A business case for the elimination of PCI

The PCI (Payment Card Industry Data Security Standard) program is one of the most important initiatives ever undertaken by banks and the card associations. Fundamentally PCI is about masking card numbers so that it cannot be used for purposes that it is not intended for. Because credit card numbers (if known to criminals) can be used to perform fraudulent transactions, it is important that these numbers not be available in the open.

While it is critical to implement PCI, the cost implications are high. Consider for a moment the number of systems and business processes that work with credit card data. All of these systems must be changed, maintained and supported without ever displaying, storing, logging or exchanging the actual credit card data. It is almost the same as making telephone calls without ever using a telephone number. The complexity and cost of conforming to PCI is huge.

If it was possible to create a payment system where fraudulent payments were not possible, even if card numbers were used in the open, the payment industry would save a lot of money. If we could have a payment systems even if you had my number you could only send me money, then it would be okay if you had my number. PCI would then not be required. This is possible through mobile payments.

This is a thought: maybe the business case for the implementation of mobile payments could be built on the elimination of PCI.

Mobile banking for low bank balances

In a very interesting move, one of the largest banks in Nigeria (UBA) advised their clients that they would systematically be closing bank accounts with a balance lower than N 25 000 (about $ 150) (Read here). They advise their clients that they would want them to still do business with the bank, but by making use of their new mobile facility called U-mobile. This basically means that clients with small balances would not be served in branches, but can still transfer money by making use of their phones. Interesting...

This begs the question if mobile banking facilities are designed to cater for customers with low balances only. Is the reason why banks would be interested in making mobile banking available to get customers with low balances out of the branches? Or are the needs of customers with low balances just different and they do not need to visit branches?

Branchless regulations to stimulate

Banking regulators have a very important job to do. They are the custodians of the stability of our financial systems. We should not under-estimate this responsibility. It is interesting how different regulators approach this task. Some have a very restrictive and prescriptive approach: their regulations are characterised by offering the banking fraternity with systems cast in stone. In these countries it is extremely difficult to innovate as the central bank does not allow anything to be different than what they prescribe. As one can imagine, progress in these markets are slow. I am sure the readers will be able to name such countries without me being explicit about them.

On the other hand, central banks can create rigid frameworks that will ensure the stability of the financial systems, yet allow for innovation within these frameworks. As the solutions start to evolve, the central bank could then loosen some of the limits and constraints in these frameworks. This is of course a much better approach, as it stimulate growth, without compromising the financial system.

A case is point is the State Bank of Pakistan (SBP). The initial branchless banking guidelines released by the bank providing sufficient room for very innovative solutions to be launched in Pakistan - solutions that achieved good traction. The SBP has now released new guidelines that relaxes some of the previous guidelines. (Read here). Some of the steps forward is the creation of a new level of KYC-compliance, that relaxes some of the previous constraints, as well as an increase in limits. This approach should lead to faster growth in the industry in Pakistan.

The pre-occupation of the world with m-Pesa.

"Will there ever be another mPesa?" reads the headline of a recent article. "Of course not", I wanted to say, but what is the point of the question? In the same way there will never be another Celpay or EasyPaisa for that matter. Yes, without any shadow of a doubt, mPesa had a major impact on the world's understanding of bringing financial services to the unbanked, but it has never been the only success and in many ways we can learn from many other similar solutions deployed in different parts of the world.

Other notable success-stories (to mention a few) are:

• The Celpay deployment in Zambia, achieved remarkable commercial success with very low capital investment. Frequently recognised, Celpay has shown that this type of technology can be run profitably. Both mobile money deployments in the Philippines have shown significant impact in the social fiber of this company. Solutions ranging from micro lending and money remittances have been pioneered on these platforms.
• The MTN Mobile Money deployment in Rwanda have shown faster growth (both in terms of take-up and transaction values) on a relative basis than mPesa in Kenya. In a country much smaller than Kenya, the growth in take-up has been phenomenal.
• The Easypaisa implementation in Pakistan has been particularly impressive with a different business model in a very competitive market where banks are much more responsive and innovative than many other countries.
  

This pre-occupation with mPesa being the only example of a successful deployment of mobile financial services is harmful to the industry as a whole.

Facebook money implications.

I previously wrote a blog about the Facebook credits and the likelihood of it becoming a serious currency. It is unclear how much money is locked into this currency and how this will grow. It is also interesting to speculate how it will evolve to become an important component of the Facebook business case. The potential size of revenue does not seem to be that big and will not substantially increase the $ 2 Billion revenue that Facebook is making (predominantly) out of advertising.

What is interesting, though, is other aspects to consider. Finextra reported recently (Read here), that Facebook silently tweaked some of the rules to ensure that they do not breach US anti-trust laws. (They needed to ensure that they do not use their dominant position to arrange an unfair advantage to themselves.) Other considerations that will be important in future are consumer protection considerations and ensuring that the scheme is not contravening deposit-taking laws.

Also, the economics of funding the credits are interesting. When buying credits, one can use the usual payment options (credit cards, paypal etc.). But facebook as also teamed up with Zong and Boku and it is possible to also buy credits with these solution providers. This means that credits can be bought with airtime. If Facebook credits take-off and the scale become much bigger than now, this could have interesting implications for the revenue models for mobile operators.

The key to the Nokia Money strategy is a flexible mobile application

Nokia announced a collaboration with MCB bank in Pakistan recently. With this move, they have demonstrated that they could move the concept started in India into other markets. (Read here). MCB have successfully used Fundamo technology to roll out their mobile strategy and have won numerous awards for the success that they have achieved in the Pakistan market. (Read here). Not only then is this move extending Nokia's regional reach, but also an extension of technology suppliers. This is of course a positive move.

The ability of Nokia to offer mobile banking as a primitive feature on all of their handsets will be critical to the success of these initiatives. According to some media reports, it is the intention of Nokia to offer the mobile banking application on all of their handsets (from the basic sets to smartphones). (Read here). It is going to be their ability to do this in a seamless way, integrating into multiple different back-office systems, ensuring compliance with different regulatory dispensations and doing so in different languages, that is going to be the proof point of the strategy.

BNZ mobile banking in the spotlight, but what is really happening in New Zealand?

It seems as if the new mobile banking solution developed by BNZ met with a lot of positive feedback when launched recently in Kiwi Land. The application and mobile web solution was reported to have been well-received in the social media and the iPhone app quickly rose to be the application downloaded most. (Read here). The bank must have done something right and reading between the lines, I believe that they treated mobile as mobile and developed a mobile banking solution, specifically designed for new requirements.

On the other hand, it could also be that this is a light shining in an industry with a mediocre and ill-conceived offering to consumers. Kiwibank refers to their mobile banking as being available to "phones that can access the internet" and to "use your internet banking access number" to do mobile banking (Read here). Whatever happened to the Kiwibank mobile banking launched in 2007 with "features not previously available anywhere in the world"? This was supposed to be the springboard for local technology company (Fronde) to tackle the world. (Read here).

Similarly, Westpac New Zealand refers to something called Mobile Online Banking on their website and claims that it "offers all the same services as online banking". Clearly just internet banking on the phone. (Read here).

Signature-based security is the biggest source of Fraud attempts

At the risk of stating the obvious: The chances of fraud is significantly higher with payment instruments based on signatures than those using PIN's. This is made clear in a blog posted on the 27th June on Retail Payment Risk Forum. Based on information collected during 2010, fraud is more likely by a factor for instruments that use signatures as payment authorisation.

The relevance of this research in my mind is that the cost component allocated to security could be reduced by as much as 80% by making use of a more secure mechanism. By taking these concepts into consideration in the deployment of mobile payments, it is possible to offer much less expensive solutions. It is important to consider security designs from this perspective.