Brandon McGee and mShift

Brandon McGee established himself as an expert in the mobile banking industry by regularly publishing information on what is happening in the industry. The information available on his website is often a collation of media articles and is a very good reference on what is happening in this industry.

Brandon also organises workshops and is a guest speaker at conferences. He also runs an online group for banking executives with an interest in mobile banking. He is often asked for advise on the selection of vendors and products.

It would give more credibility to his neutral opinion if he did not run and advert for mShift on his blog-page

Regulatory framework for mobile banking

Many practitioners in the mobile banking industry would rate regulatory challenges as the biggest hurdle to the deployment of mobile banking. A lot has been written about it and many panel discussions and work-groups have tried to find solutions. While some regulators are much more forward looking and have demonstrated that it is possible to deploy transformational banking in a controlled way, others have clamped down on these initiatives.

I am frequently asked to provide information, white papers and framework documents to describe some of the intricacies of the space. We at Fundamo developed very good collateral during the past ten years. We use this collateral to the benefit of our clients and our partners. We have made some of this content available to parties in the industry, but do not usually share it openly.

I would like to recommend a very good research paper in this regard. It is a document produced Rasheda Sultana from the Grameen Foundation, and explains many of the concepts well. While, I have some reservations on some of the conclusions and information in the document, I can recommend a read, especially because it is available on the Internet for free. (Download here).

The relevance of Western Union certifications

Western Union announced a vendors program some time ago. The intention of this program was to enable software vendors to develop mobile payment applications that can integrate to the Western Union remittance hub. Such an integration would enable scenarios where the Western Union agent network would be able to remit through other distribution channels (specifically mobile operators agents).

During the week of the MWC, Western Union announced that they have now certified the first two vendors to integrate to the Western Union remittance hub. The two companies are Fundamo and mCheck. (Read here). It is now possible to license these platforms, contract with Western Union and connect to the biggest remittance network in the world.

Many aspects and implications to the industry of the announcement of the certification, should be highlighted:

• Western Union demonstrated the ability to license third party software vendors. This is not as easy as it sounds and means that Western Union has developed a competitive capability that other remittance hubs seem not to have.
• The approach of allowing independent third party vendors is a move that could trigger a lot of activity. This is an open, transparent approach that will ultimately extend the reach of mobile financial services.
• The focus on mobile operators is interesting from many angles (this blog does not have enough space to do justice to this topic). By partnering with Mobile Operators, Western Union will create much significantly more distribution points than would be possible if they limit their relationships with (for instance) banks.
  

Vodafone prove mPesa repeatability

One of the most important discussion points regarding transformational banking at the recent MWC slipped away almost un-noticed. This was a very important inflection point in the industry and very few (if any) commentators picked up on this.

The success of the mPesa deployment in Kenya has been discussed and referenced many times. We all acknowledge the groundbreaking work that was done by Safaricom in this regard. Yet, there was the concern that this was a once-off; a freak of the special circumstances of Kenya. Some observers commented to me that it is unlikely that the success of m-Pesa will be repeated. This placed a damper on other roll-outs as no-body was sure what was the reason for the phenomenal success in Kenya.

This is why, I believe, that the success that Vodafone (through its subsidiary Vodacom) achieved in Tanzania is so important. It was reported that more than a million subscribers have signed up on the service (Read here), but indications at the Congress were that this number has now more than doubled. The fact that Vodafone has demonstrated that they can duplicate the success of mPesa in other countries, is of significant importance. This means that the Kenya experience was not a fluke, and that Vodafone has learned what it takes to make these roll-outs work. It is likely that they now have a recipe and can replicate this more easily in other countries.

This is a major risk for other Operators that are not ready to respond, as it seems that it took quite some time for Vodafone to get it right in Tanzania. They had the benefit of experience. Just think how long it will take if you start from scratch...

And now for the GSM's MMT Rio

One of the great things about global events (like the recent MWC in Barcelona) is the opportunity to network. This is an opportunity to meet the insiders and experts from all companies and institutions playing a role in our fledgling industry. This is the only way to learn about what is going on, what projects are in trouble, who is buying who and what expert would be interested in a job offer. It is a chance to meet new faces and to stimulate the brain with new concepts and ideas. It affords opportunities to meet clients and prospective clients. I cannot see how it is possible to take strategic decisions if one does not attend these events.

Many profit driven conference organisers have played an active role in organising these kind of events, but they have proliferated and often attract an audience that are not as knowledgeable as one would have liked. I have always found the events organised by the GSMA to be delivering the goods, The next event organised by the GSMA is the mobile money summit scheduled for Rio. Can't wait.

The role of banks in transformational banking

Transformational banking is a totally new way of approaching banking. Whereas traditional banking focus on typical banking products (like loans, savings etc.), transformational banking's prime focus is top provide low-cost and flexible payment solutions. This is usually delivered via mobile phones and networks of agents play an important role in distributing and servicing these products.

Transformational banking have been the domain of mobile operators, with the biggest successes achieved by operators in emerging economies. (Examples are Smartmoney in the Philippines and mPesa in Kenya). Bank's contribution were limited to providing regulatory coverage, settlement services etc. But this is rapidly changing as banks start to wake up about what is possible and realising that this is not a threat, but rather an opportunity. I am aware of many such initiatives, some that I can identify by name and others that I can talk about only cryptically:

• One of Fundamo's clients is a major bank in South Africa (Standard Bank), that is rolling out transformational banking into rural South Africa. This initiative is called Community Banking.
• The recent announcement between Yellow Pepper and Fundamo (Read here), targets a number of banks in Latin America with the Transformational Banking product, MONY.
• Banks in Pakistan and India is looking at launching mobile wallet solutions, without using the complex and expensive core banking systems that they use for their existing banking products.
• A bank in Brazil is considering moving a significant number of their low income subscribers off their core banking system and onto a transformational banking platform, to serve them better at a lower cost point.
• A major bank in the developed world is considering a "transactional wallet" associated with the primary bank account that could be used to do small transactions on their client's phones. (Rather than putting additional load on the core banking system).
  

I am sure many more examples can be found.

Congratulations to Zain for winning the inaugural GSMA MMU award

The Mobile Money industry received recognition with the inaugural award for Mobile Money Services at the annual GSMA awards ceremony being presented to Zain for their Zap service. It was great to see the hardworking people at Zain getting acknowledgement for their efforts through this prize and I would like to congratulate George and his team in this regard. (Read here).

In the spirit of this controversial blog, two points must however be highlighted. It would not be fair to the readers of this blog, if I do not highlight some controversial aspects:

• The ZAP product in terms of its scope and application seems to be ambitious. Zain is tackling the MMU problem in a different way with innovative thinking. Yet, the success of the solution should not be just measured on the basis of features only, but how well it is received and the volume of use. In this regard, it seems as if the service is not doing that well. (Read here, here)
• The claim of having the service available to 12 million subscribers in seven countries (or as Mr Hajeri said: "active subscribers" when he received the award), is clearly misleading. The total Zain subscriber base in the seven countries (Kenya, Malawi, Niger, Sierra Leone, Tanzania, Uganda and Ghana) is just more than 13 million. To claim 12 million subscribers is a bit ambitious, especially when the country managers in Sierra Leone reported only 5 000 subscribers recently (Read here).
  

The Mobile banking fairness principle

One of the benefits of the MWC is the opportunity to have in depth discussions with experts from all over the world on the topic of mobile banking. I managed to find some time to chat with Qasif (Head of Channels for MCB Bank in Pakistan), and he explained his fairness principle for me, that I found particularly interesting. I will describe my understanding of this in my own words:

The ultimate aim of mobile banking should be to collect as much of the wealth of your customers to be reflected on the bank's balance sheet. This is not too far-fetched if one considers that a person to person payment from a customer of the bank to another customer of the same bank, does not change the aggregated amount at all. If the bank can enable their customers to do all payments electronically, the money will never leave the balance sheet of the bank. This objective would leave banks much better funded and through leveraging of these "in-transit" deposits can lead to good profits.

The fairness principle says that one should never charge the payer for an electronic payment. The notion of a transaction fee is not fair, nor will it entice the behaviour that will leave money on deposit. One should make electronic transactions free, charge a lot for cash-out transactions and provide the means to pay for everything possible electronically. In this way, money will never leave the bank. Think about it...

Mobile payment and banking press releases this week

Thanks to my friend Philppe Lerouge that compiled a good collection of GWC press releases (Read here), I was inspired to make my own collection specifically focussing on those that I believe will have the biggest bearing on banking services in emerging countries. This is my list of the most important press:

> BOKU partners with Philippines telco Globe for m-payments (Read here)
> Oberthur Technologies partnered supplier of mobile commerce platforms Utiba to create a suite of mobile money services (Read here)
> Western Union certifies Fundamo and mCheck as the first vendors that can connect to their infrastructure (Read here)
> Gemalto security solution selected by MTN Mobile Money running Fundamo (Read here)
> Zain's ZAP solution wins GSMA Awardfor Mobile Money Services (Read here)
> Vodafone announces the launch of mPesa in South Africa on Vodacom (Read here)
> Roamware announces Mobile Payment Plans with Interoperability issues (Read here)
> Nokia announces their partner bank in India for Nokia Money: Yesbank (Read here)
> Yellow Pepper partner with Fundamo to launch mobile wallets in Latin America (Read here)
> Verifone invests in Chinese mobile payment company Trunkbow (Read here)
> CGAP reporting from MWC (Read here)

Lots happening.

Insights from the Mobile World Congress

This was again a few hectic days in Barcelona during February. The pace was frenetic, the business dinners till late at night and the attendance a record figure. It was a time to see old friends (that has been coming to this event for ten years), but also an opportunity to meet new once. Many of the truths of our industry was re-inforced, but some were shattered (as always).

It was the same as all the previous years, or was it?

As far as mobile financial services were concerned this year's congress was a watershed. This industry can now truly be counted as one of the cornerstones of this industry. Mobile Financial Services (MFS) was treated on an equal foot to handset manufacturers, billing systems and antenna designers. Mobile banking organisations received three of the twenty GSMA awards during the event and a very well-attending MFS session was arranged. While the dedicated MFS space for exhibitors were not that well subscribed (many of the suppliers exhibited in conjunction with other suppliers in other halls), the traffic at these stands were high.

What was also interesting was the number of "pure" financial services companies that were present at the event. Both Western Union and VISA had a very visible presence and many other players could also be seen. While this is an event organised by telco's for telco's, the banking participants were welcomed at the event - with some even sharing the stage to tell about their experiences and lessons learned.

Many press releases also indicated a level of activity (more about this in another blog).

The success stories of wallet deployments also seem to indicate that while mPesa was a pioneer, this is not the only player anymore that have cracked the problem of a successful roll-out.

Rural Bankers Association traking banking to the next level

The Rural Bankers Association of the Philippines (RBAP) is an association of banks with the objective of bringing the benefits of the economic system to increasing numbers of rural customers through a strong, responsive rural banking system. This association is older than fifty years and have a track record of working effectively to improve the conditions of millions of people living in the rural areas of the Philippines. As such, this association is ideally placed to leverage the benefits that mobile banking bring. And this is exactly what the association is doing.

Working closely with Globe and their GCash product, the RBAP effectively increased cash-in and cash-out points to more than 18 000. In conjunction with GCash, this association developed a number of specific products that can be used by their members to facilitate payments and rudimentary banking transactions. By working with GCash, both the mobile payment provider and the bank association are seeing benefits.

These actions have lead to and increase of 45% in mobile phone banking transactions within the rural banking sector. The cumulative amount of mobile phone banking transactions in the accredited rural banks already exceed 5 billion pesos. This is a great example of how a mobile banking platform can assist associations with an objective to bring effective banking services to the poor.

Mobile banking projects are like marriages

I always wanted to write this blog, but was worried that it would be understood in the wrong way, but here we go. I have had insight into many mobile banking projects (both those done by us at Fundamo, as well as our competitors - some that I have a lot f respect for). I have come to the conclusion that all of these projects are like marriages: many problems are resolved (and some not even), but nobody talks about them. These projects are presented to the outside world as being totally harmonious.

Mobile banking projects are extremely complex affairs, predominantly because it touches so many different parties. (The eco-system is very complex). Because of this, these projects are confronted by many instances where relationships between the different parties are tense. It is projects that tackle all of these issues and resolve them that ultimately deploy successfully. Strong partnerships often emerge because of the problems resolved by all parties involved. Yet, few people talk about the challenges after the fact.

The problem with this situation, is that newly weds expect a blissful relationship. New mobile banking projects often falter because the complexity are often under-estimated. It is important to tackle mobile banking projects with experienced counsellors, failing this, these projects could end up in divorce.

Credit Cards in the Mobile Payment eco-system

Many mobile payment solutions claim to integrate to credit card systems. The examples are myriad and it is very difficult to evaluate the different solutions with each other. "Front-ending" credit cards with mobile devices can unfortunately present itself in many different ways, with different implications, risk profiles and business applications. In order to try and bring some clarity to the many different schemes, I have defined the following three categories:

• Mobile payment systems acting as a new acquiring mechanism. This type of integration is the most common with many examples. The solution enable the mobile payment provider to accept payment from participants by allowing them to enter card-number into mobile phones. (or sometimes allowing for a pre-registration). These systems usually act as a merchant, super merchant or an acquiring bank and does not involve the issuer at all. The risk associated with card not present transactions should be mitigated in these type of solutions.
  
• Mobile payment systems adding utility to existing issued cards. These systems usually augment existing card issuers by providing for mechanisms (outside of the card domain), to increase security. Applications include alerting services and the delivery of dual factor authentications tokens. These solutions can only be deployed with full collaboration (or ownership) from the issuers.
  
• Virtual cards being utilised within a mobile payment application. These type of solutions allows for the issuing of a "virtual card number" that is associated with a specific mobile phone. Transactions originating from the phone (and not traditional POS or ATM's) can be performed by these solutions. Very specific niche applications are usually approached by these systems with full support from a specific sponsoring bank (in the role of issuer).
  
• New innovations that can not be classified into existing card scenarios. These applications hook onto credit card systems in proprietary ways to offer improved security or more transactional capability. Examples are systems supporting money remittance through dual cards, or new types of transactions, or implementations of Secured by VISA (for instance).

It is important to have clarity on the different approaches when looking for a mobile payment solutions as not all systems will solve a specific problem.