Is the US really the biggest market for Mobile Banking

Navi Radjou published an interview with Carol Realini recently (read here). In this article Carol made a number of statements that I think one should analyse a bit further:

• That the US is the next big market for banking the under-banked. She base this statement on a statistic that 106 million citizens in the US are underbanked. Considering that these people are spread over many states (all with different banking legislation) it would be difficult to offer a service to all of them. If one then compares the realities and size of this market with countries like Nigeria, Pakistan, Indonesia, Brazil or Mexico (to name just a few), this statement smacks of ignorance.
• The article reference the recent Economist publication (Read here) as if this is Obopay technology. Careful reading will show that MTN Banking and MPESA are referenced only and very different technology suppliers have made this possible. These are true African success stories made possible by the real pioneers of the industry.
  
• She makes the statement that mobile banking has not been able to scale because Operators have worked with closed networks and that the answer is open standards. Well, the reality is different. Massive penetration have been achieved by closed systems: Smart Money, GCash, mPay (in Thailand), mPesa etc. This statement is just not accurate.
  

Africa was the inspiration for Carol's company when she visited the continent in 2002, as she indicate in these interviews. I do hope that the fact that Kinshasa is the capital of Kenya as is implied in another Realini interview (Read here), is a mistake by the publishers. Knowing how big the African continent is, how big the need is and the progress that is being made by Africans for Africans, the statement that the US is the next big market is a bit ironic.

Marketing is essential to grow Mobile Banking

"Consumer Adoption of Mobile-Banking is Lagging Primarily Due To Ineffective Marketing By Many Financial Institutions" is the heading of an article reporting on a recent research report produced by Javelin Strategy and Research (Read here). "Wow!", I thought, this is insightful: it is true that consumers will not use things that they are not told about. This is marketing 101 and is true for every consumer product. Could it be that mobile banking is not reaching its full potential because it is not sold properly? So I decided to read on.

It turns out that the report provides many other interesting observations and is based on the assessment of 26 criteria for a collection of US banks. It seems an accurate observation that banks do not support mobile banking with adequate marketing when a number of banks do not describe the security of their offerings in marketing material. This is important as it is known that security is one of the key inhibitors for consumers to use mobile banking. If banks do not actively address these concerns how could they expect their subscribers to use the service?

While this is a report focused on the US market, it is my experience that this lack of marketing support is more widely spread. Mobile banking seems to be the only consumer product that companies expect to take off without telling their customers about it. This is one of those things that I have difficulty in understanding.

The "Spin" and "Hot air" of mobile banking

I have been told that flying a hot-air balloon can be quite scary. Many things can go wrong and one has to be extremely careful in understanding the weather patterns prior to a cruise. Best advise for some-one considering a trip in a hot-air balloon is to choose your partner carefully. It is important to only get into a basket with some-one that knows what they do and have a lot of experience.

The same with mobile banking. The pilot that you select for your deployments should be selected carefully. Some-one recently told me that the mobile banking industry is full of "Spin" and "Hot-air", and I thought that this is a good description of "mobile banking experts" that have not done many (if any) flights and are looking for customers to join them in their basket. The real experts actually talk little and are generally quite non-descriptive. It is my view that they are quite busy and their reputation usually does the talking rather than wild claims and too much confidence.

Who would want a bank in their pocket?

I have a lot of respect for what Charles and Brian achieved with Wizzit. The vibey brand and the distribution model should be embraced by other transformational banking ventures. They use the by-line "...you have your bank in your pocket" to describe their mobile banking offer.

Some-one recently said to me: "Who would want a bank in their pocket?" and the more I thought about it, the more I realised that a lot of truth is locked up in this question. Many professionals in this space are grappling with the challenges to ensure take-up and growth of wallets. One of the reasons that transformational banking initiatives work is if it offers a real value proposition.

What we should not be selling is a new kind of bank or banking in a different format. This is not what subscribers really want. As a matter of fact, these customers do not want to get close to a bank if they can help it, but they have very real problems to solve. The brand message should rather be "Now you can send money to some-one else easily" or "It is so easy to pay a bill, or your rent or buy stuff" or "Your money is safe". Thinking about the value proposition, I believe, will help to deploy solutions that people really want.

New predictions on Contactless deployments

With the recent launch of the Nokia 6216 Handset, I thought that it would be interesting to look at the prediction of NFC again. According to all accounts it seems as if this is a cool handset that comes with all the features that one would want in a phone. Also (most importantly) the phone implemented the (possibly industry standard) single wire protocol (SWP) entrenching the SIM card as the source of identity.

So now that the phones are available, we should start seeing more deployments, and less trails and pilots, or will we?

I thought I should look at some of the predictions that experts and specialists are making of NFC. What follows is a random selection of predictions (With the date when the prediction was made):

• Aug 2006 Technology Review published by MIT predicts that 50% of new phones shipped in 2011 will be NFC enabled
• Sept 2006 ABI research predicts that 450 million new phones in 2011 will be NFC enabled. This represents about 30% of the phones to be shipped in that year.
  
• Nov 2008 The GSMA predicts first commercial deployments during latter part of 2009
  
• Feb 2009 Informa's prediction is that 10% of phones will by NFC enabled by 2013
• Sept 2009 Junper predict that the NFC market will be $30 billion by 2012 (In the same report the prediction for MMMT is $200 billion)
• Oct 2009 Venyon CEO predicts the first mainstream production deployments in 2010

I wonder if there is a trend here somewhere?

Financial services for mobile devices: new trends from the Philippines

Trust the clever people in the Philippines to lead the way with Mobile Financial services. Any person studying the industry would know that it was the people from Smart Communications that deployed the first commercially successful mobile-based person to person payment system. Mobile banking the way that the rest of the world deploy them has been available in Manila for ten years and they invented mobile remittances. It therefore does make sense to look at what they are working on now.

I picked up on a number of interesting articles published during the past few weeks that all seem to point in the direction of a new generation of mobile financial services. "We are looking at it..." says Napoleon Nazareno, president of Smart about Micro Finance in one article (Read here). In another article (quoted from the Philippine Star) John Owens says: “It has to do with smart money and mobile phone technology,” (Read here). John heads up and organisation called the Micro-enterprise Access to Banking Services (MABS) program in the Philippines. In this article mention is made of ".. several mobile banking products already being pilot tested with several rural banks."

Could it be that we are seeing the emergence of a new generation of banking products based on the proven mobile payment capability in the Philippines? How would this be translated into other markets? I think it is worthwhile to keep tabs on these activities.

The SIM-based authentication mechanism in Turkey

Turkcell provides advanced crypto authentication on every SIM card that they ship (Read here). The level of technical security provided in this way can not easily be duplicated in any way as the SIM provides a cost-effective way of distributing crypto keys.

As far as my information goes, at least twelve of the largest banks in Turkey makes use of this solution for secure login in order to gain access to Online banking. Amongst others, the solution is also used in e-Government. (For instance to access and lodge Patents, to get access to government information, during the Customs process and various declarations.) The wide roll-out of this solution places Turkey at the forefront of digital signatures.

The solution has been designed in such a way that it is available on any type of handset (expensive or entry-level, old or new), the interface is simple to understand and use, yet powerful in application. The fact that the same security paradigm is used for many different applications ensure better support and a high level of confidence with the subscriber base.

It would be interesting if some-one could provide us with more information on commercials, the take-up and usage and any technical challenges that Turkcell experienced in deploying this solution. Purely from a technical perspective, every mobile operator should consider deploying similar infrastructure at a marginal increase in cost, but offering significant benefits to all of their subscribers.

Turkcell Mobile Signature is Turkey's first and only ISO/ IEC 27001 Information Security certified GSM service. The service infrastructure and processes are audited by globally accredited audit companies and by Turkish Telecommunications Authority.

New types of mobile based payments by mainstream banks

We have seen it in the past: a mainstream bank attempting to launch a mobile payment or an innovative payment solution. These attempts usually ended in the "did not work" folder and life carried on. This is why mainstream banks wait for standards to evolve. By launching a product conforming to an industry standard, the bank can be assured of interoperability, conformance to regulations and a clear definition of liability(and how to manage risk).

However, it seems as if this may be something of the past, with a number of proprietary mobile payments and wallets being launched by mainstream banks with very little consideration for standards. It is almost as if the banks are saying: "We have waited long enough for these standards to emerge..." and now we are going to do what is needed. And I am impressed with what they produce.

I was exposed to the mobile wallet solution being offered by Rabobank in the Netherlands last week and was really impressed with the way that the team have worked on integrating different aspects of remote payments, SMS order entry and proximity payments. The solution is called MiniTix and may indicate a way forward for mainstream banks (Read here).

Of course one can reference many other initiatives. For instance the Mowaly wallet from Standard Bank recently launched in South Africa (Read here), the tie-up between Deutche Bank and Luup and many initiatives that one can refer to in the US. (for instance Boku (Read here) and the Starbucks wallet (Many references, but read here). Maybe it is time for mainstream banks to stop waiting for standards and start delivering solutions in this space.

Nacha requests mobile payment ACH comments

Nacha (the US electronic payment clearing organisation) published a request for comment document with major implications for mobile payments. (Read here). This action in my view could be one of the biggest catalysts for proper mobile payments in the United States.

If the door being openened by Nacha is embraced by a critical mass of financial insitutions, the US is poised to launch the first cost-effective interoperable mobile payment solution in the world. Nacha provides the rules and the infrastructure to enable electronic funds transfer from one bank account to another in a secure way. This, coupled with a very low cost structure and enough participation can trigger true mobile payment products, that are both open and flexible.

The RFC issued by Nacha recognise that payment transactions triggered from mobile devices should be identified as such and that different rules can be applied to these transactions. The question now is, if financial institutions see this will they embrace it?

The Telenor EasyPaisa mobile banking launch

The launch of Telenor Pakistan EasyPaisa was arguebly the biggest launch of branchless banking in the world this year. With a brilliant marketing campaign consisting of social-media teasers, billboards, double-full page advertisements and a glamourous event, the service was announced last week Wednesday. I think everyone seeing the television advertisements would agree that the campaign was as good as it can be. (See here and here).

However, what makes this launch significant, is the fact that Telenor Pakistan subscriber base is close to thirty million in a country of 180 million people. The product was launched with 2 000 agents activated and supported. The service deployed is unique to the culture and needs of this vast country. During the launch the State Bank of Pakistan governor, Syed Salim Raza, publicly gave his support for the service and highlighted the big need for more affordable financial services, where only 12% of the population is served with formal financial services. Read more press here, here and here.

Congratulations to M-Com with their regional Gartner leadership

The first mobile banking magic quadrant produced by Gartner was recently released in the North American mobile banking report. It is understandable that Gartner produced this report first, as the majority of their clients are based in the North Americas, but this is not the full global picture of mobile banking yet.

One should congratulate M-Com on being judged as the regional leader (though with small margins). This is well-deserved given the product innovation and insight from this New Zealand based company. However, I do think that the heading of their press release produced immediately after the event is a bit miss-leading: "M-Com Positioned As A Leader In Magic Quadrant For Mobile Banking" (Read article here.)

The heading creates the impression that M-Com is a global leader in mobile banking. It is many experts impression that the North American market is definitely not at the leading edge of mobile banking globally. The products and services are not as innovative, nor visionary as many other products deployed in Africa and Asia. It is therefor a bit mischievous to create an impression of global leadership on the basis of a regional win.

Funding mobile wallets through grants and pensions

I recently saw a very informative presentation from CGAP highlighting a obvious, but very important angle on how to bank the underbanked by means of government grants and pensions. It is well known that getting cash into wallets is one of the biggest challenges of effectively deploying mobile wallet solutions for the underbanked (MMU). This is usually achieved by an extensive agent network with the ability to receive cash and credit the wallets of the subscribers.

In the CGAP presentation the point is made that more than 155 million people receive regular payments from their governments and that less than 20% of these actually get paid directly into a bank account. The rest are distributed by means of very inefficient cash mechanisms. The following quote from the presentation: "A growing body of evidence shows that access to financial services enables the poor to better withstand shocks, build assets, and link into the wider economy as fuller economic citizens.". It seems as if it should be the duty of governments to implement aggressive plans to pay grants and pensions into low cost wallets.

Currently, mobile banking is used to distribute grants effectively. For instance the payment of ex-soldiers in the DRC in conjunction with Celpay and Concern in Kenya (to quote only two). The tremendous benefits of this approach can be seen in the following youtube video, that for me, is one of the most inspirational stories of what we are trying to achieve with MMU.

The importance of implementation consultants for mobile payment projects

The advantage of having executed on multiple MMT projects is that it provides for perspective. I have now seen our organisation successfully deploy the technology in many different environments (clients and countries). We now have enough confidence to be sure that the technology infrastructure will be implemented and will be ready for production. Yet, this is not all that is needed for a commercial successful venture.

While many other reasons are put forward for what have enabled one deployment to be more successful than another, statistics seem to indicate that good, experience implementation consultants almost always ensure success. This is the one ingredient that if it is omitted almost always lead to delays, tentative deployments and missed commercial targets.

Many of these independent consultants can be found and I would be happy to recommend these to interested parties. It is impossible to single out any specific consultant, but as an example one could reference Mark Guthrie (partner in consulting company Oscillyte ). He was quite instrumental in the very successful deployment of MTN Mobile Money in Uganda and have subsequently advised similar projects in other countries.

I think that these experienced program managers with an ability to grasp the uniqueness of MMT projects are often overlooked in planning projects. Results seem to indicate that this is the biggest mistake than can be made.

When mobile banking becomes an essential element of retail banking.

My bank (who will remain nameless) used to have a free loyalty program. Recently, they made the loyalty program optional and I have to pay if I want to join it. It is obvious that I will now be less loyal.

A lot has been written about what will make mobile banking succeed. What is the elusive killer application that will make people sign up in their thousands. I have heard many experts say that it is the distribution strategies. If one can figure out how to place the mobile money application in the hands of subscribers, then it will truly become mainstream. "It is a trust issue" others say. "If people know their money is safe, they will put more money into their mobile wallets"... and so on and so on. All of the above are of course on the right track. The recipe for a successful mobile banking offering is a concoction of many different things and it is important to get all of this right.

But as is the case with loyalty programs, mobile banking will only become mainstream if it is an essential part of the service that banks offer. I cannot see how a retail bank can function effectively without a working loyalty program in today's competitive marketplace. Only when mobile banking becomes an essential component of delivering retail banking, will it get the management attention it needs to grow. In some markets this threshold has been crossed and it has surpassed Internet banking in usage. In others it is just a question of time.

The flat normal distribution of mobile banking deployments.

Having seen many mobile banking and payment deployments during my ten years in this industry, I know that many deployments fail. Unfortunately, not many individuals like to talk about failures and important lessons than can be learned are swept under the carpet. In stead of talking about specific failures, I though I will write a blog about failures and successes in general.

It is common knowledge that most naturally occurrences if sampled sufficiently, will display a Gaussian curve. This is supposedly also true for mobile banking deployment successes. (or is it?). All of us have heard of the small number of successful deployments of mobile banking and payment solutions. They do exist and is growing slowly. Because the industry is still young, the numbers are still low, but all indications are that this will grow. At the same time we also see failures - this is instances where the technology was deployed successfully, but then gets discontinued after some time. It is my estimate that the percentage of deployments that fail after five years may be as high as 25%. (I would be happy to argue this in person). This means that mobile banking successes do not show a normal distribution, but rather quite a flat graph skewed to the failure side. This is the picture of an immature industry without a good understanding of what is required to be successful.

As the industry matures, the graph should start getting steeper and the percentage of failures should reduce. Only by talking about the failures, will we be able to figure out what is being done incorrectly, so that we have a better change of not doing this in subsequent deployments.

Unfortunately, this is not the style of the industry. Nobody wants to acknowledge failure nor want to talk about it. This does not spell well for our industry.

Mobile banking death by spotligjht

It is common knowledge for performing artists that it is significantly more difficult to perform in front of a live audience than doing a recording in a studio. The tension of making a mistake can lead to stuttering and a performance that is not as good as it can be. In looking at deployments of mobile banking and when they are successful and when not, I have come to the following conclusion: "Spotlights can kill a mobile banking deployment". While exceptions exist, it is often those deployments that people do not talk about too much that are becoming profitable.

Mobile banking is such a hot topic. Conference organisers are constantly looking for successful case studies and researchers for guinea pigs to disect. This means that immature deployments are often scrutinised to such a degree that it fails partially because of the massive amount of visibility.

I believe that this is because of a combination of the following reasons:

• The owner of the mobile banking deployment is now so busy touring the international conference circuit that he/she does not have enough time to focus on a complex/delicate business.
• Visibility of a deployment, inadvertently also leads to scrutiny and criticism. This in turn impacts the bullishness of stakeholders and the energy and commitment to making the venture work starts to decline.
• By publishing insights and competitive aspects about a service in a specific market, pre-warned competitors now have time to respond, often limiting the positive impact of the service.

I can think of examples of all of the above and I am convinced that (maybe contrary to popular believe), it is actually better not to talk about your mobile banking deployments and to just get on with the job to make it a success. By doing this, you have a better chance of meeting your objectives.

The implications of the IFC's call for a reform in payments systems for emerging markets

Finextra reported on an IFC report entitled:
"Financial Infrastructure: Building Access through Transparent and Stable Financial Systems" (read here). Unfortunately, I could not find the original report and my insights are thus based only on what has been written on the Finextra website.

It seems as if the report motivates that credit reporting, collateral registries and payment and securities systems should be reformed. This in turn would lead to a much wider reach of financial services (particularly MFI and Remittance services). This is intuitively true. Without effective control of and access to financial infrastructure, it would be impossible to grow the financial industry in emerging markets. If I understand the report correctly, I do believe that it is fundamentally flawed because it was written with a first world mindset.

It may surprise many observers, but settlement and reporting systems in developing economies are in many cases more effective, more real-time and modern than what is available in first world countries. The reason for this is that these systems could be implemented without consideration for old, entrenched systems (as is the case in first world countries). Also the dependencies on grants for many of these economies, necessitated better controls than what one usually find.

For emerging economies the challenges are more governments fiscal policies and integration into the slow, batch driven systems in first world countries that are the biggest hurdles to reform.

Trends in the usage of banking channels in the US

In a recent report produced by the American Bankers Association (Read here), a clear increase in access to banking services via the Internet was reported. The US consumer now prefer to access banking services by means of the Internet. This is a very important landmark and an indication of a major shift in interaction with financial services. For the first time in the survey, a number of respondents indicated that they prefer accessing their banking services by means of mobile banking (only 1%).

It would be interesting to compare these results with countries where mobile banking has been available for a longer time (Korea, Philippines and South Africa). I am sure that one would be able to make interesting conclusions about the expected take-up of mobile banking in the US. While it probably took Internet banking fifteen years to become the preferred method of banking in the US, it is likely that this will even be faster for mobile banking (if I compare it with other markets).

It would also be interesting to find out how the sample was selected in this survey. For instance was the survey conducted telephonically or via the Internet? How big a portion of the sample was taken from lower income bank clients (or maybe migrant workers). One should also take cognisance of the fact that the demographics of bank customers are likely to change as they start making use of the extended reach that mobile provides them with. (Also read this article).

A statement about how I blog about mobile banking

I remember when I was a student how I enjoyed the discourse about everything possible. We used to smoke and drink coffee till late at night trying to find answers to the complexities of the world. The most important rule was that everyone was allowed to speak their mind. I do believe that it is these types of interactions that produce quality graduates and not necessarily the formal teachings.

It is this type of honest discourse that I believe is required in growing our industry. It is only if we have an open mind about what is being said that we will truly move forward. Lately, I have frequently been criticized (unfortunately not always in an open forum) about what I say on this blog. I take all comments seriously and have given it some thought. I would like to document some principles on how I blog:

• I will not disclose anything on this blog that I have been told under confidentiality....ever.
• I am specifically not acting as the CEO of Fundamo on this blog. As CEO of Fundamo I have obligations towards clients, my shareholders, my staff and other stake holders which requires a different behaviour. While I would acknowledge that this is not always easy (and that I have failed in this in the past), it is essential that this remains my intention.
• I will always attempt to be controversial or innovative in what I write. It does not make sense to publish the obvious or regurgitate what others have said. Other blogs do a much better job at collecting what has been said in the industry and present it as an aggregated offering, than I could ever do.
• I fundamentally respect people and the pioneers of this industry. I know that a lot of dedication and sacrifice have taken us to this point and I salute this. This does not mean that if I criticize their actions or what they say, that I have lost my respect for them.
  

It is also with gratitude that I receive encouragements for my blog. As can be seen in the quote from a recent e-mail that I received: "Always good to have someone in a pre-eminent position speak his mind publicly. It is a rare virtue nowadays"