mPesa Macarena

Lets face it, mPesa has been so successful that we can now give them idol status. Almost every person with an interest in mobile payments and banking (especially when looking at emerging economies), want to do mPesa. This reminded me of that song of madness: "Macarena". The dance that everyone wanted to do to show how clever they are to be able to remember all the steps.

mPesa is very specifically applicable on the Kenya situation. The size of Safaricom, the composition of the management team, the regulatory dispensation, the need of the subscribers... all of these contributed to this amazing success. I am sure it will be recognised at some stage, that not all of us have to dance the Macarena, especially if the tune is different.

Another word on Fraud

During the past few weeks, many reports highlighted the alarming growth in fraudulent transactions. Without having an authoritative body providing a holistic overview, it is unclear how big this problem is, but judging from these reports, it is probably huge:

1. UK payment association reports that online banking fraud grew 132% form 2007 to 2008. Most of this seems to be driven by phishing and Malware attacks.
2. The Association of Financial Professionals (AFP) of the US estimate that more than 70% of firms in the US were victims of attempted or actual payment fraud. While the majority of the fraud were check related, a large percentage were electronic payment fraud
3. Symantec announced that they detected a growth of 66% in phishing sites and 47% in active bots creating risks for electronic fraud
4. Gartner reports that more than five million Americans lost money because of electronic fraud during the 12 months ending September 2008
5. The Australian Bureau of Statistics (ABS) estimated that more than 5% of Australians fell victim to electronic fraud in 2007
6. Verizon reported that hackers stole 285 million electronic records in 2008. Of these, by far the biggest percentage were sensitive financial information destined for sale on the black market.

The lessons for mobile banking and payments are that one cannot ignore the immense threat of criminals and innovative mechanisms to defraud individuals. It is of critical importance to this young industry to design bank grade security into the solutions being deployed at the moment. As mobile payments start growing in scale, it will attract the attention of experienced cyber criminals.

EU Electronic Money Directives

A lot is being made about the new (about to be accepted) EU electronic money directives. The fact that other organisations (read "mobile operators") can now potentially start issuing electronic money with lighter compliance and less reserves (Euro 350 thousand). (Read more here) is of interest.

The question is, is this really removing the regulatory barrier? Have the COREPER solved the problem that mobile operators have with the deployment of mobile payment solutions ? While this is definitely an interesting proposition, it does not solve the biggest hurdle: open access to clearing and settlement.

Mobile payment solutions that are not provided with acceptable access to clearing and settlement streams are like very small islands in a massive sea of payments. Without an elegant way of routing payment transactions to and from the rest of the payment world, very little progress will be made. E-money schemes are interesting propositions in some way, but in the end (and if properly analised) they are effective ring-fencing mechanisms that will keep these transactions away from the rest of the payment world.

Pricing of Mobile Banking Solutions

Me and my wife have built quite a few houses - some that we lived in and others to speculate with. We have always been careful to use reputable contractors. and most often not the cheapest. We saw some of the disasters of half-finished houses or lousy quality with houses having been built by contractors with little experience or with low prices.

In looking at the mobile banking industry, I am surprised by the price-points quoted by inexperienced solution providers. These are sometimes so low, that it would be impossible to deliver solutions of acceptable quality. I assume that Enterprise customers often do not realise the complexity (see some of my blogs on complexity here and here) of the deployments of mobile banking solutions. By selecting solution providers on the basis of price, customers run the following risks:

• The solution provider have underestimated the effort and now have to fund the effort themselves - this often translates into cutting corners and unacceptable quality.
• The solution provider, having lost money on the deployment, tries to recover the cost in subsequent phases or getting a slice of the recurring revenue
• The solution provider cannot effectively support the solution because of limited available resources.
• Because the solution provider is not running the business on sound commercial principles, he goes out of business and the customer must move to another solution at great cost.
  

It is one of the biggest risks to this young industry that some solution providers are competing on price-points. The industry is far from mature and it is not possible to evaluate the differences between suppliers solely on the basis of price.

In the ten years that I have worked in this industry, I have seen all of the above risks materialise in practice with companies selecting solution providers on the basis of price only.

Failures and lessons learned

The mobile banking industry is (for some or other reason) extremely competitive. Many solution companies compete with each other to win the business on offer. During the ten years that we have been active in the industry many companies have come and gone. Quite a few projects that were attempted failed and a number of enterprises were disappointed with service delivery.

It is not common to talk about these failures and to name the companies by name. (I think it is because it is such a close-knit community and none of us like to see projects fail). It is not my intention to name companies in this blog, but I have learned of at least three projects that failed (did not deliver on the expectations of the client) and felt that it is important to try and learn from what has gone wrong. This is my summary:

1. These projects set out to do things for the first time. The contract (in all these cases) were won on the basis of specifications and not actual delivery and proven technology. It is important for enterprises to select companies with a proven track record as mobile banking projects are often much more complex than what is the initial thought.
2. What works in one country cannot be transported to another country. Technology that worked (for instance in India) cannot be transported into (lets say) Africa. Or even from one country in Africa to another. Differences in culture, the competitive landscape and regulations often have significant impact in the ultimate success of the deployment (or not).
3. Enterprises that negotiate suppliers into "no-win" situations. This is often the case where one of the suppliers see the project as a "must-win" at all cost scenario and then agree to contractual terms that are not possible. These include pricing, timelines, scope of delivery, conformance to standards etc. The impossibility of the project often degenerate into missed timelines, bad quality and general disappointment.

Part of working towards the maturity of the industry would be to look at the failures and to start taking the decisions that produces win-win opportunities for client and supplier.

The Macro-economics of Mobile banking

It is well-documented that the introduction of the mobile phone created extensive shifts in the make-up of the macro-economic spending profiles. For instance in markets where mobile phones took off, beer sales and even clothes sales went down. This means that people actually diverted money from drinking to pay for communications.

If we assume that mobile banking initiatives will ultimately lead to huge financial success, we should be able to identify those sectors that would "loose-out" and which less money will be spent on. In other words, from which sector will money be reverted to pay for mobile banking? I would like to venture the following:

• Businesses that work with cash (printers of cash, cash distributors, etc.)
• Transport companies as people would not have to make trips that they otherwise would have had to do
• Expenses related to distribution (distribution of airtime, postal services etc.)
• Money remittance companies with big margins
• Banks (when they charge big fees)

It may be worthwhile to give this more thought, as this would be an indication what industry players may be apposed to mobile banking.

Apple iPhone caused the recession

I just had a good chat with my friend Falk and we agreed (after an intense discussion), that the Apple iPhone caused the recession. The user-interface of the iPhone is brilliant for music and other multi-media. Anyone that has one will agree on that, but it is impossible to read and (especially) write e-mails on this interface.

With the growing adoption of the iPhone more and more people reverted to responding to e-mails haphazardly and this led to the downturn in the economy.

...not all of my postings should be serious.

Some comments on the Obopay deal

So the Obopay, Nokia deal was announced this week and everybody with an interest in this space saw it. Nothing has been as big since the Firethorn deal. (see my blog about this). I have also written a blog some time ago comparing the differences between Firethorn and Obopay (see here), and have also highlighted the fact that Qualcomm now have shareholding in both.

This is all history now as Nokia has now emerged as a key player in the space, with a sizable shareholding in Obopay (we think) and a senior Nokia executive now on the board of Obopay. While we all applaud the deal as it raises the visibility of mobile banking (and set a new benchmark for valuations also...), a number of questions must be asked about the transaction?

1. On what basis was the valuation done? One needs to ask this question as it is probable that Obopay was valued in access of $200 million. Seeing that Obopay does not have much of a revenue history it is unlikely that the basis for the valuation was profitability.

2. What is it that Nokia would would want to do with this investment? I have difficulty reconciling this with their handset strategy. Whereas the Navtech deal made a lot of sense, controlling a niche financial services company will not do much. The last thing that clients want is a financial product that only works on one handset.

3. The dynamics of Obopay relative to banks with a telecommunications company as a major shareholder would become interesting. At the same time, mobile operators (while hugely dependant on handset makers) are not the best strategic friends of these companies. Does this mean that Obopay will now "go-it-alone"?

4. Last question: What does Obopay want to do in Africa? And maybe this is the key question and the reason for Nokia investing.

Great to ask these questions. Would be nice if we could also know the answers.

A day in the history

I stumbled on an old document on my hard drive that I wrote in 2001. It was named "Fundamo competitors". I found it interesting to see who I rated as the players then and to think what became ofthem. Below is a list of companies that I viewed as competitors in 2002:

• Arctic Website Hosting - I think they were acquired by some-one, but am not sure what happened to them
• Macalla - Neill and his partners are still going strong
• Mobile Magic from Finland - I don't know what happened to them
• Brokat - remember the big collapse, then the Ecorus story and then the purchase of the assets by First Data?
• Siemens - I think Siemens was re-selling Brokat solutions then (They also had a small stake in Brokat if I remember correctly)
• Cellpay - This is the Israel-based company, also known as Adamtech. They closed down.
• Trivnet - Still around. I think they are now doing well after some difficult years.
• Digital Rum - Diversified and now selling different products
• ACI - I am not sure if they ever were very active in the space, but I viewed them as competitor in 2001.
• Elata - Company based in England. I am not sure what happened to them
• Sicap - One of the first solutions based on USSD technology. I am also not sure what happened here
• Vallista - What happened to Vallista? I have not heard from them for some time now.

It would be interesting to learn more about the people that created these pioneering companies and what they do now.

Mobile Commerce: Pakistan

I recently attended mCommerce Pakistan held at the Marriot in Karachi on the 11 March. The event was organised well with a big audience and a lot of interest in the presentations. It was clear that the initiatives taken by the Central Bank to define the deployment of branchless banking have an impact in stimulating mobile banking initaitives.

Although the title of the conference indicated a much wider topic (mobile commerce - which typical should include advertising, LBS, mobile TV and entertainment and much more - see my recent blog), almost all the discussion and presentations focussed on mobile banking. This was of course very satisfying as I believe that mobile banking is fundamentally at the heart of mobile commerce.

The other factor that was very interesting for me, was the number of banks that were represented at the event. One usually see mobile operators and players in the telecommunication industry attend mobile Commerce events. Atthis conference many of the attendees (but also speakers) were from banks.

Defeating poverty

So why am I so passionate about mobile banking? I find the technology fascinating and the complexity of helping to set up a working eco-system will aways enthral me. Yet, I honestly believe that we can help to ultimately defeat poverty by means of mobile banking. And this is what really excites me.

What is it that mobile phones bring that can make this dream possible? It is immediate feedback. Mobile phones in the hand of a consumer is the only way that the system can give immediate feedback to some-one spending money. It is my opinion that a lack of financial skills (how to budget, how to control spending and how to save) sits at the heart of the poverty problem that we have on here on earth where we live. If we are not able to teach people these skills, we will always sit with the problem of poverty

By utilising the ubiquity of mobile phones it is possible to develop education mechanisms with immediate feedback that could teach people basic financial skills. In this way it may be conceivably possible that we ultimately defeat poverty.

Mobile banking is business in the US

In a recent report published by Synergistics some startling findings about the take-up of mobile banking for Small Businesses are made. (Read more here). While the size of the sample and the research methodology can probably have an impact in the interpretation of the results, this is a massive endorsement for mobile banking.

According to this research, large percentages of the sample reportedly use mobile devices for financial transactions. As much as two thirds doing some kind of banking transaction, whereas about 40% have reportedly used their device to do a money transfer transaction. (40%!!). If this is just partially true, this is a major revolution. I still remember people talking about the potential of mobile banking for small businesses in the US just one year ago.

Granted, some of the transactions are e-mail based. (This is what you get in a Blackberry dominated society). Something to blog about in future maybe: Can an e-mail channel on a Blackberry be utilised for mobile banking?

Mobile banking South America

I was recently challenged to write something about mobile banking in South America. It is impossible for me to keep up to date with all the initiatives globally (I sometimes have difficulty to keep track of all the mobile banking initiatives that we are busy with in Fundamo - this is now getting close to fifty!)

However, I have known about Yellow Pepper and their successes in South America for some time and I believe that they have earned the right to be mentioned on my blog. Serge and his team have carved a specific niche for their services in a number of South American countries (Equador, Gautemala, Panama, Columbia, Peru and Bolivia). Since the company was founded in 2004, they have successfully deployed solutions to predominatly banks. Their success model is built on delivering defined products quickly and to take away the complexity from their customers.

It is companies like Yellow Pepper (and many more in other countries too), that will create a mobile banking enabled world.

LUUP in a loop?

The LUUP public relations function has been quite busy during the last few days. We have been exposed to two very powerful (and somewhat conflicting) messages within days from each other:

• The first message started hitting the media during the early part of this week (read here). "LUUP is dumping customers" one heading read. We were all interested (and shocked) that LUUP has closed their operations in the UK, Germany and Norway and not gradually or in a calm way. No, the message was something like: You have a month to move your money. After that no more LUUP service.
  
• The the second message with a very positive spin: Deutche Bank is embarking on a massive project and have selected LUUP as their partner to do this. Congratulations! Phew, for a moment there we thought that LUUP was in difficulty.
  

Then I started wondering: why, if you have just closed this big deal with such a major bank, why then immediately (with obvious urgency) close down your own operations? And if you have to do that, why not wait a month or two before starting to do this? What could the reason be for this urgency? Did Deutche Bank demand this as part of the deal? Does LUUP have limited resources and must now get everyone to focus on the German opportunity? Or was this just bad PR planning? Why is it that Deutche Bank did not do this selection on a RFP basis? Did they consider other solution providers?

Or as one blogging site commented: ("LUUP no longer needs their customers"). We will probably never know.

MFS as a mCommerce category

In a recent e-mail from Mushinzimana , I was asked if mobile financial services (MFS) is a mCommerce application at the same level as mAdvertising, mEntertainment etc.

I promised that I would post some comment on this.

First of all, it is clear that MFS is a "m" play. The question then is if one could see payments and banking (in this context) as commerce and if MFS should be seen as a subset of mCommerce. In looking at the other categories of mCommerce, mPayments sits at the root of any commerce. It is impossible to think of "commerce" without payment.

In conclusion, I would have to say that MFS is not a mCommerce application, but rather the foundation, the basis of mCommerce.

Absa reach a million accounts

I am frequently asked if mobile banking is being used and can I give examples. There are of course many examples of major success stories. One of thse is the penetration, usage and positive business case of mobile banking in South Africa.

Absa announced during this week that they have signed up more than a million mobile banking account holders. To put this in perspective (and I don't have the exact numbers, so Christo (head of mobile banking at Absa) will have to excuse me if I get some statistics wrong):

• This is more than 25% of their customer base
• It is two times more than customers accessing their banking from the Internet. This means that mobile banking is the only electronic channel for a few hundred thousand Absa customers
• The growth to this number took just more than three years, whereas the banking industry in South Africa took eight years to sign up a million Internet banking customers

The fact that this amazing story has not been widely picked up by news networks, just shows how mobile banking has become part of business in South Africa. Well done to Christo and his team.

Who will own interoperable switches?

I received a very interesting e-mail from a friend of this blogspot, recently. He made the point that we are seeing many mobile payment solutions now being deployed successfully in the same countries. Some of the initiatives are owned by mobile operators, others banks and sometimes independent third parties. It stands to reason that these entities would ultimately evolve to support interoperable payments between each other.

The question that he posed is that if we are going to see these interoperable (switches) entities, who will own them? We could probably identify a few different scenarios:

• Individual banks and/or mobile operators
• Consortia of players
• Existing interoperable payment switches

I am of the opinion that it will not be any of these - at least not initially. As a matter of fact, I believe that trying to identify the "owner" of interoperable switches is old world thinking and a red herring. The key now is to switch-on end user connections. After that, we will see peer to peer connections (one mobile wallet operator connecting to another mobile wallet operator). Only after this has been done and we have visible traction regarding peer-to-peer interoperable transactions, will it be viable to start thinking about an industry switche.

All the talk about a money remittance HUB (and all the investment that is being made) is absolutely premature.

Banking the unbanked

I suppose, one of the biggest announcements in Barcelona was the grant of the Gates Foundation to banking the unbanked. (Many articles, but read one here). This is great news and an acknowledgment of the importance (to everybody) to provide as much as possible people the means to have access to their money electronically. Basically the fight is against cash, because of all the negative effects of cash.

By providing electronic access to money, it is possible to ultimately defeat poverty, because of the following reasons.

• It is much more effectively to teach people to save in this way.
  
• It will make access to banking and advanced payment transactions possible and cost effective
  
• It is much safer and provides for mechanisms to defend against fraud
• It is a mechanism to help educate people how to manage money. It is very difficult to manage money according to a budget without the tools of electronic banking.
  

Mobile phones created miracles by allowing people to talk to each other. By using it as a tool to get access to money, we will cross the barrier to a better world.

Monitize to the rescue

Monitize announced that they have been awarded a $ 1.5 million dollar grant by the African Enterprise Challenge Fund (read here). I know that I have written about this before (see here), but I really have difficulty in understanding how this mildly succesful UK company can make a difference in Africa. Not only is it unlikely that they will be able to re-use the UK functionality in Uganda (Java phones, ATM switches, etc.), but they are also late. Many Ugandan-based companies have already (or are in the process of) lanching their mobile banking services. (For instance MTN (read here), Map International (read here), Zain (read here), Uganda Telecom (read here) and Barclays (read here), to name a few).

What really bugs me, is that the donor community fund a European company to bring unsuitable technology to Africa. Yet, it is totally impossible that an African company (with much more advanced technology) could be funded by the donor community to bring suitable solutions to Europe. Something is totally wrong somewhere.

Technology is more difficult than you think

This is the sentence that scares me more than anything in mobile banking: "It is not about technology!". I have found that these words are usually used by some-one that have never deployed a mobile banking system! It is also used by people with no (or very little) mobile banking experience, hoping to sell you a system that they will quickly put together.

As a matter of fact, delivering working, reliable mobile banking solutions is ALL about technology. People often make the mistake of equating mobile banking to a cute little program on a handset connecting to existing banking systems in the back. This may be fine for a few subscribers and limited number of transactions, but as soon as these applications are used in earnest, the bottlenecks, the conflicts and the challenges move to the back-office. Core banking systems were never designed to deal with so many transactions.

The complexity and challenges with mobile banking systems are huge. This is probably the most complex banking systems that can be found, and specifically because of the following reasons.

• Almost everything must happen in real-time with response times of less than ten seconds.
  
• The transaction volumes of mobile banking systems are higher (by factors) than what can be expected from existing banking systems. Well-designed mobile banking systems must scale to higher transaction volumes than what can be dealt with in the back-office. At the same time it should have intelligent throttling mechanisms when the back-office cannot respond fast enough.
• The security paradigm of mobile banking is totally different. Be careful of vendors that merely offer Internet security on the phone.
• Consumer behavior is totally different on mobile phones than on the Internet. Transactions must be much more intuitive with less guidance and error checks, yet still be reliable and functional.
  
• Mobile banking systems must be able to recover themselves from error conditions. I have seen situations where a component fails and in a very short span of time, the system have half a million transactions in pending state. No ways that this can be resolved by hand.
• The integration points are many more than for most systems, and the type and characteristics of integrations are very different to most banking systems
• The ability to optimise systems are different

It is clear that these systems are extremely difficult to build and deploy and should not be attempted by amateurs - after all these systems manage money.

Emerging markets have more to say

The problem with the developed world (regarding banking) is that they have an extremely complex and inter-twined eco-system. The banking and payment system evolved though decades to a situation where many, very powerful stakeholders exist in a (relatively unstable) balance. Large banks, payment processors, card associations, regulatory bodies and other stakeholders understand the game well and is so dependant on this game not changing. It is much safer not to inject change into the system than allowing radical things to influence the system (like mobile operators and new types of payments).

In this case, emerging markets are different. The eco-system is still young and often not well-developed. (Although the basics and the foundations are in place). These markets are faced with real needs and real by business cases for investments can be found. Solutions can look different and problems can be solved in different, better ways - without having to worry about integration to legacy systems. It makes a lot of sense to get on with the job in these markets.

The problem that I have with what I see, is that the first world immediately goes into a teaching mode...whereas maybe they should start learning and listening more.

Is Regulatory really the biggest barrier?

During this week, so many people spoke about regulatory reasons being the biggest barrier to mobile banking (and specifically banking the unbanked). I must be honest, this was really surpising to me, as I do not see it as a barrier. It is hard work, and will take a lot of effort, but it is not a barrier.

I must confess some of recent announcements (the Reserve Bank of India and the stories about ZAP and mPesa in Kenya), probably triggered some of these thoughts. In both of these cases, however, the central bank had to react after the fact. It is important, I believe, to get things sorted before the fact. Money regulators have important jobs. If they do not do their jobs then we see financial systems collapse and we get situations like the economic meltdown of last year.

If we act irresponsible, then we should expect the regulator to stop us. That is why it is so important to take the time (in the beginning) to make sure that what you intend deploying conforms to the law (both in the letter and the spirit). I have found that in more than twenty countries that we have done business that the laws can be implemented with mobile banking. It is not necessary to change the laws, but it is important to study them, think about them and then to conform to them.

It is possible to to this, and we in the mobile banking industry have the responsibility to do this. We (at Fundamo) have a lot of collateral and experience with all the issues, I am looking at ways that we can share this with the industry, without compromising our intellectual property.

mBanking, mPayments and mRemittances

It is interesting how the industry is being segmented at the moment. I am frequently asked if we at Fundamo provide mBanking, mPayments and/or mRemittances services. I have severe difficulties in making this destinction. I have been offered explanations by a number of people, but would be interested in finding one's that make sense.

The way that I see the world, all three of these are sides of the same coin. It is clear that mRemittances are just mPayments with the added complexity of currency management, unless the Remittances are domestic transfers in which case they are the same. Providing you can recognise that mPayments should not be limited to retail payments, but should include person to person payments, of course. As a matter of fact person to person payments could (and often are) just retail payments, when the recipient person is a trader.

Banking is banking, but mBanking is all about transacting. The biggest advantage that mobile brings is that one can now perform high volume banking transactions. (Like paying bills, and crediting and debiting bank accounts). This is pretty much my understanding of payments (at least electronic payments - crediting and debiting accounts with the same transactions).

What is that? Oh, you are asking what about balance enquiries and statements - surely those are mbanking functionality. Have you ever tried to implement mpayment solutions without a balance enquiry and access to statement requests?

Crone Consulting

Having been in this business for the past ten years, I have seen a lot and I have experienced a lot. I think I can say that I know much of this industry. I have also met and have worked with most of the leaders and pioneers in the industry.

This is why I feel qualified to acknowledge a real expert that I met recently. Richard Crone (Crone Consulting) has an amazing gift to talk about and highlight the implications and components of mobile banking. I met him recently in California and was emmensely impressed with his insight and presentation backed up by excellent research.

He is also not scared to speak his mind, which I think is a needed quality at this stage in the mobile banking industry.

SMS Alerts

SMS alerts are probably the most important entry point to mobile banking. It is an ideal mechanism to provide immediate benefits to bank customers by making use of a mobile phone. The direct benefits are obvious and it is relatively easy to build a supporting business case. By ensuring faster feedback on card (and other payment products), it is much more difficult for fraudsters to steal.

Other (indirect) benefits also exist, like selling term repayments directly to the customer through the mobile, by sending a SMS with the following intent: "This purchase you made just now, you could repay us over six months at $X per month - just reply to this message and we will execute it in such a way".

What is however much more important, I believe, is to implement SMS alerts in a strategic way as this is actually the start of mobile banking. It is critical to plan this well, to store the right data, to enroll customers rigidly and to map out a plan with milestones that would ultimately lead to full-blown mobile banking.

The mobile value store account debate

We tend to forget that when credit card systems were launched during the eighties, these systems were stand-alone systems. Cards was not issued on-top of existing accounts. It was only after a significant period and with a lot of experience that the banking industry had enough confidence to issue cards associated with existing bank accounts. It was also much easier for consumers to think of their cheque account and their credit card. These two type of accounts were (and still often is) two seperate value stores. Sure, it is possible to move money from the one account to the credit card.

So why are banks so determined to have mobile banking/payments integrate to their core banking systems and/or credit card systems? There are so many reasons why it make sense to run mobile off a seperate (new?) value store that is not hosted on the core banking system:

• A seperate account would enable us to deliver the service much more cheaper by eliminating expensive (unneeded) services (like monthly statements, teller/branch support etc.)
• It would keep high-volume (potentially unreliable) transactions away from the heart of the bank
• It would allow banks to offer services to people without bank accounts.
• It would enable much faster times to market by making use of dedicated, turnkey solutions (like Fundamo Enterprise Edition).
• It would give the industry the opportunity to learn before attempting difficult and complex integrations.

I am sure that there are other reasons. The only reason why we should not do it, is because it... Sorry, slipped my mind.

Remote payments are the pre-cursor to NFC payments

The ultimate, wide deployment of NFC payments will bring a lot of convenience to shoppers and retailers in future. In the meantime, many hurdles must still be crossed in order to make this technology widely available. Not least of these is the availability of the handsets and a business case that is understood by all stakeholders.

The question is what participants should do in the meantime to prepare themselves for the ultimate reality of NFC payments. What can mobile operators do to be better prepared for NFC payments? They should, of course, experiment and pilot the technology, they should work with standard bodies to develop the standards and with banks and credit card organisations to roll out the acquiring infrastructure. All of these things are important, but does not really make major inroads in mobile banking today. Also, it is difficult to build the business cases for the investment required.

One way for mobile operators to prepare for NFC payments, is to actively roll-out remote payments to as large a part of their subscriber base as is possible. The key is to do this in such a way that the subscriber base can be converted to NFC payments quickly and at low cost. This can easily be done with today's technology and the business case is much more robust. Subscribers with mobile wallets and the right operator logic on the phone can be converted for NFC payments when handsets arrive.

Appstores and Mobile banking

The appstore is a place where applications for the iPhone can be browsed, puchased and downloaded to the iPhone. The use and feel for the appstore is making it very popular as a source for mobile applications. A number of mobile applications for banking and financial services are already available and can be downloaded from the appstore. The question now arrises if this is a way to go for mobile banking. (also read this blog).

While it is an easy way to distribute mobile banking applications, the appstore approach creates a number fundamental problems:

• It is essential that applications and how they are distributed should cater for many different platforms and phones. While the appstore works very while for iPhones, similar mechanisms does not exist for other phones - though they may become available for other makes in future. It would be extremely difficult to keep all appstores relavant.
• It is ideal (especially form a security perspective), to keep track of who downloaded what and to also have the ability to sign each application individually and earmark such a signed application for a specific customer. This is very difficult with an appstore.
• Because the appstore is available to all, it is difficult to ensure confidentiality and to protect competitive advantages.

All of the above is valid, yet can be overcome. The biggest question in my mind is if banking applications should be pulled by the customer to the phone or pushed by the bank to the phone. My sense is that the latter is preferable and impossible to do with the appstore.

SIM Secure Element

One of the most important problems to be solved in the mass deployment of mobile payment solutions is where the "secure element" should be stored. Without going into a lot of detail, this is basically the need to store a digital ID of the payer in such a way that it is very difficult to compromise. Much has been written and speculated on how this should be achieved in mobile payments. (Read this and this for a sample)

It was generally agreed that the Secure Element (SE) could be stored in three possible places:

• In a Memory card that can be inserted in a phone
• In an external device attached to the phone or
• on the SIM card

During the past period, I have heard quite a few organisations (the Euro payment council, the US FSTC an dthe Mobey Forum) verbally confirm that they are starting to realise that the only workable solution is the SIM card. This will start to influence solutions and I believe will help with acceleration of standards and also working solutions.

I believe that the work that we have done at Fundamo have lead toi the most advanced and proven SIM card based solutions currently available.

Money Ventures that are mobile

What made Dumb and Dumber such a funny movie was not because the two friends Harry and Lloyd was so stupid, but that they did not know it. They often acted thinking that they are smart, but it was clear for most that they were not.

I see similar behaviour in the mobile banking industry, but I am often not sure if I should laugh or be sad. I was recently exposed to such a company - one with large shareholders and a very visible profile (and probably a massive budget too).

It is quite unclear what product they offer and how they intend generating the kind of revenue that they would require to sustain their expenses. With many high profile executives and grand plans, it is interesting to hear the articulation of their vision: "poised to set the industry standard for mobile financial services". At the same time ridiculous claims are made like offering financial services solutions that ares unique in offering comprehensive banking, payments, and budgeting tools on the customer’s existing mobile phone. And also that they have created a next generation mobile financial service solution that will accelerate the adoption of mobile financial services worldwide.

In addition, it seems that this organisation is partnering with every willing company, even if they are in competition or when their offerings and business models are diagonally opposed to each other. It would be interesting to have a wager on how the future of this company will pan out.

Paybox and Sybase

I usually comment on technical aspects of the mobile banking industry, but the recent acquisition of paybox by Sybase necessitate some comments. While it seems to be a very good match (Established company with a good brand and distribution network acquiring company with good product and management), the new mCommerce player will be faced with significant integration challenges:

• The culture of an entrepreneurial, Euro-based company will have to merge with an East Coast, listed entity
• The relatively small paybox will have to provide guidance, training and support for a massive organisation, running the risk of diluting scarce resources to a point where it looses it effect
• The new organisation has the ability to create a big demand for product that will be difficult to deliver. Mobile banking is a complex solution to deploy. It takes a long time to train engineers to do this effectively. It would be difficult to scale the delivery capacity quickly enough.

Nevertheless, I wish the ex-paybox staff good luck with their new home.

Attending Mobey Forum in California

I attended the Mobey Forum meeting for the first quarter in California this month. The organisation was very well done and the venue provided by Sybase was very well too. A large percentage of the industry influencers attended and the quality of the presentations were generally of an extremely high standard.

This is my key insights on the meeting:

• The difference in insight, understanding and substance between the US banks and the rest of the world in staggering. The status of mobile banking in the US banking sector is very, very far behind compared to other countries, including emerging countries. What makes this even worse is the fact that I don't think US banks realise this.
• The drive for and the tension between proximity payment initiatives and remote payments was quite obvious. One could see the difference between NFC and remote payment proponents and how they see the world clearly. (I will blog more on this later)
• I found some presentations (especially from smaller companies, or idividuals) to be of the highest quality, while larger companies failed in delivering substance. It was almost the case that the bigger the least substance.
• Standards are being worked on effectively. It was the closest that I think the industry has ever been in actually publishing standards/guidelines that are usuable.

I will blog for the next few weeks on thoughts that was triggered during the meeting.

Credit Card payments for everything

I recently read a great article written by George Thomas (Read it here). It eloquently made the point that credit cards are not designed to be used for all payments. That card payments are unsuitable, expensive and risky for a number of applications. The inherent risks associated with fraud and credit could have major ramifications for the financial system as a whole.

I think it would be correct to add that credit card payments (maybe with a few exceptions) are not at all suitable for mobile payments either. The characteristics of the mobile phone and the multiple applications made possible via mobile payments require a new type of payment. To bend and modify card payments to also support mobile payments is folly.

George made the point that the blanket use of card payments for everything is driven by silo's in large banks - each with their own products and personal objectives. He also mentioned that greed is a major driver for taking the wrong decisions. Could I also offer another reason: "Lack of an ability to think outside the old banking norms."

Thoughts on Mobile Banking business cases

I was close to some of the early projects that launched the first Internet banking services in South Africa during the middle of the nineties. None of them had any business cases. Banks deployed these services because it was unthinkable to have a bank without allowing clients to access their bank accounts via the Internet. Today all Internet banking divisions have solid revenue targets and (in most cases) good ROI business cases.

However, things have changed. It is now impossible to deploy products without a solid business case and strategic motivation of why it must be done. Mobile banking initiatives are often subjected to such requirements and this frequently delay decisions, but seldom stop them. It is thus important to think about the business cases for mobile banking. While each initiative differs in terms of investment, potential penetration and impact on financial metrics, it is possible to categorise the business benefits in three categories:

• Direct revenue benefits exist and is usually one or a combination of the following (transaction fees, monthly subscription fees, commission on goods sold, differential on interest and others - like interchange fees). It is my experience that these should generate revenue of at least $1 per month in order to build a revenue-based business model.
• Cost savings should also be considered. The different benefits that can be achieved by the deployment of mobile banking are savings on less complex business processes, cutting banking staff out of the process and savings on capital expenses.
• Many indirect benefits exist. Some can be quantified, while it is difficult to do it with others. I have seen some of the following actually happen during mobile banking deployments and I believe it is important to include them in business cases too.Mobile banking increase stickiness, brand loyalty and impulse buying without a doubt. Enough measurements exist to back this up. I have seen large increases in voice ARPU for instance if mobile banking is depl0yed by mobile operators. One should also not ignore defensive imperatives in markets where other players have launched mobile banking.
  

Sources of Remittances

When thinking about about money remittance solutions, it is important to consider the different sources of remittances money. The mechanism utilised by the payer to trigger the transaction could have major implications on a number of factors of a remittance transaction. Some of the implications can be:

• The degree of conformance to banking regulation
• The involvement of third parties and their role
• Risk and fraud considerations
• The liability profile of the operator and/or the payer
• And of course as always the cost associated with performing the transactions

The different mechanisms that can be employed in triggering a remittance payment are the following:

• Cash (typically via an Agent)
  
• Bank account (usually via the Internet)
  
• Credit card (or other cards) (via the Internet)
• A mobile wallet via a mobile phone

One should consider the registration process, the confirmation, the dispute mechanisms and reversals or refunds for each of these different mechanisms when designing money remittance solutions.

Money remittance and mobile payments meet

I stumbled on a very interesting website from a money remittance perspective. Mondato (Read more here). The company provides a mechanism to compare money remittance options from one country to another. As is stated on their website, "We offer a consumer search function to enable people to find options for money transfer...". No doubt, the intention is to provide services in the money remittance space.

Now click on the newsletters in the bottom left hand corner. The company provides a regular newsletter with well researched information. Some of the topics:

• Android and Mobile Value Transfer
• Hey, that phone owes me $50
• Opportunity assessment: Mobile financial services market
• Obopay and the evolution of global, mobile money

It seems that people that provide information to assist workers to find cheaper mechanisms to remit money are extremely interested in mobile payments...