Pacific Inclusion Programme; doing excellent work to bring financial services to the poor

Mobile payments enable the provision of financial services to the poor. It is one of the key building blocks to bring sophisticated financial services to communities that were previously excluded. The low cost of delivery, flexibility and ease of use makes this an ideal platform to deliver these services. As such, we are frequently introduced to amazing organisations working in this industry, making big inroads, often with very little resources.

One such an initiative is the Pacific Inclusion Program (PFIP), an initiative supported by the United Nations Development Fund. It is an organisation working in the Pacific region with the aim to increase access to quality financial services to the people of the region. (Read more here). A very qualified and capable team is working on diverse projects ranging from branchless banking to financial literacy. The team is working closely with central banks and contribute towards ensuring more friendly regulations to facilitate the delivery of financial services to the dis-enfranchised.

It is people like these that are the unsung heroes; working to bring quality financial services to more people and making the world a better place for more.

Different classes of retailers in emerging markets, requires fresh merchant thinking.

Merchants are clearly defined in card payment terminology. A merchant is someone that accepts a card from a client and then initiate a payment request/authorisation. A merchant usually have a relationship with a specific bank (called an acquiring bank) and should have secure infrastructure (terminals) that can accept a card and initiate the authorisation transaction. This model is proven and tested and works well in many markets. Trillions of dollars are processed in this way and these merchants form the foundation of retail economies of the world.

However, in many emerging markets, large volumes of transactions are processed (usually in cash) by retailers looking very different and operating within a very different economic model. These traders often do not do business in permanent structures and work irregular hours and with much more flexible business models. These merchants generally cannot afford terminals, do not have connectivity, nor have reliable electricity available. The needs for reconciliation and cashier management are also significantly different for these retailers.

It is inconceivable that these merchants be served in a model that does not consist of the four parties (as is the case with interoperable, open card payment models). However, digital payment models for this sector (most likely based on mobile phones), will have to be designed with very different liability structures, different fees and less overhead. At the same time, these solutions would also offer less utility and features compared to the established schemes.

The time is ripe for the development and prototyping of these type of payment solutions.

The source of funds dictate the use of mobile wallets

What is of critical importance in making mobile wallets work in emerging markets is making sure that the wallets are properly funded. Getting money into these wallets is a big challenge, especially considering the predominantly cash economies. The boundary between cash and digital currency is often difficult to navigate.

Cash-in strategies at agents, retailers and bank branches (a kind of cash deposit feature) are the most frequently used approach to get money into wallets. Some solutions utilising scratch cards and/or "top-up PIN's" have been implemented with limited success.

Other mechanisms to fund wallets are providing tools to pay salaries or wages directly into the wallets and the distribution of aid or grants. Using wallets to perform these functions are not only cost effective, but also provides the basis to drive secondary transactions. Another source of funds (of course) is remittance flows. While it is often customary to accept remittances as cash payments, it is far better, more secure and cost effective to fund nominated wallets with the remittance amount. This then also could lead to secondary transactions.

It is often those operators that deploy the most effective funding strategies that show the biggest usage.

Mastercard making mobile payment waves

It is clear that MasterCard have taken mobile payments seriously, if the number of initiatives announced during the past period is an indication. As one of the big card payment providers and a major player in payments in mature economies, this is further ratification of the importance of this industry for emerging markets.

Some of the announcements that I picked up on lately are the following:

• Launching NFC based payments in conjunction with RIM's Blackberry and Etisalat in the UAE (Read here)
• Utilising Intel two-factor authentication in conjunction with Symantec to bring more secure mobile payments to market (Read here)
• Talks about launching a MasterCard mobile payment gateway in Indonesia (Read here)
• Making key appointments in Nigeria (some with prior mobile telecommunications experience (Read here)
• Launching a online payment model utilising mobile phones in conjunction with Airtel and Standard Chartered (Read here)
• Application to link a MasterCard number to a mobile phone to perform mCommerce transactions in Hungary with a number of telco's (Read here)

Bill payment integrations to mobile wallets in Africa

Mobile payment solutions cover Africa with basic services including domestic remittances, person to person payments and airtime top-up capabilities. All of these are only possible because of "cash-in" and "cash-out" features installed at agents. Even these are amazing on their own, but these solutions are not constrained by these basic features.

Many examples of integrating mobile wallets with bill payment applications can be found. This is an area that shows a lot of growth. Either deployed by mainstream brands or also by small entrepreneurs, this is an area that requires further investigation. Some examples are the following:

• Celpay (one of the pioneers of mobile banking in Africa) provides payment solutions for multiple billers in the countries that they operate (Zambia, Zimbabwe and Tanzania) (Read here)
• MTN Mobile Money recently implemented a "bulk payment" capability that allows companies to offer new payment solutions. This application is currently utilised most for the payment of salaries (Read here)
• M-Sente (a mobile wallet provider in Uganda) recently announced the launch of MultiChoice payments. (MultiChoice is a regional payTV provider) (Read here)

The rate of innovation and launching new services on multiple live products in Africa is an indication of the health of the industry in emerging markets.

Interesting mobile payment activities in South America

I have reported previously on the plans of Telefonica to deploy mobile payment solutions in South America. (Read here). With one of the fastest growing mobile subscriber bases, large un-banked populations and economies dependent on remittance flows, one would have thought that this would have been a fertile space for mobile payment successes. Yet, it seems as if activities are limited to high profile announcements.

Recently, America Movil announced a major commitment to deploying mobile payments in the region. The intention is to create a JV with Citibank called Transfer with an estimated investment of $50 million (Read here). The intention is to roll this out in Mexico first and then to replicate it into other markets in the region. The complexities in regulating a JV between a bank and a mobile operator has proved difficult in other markets, so it will be interesting to see how this pan out.

It seems as if this region may get defined by smaller players with solutions that are deployed swiftly and with a better understanding of the actual needs. Yellow Pepper (read here) is such a player with a large subscriber base in a number of countries in the area. Monique has been working on launching eZuza in Mexico for some time now and it seems as if this is imminent
(read here), whereas Tagattitude (like in many places around the globe) assisted an initiative in Nicaragua called mPeso (read here).

This region will either be defined by the mega-corporations with a lot of resources but a less clear vision or by smaller players with limited capacity but slightly more focused.

Using mobile payments for online payments

According to the International Telecommunication Union (ITU), Internet-user penetration in sub-Saharan Africa has grown from 0.5% in 2000 to 10.6% last year. The penetration in Nigeria is for instance estimated at 28% (Read here). While the Internet activity is growing at a massive rate, online shopping is curtailed by the lack of suitable electronic payment solutions.

A number of localised payment solutions can be found. These are all dependent on acquiring relevant merchants. Some examples are FloCash or options where bank branches receive online shopping payments (offline payments at GTBank). Further challenges for these digital payments are the challenges to integrate with cash, consumer education and trust, as well as a sustainable business case.

In most of these markets mobile payments are well-established, with good penetration and a motivated network of agents with cash-in and cash-out capabilities. Consumers are also often well informed of these payment mechanisms and generally have a high level of trust. It stands to reason that mobile payments will fill the gap needed for suitable payments to make online shopping work in Africa.