Tuesday, October 22, 2013

Complex eco-systems only works in equilibrium. An argument for using Chaos Theory in Mobile Payments.

Equilibrium is a beautiful state for any eco-system to be in. In this state, all participants are participating and growing at the same rate. In a state of non-equilibrium, the dynamics are moving and some participants may eventually either die or be diminished to something much smaller. Equilibrium in small eco-systems with little participants can be achieved more easily, for instance by making small changes in some of the rules or contributions. The behaviour is also, most often, predictable. In eco-systems with many components and many possible combinations, it is often not easy to find a state of equilibrium. The behaviour is also often not predictable. Making a small change some-where can potentially lead to changes that was not easy to predict. (This observation is the basis of Chaos Theory).
The questions to be asked is, is mobile money eco-systems complex eco-systems (are there many participants - sometimes with unpredictable behaviour) and would we prefer mobile money eco-systems to be in a state of equilibrium. It is my view that the answer to both is yes. Unfortunately the complexity of the mobile money eco-systems (many participants, some behaving in unpredictable ways) makes it very difficult to ensure equilibrium. This in my mind is one of the biggest challenges in getting mobile money deployments to scale. Maybe we should apply some of the findings of Chaos Theory to mobile money?

Mobile Money being used in retail applications.

The spectacular growth of mobile wallets in emerging markets have been because of a big need in these markets. How to pay for things remotely (like airtime or bills), how to get money over a distance (like in remittances or person to person payments) and other challenges. As the penetration grew, more and more applications of the digital payment platforms were being developed - some of them very innovative.

Lately, there has been a drive to find solutions for using mobile to pay in a retail environment. These types of payments are mostly done in cash (and sometimes using traditional card solutions). While the existing solutions work well, they are still open to fraud and theft. Utilising the existence of many mobile money wallets in retail environments seems to be a logical next step. Many solutions have been deployed in this domain. Some have shown acceptable traction, but we are still waiting to see the big breakthrough. The challenge is to design a solution that is easy to operate, safe and fast. This is not so easy in a world where (almost) no phones have any NFC capabilities.

Some of the interesting or more relevant solutions that I am aware of are the following:
Orange Money have partnered with Total in a number of countries to offer retail payment solutions in Total outlets. (Read here). It is not clear how different this is to the existing Person to Person functionality. The most widely published example is the Lipa na mPesa service rolled out in Kenya. This service is build on some technology innovation, but it is the well-developed fee-structures and commercial framework that really makes this very real in Kenya. (Read here). An interesting innovation is the Imara card in Uganda (Read here), that can be linked to any of the mobile money schemes in the country. By swiping the Imara card, the customer is asked to authorize the transaction on their phone after which the payment is debited to the mobile wallet.

All of these initiatives are very interesting and most have a good chance to grow to critical mass, but the future sustainability is not clear.