Friday, November 19, 2010

When mWallet becomes a minimum requirement to play

I think it is pretty clear that mobile money has become a way of live for Kenyans. It is inconceivable to think of a world without mPesa and Zap in Kenya. The impact on the economy and the financial services landscape has been well researched and documented.

It may not be well-known, but the Kenyan telecommunication authority have licensed four operators to offer mobile telecommunications services in the country: Safaricom (with almost 80% marketshare and 40% Vodafone shareholding), Airtel (previously Zain) (with 13% marketshare and 80% Airtel shareholding), Orange (with 4% marketshare) and Yu Essar (with around 3%).

What I have found interesting is the activities of the other three operators. For (relatively) small operators, these companies are spending a lot of effort to launch new features and compete with their mobile wallets. Orange recently launched Orangemoney and Yu are trying their best to induce mPesa agents to switch to Yucash. Airtel's Zap has been waging a war on mPesa for longer than a year using features and price as weapons. It is interesting to observe the energy of the smaller players in this market.

It seems that a time will come in most emerging markets when having a mobile money solution will be a minimum requirement to play as is the case in Kenya.

Wednesday, November 17, 2010

iPhone, Google and NFC

It would be irresponsible for a mobile banking blog not to have an opinion on iPhone, Google and NFC. It is impossible to ignore the amount of excitement in the formal and social media about the instance when Eric Schmidt tapped his Nexus S on a proximity reader recently (Read here). With this small action, Schmidt signalled an intend from Google than just cannot be ignored.

I did write about the rumours related to Apple's venture into the the NFC space some weeks ago (Read here). I did highlight some of the challenges related to solving a few process and liability problems related to the secure element and personalisation then, so will not dwell on it again. Suffice to just re-emphasise that this whole mobile payment thing is much more complex and difficult to do than other digital stuff - far more difficult.

It is far more interesting to speculate on the strategic intend and approach of Apple and Google with this drive. (I enjoyed a post on technology and financial services with reference to this question a lot. (Read here)). The fundamental question is how these two giants intend integrating into the existing payment eco-system, how they intend changing it and what is in it for them. The complexity of payments is that it is tightly integrated and dependant on many other players. (Just think of the importance of banks (deposit-taking and settlement), regulators (compliance and risk-mitigation), card associations (inter-operability) and retailers (acquiring of payments), to name but a few. It is inconceivable to deploy a payment system without considering the role of these players (and many others).

Many questions remain unanswered: Do Google and Apple intend integrating into this eco-system? Working with the banks or card associations? Who will be their biggest friends and who should be scared of them? By delivering phones with NFC chips in them, what do they think will be the impact of it? Will this enable more people to transact and in when? Where will they make money? and who will loose revenue, because Apple and Google will steal it?

No matter how I dissect these questions, I only get to one conclusion: It is all about iTunes and Google accounts. The plan is that the phones will ultimately become an extension of the on-line experience. This is why Jim Balsillie (CEO of RIM) comment is so interesting: "We'd be fools not to have NFC in the near term ". (Read here).

Thursday, November 11, 2010

The illusive hyper-growth position

Why is it that some mobile money deployments grow spectacularly and others just chug along without any dramatic growth? In only twelve months, some deployments grow to a penetration of 15% of their total target market, while others barely grow to more than a few percentage points.

I refer to this high growth situation as the illusive hyper-growth position. In observing what drives these deployments, I am of the opinion it is a combination of three things:
  • Getting pricing wrong will kill take-up. It is important to get the fees right - not too low and not too high. Too high prices will chase prospective clients away - often for-ever. Too low prices may lead to transaction volumes that cannot be supported by the platform installed.
  • Ensuring that the distribution network are built in line with the roll-out of the product is essential.It is of no use that agents are appointed, but not properly trained. The distribution network must be carefully selected and appropriately equipped.
  • The mechanism and content of promotion is very important. The media used and the message will dictate if this is a success or not. It is no of no use to offer a service and then not to tell anybody of it.
Most important, it is critical that these three be developed in a coordinated way. It is for instance catastrophic to run a promotional campaign without having prepared the distribution network just in time. Triggering the market with a reduction in fees will not go anywhere if it is not reinforced by a supportive promotional campaign, etc.

Tuesday, November 02, 2010

The saga of the NFC-enabled SIM

Turkey has often taken the lead in the deployment of advanced mobile banking applications. The deployment of digital signatures (and the application in banking) is by far more advanced than anything in the rest of the world. Garanti Bank recently announced (in conjunction with Avea (a new Turkish mobile operator)) that they have launched a NFC-enabled SIM. (Read here) This is in my view, one of the most important announcements in the mobile banking industry this year. The possibilities created by this advance is huge and should be evaluated further.

The biggest challenge faced in rolling out mobile enabled NFC (waving the phone in front of a reader) solutions is that very few phones actually ship with a proximity radio. This is an essential part of the NFC eco-system. Without this little piece of hardware, it is impossible to develop NFC solutions. (No advances in software can compensate for the lack of this piece of hardware). Placing the proximity radio on the SIM card has been considered as a possibility many times, but was always discarded because of one big challenge: the radio's antennae. The SIM card is too small to also carry a big enough antennae and furthermore, the SIM card is often hidden inside the phone, sometimes behind the battery. Even if the antennae were to reside on the SIM, it would be very ineffective and different from one phone to another.

It is not clear how this problem has been solved, but it seems to have been solved. This innovation (if replicable on other networks), would allow any phone to be NFC ready by just swapping the SIM card. Other pilots have utilised the memory slots available in phones and have used proximity radios installed on microSD cards. I am of the opinion that these pilots are now doomed as it is a much more plausible solution to place the radio on a SIM card.

Why is mobile banking different to online banking?

Four years ago, I wrote a blog arguing why mobile banking is not at all like Internet banking (Read here). Most (if not all) of the arguments are still very much applicable today. The biggest being that through mobile banking it is now possible to reach a large percentage of the world's population that do not have access to banking infrastructure. This in itself is a major revolution.

However, with the massive advances in mobile phone technology and the convergence of smart phones with tablet PC's and desktops, is it still possible to distinguish between mobile banking and online banking? How is it possible to distinguish between an Internet banking session originating from an iPhone browser, a iPad's browser or a MAC? The answer is that it is not possible. It is therefor possible to perform online (read browser-based) banking from a phone. Also, it is quite conceivable that a mobile banking app (written for the iPhone) can now be run on a iPad. Is this mobile banking or tablet banking?

What is needed, possibly, is to redefine online and mobile banking in different terms and utilise new terms to distinguish between the two. I would propose still using online banking, but rather refer to mobile banking as transactional (or message-based) banking. Mobile banking (designed correctly) have utilised the phone characteristics of being able to work with messages better and also support real time push capabilities. This functionality is of course now also available on PC's and can/should be utilised by banks for this form-factor too. Transactional banking would typically focus on payment transactions (bill payments, ad hoc person to person payments, cheque-related payments etc.) whereas, online banking offer much more sophisticated reporting and information representation capabilities.

The most important difference in my mind is recognising the difference in requirements in back office systems. Online banking and Transactional banking have very different scaling challenges and the design for the one (concurrent sessions), would be very different to the other (queue management). Also the security paradigm and risk management and mitigation are also very different.

It is clear that the boundaries between online and transactional banking are busy blurring, but by making this distinction, it is possible to design better banking applications.

Businesses would welcome mobile banking

What a surprise! Fundtech in conjucntion with Aite recently found conclusively that Executives would use and embrace mobile banking if it were to be provided by commercial banks. Why did we think differently and why was it necessary to research this. (Read more about this report here)?

The notion that mobile banking is not secure and safe as is the case with Internet banking exists. How is it possible to deliver a secure service on such a small piece of equipment and what will happen if an executive's Blackberry is stolen in a pub? I am sure that this is the only concern that executives could have for not using mobile banking in their business. The fact is that it is much easier to ensure a secure (and a much better auditable) system on a personal device. The industry has failed in some ways not projecting this fact.

The implications of using mobile payments in a retail environment

Most of the spectacular successes of mobile money initiatives were built on person to person (P2P) payments. This is a transaction were money is "pushed" from one wallet to another in an instant. The recipient of the money is informed immediately that he/she received a payment. Of course, nothing stops one utilising this kind of transaction in a retail environment. One may as well just send money to a shopkeeper's mobile phone to complete a payment.

So what is the relevance of the recent mPesa announcement that mPesa can now also be used in supermarkets? (Read here). Well, it is because using mobile payments in supermarkets (or formal retail environments) are much more complex and difficult. Much more have to be catered for that does not just exist in P2P payments. Below is a sample of some of the things that one has to consider:
  • The system will have to cater for multiple roles in relationship to a retail account. For instance, one would not want the receiver of funds (the till operator) to also have the ability to pay from this account. Some roles will have more functions while others may have to restricted.
  • In order to support the way that a retailer works (and when fully integrated with the store automation), one may want the system to support a "pull" payment, rather than a "push" payment as is the case with P2P. This is much more complex to implement.
  • The system will have to cater for other types of transactions, like for instance: refund or reversal transactions.
  • The owner of the supermarket typically requires more comprehensive management information and the data stored and displayed will have to be developed in such a way that the information available caters for the need of the retailer. For instance, data may have to carry information related to the types of goods purchased.
  • Furthermore, if the system is really advanced and architected well, it would already position the automation for future functionality like NFC for instance.

Wednesday, October 20, 2010

Somali payment system attracts attention from a strange source

A recent statement released by a Somali rebel group, al-Shabab and carried by Reuters was reported on widely. (Read here and here, amongst others). According to the statement, al-Shabab states that the the local mobile payment system (referred to as Zaad) is a threat to the local economy and must be discontinued by the end of the year. This story was distributed widely by an eager western press. In the eyes of many, Somali is a country of pirates with an economy based on extortion. Nothing can be further from the truth.

The condemnation of the Somali government of the ban by the rebel group was not reported on at all. (Read here). In the press release the government shows much support for the mobile banking service, highlighting the huge benefits provided by the service to the population of Somalia. Furthermore, little gets reported on the strong economy of the country based on agriculture and diaspora all over the world remitting money back into the country. The economy is not performing optimally because of the instability created by rebel groups, but is reported to be growing at rates of 4% per year. Not too bad for any country. GDP per capita is about $330 which is only slightly lower than Kenya, but higher than Tanzania for instance.

What is a pity is that very little has been said about Zaad, the local mobile payment service under the spotlight. Zaad is a locally developed and managed service available all through the country and available on all mobile operators. According to all accounts and as far as I can ascertain, it is a very well designed service and one of the first to become operational on the continent. It utilise USSD as a carrier and security implementation seems to be well though out. It seems to be rich in features and can be compared with the best available. This seems to be a really good story that should have been reported on more widely. (Read the Zaad website here).

According to Wikipedia, al-Shabaab recently decreed that gold and silver dental fillings were un-Islamic, and dispatched patrols to yank them out of people's mouths. (Read here). It is a pity that a world-class service (like Zaad) be made known to the world in conjunction with a radical group like al-Shabaab.

Tuesday, October 12, 2010

What is needed for digital begging?

It is clear that the way that we pay and receive payments will change drastically in the next decade. Everything else changed as the digital revolution took hold of our world, so definitely, for sure money will change too.

I was thinking about how payment behaviour will change. The things that we are used to in a cash economy as things change into digital money. Would it be possible to beg for instance? I was convinced that this would be difficult, predominantly because I believed that we will put the control of payment back in the hands of the payer.

Then I saw that the guys at Zoompass implemented a mechanism to ask people for money (Read here). As a matter of fact, the new feature even allows you to ask a whole bunch of people at the same time for money. I see where they are coming from... it is now possible to get the club fees paid in one smooth step. No more phoning or pleading to get the team's subscription paid. But this is also a great tool for beggars I think. With the help of digitisation, a beggar is now not limited to one victim at a time - one can now target a whole crowd at the same time.

The complexity of mobile infrastructure influence on mobile payments

On the right is a screenshot of my iPhone. It is a text "conversation" that I was recently confronted with. The text message that I sent to the recipient was reportedly not delivered. After some time, the recipient responded as if he did receive the message and then kept on responding five times every twenty minutes.

We have all been exposed to such a situation and (although irritating), we understand that these networks are complex and things can go wrong. For us with a bit more technical back-ground, it is clear that although I was registered on the network, something went wrong with the data-entry on the networks SMS-C.

This is possibly acceptable, because no money was lost. I had to deal with a bit of inconvenience. However, if a financial transaction or instruction was carried on these "mis-behaving" messages, money may have been lost, or it would be possible that consumers would be extremely concerned. It is just not an option to deliver financial services on a platform with this behaviour.

Now for a moment consider how to build a system that sits on top of a platform with this kind of erratic behaviour (albeit infrequently). Difficult? Almost impossible? Hmmmm

Monday, September 27, 2010

The challenges of a young industry

According to most accounts, the mobile financial services industry will grow to be huge. It is likely that it would have a major impact on social trends and macro economies in most countries (but specifically in emerging countries where the biggest global growth will occur and where the majority of people live). In human terms we are potentially looking at a giant with a lot of capacity.

However, the industry is still only a toddler (at best). As is the case with humans, the industry will still have to go through many phases, face many problems and (hopefully) be exposed to the right influences. It is critical years - right now - as many of the things that will be pivotal later will get established now.

In looking at the industry at this stage of the development, I have many worries about how it is developing and what some of the characteristics are that are starting to evolve in this young toddler. I believe it is important to recognise the bad behaviour and eradicate it now in order to ensure that the industry can grow into its full potential and deliver on its promise.

Some of the worrying traits that I see emerging are the following:

This is an industry without a clear identity. At best, the industry can be described as schizophrenic. We have different views of what the industry stand for and what the objectives are. We lack a crisp message. It is often my experience that external people only "get it" after a long description and explanation. It would be much better if we had a much more clear identity.

The industry is not honest with itself and with others. Wild claims and misleading statements are often made. It seems as if it is more important to project information so as to benefit specific individuals rather than considering the well-being of the industry. I am not naive in thinking that this should not be happening, but when it turns into standard practice and with no cross checks and balances, I say we have a problem.

Are these signs of an industry in distress or should we just bear with the growing pains of a young industry?

Thursday, September 23, 2010

What can go wrong with mobile banking deployments

In some team-sports, an average team can do well if they have a star-player in the team. In these instances one could say that the team is as good as the best player. In other sports, a team could easily loose if one of the players are not up to scratch. This is a situation where the team is as good as the worst player.

The problem with mobile banking deployments is that so many things must work in order for the service to be delivered. If any of these things are not in place or working, the total mobile banking solution would be disfunctional. Mobile banking deployments are a team sport that is dependent on all components working, and this means that if any thing goes wrong, all will not work.

For instance, even if the software on the handset work, the connectivity is in place, all the registrations and the routing through the firewalls are sorted and the connection to the bank and the security server are operational, a bill payment transaction will fail if the connection to the bill-payment server is slow, times out or is not available. It is insightful to sit down and trace all the transactions and the many number of elements that are touched in order to deliver a simple transaction. And what makes it worse, is that the service is as good as the worse component.

Monday, September 20, 2010

Nick Hughes - the real person behind mPesa

It is often the people behind the scenes that make things happen. Not always in the spotlight and not trying to be famous, but focused on the issues - these people are the real heroes in life. This is also the case with mPesa. Many people contributed to it being so successful, but the driving force behind the concept, the guy that conceived it initially and drove the project till completion is Nick Hughes.

Nick recently left Vodafone and started Signal Point Partners (Read here). What I find really satisfying (and another reason why I will keep on reading the Economist) was that Nick (with Susie Lonie) will be receiving the Social and Economic award for their outstanding contributions in the field (Read here). I think that this is well deserved. One should applaud the Economist to find and recognise the real people behind the success stories.

Thursday, September 16, 2010

How to Kweeka respond to mPesa

I have been a Absa Bank client for the best part of thirty years. I am therefor exposed to their approach to mobile banking as a client more so than others. In the past, I have been direct in my comments of them, but it is all meant in good spirit. (Read here, here and here).

It is common knowledge that mPesa recently launched their mobile banking solution in South Africa. Other players in the market are responding to this initiative with their own offerings and others are likely to respond later. For instance, one of the larger banks were quick to announce their own mobile money remittance product. (Read here). As a matter of fact, FNB beat mPesa in announcing this a week before the mPesa launch.

Absa bank responded with a marketing exercise of note. It is called Kweeka. (Read here). As soon as I became aware of this new "product" I started analysing it to understand the features and benefits. The more I read, the more I got confused. This is not a product, this is a collection of everything that Absa conjured up during the past three years, neatly packaged with a new slogan: "You can do it Kweeka!". It almost feel like meeting an old friend with a new funny hairstyle. You think you know him, but something is not right... you feel like laughing, but nothing is funny.

Tuesday, September 14, 2010

Why Basel III is good news for mobile banking

With the recent turmoil on financial markets the banking industry was quick to respond with more relevant guidelines for banks. The new Basel III, recently announced, is all about the amount and quality of capital held by a bank. Capital (in effect) is the amount of assets a bank must hold to be able to withstand drastic changes in the environment. The new rules dictate different levels of capital adequacy as well as capital with more liquidity. (Read here).

Banks not meeting these guidelines have a number of options. The most obvious is to get the capital from their shareholders (either by raising additional capital, or retention of dividends). This is of course not an attractive option as it would ultimately lead to a reduction in valuation - something that neither executive management, nor shareholders really want.

The other alternative is to get more capital from clients, preferably capital that remains liquid. This means (in effect) that banks would want to ask their clients to deposit more money with them (but not in fixed high-yielding deposits). This also seems unlikely in an environment where fewer clients have capital that they could deposit, and they would definitely not like to do this in low (or no) interest bearing accounts.

The solution is actually painfully simple: banks should provide effective mechanisms to their clients that they can do payments without using capital-hogging instruments (like cash and cheques). In a recent study, it was found that Ireland could save EUR 1 billion annually if cash and cheques where to be eliminated from the system (Read here). This saving and the fact that cash will be reflected as capital on deposit with the banks, would help them comply with Basel III more easily. By implementing mobile payment solutions and making it easier for clients to embrace these electronic payment schemes (thus eliminating cash and cheques), banks will become more compliant without having to ask their shareholders to carry the can.

The importance of payment infrastructure to support aid activities

Our world has been rocked by a number of natural disasters of which the earthquake in Haiti and the floods in Pakistan are some of the most recent ones that spring to mind. The individual suffering and hardship of poor people are severe in such instances. Luckily, many aid organisations exist that offer support into disaster areas.

These organisations are dependent on many aspects and resources that are critical in the delivery of aid: transport, personnel, food, equipment, medical supplies. Without these and many other things, it would not be possible to offer support. If these things are not available in the stricken countries, it is possible to ship them from other countries. It may take some time, but after a few days, supplies can be landed in the disaster areas and aid can proceed.

One of the most important resources, required by aid organisations to be effective is a good payment system. Payment systems are required to distribute monetary aid, to pay local suppliers and to pay staff. (Read here). Substituting payment systems with cash leads to many types of inefficiencies and sometimes even to fraud and corruption.

Important components of existing payment systems are often also destroyed in disasters: ATM's and bank-branches washed away, connecting lines down, no electricity etc. Furthermore, payment systems cannot be flown in quickly or miraculously established in a few days. Payment systems requires many components that must work in harmony with each other and that cannot just be switched on overnight. This is why payment systems based on mobile communication, using simple handsets and not requiring expensive infrastructure are so well-suited for emergency work. Countries with well-established mobile payment infrastructure are in a much better position to respond in instances when they are confronted with disasters.

In search of the holy grail of mobile payments

Most mobile payment solutions are designed to allow their subscribers to perform payment transactions with each other seamlessly. It is often difficult to pay some-one that have not yet subscribed. At best, mobile payment solutions offer crude integrations to other payment providers. This is usually achieved through complex integration and often with confusing rules and procedures.

Establishing a mechanism that will allow subscribers of different systems to transact with each other easily is often seen as the holy grail of mobile payments. This feature is referred to as interoperability or interconnectedness (See one of my previous posts). Many attempts have been made to establish such a mechanism or platform, but with no success. The most notable attempts have been camouflaged as "hubs", the designers of these payment hubs trying to get many different operators to connect to their infrastructure.

Up to now, the integration of mobile payment platforms to other payment streams have been done on a case by case basis - often only supporting one-directional payments (either sending or receiving of money). Very few mobile payment operators have been able to offer a clean and open interface to other payment operators that have been accepted en masse. What is the route to this holy grail and how will it get established?

I believe that this will only be possible if such a schema is established by an entity without profit motivation. I do not believe it will be easy to establish such an inter-connected platform as a commercial endeavour.

Monday, September 13, 2010

Key players to trigger the mobile banking revolution

I don't think we always realise that we are witnessing a major revolution. We are living in the middle of a period in which the definition of money is changing, and this is happening in a very short span of time. When looking back on inflection points in the history, it is easy to see that it happened, but not so clear when you live during the time that it is occurring.

We are quick to look at the role that mobile operators play in this revolution, and also banks in many countries, but are they the most important catalysts? If it is clear which players trigger the growth of transformational banking, it would be easier to replicate it. It is still early to be able to be absolutely accurate on who these players are, but I would like to take a stab at it.

There are only two players that hold the key to making mobile banking happen. If these two do not play, the road will be long and bumpy and will probably turn into a cul de sac. The one player is the regulator and the other the supplier of sufficient capital to carry the initiative to critical mass.

Tuesday, September 07, 2010

The "will-be-able-to" index for media releases

It is amazing how many mobile banking articles announce intentions rather than achievements. I read a lot of articles especially with reference to mobile banking solutions and I am convinced that this a trend that we see more in our industry than anywhere else.

Take for example the following recent article on a mobile banking service to be launched in India (read here). Careful scrutiny of the article will show that the word "will" has been used seven times in an article of three hundred and forty words. In other words 2.1% of the words are "will". I would propose that we define the "will-be-able-to" index as 21 basis points in this case. The higher this index is, the more speculative an article would be on what will happen in the future, rather than what is possible right now. It is my contention that the average index for our industry would be higher than most.

I believe that this is because of a combination of
a. projects being extremely difficult to do and
b. high excitement about what is possible.
This leads to a situation where statements are made about what will be (or better may be) available in future. One should take articles with a low "will-be-able-to" index more seriously.

The need to feed the agents of mobile wallets

Making mobile banking deployments work is like connecting the dots in a big economic jigsaw puzzle. Only if all players in the complex eco-system win does mobile banking take off. If the economic benefit to key players are not clear, then they will not support the solution and it will go nowhere.

In most deployments, agents and the agent-network are probably the most critical element for the whole thing to work. It is therefore absolutely essential that agents benefit from running the system. As a matter of fact, the more they benefit, the more they will push the solution. It is in the interest of the operator of mobile banking services, to pay the agents as much as possible.

Often, mobile payment consultants urge operators to make the service as affordable as possible. They argue that subscribers will use the system if it is really cheap. If one were to make the fees zero, people would really use the system... WRONG!

If the operator does not generate sufficient revenue from subscribers, they will not be able to offer agents a big enough incentive to sign up customers and to motivate them to use the system. It is more critical to feed the agents, and not as important to feed the subscriber.

Utilising competitive forces in regulating for mobile banking

Financial regulators have a difficult balancing act to follow. They have the responsibility, on the one hand, to ensure that the monetary system work, while also making financial products available to as many of the population as possible. A very restrictive regulatory dispensation would probably be the safest approach to protect the monetary system, but would lead to exclusion for a large percentage of people.

It would also be irresponsible to just have an approach of "everything goes". While this approach may ensure that more people have access to financial services, this would put the whole system at risk.

Financial regulators in general follow a very prescriptive approach in the way that they regulate. Their view of the world is that some rules exist and that if an institution can demonstrate that they can (or intend to) conform to those rules that the institution would receive a license. It is almost a case that any institution has a right to a license if they can demonstrate that they comply.

Another approach would be to limit the number of licenses and only offer licenses to a select (pre-determined) number of institutions in a specific sector (say mobile payments). These institutions would be carefully selected, so that a highly competitive market gets created. In this way, proper market forces would keep the industry in balance. This is a novel way of looking at regulations with many pros and cons, but worth considering.

It is my impression that this approach (of creating a competitive environment for mobile banking/payments through only licensing a limited number of players) is being considered by more than one country at the moment. The most recent announcements from CBN (Central Bank of Nigeria) and RBI (Reserve Bank of India) seems to encapsulate some of this thinking.

Tuesday, August 17, 2010

Will Apple put the F back into NFC

The industry has now been waiting for quite some time to see the handsets that will make the dream of near field communication (NFC) possible. For a long time this was more like a no contest (NC). It is not like we do not see the benefits of tap-and-go. If all handsets were properly designed and NFC was available like blue tooth and WiFi, life would have been a better place.

This is why it was such interesting news when Apple announced the appointment of Benjamin Vigier (a NFC experts and one of the best guys in the industry) (Read here). Benjamin has been working on NFC technology since 2004 and was responsible for the Starbucks NFC project when he was with mFoundry, so he is pretty experienced in this space. It is unlikely that he was hired for anything else. Does this mean that we will now see life change?

Well for a start, let us agree that anything that Apple does, one should take seriously and Apple have a number of good tools in place to make this happen. However, they are still confronted by the two key stumbling blocks in making this real and I would be interested in their strategy in how to overcome this:
  • How to cater for the secure element, especially from a personalisation perspective.
  • What to do about the basic lack of acquiring infrastructure in most (all?) countries.
If Apple need some thoughts on how to overcome these stumbling blocks and to put the F back into NFC, they have a standing invitation to contact us here at F-undamo.

The time is up for experimentation

Sometimes it seems to me that I live in this unique industry where every-one is just busy with experimenting and prototyping all the time. It is almost as everybody is to scared or unsure of actually deploying something. We hear and read a lot about experiments and pilots whereas very few projects have a primary focus to actually deploy into production.

I suppose it is a symptom of very complex systems and concepts that have not been tried out previously. This uncertainty and the lack of case studies and references do create this environment where money is spent on trying out, testing and evaluating. It is true that it is safer not to go into production, but rather drift in the grey area between concept and reality. But then, is this where we want our industry to get stuck?

I say: No, the time for experimentation is over. We now know how to successfully deploy these type of systems. We now know how to distribute the product to end-consumers and we actually have enough proof-points for the business case. It is possible to pick experienced advisers and proven technologies. For sure, the time for experimentation is over.

Thursday, August 12, 2010

New insurance products that would change the world

Insurance products have played a major part in the growth of mature economies. Complex risk products provided peace of mind for individuals and companies alike. Structured savings products assist individuals to prepare for retirement or other important events (like study, birth etc.). The premiums collected by means of these products often provide the capital to fund infrastructure and economic growth through investments.

Unfortunately, these benefits are not available in many emerging economies, primarily because of two reasons:
  • Limited statistical information to form the basis for actuarial calculations. Without this data it is impossible to design risks products that can be delivered profitably.
  • Inadequate payment systems making the collection of monthly or weekly premiums impossible and unpredictable.
Widely embraced mobile payment solutions will largely help solve both these impediments to insurance products. The statistical information available from the transactional behaviour of subscribers can provide much of the data that will enable actuaries to create suitable and profitable products. The payment platform provided by mobile payment systems is ideal to support regular collection of premiums in a cost effective way.

The time is ripe for the emergence of a new generation of insurance products specifically aimed at emerging economies. This will lead to a better life for all, but more importantly, the introduction of these insurance products will also directly lead to growth in the economy and will stimulate many secondary industries.

Will your phone (ever) replace your credit card?

I read a very good article on this recently making the statement that your phone can't really replace your credit card (Read here). Amongst others the article makes the following valid points:
a. Payment mechanisms require systems (and networks) that are way more reliable than what Mobile Operators can provide today.
b. Payment systems must be sufficiently ubiquitous that it can be used at most places where you want to pay
c. Many new schemes have tried, but have failed spectacularly to replace existing credit cards and finally
d. The business model on how to make an alternative work ("split the loot") is just not available.

Game set and match. No go, cards are with us for ever. It is impossible to replace them and in some ways, one must agree. Cards work perfectly, everywhere, every time, without a glitch...

Well, actually not. Cards are vulnerable in one way: it is difficult to use them when they are not present. The biggest flaw that cards have is that they are something physical and a lot of the design and the security is built on the fact that a card must be present when a payment is made. This would be okay if all payments that we make are in the real world, but truth is that this is not the case. More and more payments are made in the virtual world and this is where cards are flawed. Using digital payment instruments (like phones) and all the security that they bring is much more suitable. Phones may just start replacing cards in places where cards are needed, but where cards are not present. (So called card not present (CNP or MOTO) payments).

In the recent eBillme Online Spending Index (Read here), the volume of online payments (read card not present) grew with 8% quarter on quarter. That is a lot. Maybe cards will get replaced by mobile phones when online becomes more popular than actual retailers. Statistics seems to show that this is possible.

Hockey stick or horseback of mobile wallet take-up

I have been thinking about this for some time now and have touched on it in previous posts. Based on our experience to date, what does a typical growth curve for mobile wallets look like? To put it in another way: Would the graph look like a hockey stick graph: slowly picking up speed over time and then gathering momentum to ultimately get a life of its own? Or would it look like a horseback graph: Quickly getting up to speed with a significant penetration and then pick up the rest over time?

Our immediate logic says: hockey stick. This thing is foreign and it is going to take time for the masses to actually start using it. It is up to the early adopters to first try it out and to get to grips with it so that the rest can get onto it in time. But this is where we make a massive mistake, I believe. This thing is different. This is about a network effect: the fax machine problem. Even if the early adopters take it up, but do not quickly have enough reasons to use it, they would also discard it.

This is my view now: the only possible success for mobile wallet deployments is if the initial (first) penetration is quickly (and fast) enough to create a community that can sustain itself. The first launch is critical and must be decisive and swift. Consumers must immediately buy in to the value proposition and start using it immediately with positive feedback - only then will the product stick.

It is also my impression that this theory is supported by what we observe in practice. The really successful deployments made a quick start and established a critical mass within eighteen months. Others that started out tentatively usually do not meet expectations and get caught in the valley of desperation where they are not bad enough to close down, but also not good enough to get anyone excited.

Tuesday, August 10, 2010

What will smartphone dominance do to mobile banking?

Of course I have a smartphone. As a matter of fact I have a few. I also believe that smartphones will dominate and that mobile banking should take cognisance of it. It is just a matter of time. I decided to investigate how long it will take. (I got most of my research here).

According to Gartner 14% of phones sold (not used) could be classified as smartphones in 2009. (That is 170 million compared to 1210 million). In 1Q2010 this rose to 17% (54 million, compared to 320 million). Not that a spectacular growth, especially considering that Nielsen estimates that 25% of phones sold in the US in 2Q will be Smartphones. For an average of 17%, this means that the percentage must be much lower in other countries (especially in emerging economies).

So, then what is a Smartphone? According to Gartner, 45% of the smartphones sold in 1Q was Nokia (did Nokia even make a smartphone?), 20% Blackberry, 15% iPhone and Android 10%. Windows and the other average operating systems made up the rest. This means (if I do my calculations correctly), that 2.5% of phones sold in the world in 1Q were iPhones. (15% of 17%). Not that much.

Next question is, are people actually using the "smart" part of smartphones, or do they just use it as a phone? This is where AdMod did some interesting research recently. This is what they found: Of the web-surfing traffic coming from smartphones, 42% of that, comes from iPhones. It turns out that people don't really use their Blackberry's to surf the web. (At least according to AdMob - I know, they got their research wrong. This cannot be...). But let us just assume that they got it right, then according to my calculations, then 3.75% of phones are being used today in the world to surf the web via Smartphones.

Domination, what domination? We better ensure that mobile banking still run on other mobile phones if we want to stay relevant in the world. Sure, on the other hand, if your customers represent the top 3% of the world's pyramid, then do not worry about other phones.

Monday, August 02, 2010

My penny's worth on the Citi App "disaster".

Judging from the number of tweets and the volume of articles about the Citibank iPhone application recall, this was the news-item of the month. I think that it got more attention than the floods in Pakistan where people were killed. It should therefore be classified as a "disaster". (Read here, here, here and here, for a small sample). "

"..be careful about the applications you install, even if they come from trusted sources.." one "expert" is quoted as saying. Life has just become seriously complex, when you can't even trust, trusted sources on your mobile. I made quite an effort to attempt to get to the bottom of this "massive" security breach, but was unable to understand the issue. Even if some of the transactional data were stored on hidden files on the device, how accessible is it, and how easily can it be used maliciously? This was not clear. Just to make the point, lets assume that the invoice-numbers of the bills that you have paid was stored on your phone. If some-one were to get his hands on these numbers, this would enable them to... pay your bills? Great! Anyhow, many of these numbers are much more in the clear in other formats: for instance in the mail (stored underneath a flimsy piece of envelope paper).

I am sure that the Citibank security officer is very good and diligent, but we must be careful that his/her paranoia does not effect a whole industry. While I am absolutely in support of a save industry and many of my postings on this blog support this, one should also guard against over-reactions of things that are non-events.

It seemed to me that one should be more worried about the fact that banks print one's credit card number on a plastic card that could also be lost. This critical information is stored in clear, unencrypted data for all to see....

Wednesday, July 28, 2010

Common misconceptions about BOP customers regarding money

During the past period I was exposed to a number of individuals from first world countries with an interest in mobile money for the unbanked (MMU). What struck me in all of our discussions is that the insight and understanding about the realities of the people at the bottom of the pyramid was totally lacking. It is important to really understand life of people that have to confront the realities of life on $2 a day, before we can start to produce relevant solutions. The best way to learn (of course) is to join these people for some time, to live with them and to interact with them. This is the only way to really get to grips with their situation. Also if you are brave enough to do this, prepare yourself to learn more about compassion and the meaning of life than what you will get from best-selling authors.

Poor people have a lot more to give to us (the more affluent) than what we can give to them. They have a keen understanding of community (that we have lost), of care and support of each other and figuring out priorities. Contrary to what we often think, many of these people do not want to live like us. They do not have a need to be corrupted and weighted down by luxury and possession. They merely would like to have more predictability and sufficient resources to cater for their daily needs. Only if we understand this and much more (that I am not really qualified to offer), will we be able to offer relevant solutions.

We have to start from a perspective of respect and equality when we approach the challenge. We must be open to learn and to embrace. We must be prepared to think out of the box and apply the knowledge and insights of the people we want to help. Only then will we be able to remain relevant.

KPMG research on mobile banking highlights

KPMG published their 4th consumer and convergence report recently. This report is of interest because of the rigour of the research as well as the fact that trends can now be compared with the previous three years. (Read and download document here). Also, the research is more global than others as consumers are researched in 22 countries. (more than 5 500 consumers participated). The 22 countries represent a good mix of first world and emerging economies and also provides for good regional coverage. It would be accurate to say that this study represents a global perspective. Some of the more interesting findings related to mobile banking are:
  • Consumers are much more comfortable to perform financial transactions on mobile devices than two years ago. Globally a growth of more than 100% in the two years were reported.
  • The biggest reason that consumers raise for not using mobile for financial transactions remains security.
  • A definite trend to use financial services more regularly on mobile devices was uncovered. For instance 5% (up from 0%) use these services almost daily. (12% up from 4% weekly)
  • Unfortunately, reporting on regional differences on the take-up of mobile phones is limited in the report, but sufficient information is available to indicate that the penetration of mobile banking services is much higher in emerging economies (especially Asia), although no information is given on trends.
This report (like many others) confirm the move to accessing financial services via mobile devices. What is insightful in this report is the rate of change.

Local currency and implications for mobile payments

Distrust in the Banking System sows return of Homegrown currencies" reads the headline of an article in American Banker. (Read here). I could not help reading further and found some of the thoughts interesting. It seems that many schemes like this operate legally in the US. Currency is offered as an alternative purchasing tool in a specific community and could be used to stimulate economies or to market special offers. According to my understanding, this currency is backed by the dollar and does not constitute the issuing of new money.

This article triggered my memory and with a little help of my friend Tian, I stumbled on the Community Exchange System (CES) (Read here) - quite an innovative way to look at local currencies. The website makes the following claim: "With the impending implosion of the usury-based, global money system, now is the time to seek a new way of 'doing' money, one not based on debt and controlled by a global monetary elite that seems happy about destroying our planet in the pursuit of profit." The creator of this system is a guy called: Tim Jenkins. (One of the interesting stories about him, is that he escaped from a high security jail as a political activist with a key that he carved from wood!). Download this story here.

The use of and the likelihood that money/currency may change does exist. It may only happen in niche areas or for specific uses (like in the retail environment). By digitising alternative currencies and making them available through a mobile transacting platform, the use may become more prevalent. Just another wild thought.

Critical mass of mobile banking penetration

I started my career as a Nuclear Scientist, working on nuclear reactor projects. The key about a nuclear reactor is to ensure that the neutrons produced by fission of an Unranium atom is enough to sustain the reaction in adjacent atoms. One refers to a situation where sufficient neutrons are produced to sustain other reactions as critical mass.

The deployment of mobile banking is also subject to critical mass. If the penetration is not quick enough to reach critical mass, then the deployments become de-funk and ultimately fail. I have often wondered what critical mass for mobile banking is. Is it a percentage of the population? Is it regionally bound? What are the factors that make something work and how can we manipulate it? Based on my observations, I would say that the following factors influence critical mass for mobile banking:
  • The speed to get to critical mass influences critical mass. If the growth is spectacular and fast in number of subscribers, critical mass is less. If take-up is slow, it is possible to get to critical mass, but the absolute number will be more.
  • The need also dictates critical mass. If the need is big (for instance in countries with very little payment infrastructure) critical mass will be reached quicker.
  • Penetration must be sufficient to ensure that the network effect takes root. Even if the penetration is high and it does not satisfy the need of others to also participate in payment, then critical mass has not yet been reached. That is why factors like the design of the product, regional or socia-economic clustering and competition all play a roll in what critical mass means.
In deploying mobile payment solutions, it is important to have a good idea what will constitute critical mass.

Wednesday, July 21, 2010

Mobile money management and high performance

High performance mobile money management is here. Accenture announced their new mobile money management service, providing rapid, cost-effective delivery of anytime, anywhere financial services. (Read here).

Accenture is well known as best-in-class advisory service company, but maybe less well-known is the size of their managed services. Providing managed services to many blue-chip companies, this function contributes a significant portion of the revenue of the group. The new group is called Accenture Mobility Operated Services (AMOS) and runs Fundamo technology. Companies looking for peace of mind, yet confidence that the service are well manage and and can scale should consider AMOS as the supplier to their mobile financial services offering.

Friday, July 16, 2010

European Payment Council (EPC) endorses mobile payments

The European Payments Council recently published a White Paper for Mobile Payments (1st Edition).l If you are serious about mobile payments, it is an essential read. You can download a copy from Finextra site (See here). (Document EPC492-09, Version 2.0). The European Payment Council (EPC) is the final word on payments in Europe and basically serve the banking industry. It is therefor of particular importance that this White Paper was produced and the content should be take serious.

The document touches on the need for mobile payments and benefits and also describe a number of use cases. Of interest is the fact that both proximity and remote payments are described. These two types of payments will have to co-exist and it is important that both should point to the same account details. Some ramifications of this is discussed, but the proposed way forward is sound and is based on best practice.

What I found particularly sobering (and positive) is the description of the secure element(described as "a formally-certified, tamper-resistant, stand-alone Integrated Circuit, i.e. a “chip” to store the customer’s personal data, the issuer's payment credentials (security keys) and other critical data") . It seems as if there is an acceptance that this should reside on the UICC (also known as the SIM). While it is problematic that the SIM is owned by the Mobile Operator, the paper acknowledge that this can be resolved through collaboration, contracting and the definition of standards. (Also read: European Payments Council – GSM Association
EPC 220-09 Mobile Contactless Payments Service Management Roles).

It looks as if more and more players (and more influential players) are recognising that the SIM card will play the central role in mobile payments.