Metrics framework for mobile payment deployments

I recently read a cool article on the progress of mobile money in the Philippines. (Read here). It was full of quotes on the size of the market, the penetration, volumes etc. And what was good about it, was that it was explicit about this, given clear numbers. Some of the measurements referenced were:

• The addressable market is 70 million out of a population of 90 million
• Monthly value of P5 billion (US$ 115 million) is processed on Globe and P13 billion (US$ 300 million) on Smart.
• More than 18 000 outlets (agents, merchants?)
• Smart now have 8.5 million subscribers
  

Similar numbers (but not as comprehensive) were quoted in another article (Read here).

These numbers are impressive, but I wanted to get a feel for growth, usage, profitability and efficiency and felt that the metrics (and the numbers) just scratch the surface. What about looking at metrics like average transaction value, money retained per subscriber, volume transacted by subscriber by month or cost/revenue per subscriber or per transaction. Also what was it like one year ago and how ill it look in a years time? Things like this would have told me more about the service and how well it is doing (or will be doing).

As we get to know the industry better, should we not develop commonly acceptable metrics that we can share to evaluate how well we are doing?

The telefonica mobile money announcements are confusing

From a banking the underbanked perspective, Telefonica is one of the most exciting group to make things happen. With almost 300 million subscribers, and a healthy mix of emerging, semi-developed and first world countries, this group can influence the industry with exciting services. This is why I have followed their progress with a lot of interest (and support).

Prior to 2010, many announcements regarding mobile financial services were made. These ranged from money remittances in conjunction with Western Union (Read here), to other innovative solutions, in this case with More Magic (Read here). Fundamo also deployed our solution in a pilot environment (with support from the GSMA and Accenture) on one of Telefonica's bigger networks. My understanding (at least those that I had visibility of), was that these deployments worked well and showed a lot of promise.

Then the group process kicked in and a technology solution was selected for the group. The announcement was made early in 2010 and Trivnet was selected as the supplier of the solution (Read here). All other initiatives were delayed or discontinued in expectations of the new solution that would be rolled out swiftly to group companies that needed solutions urgently. This is why the latest announcement (Read here) was so confusing for me. Telefonica is now partnering with Mastercard to roll out this service.

When discussing this on one of Linked-In chat sessions, one of the participants commented "It would seem logical that the Trivnet experiment would be eclipsed by thus. Telefonica can chalk that up as an experiment in the space and what they learned is they need a partner with greater commercial capabilities." Bad news for Trivnet, but it does look as if Telefonica selects a different flavour for every year. Such a pity.

The mobile banking revolution: Nigerian style

Monitise was the first to announce to the world that they have received a provisional license from the Nigerian Central Bank. With a slick British PR company behind them, this was too big an opportunity not to make some noise about. (Read here). Being a listed company, the press release was factually very accurate.

Soon, many press releases followed. The one trying to out-do the other in terms of the scope of services and the impact that it would have on Nigerian community. (Read here and here). While it was clear that a number of licenses have been approved by CBN, no official announcement could be found. The CBN website remained non-committed in terms of who received a license and under what terms. It was not clear what was in the public domain and what could be reported on.

This is such big news and the different parties that have received the green light will potentially have such a big impact in the mobile payment industry that I belive it important that this information be avialable to the general public. Based on a number of sources and informal discussions that I have had, it seems that the following entities received provisional licenses:
Bank Focused
Stanbic IBTC
Ecobank
Fortis MFB
Bank-led
UBA/Afripay
GT Bank/MTN
First Bank of Nigeria (I do not know who will be in this consortium)
Non-bank led
Pagatech
Paycom
M-Kudi
Chams
Eartholeum
E-Tranzact
Parkway
Monitiz (Is this the Monitise brand in Nigeria)
FET
Corporeti

I am not sure if this is a complete list (or even accurate). I would appreciate any comments to guide me on getting the comprehensive (and official) list. Assuming that this list is accurate, a few observations:

• It is surprising that Zain (now Airtel) did not receive the go-ahead. Or at least this is not clear. They have made such progress in Africa that it must be devastating to them not to have a license in their biggest African network.
  
• Quite a few larger banks (Zenith, Oceanic etc.) did not receive licenses. Did they not apply, or are they part of other consortia?
• What happens to existing players like Moneybox and FlashmeCash?

One should also note that the licenses are provisional and that a number of milestones must be achieved in order to be able to proceed with offering a service.

Observations on the Nigerian mobile payment licenses

Nigeria is without doubt one of the most vibrant and exciting markets that I know. With a huge population, rich in natural resources, a very high growth rate and almost no personal debt, this country is ready to surprise the world with what is possible. And more than any country this is mobile payment paradise. Consider that the country's finances is well regulated, that many banks are very profitable and sound, yet a large percentage of the population do not have access to financial services. Everybody has been working towards launching mobile products in this markets.

Previously some products were officially launched, like Moneybox (Read here) and FlashmeCash (Read here), but with limited/low levels of success. These products just did not reach critical mass. Other entrants in the market were not given licenses to operate because the Central Nigerian Bank (CBN) were in the process of reviewing the regulatory framework. This was published in 2008 and identified three different licenses that would be granted in Nigeria (Bank focussed, Bank Led and non-Bank Led). (Read here). With a great framework in place, CBN then started a structured process with submissions and proper evaluation to grant licenses.

The process took a long time. An open letter than I particularly enjoyed was written during that time by Mr Taiwo Olaoye, asking for the licenses to be granted. (Read here). However the CBN was unwavering in sticking to a well-managed and rigorous process. This culminated in the provisional granting of a number of licenses in December 2010. More about this in the next blog.

Wikileaks payment revelation and implications

Most of us thought that Wikileaks are putting politicians on a spot: primarily because they have been doing things behind our backs. Saying one thing on public platforms and another behind closed doors. Of course we knew that this is the case anyhow... so we didn't need a Wikileaks story to tell us that.

The volume of all the documents on Wikileaks and the fact that the information is now distributed on multiple mirror servers, makes this virtually impossible to search. This is why I found it interesting to read about the efforts of Visa's public relations head in Russia, Dmitriy Vishnyakov in a leak. according to the leak, Dmitriy lobbed the US to work against a proposed Russian law that would weaken the position of VISA and MasterCard in Russia.

Payments are such an important cog in the wheel of any economy that control over or influence in the workings of payments can be very profitable. This is why many players will use any means to ensure that they remain valid and entrenched if possible. I am not saying that lobbying politicians is wrong to achieve specific objectives - it happens all the time, but in the case of the payments eco-system, should we not have a more transparent and open discourse... seeing that it impacts all of us?

The ultimate payment is trackable value transfer

Have you ever given some thought on why bank-notes have numbers and coins not? Some of the coins in circulation in certain economies are worth much more than numbered notes in other economies. So it cannot just be a cost consideration. I was thinking about this when I read the article about placing a unique digital identification inside a banknote (Read here).

A definite need exists to be able to track where money goes and how it is being used. (Not that I think that a unique number for each bank-note really does this). Electronic payments, though, do have the ability to make every payment unique. Rather than investing into making bank-notes more "trackable" should one not invest in electronic payment systems?

Consumer protection implications for mobile banking

The question of consumer protection is a very important topic to consider in the new mobile money world. Consumers in this case are often not well educated, have a big percentage of their assets at risks and do not always know how to escalate problems to resolution. Most regulators are seeing this as one of their key objectives to ensure that consumers are protected.

The recently published CGAP article (Read here), lists seven risks that should be considered when regulations are established, these are:

• Protecting client funds held as electronically stored value.
• Ensuring safety and reliability of services.
• Reducing opportunities for agent fraud and other harmful conduct.
• Ensuring clear and effective disclosure.
• Protecting clients’ personal information.
• Ensuring clients have knowledge of and access to effective redress and complaint procedures.
• Keeping providers liable for agents’ compliance with regulation.

The article goes into some mitigation strategies for each of these seven deadly sins -describing procedures, oversight and training approaches. In reading this structured analysis of the problem, it became clear to me that tackling mobile money without a bank is folly. Holding funds in trust and utilising other mechanisms are just fraught with risks. That is why more and more regulators (and rightly so) insists on banks holding the funds and being the final port of call for disputes.

Given their track-record, can banks do mobile banking?

Contrary to popular believe, it is actually very difficult to do mobile banking. Not only does it require complex systems doing high volumes of transactions (with very high levels of availability), but business processes are also turned on its head. Many of the common banking principles of yesteryear do not apply anymore.

A few years ago, we viewed banks as the bedrock of society. The images of banks were solid and untarnished. The few (smaller) bank failures went by almost unnoticed. As we all know, this is not the case anymore. In many ways the images of many banks are very much different. The large stock of jokes and cartoons about the infallibility of banks are an indication of this.

Also the recent failures in bank systems (For instance, read here), have not helped to improve the image of banks. If average banks have difficulty keeping ordinary (low volume) systems like ATM's running smoothly, how much more difficult would it be to run real high volume systems like mobile banking? I think it is fair to ask if classic banks are really able to run mobile banking systems?

Doing NFC or not, that is not a question

I have noticed that Orange recently made a major commitment to NFC roll-out (Read here). Just scanning the media, tweets and blogs, it seems as if a frenzy of excitement has been whipped up by Apple and Google. Just the mere fact that they seem to be ready to ship phones with NFC radios in, has got everyone excited. (Read here, here and here, to quote just a few).

Given all the excitement, it must surely be the time to start "doing NFC". Whether you are a mobile operator, bank or technology supplier, it is impossible to ignore the reality of "doing NFC". I have been in quite a few meetings this year where everyone is talking about (and making commitments) to do NFC this year. I must say this is something that I have been grappling with silently. I have been to shy to ask someone what "doing NFC" actually is all about.

In order to make NFC work on a scale that is big enough to support the business case required to fund the infrastructure, quite a large eco-system must be established. It is only going to be possible to have critical mass if a large enough acquiring network exists, if the payment or transactional back-office systems have been deployed and integrated to the rest of the payment world, if the business procedures to support NFC solutions have been implemented and so forth and so forth.

When I think about it, I do not think that how one does NFC is a question. Many other elements of the solution must first be implemented. While the rest of the world is talking about "doing NFC", I think I will focus on establishing the back office systems that will make NFC possible when the world is ready.

Tax on mobile banking may kill the goose

I have blogged previously on the detrimental effect of taxation on the success of mobile money (Read here). Taxation on mobile transactions (and in some countries on the SIM cards required for mobile payments) inhibit the roll-out and acceptance of the service. This lower adoption rate leads to lower activity, less visibility and a GDP growth rate lower than what is possible. In effect, taxation on mobile banking leads to direct loss of income by the fiscus that is more than what will be collected through taxes.

The effect of taxation on mobile services in general has now been researched in more detail. A good report confirming this effect was recently released and is worth a read. (Read here).

Have you considered unbanking the Banked?

"There's a troubling trend in this nation: People are giving up their banks." starts an article that I read recently (Read here). During 2008 the Center for Financial Services Innovation, estimated that about 13% of US households are either unbanked or underbanked. This is a large number, but what is even more interesting (worrying?) is that that this number has now grown to 25%. This is a massive shift. The article then try and fathom the reasons for this phenomena.

I would like to postulate that these customers do not want the services offered by banks (and quite frankly), banks do not want these customers as customers. They typically do not buy the services offered by the existing banks and are probably not very profitable to service. It is this disconnect between (lets call them) classic banks and lower income customers that are driving this trend. It is my view that given an alternative banking experience this trend will become a flood. If these consumers were to be able to satisfy their banking needs in a more friendly, geographically distributed way, the 25% will grow to 50%.

Here-in lies the opportunity - even in the US - to build an alternative service that will unbank the banked onto a more suitable service. This service will undoubtedly have to be based on the mobile platform.

Agent fraud and how to circumvent it

As is the case with most things that run on money, criminal elements will always be drawn to it. The more successful and visible a phenomena is, the more these elements will figure out how to corrupt it. The best way to fight fraud is to talk about it - to put it in the open and to discuss it.

A recent case of fraud involving mPesa agents (read here), caught my eye. This fraud was committed almost a year ago and I am sure suitable measures have already been taken to counter it, but it is still interesting to evaluate it.

According to this scam, a fraudulent withdrawal confirmation SMS was sent to the agent containing information obtained through a fraudulent visit by "mPesa supervisors". The SMS was sufficiently disguised to trick the agent in handing over cash to the "client" who quickly made off with the stolen money.

The following observations can be made:

• An agent should be provided with more security information prior to authorising the withdrawal of cash. The confirmation message should ideally not be carried in an open SMS message and must display in a different way.
• It is advisable to provide more verification information in the message rather than just the remaining balance.
  
• Agents should attempt to develop alternative security protocols (like requiring additional information or verification against the sender of the SMS). These protocols should be kept confidential, as it is knowledge about them that will assist fraudsters to develop mechanisms to circumvent them.
  
• One would expect that fraud will always be with us. Even the most sophisticated systems in the world are prone to fraud attacks. (Read here). It is important to ensure that levels of fraud remain low enough so as not to impact the trust in the eco-system.