important source of income to governments, it also impact behaviour. A number of taxation issues are relevant when considering the economic impact of mobile payments:

• Mobile payments and specifically wallets may lead to income becoming more visible and thus easier to tax. This may deter unbanked people to open wallets. It is important to consider minimum tax-brackets and mechanisms to make this visible and transparent, so that visible income should not attract tax that was not normally paid.
• Value added tax payments are a whole topic of discussion on its own. Whereas payment for goods at a merchant is a clear indication of a purchase and should therefor attract VAT (where applicable), this becomes grey for person to person (P2P) payments. The collection of and the the definition of VAT may have to be re-thought as P2P payments become prevalent.
• Taxing of electronic payments (which is quite common in many countries), adds to the cost of mobile payments. This is surely an unnecessary tax on technology that could contribute directly to economic growth

In summary, governments should consider not taxing mobile payments transactions.