Mobile banking India style

"Mobile banking to most Indians is complex and too technical" said A.P. Hota, chief executive of National Payments Corporation of India. (Read here), and it shows. According to this article the potential target market for mobile money subscribers are in the hundreds of millions. This is larger than the population of most countries. Yet, very few people actually use mobile phones to do financial transactions.

The Reserve Bank of India have relaxed many of the restraining, regulatory rules and have licensed 39 banks to offer mobile banking, yet only a few hundred thousand subscribers use mobile banking regularly performing less than a million transactions a month! (According to the referenced article) This is off the scale disappointing.

With such huge potential, it is important to figure out what is the deterrent to not more people using a service for which a clear need exist. While I do not know enough to provide a clear opinion, the following may provide some clues:

• Do the existing service provided for in the Indian market really solve a defined need, or is it just, well... mobile banking.
• Mobile banking (in most countries) is not perceived as "complex and too technical", as is the case (it seems) in India. Is this because Indians are not as technically astute as citizens of other countries, or because the implementations in India are too complex?
  

Managed Service or Enterprise Software

Cloud computing is really big. Not a day goes by without some article or tweet talking about the advantages of running your applications somewhere else. Truth is that I cannot think what life was like prior to Dropbox. So I suppose it makes sense to use services that are shared and where one can tap into the economies of scale.

It is interesting that many small companies that I know still run their own ERP systems. Deployed behind their firewalls and specifically customised for your unique requirements, these systems are one instance of the software running on dedicated equipment. Surely it would make much more sense to move all this repetitive work onto a shared service?

We have a number of customers that started mobile money on shared solutions - software deployed on shared infrastructure (a hub) and then moved off it to install their own dedicated deployment. Why would they do this when it is clearly a more expensive alternative. The answer is purely a function of uniqueness. The more unique and different your requirements are, the more likely it is that you would rather deploy your own dedicated enterprise solution... managed by yourself and configured to meet your unique needs.

To what degree is it possible to offer a managed service for mobile money that is generic enough to solve most of the problems? That is the question.

Handset manufacturers, Carriers and Banks alignment

During the first days of mobile banking and payments, many debates raged about the different roles of mobile operators and banks. Will banks and mobile operators compete and how will they interact with each other were some of the questions asked.

During the past period, discussions regarding mobile payments almost always featured a third category. In a large percentage of announcements, the handset-manufacturer also plays a role. Collaboration between banks and carriers regularly include references to the device manufacturer too. Some examples of such announcements are:

• Samsung, Lloyds and Visa to offer mobile payment enabled handsets for the London Olympics (Read here).
• The collaboration between Nokia and Yes bank and Union bank in India (Read here)
• The Google wallet (read: Nexus) initiative only available on the Sprint network (Read here)
  

Many other examples can be found, but suffice to say that most handset manufacturers are busy trying to define their role in the new payment eco-system. In the process alliances are formed, implied and broken. The problem with this reality is that is likely to become even more difficult to develop a payment solutions that is fully ubiquitous - and this goes against the whole idea of a universal payment schema. It would probably be better for handset manufacturers to stay away from payments...

Constraining remittance regulation in California

One of the challenges frequently highlighted in the roll-out of mobile payment solutions in emerging markets are the constraints placed on these initiatives because of regulatory dispensations. Fortunately, regulators in these countries have worked diligently to make regulations more flexible. In countries like Pakistan, Nigeria, India and Mexico, we haqve seen major advances in making it easier to launch these services.

While it is important that to protect the monetary system from mis-use, it is critical that financial services be made available to the citizens of these countries.

That is why I found it strange that regulatory guidelines for money remittance (even in the case of domestic remittances) had to be made more constrained in California. (Read here). California is seen as one of the most innovative places in the world. This is a place that have given us Paypal, Square an dmany other payment innovations. Why then, would the regulator think of taking a step back? What are the risks that requires more stringent regulations? It may be a good idea to look at the trends in the rest of the world, and possibly re-evaluate the new directives.

The investment case for mobile banking:

I have always enjoyed the research reports produced by Forresters. They always seem to bring a fresh perspective on how one could look at things. In arecent report (Read here), they found that the ROI of a retail mobile banking deployment in the USA for 500 000 subscribers would come to roughly 15%. This is not particularly exciting, although one could argue that it is better than placing money on fixed deposits at this stage.

However, in reading the report, one could see many ways that the ROI could be improved (in some cases) spectacularly. It is important to consider some of the aspects below that would lead to major gains that could be achieved in rolling out mobile baning services. Some of these are:

• The model developed by Forrestors catered for cost elements related to developing, testing and deploying these services. Obviously, if these costs could be reduced, one would increase the ROI. Two ways to reduce these costs could be to deploy low cost, configurable enterprise solutions, or to make use of commoditised outsourced services.
• The model also talks about benefits as being predominantly related to cost savings. If the services could deliver revenue-benefits (like increased transaction revenue), or improved risk management, the proposition can be increased significantly.

In emerging markets, where many of these aspects are possible, where costs are lower and revenue higher, ROI numbers that are in a totally differentr ball-park can be achieved.

Ultimately, banks will lead mobile banking

What does the statistics say about banks dominating mobile banking or carriers doing it? In some of the early mover countries; like Kenya and the Philippines, the answer is clear: mobile operators have stolen the initiative and it is unlikely that it will be changed. In other markets, this does not seem to be the trend.

In a recent study produced by TNS some interesting findings are presented. In South Africa, for instance, the findings seem to indicate a massive penetration by banks (Read here). Banks like FNB and ABSA have grown very large subscriber bases and have shown much bigger adoption than what the carriers were able to achieve. (Read here). In the same study significant growth in the take-up of mobile banking subscribers were also reported in China, Brazil, the US and UK. (Read here). Similarly, in a study produced by Mercatus LLC (Read here), significant growth that can already be measured in mobile banking will increase to cover half the mobile phone subscribers by 2015. This is a sentiment that is shared by many experts in the market. In very few cases are the same projections made for mobile operators.

If we were to believe these projections, then banks will own the mobile banking domain in the future. It will not be conquered by mobile operators, even if banks do not do anything. And this is where predictions like the above is the most dangerous; because it will definitely not materialise if banks do not make it happen.

Visa acquires Fundamo

I usually do not write about things that I am directly involved with, but I believe that this transaction is extremely important from an industry perspective that my blog would not be complete if I do not say something about it. More than ample news releases can be found on the web and much more capable analysts and industry experts have commented on it.

So just to ensure that I do have a placeholder in my blog about this event, I would like to comment on this in the following way:

This is a landmark event in the development of the industry. When the history of mobile banking in emerging markets will be written, this event will be mentioned as one of the defining moments. The effect of this transaction holds positive promise to all involved in the industry. It is an endorsement for using mobile to deliver advanced financial services to the poor and will unlock many of the factors that delay take-up today. This is good news for all.

Nigeria and cash

The biggest enemy in fighting poverty is physical cash. The fact that people living at the bottom end of the pyramid need to conduct their business with paper notes (and coins) is the main reason why they are often stuck there. That is why it is important to apply all means to change this - technology, business solutions and regulations.

That is why I found a recent article interesting (Read here). According to this article, the Central bank announced a new cumulative limit to the withdrawal of cash for both individuals and corporations. This leads to the following questions:

• Knowing Nigeria, and the dependency of the country on cash, I am intrigued how it is possible that this legislation could possibly fly. How is it possible to restrict the supply of cash, when electronic payment infrastructure are limited and cheques are viewed with apprehension.
• Also, the application of this directive will be difficult. To really ensure that banks adhere to this direction, integration between banks will have to be much tighter. The cost and infrastructure required could surely be spent on other parts of the banking industry.

One could argue that, rather than implementing this type of regulation, the industry should rather focus on providing electronic payment capabilities (like mobile banking), at a faster rate. This will be a more effective way to eliminate cash.