The end of a Chapter

At the end of January I will sit at my desk at Fundamo/Visa in Cape Town for the last time. I have decided that it is the right time for me to start a new chapter in my life. One of the most important things in life, I believe, is to get your timing right. And now is the right time for me to leave, for me, for my family... but also for the company that I founded and that I care for so much.

Fundamo has now been incorporated into Visa, creating world-class capabilities to provide products and services to the under-served in emerging markets. The strategy going forward is clear, supported by the top executives in Visa. I leave Cape Town in the hands of an extremely capable management team, consisting of some of the most accomplished people in the industry. Their focus now is to deliver on the promise of a universal mobile payment eco-system for emerging markets in conjunction with and that will benefit all players.

I will remain passionate about the industry and bringing financial services to hundreds of millions of people that deserve better. It is impossible for me to not be after everything that I have seen and experienced. During the thirteen years with Fundamo, I have worked with hundreds of companies (both big and small), bringing innovative solutions to some of the most challenging markets. I have traveled to more than fifty countries and have met the most amazing people from very diverse cultures. I have had stimulating discussions with the most brilliant people on the planet, but have also been humbled by interactions with the poor and the under-served.

I will never forget having had the privilege of attending great events in the history of mobile (in Cannes, Barcelona, Davos, Cairo, Macau and many more), but I will also remember the amazing moments behind closed doors when we cracked complex problems, demonstrated a new feature to a client or negotiated key contracts. I have always thrived in teams and have fond memories working with others (from my investors to my clients and also my adversaries), but by far the most important: my colleagues from the early start on the sixth floor in Sanlam, through the many stages of growth and absolutely including the last phase in Visa.

I plan to take some time out to just reflect on life. I want to sleep more and travel less for a few months. During that time I am going to try and write more, learn a new language and re-learn to develop code. I want to re-connect with my family and re-discover the wine industry and cuisine of the Western Cape. I would love to stay in touch with all my friends and will try and attend a few conferences. I trust that God will lead me to my next challenge and I am looking forward to it.

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.

Empowering women with Mobile Money. Enough research to support further investments.

This was a blog that I was planning to write for a long time, but every time that I started, I realized that I cannot do justice to this in a simple blog and then stopped. Tonight, I decided to post my incomplete blog-post anyhow. I have come to grips with the fact that one can only scratch the surface of this important topic. While mobile money have made big leaps and bounds in many markets, bringing this service to women has lagged because of specific constraints (like women not always owning phones or lack of education).

The industry have made big gains getting to understand the need and the benefits to women through the work of the GSMA mWomen Programme with support from Visa. Research reports covering these aspects have been released conducted in five key countries Indonesia, Kenya, Pakistan, Papua New Guinea and Tanzania. It is worthwhile to have a look at some of the clips posted where women talk these studies (Video for Indonesia, Kenya, Pakistan and PNG). USAid also performed a study looking at the access that women have to mobile technology in Afghanistan. (Read here). This report is particularly interesting to read. It does not refer to mobile money, but talks about many other aspects ranging from being informed and connected to security and health care benefits.

With Mobile technology women are empowered to entry into the financial mainstream much more easier. They now get access to life-enhancing services such as savings, payments, health-care, education, and entrepreneurship. However, the research show that the gender gap in mobile phone ownership and usage still reduce the access that women have in many countries to these benefits. In order to achieve the full potential of the role mobile technology can play in women’s empowerment globally, it is critical that service providers understand what women need and design products that effectively reach this audience.

Some of the specific findings in Kenya (one of the more mature markets) are that younger women generally valued the ability to use mobile money to send money to their mothers more. (They view their mothers more reliable and likely to save for the good of the household than their fathers.) Married women also appreciated that mobile money provided them the facility to save money separately from their husbands. For some users, convenience is a powerful means of improving their security as it reduces the likelihood of being mugged.

In the case of a country like Tanzania for instance women generally feel that using mobile money improved their lives (either in their personal capacity or in cases where they run small businesses) because of its ease and convenience. In a country where almost three quarters of the population relies on agriculture-related activities for income, people often keep crops such as maize as savings. The process of liquidating these assets when there is an immediate financial need has been improved through mobile money capabilities.


There are three key characteristics to women’s financial management that is of relevance in looking at mobile money: the difference in roles between men and women for managing money, the demands living in rural areas - compared to cities and the general lack of control women often have over their own finances. It is clear that the new capabilities made available through mobile money do and will have an positive impact in the lives of women in emerging markets. 

 

Secure element on the phone. The implications of architecture and brand.

In previous posts, I have discussed the implications of placing the secure element in the phone. (Read here and here).I thought that I have said what needed to be said, but having given it some more thought, there are even more things to be said - hence this post.

One should actually think of secure elements as brands. In the old world, we typically know that we can trust a payment-instrument because we can see a brand that we associate with trust/security (like Visa). We can also see that this brand is connected or integrated with the payment instrument. It is difficult to remove the brand from the instrument. As payments become virtual, this is getting difficult. Even if you see the brand, how do you know that it is attached to the payment instrument (secure element). It could easily be some-one making themselves look like the secure element.

 

Placing the secure element in the phone means that you will have to start trusting the handset-manufacturer's brand for payment. Maybe not a bad thing, you may say, but think of the implications if you would like to claim from Samsung if a fraudulent payment happened. Where would you go, and would they actually want to help you?

 

At least by placing the element on the phone, the consumer still have something physical to represent the payment instrument (their phone). Just think of the implications when the secure element sits in the cloud... somewhere. Like some of the following examples (Read here and here). But this is probably another post.

Better than cash alliance deserve support

The Better than Cash Alliance was founded by a number of Non-Profit Organizations (UNCDF, Ford Foundation, Bill and Melinda Gates Foundation, to name a few) and a few Companies (Visa and Citibank). The objective of the BtCA is to provide expertise to help with the transformation to digital payments. It is the view of the alliance that all will benefit from this transition (governments, the development community and private companies).

Governments and other parties have been urged to join the alliance. At this stage, the alliance have fourteen members and hope to entice more to join.

At a breakfast hosted by Bill Gates, the benefits of a cash-less economy was discussed (Read here). There was general agreement that numerous benefits can be achieved, but five specific benefits were highlighted. These were (quoted from the article):

• Transparency: Less corruption and theft when payments can be easily tracked.
• Security: The money gets where it’s supposed to go.
• Financial inclusion: Electronic payment is a way for unbanked people to establish a record of on-time payment of their bills.
• Cost savings: Moving physical cash around is costlier than zipping electrons.
• Access to new markets: This benefit is mainly for providers of financial services.

The ideals of the alliance is well worth supporting. Let us hope that many organizations become members and that this is not just words, but something that can be put into practice.

Government policies that could reduce cash

Cash is bad. This is the case for everybody involved with money. Managing cash is complex and expensive for consumers. Retailers have big overheads to secure cash and to reconcile payments with purchases. Governments lose tax because of grey transactions and banks have big overheads in dealing with cash. If this is the case, should governments not do more to make cash transactions less attractive?

The Central Bank of Nigeria has been extremely active in promulgating rules to reduce cash usage (especially in Lagos). Much can be read about the philosophies ans actions to create a "cashless Lagos". (For instance read this report). The approach of placing limits on cash-transactions may not have the desired effect as the right eco-system may not exist to support a cash-less economy. Other central banks use the usual levers to try and change cash-transactional behaviour. These banks use interest rates, money supply and penalties to change cash-usage behaviour. This light touch, while probably the text-book approach may not have good traction fast.

I am a big proponent of taxing bad behaviour. Not only will tax generate revenue, but it will discourage consumers to change their behaviour. One should ask which actions taken by consumers will trigger more cash usage and one should then tax this (withdrawing cash from a bank or ATM, cashing in a check, doing a retail transaction in cash). On the other hand, one should look at behaviour that one would like to encourage and then reduce (or eliminate) tax of these activities (electronic payments, depositing cash into an account etc.). Unfortunately, because the latter is digital, traceable and known, these transactions are often taxed and the former not.

Bitcoin in emerging markets

I am far from being an expert in Bitcoin technology. I am also not the guy that is going to shout that this is the new uber-trend. For this I have been too long in payments and I understand the difficulties in getting something to critical mass. However, Bitcoins do have an interesting angle in the sense that it is extremely well-governed, without any-one specifically doing the governing. It is therefor very predictable (and thus stable). It does not take a Governor making a strange rule to change the direction of the currency as is the case in all other currencies.

In emerging markets where regulations are often the biggest inhibitor to innovation in payments, having a currency that is fully predictable could be a big advantage. No-one can therefor be blamed to reach out to Bitcoins as the possible solution to roll-out digital payment solutions in emerging markets. It were therefor not a surprise when the first Bitcoin-backed mobile payment solution was recently announced in Kenya. (Read here). Called Kipochi, the wallet is integrated with mPesa, allowing value to be transferred to and from Bitcoins. And this touches on the first of two major problems:

• Bitcoins have been successfully growing in the digital world where many exchanges exist to convert Bitcoins between other currencies and vice versa, but it will prove extremely difficult to build these exchanges in markets where the bulk of currency are still in hard cash. Not only will it be difficult to sign up agents that will be willing to convert cash into Bitcoins, but to do this legally at the same time. By transfering cash into a mobile wallet before it can be transfered to Bitcoin (as is the case with Kipochi) really limits the application.
• As is the case with most new things, the ultimate take-up and growth of Bitcoins in emerging markets will be a function of how well it is understood and trusted. While new technology has been embraced in emerging markets (look at mobile phones for instance), I am not so sure if the Bitcoin paradigm (don't trust in dollars - or other government backed currencies, trust the system), will be naturally embraced in emerging markets. It will take a lot of education, I think.

Solving for the above in an effective way, will allow Bitcoin-backed payment systems to grow in emerging markets.

What can one learn from Qiwi about payments

Qiwi is a very successful, Russian payments company. (I am still trying to figure it out why it is called Qiwi and have a logo that make you think it is a New Zealand company). The beauty of the products provided by the company is the scope of the offerings (from virtual to mobile, it even recently start issuing Visa cards).

But it has not always been so. The consumer-base and transaction volume was initially built on providing payment services through kiosks. My information is that Qiwi currently run more than 200 000 kiosks predominantly in Russia and CIS countries. This is quite a unique situation. One sees kiosks in many places (shopping malls, bank branches and small retailers), but never has it been rolled out to be the back-bone of the growing business. So what is it that one can learn from Qiwi?

 

I would say that the following is important learnings:

• Roll out kiosks with a well-thought-out integrated transactional strategy. The services offered and how these are integrated in the back-office is critical to build a sustainable business.
• Put a lot of emphasis on branding. It is important that the customer should be able to associate a service that is available at a kiosk with a well-defined brand. The brand-promise should be clear and must be delivered faultlessly.
• Build other payment services around and in support of the kiosk. For instance, soon after launching the kiosk service, Qiwi followed this up with the Qiwi wallet that can be loaded at a kiosk, but can be used for payments remotely. This innovation lead to further brand re-enforcement, client-loyalty and an increase in traffic.

Secure element on the phone. Further implications: the end-user perception.

I have written about the implications of having the secure element stored in the firmware of the phone in a previous post (Read here). In this post I have explored the implications of placing your payment credentials in the phone (rather than in a removable component like the SIM card). All payment devices that I know (ATM's, POS's etc.) do not have the payment credentials stored in the device, but always on a removable smartcard. So I postulated that it will be a step backward if we buck this trend.

In this post I would like to explore the impact on end-user perception and understanding of how payments work and the risk associated with payments.

I believe that most people know that a credit card payment without the physical card is not as secure as one when the card is not present. Some of my friends go as far as to never use their card on the Internet because they feel exposed doing a card transaction without the card being present. I believe that this is the case because people know that their payment credentials are stored on their card.

The most important question to be asked (I think) is where the average consumer would want their payment credentials to be stored. Would they like to have their payments associated with their phone, with their SIM card (or something else, like for instance the sticker that they got from their bank that they stuck on their phone). I don't know the answer to this, but I think that it depends and that it will differ from market to market. It is my guess that customers in the US would be happy if it is on the phone (some may not even know that they have a SIM card in their phone), whereas in other markets (especially developing markets), my guess would be the SIM card.

It is important to consider this when rolling out phones with secure elements integrated into the phone.