Tuesday, November 24, 2009

The technical requirements for interconnected mobile banking

This posting is an attempt at listing the key technical requirements that must be present in order for two mobile banking systems to be able to inter-connect. This means the ability of a subscriber in one system to be able to send money (preferably in real-time) to another subscriber on the other system.

Both systems must be able to do the following:
  • Adhere to the same message routing strategies. It is essential that the payment instruction issued on the one system should travel to the correct destination system and then that the actual target account be identified. This is not a simple problem as the routing should cater for multiple accounts associated with the same telephone number. Banking systems use the concept of a BIN to route payment systems, Telco systems use international dialing codes and operator codes (or look-up tables if number portability has been implemented). Which one of the two should banking systems use?
  • A mechanism to clear the transaction and ultimately settle the transfers must be implemented in the same way by both systems. This is not a trivial issue as clearing and settlement creates all kinds of liabilities that must be analysed properly and catered for in the selected system. Reconciliation and detection (and correction) of discrepancies are also important.
  • One of the most difficult interconnect problems is the schema for the management of uncompleted transactions. This type of situation would occur when the originating system did not get a confirmation nor a decline message from the destination system. The resolution of such conflicts are extremely complex. The design of roll-backs, pending transactions etc. is not trivial.
  • Reporting systems must be agreed on.
  • Technical handshakes, unavailability of one of the systems and consideration like load management (because of the potential huge volumes) must be well defined in order for the solution to work.
In my interaction with industry specialists and technical suppliers, it is my perception that this problem is not understood well at all. Very few companies have the experience and expertise to design and build such systems.


Nealle said...

This is so true, this is why, love them or hate them, MasterCard and Visa have there place. What people don't realise is that they have built huge and complex infrastructures to cater for these interoperable transactions.

I believe that there should be a competitor to them in the mobile space, but this will take both significant investment and also a lot of time.

Doug Johnson said...

Thanks for the info!

A couple more questions if you have the time:

First, in a relatively fragmented market such as India's in which no one provider has a dominant market share, do you think that true inter-connectedness is a pre-requisite for widespread adoption of mobile banking?

Second, I remember reading somewhere that the Maldives is attempting to ensure that mobile banking is truly inter-connected across banks and mobile providers. Do you have any idea of whether this is true and, if so, the approach they took?

Taha Ali said...

I am a student doing a research paper on mobile banking.Your blog turned out to be a great source of information for me :)..

@ Doug Johnson... regarding your first question I have read that Pakistani market is also fragmented Mobile penetration is approximately 56% ... Three players (Telenor, Ufone, and Warid Telecom) each have roughly 12% market share, while Mobilink (Orascom) has 17%.
recently telenor has launched a service called "Easy Paisa" and it is providing true interconnectivity....
easypaisa is unique in the sense as customers do not need to have a mobile account with Telenor (or even a mobile phone) to pay their bill at an easypaisa shop - they simply present their cash and bill to a representative who completes the payment on a mobile phone (it’s worth noting that the mobile can be used to find out the outstanding account balance of a bill via SMS). The decision to enable anybody to pay their bills at easypaisa shops stemmed from the mobile market share structure in Pakistan...

I hope the information provided can answer your question... and I will appreciate any advice from you as well :))