Differentiation of online services

I enjoyed reading the findings of a recent Gartner research report on online banking services. Gartner surveyed almost 4 000 consumers in the UK and the US. The findings ring true to what we are seeing in the industry. One of the findings (in my opinion) do have specific implications for banks. In the report Stessa is quoted as saying: "As consumer adoption of online banking increases, banks are searching for ways to differentiate their services while maximizing the cost-effectiveness of self-service channels". Banks will have to spend more time to ensure that their offerings cater for very specific needs of consumers and will have to keep on adapting these services as they learn more about their customers. While the research was focused on Internet banking, many of the findings can most definitely be made applicable to mobile banking too.

This insight must surely challenge the trend to outsource online banking to third parties and for banks to offer online banking services on the same platform as many other banks. If banks really intend to compete and win customers from others, it is essential that they should have more control over the features, security and functionality of their online services. This in my mind is indicative of a need for an online banking platform (with much more in-house control) than a managed service. Banking is evolving to a state where a customer's online access to the bank is a key competitive capability.

Four (or five?) phases of mobile banking

Some time ago, I postulated that bank adoption of mobile banking can be traced through five stages. (Read here). Recently, I saw that Diarmuid Mallon (from Sybase) have reduced the phases to four in his suggested route for banks. (Read here). By carefully studying the two approaches it is actually possible to map the two to each other and then find many similarities in the two models.

Notwithstanding this, my view is that the two models are significantly different. This is because of two fundamentally different ways of looking at the problem. Diarmuid describes the four phases predominantly in terms of how the consumer behaviour will change. It is an approach where the bank takes on the role of educating the consumer to ultimately have access to a sophisticated mobile banking platform. Thus he describes phases starting when (for instance), ".. consumers are fully engaged".

My model (on the other hand) describe a route through the five phases where the bank has to change and all of the internal challenges related to accepting a fundamentally new approach to banking. It is actually not the customer that has to change, but bank management and internal approaches and business processes and this often takes time. If mobile banking were to be launched with a big bang, customers will gladly adopt. It is the structures and processes in the bank that will have difficulty.

It seems to me that we are talking of two fundamentally different models.

Wearable computers and mobile banking

I enjoy seeing and reading about the research being conducted by Pattie Maes and her group from the MIT Media Lab. The Sixth Sense project shows what is possible with wearable computers. This means that computers and "computer-driven" devices like projectors and cameras are hooked up on your body to more directly interact with your actions and behavior. In a recent article on Read Write Web, Richard MacManus warns: "Look out mobile phones, because in a decade's time wearable systems may be the primary means of accessing the Web!". Which made me think: what is it about phones that makes them different to computers to access the web? and the obvious answer is identity - your phone number (or your MSISDN), which is the fundamental reason why phones are so good as a payment device.

So if in a decade we are going to "wear" our computers, where will we put the identity module and how will proximity (NFC) payments work? Would that mean an implant? Would it mean that the most important module that we put on in the morning is our identity chip? And would it be good enough to just slip it in our pocket? Maybe the majority of us would prefer to wear it like a watch? One think is for certain, the entity that issue this identity module will be very powerful in the new world.

Macro economic impacts of mobile banking

I found a recent article in Telecom Circle really interesting. It is a must read for any-one interested in the impact of mobile telecommunication on the macro-economics. The author quotes a number of studies showing that mobile telecommunication contributes (or could contribute) to the GDP with a growth of 0.6% for 10% growth in subscriber numbers. (I assume that this excludes the benefits of utilising the infrastructure to also deliver financial services, as many of the studies referred to excluded this benefit). In the article the benefits of delivering financial services are mentioned.

Studies have indicated that the replacement of cash with electronic payment systems will lead to direct macro-economic benefits. A white paper produced by Visa and Global Insights in 2003, found that a 10% increase in electronic payments can lead to as much as 1% growth in GDP and can directly lead to job creation. Numerous academic papers (Humphrey, Pulley and Vesala) have found potential gains as high as 3% (specifically savings) in GDP.

It seems to me (intuitively) that the simultaneous introduction of efficient electronic payment systems on top of mobile communication could lead to a spectacular growth in GDP (without almost doing anything). The indirect benefits, like the creation of jobs, increase in tax collection etc. etc. can be huge. In thinking about it, it almost seems logical that governments should force mobile operators to launch mobile banking services. (...rather than delaying it).

Homegrown mobile banking solutions

You may have noticed some months ago that CGAP listed an initiative that they supported in Mongolia in collaboration with Xac bank (see some of the announcements here). The support and the excitement generated by the visibility of this initiative enticed a number of suppliers to tender for the deployment of mobile banking in this beautiful country. I am not sure how many companies tried to get the work as we declined because Mongolia was not one of our target countries at the stage.

What was very interesting to me was when I recently saw an announcement of a new solution company, offering mobile banking solutions and using Xac bank as their first reference. This company is called: Noomadic. A little more research indicated that Noomadic is partially owned by Xac bank. Not only have the technology been deployed in Mongolia, but a new solution company has been created! While the deployment of this solution must be a great achievement, creating a solution company at the same time must be questioned. It is my believe that the development of a product and the deployment of a production system is totally two different propositions. Not only is the solution different, but also the organisation that supports a product compared to a production deployment.

Yet, this is not a new approach. The "well-now-that-we-have-deployed-the software-lets-see-if-we-can-sell-it-too" mentality is actually quite common in this industry. It is displayed regularly with not so good results in most cases. (I will not quote examples, but I am sure the reader can think of many themselves from countries like South Africa, the Philippines, US and many more). Why is it that companies think of selling the software when they should be worried about supporting a production deployment?

The m-Pesa development team

This is the one story that should have been told earlier:
"The technology behind mPesa was not built by Vodafone". Luckily the good folks at CGAP did tell the story. In short, what happened was that when Nick Hughes started to develop the concept in Vodafone, he contracted a very good engineering company called Sagentia to develop and deploy the technology for Vodafone. The way that the contract was done, even though the technology was developed by Segentia, the IP still belongs to Vodafone. It must be said that a big part of the success must be attributed to some of the excellent people working on the project (for instance Tim Murdoch).

Recently the key individuals have resigned from Sagentia and have started a new venture iCeni mobile. While little can be deduced from the website at this stage, one must expect something to get announced soon. It would be interesting to see what product and offering the ex-team from Sagentia produces.

The angle that is of interest to me is where this move puts Vodafone. The technology that drives mPesa (and that they own) should probably be supported by Sagentia. Unfortunately the key team is not employed by Sagentia anymore and have recently started an even smaller company. I wonder if Vodafone could do it again, if they would not have considered licensing the technology from a larger and dedicated company.

Competition between MMU vendors

I was quoted in a recent interview on "le paiement mobile" with Carol Realini, saying "Mobile Money community is maturing. The fierce competitive spirit between different companies in the past has been replaced with a drive for open interfaces and creating networks of benefits for all connected parties." (read more here). This is from a previous blog-entry, specifically talking about the latest MMU meeting in Barcelona.

While I am still of the opinion that the more mature companies are now starting to look for ways of collaboration and how to grow the market, this is not true of many new entrants. The provision of mobile payment solutions seem to have a magic perception to it. Everyone entering the industry (and their financial backers) believe that they have an offering that will turn the industry upside out. They start of selling the solution at a discount - often offering the solution for free (on revenue share downstream), just trying to break into the market and creating some reference. The result of this behaviour is a kind of fierce competition. Although this is not visible amongst the established vendors.

The competition between operators of mobile payment solutions seems to be growing in intensity. The behaviour of Zain (with their ZAP) product and Orange does create the perception of fierce competition. Is it possible for vendors to have a collaborative approach when their clients are competing fiercely?

Information on the Mexican mobile banking guidelines mean?

It looks as if the first press release that mentioned the Bank of Mexico guidelines was published on the 13 July was the one written by Noel Randewich and published by Reuters. (Read here). Subsequent press, added very little to the Reuters article. (Read here and here, as other examples). A search on Noel Randewich seems to indicate that he is a free lance reporter based in Mexico that have reported on many different aspects, but very little about banking. The analysis and interpretation should therefor be taken with some reservation.

The most interesting quote in these articles is the following:
"The rules stipulate measures to promote competition and inhibit possible discriminatory practices in transferring funds within a bank and from one bank to another," the Bank of Mexico (Banxico) said in a statement. This possibly means that an Operator will be forced to offer mobile banking services with every bank, or at a minimum that an Operator can not stop a bank from offering a service on the network. If any of these are true, the following should be considered:

• it is extremely short-sighted as it would take away free-market forces and the competitive incentive to launch product quickly
• it would be impossible to police as the bank have little control over the actions of the Operator, as the Operator is not governed by the financial regulator and
• it would create extremely complex technological interpretations in order to give substance to the guidelines (for instance the definition of fund transfer, the routing and clearing of transactions etc.)
  

The articles refer to a statement made by the bank on Monday, but I could not find the original statement and it is thus not possible to comment on the implications, not having had an opportunity to study the statement. I would appreciate any opportunity to see the statement and any of the supporting information.

Eradicate poverty according to Muhammad Yunus

The seventh Mandela Memorial Lecture was presented by Muhammad Yunus, the Nobel prize winner and the founder of the Grameen Bank recently. (Read more here). This was particularly meaningful to me as a South African. First, because this was a lecture in honour of Nelson Mandela (The icon of South Africa), who as Prof Yunus put it: "...inspired the whole world". Second the lecture was given by some-one that has done so much to help human kind achieve what I also believe in and that I have been working on for the past ten years. Some of the messages of the lecture rung true:

1. … those who told us it (Grameen Bank) would collapse – they collapsed.
2. ...that poverty does not lie in the person but rather is a result of systems put in place by society.
3. ...capitalism needs to evolve such that it encourages businesses that incorporate the selfless aspects of the human condition.
4. Let’s make South Africa the first county without poverty,” he said, “and let’s do it fast, let’s do it in the next 20 years,”

However, I still believe that the community based model of Grameen Bank is not really scalable and that the only way that we can truely bring financial inclusion to every-one is via mobile banking, as I have been quoted saying.

Thoughts on Heartland's end to end encryption

During January of this year Heartland Payment Systems announced a major security breach on their systems. An estimated hundred million card-numbers may have been compromised in this attack based on malicious code installed on Heartland's systems. This made a dent in the trust that ordinary consumers have of payment systems. Heartland must be congratulated that they announced the event and took immediate actions to rectify. (I am sure other events like these in other companies don't always reach the media).

Recently, Heartland CEO, Robert Carr indicated that the company is working towards the implementation of "end to end encryption". This move would enable security in Heartland's systems that are more secure than what existing standards (like EMV and PCI DSS) ensure. This is once again moves in the right direction. (One should ask the question why a major breach should first happen before the right actions are taken, but this is a topic for another time).

What is of more interest to me, is the implication of this to mobile payments. It is possible to (if done correctly) implement "end-to-end encryption" with mobile payments. This should be a major consideration for all mobile banking deployments as the cost of retrofitting this can be exuberant. The distribution of keys and the encryption algorithms all should be considered carefully as it will not only have an impact on security, but also performance and cost.

It is also important to think about all the potential attacks that mobile banking deployments should defend against. The most difficult one I believe, is to design for the path running trough the mobile operator infrastructure. It is here that the payment transaction can most easily be intercepted. It seems almost impossible to design secure mobile payment solutions without some collaboration with Mobile Operators.

Mobile Money Africa - online resource

Mobile Money Africa is a source of information about the progress with financial inclusion in Africa. (Read here). One must complement Emmanuel on pulling together the impressive advisory board with expertise ranging from US to Afghanistan. Seeing at the information is focused on Africa, it is interesting that, with the exception of Amaka Agbakoba Ofume, no Africans are on the advisory board. I know for a fact that we have many specialists and experts in this space on the continent. It would be great to consider a more representative sample of the brilliant experts in mobile banking on the continent.

For the rest, the sample of initial articles and the exposure on Twitter, interest groups on LinkedIN and search engines were very good for a new publication. Best wishes and keep up the good work.

The Kazang for Mobile Commerce

I visited the guys from Psitek this week. They are the inventors of that trusted voice access device that anyone that ever travelled to Africa would know about: the Adondo. Designed for Africa with anti-insect electronics, high temperature and humidity tolerance, their devices still ship with car-battery ready clamps. In many places in Africa, car battery power-source is the most reliable source of electricity available.

They have recently developed a new device called Kazang that I found very interesting. Once again built to withstand the realities of emerging economies, this device is ideally configured for proper Mobile Commerce, ala third world. It basically consists of a keypad, display and printer and it comes with lots of services bundled into the total package. Anyone can buy this device and start their own business selling pre-paid airtime, electricity and tickets. It can be utilised for bill payments and much more.

Clever little thing.

Announcement index and actual delivery

The deployment of mobile banking solutions is extremely difficult. This is especially true when the solution requires the deployment of a comprehensive wallet solution, as well as card issuing. These projects are often late and launch dates delayed. As the industry grows and solution providers become more experienced, this will of course improve.

What is interesting to me is the rate at which suppliers announce the intention to deploy mobile banking solutions. What is being reported on, is mostly what will be done in the future, rather than what has been done. While this is a common practice and a mechanism to ensure exposure, it should be backed up by actual delivery, which is often not the case.

I was thinking, maybe some-one should calculate an announcement index. This would be the ratio of pre-announcements vs post-announcements of the deployment of a mobile banking solution. If the ratio is less than one, it means that the company in question demonstrate a track-record of actual delivery. If the ratio is more than one, it would indicate a propensity to talk about things, but not always doing it. The higher the index, the more the talk.

Philippe Lerouge - Mobile banking pioneer

One of the great things of attending conferences is just meeting people in real life. Modern technology (Twitter, LinkedIN and Blogging) is a major tool to share information and to learn, but nothing compare to actually meeting the people behind the thoughts. I attended MP09 in Paris recently and met a number of people that I just read about in the past.

Amongst others I met Philippe Lerouge on the stand of PaybyPhone. I have scanned his blog a few times (be warned it is in French) and have spoken to him via e-mails. Now I had the time to meet him in person and to discuss some of the more intricate aspects of the industry. It was a good meeting. Philippe, I wish you luck with the new venture.

The innovation vs reliability debate for mobile banking

Any industry is created by new inventions. Consider the establishment of the motor car industry. The first cars built and sold were extremely unreliable but were brand new. The concept of a carriage without a horse was extremely innovative. After some time, the design of the car started stabilising (a vehicle with four wheels - one at each corner, with passengers in the middle). Cars started looking more and more like each other. At that stage, buyers started realising that what they actually needed was reliability. During the initial stages of an industry, innovation is a prime driving force, but as the industry matures, reliability, predictability and solid engineering grow in importance.

It is probably not correct to think of the mobile banking industry as a mature industry, but it may be important to start considering the reliability of solutions a bit more. The big emphasise on innovation and originality of ideas should be tempered with an appreciation of the importance of robustness and solid design. At some stage, decisions taken only on the basis of novelty will come back to haunt.

Even fewer independent Mobile Banking suppliers

Investments and acquisitions in the Mobile banking supplier industry during the past six months reduced the number of serious independent suppliers to a handful. With the large investment of Nokia in Obopay (remember a Nokia Executive now sits on the Obopay board), the acquisition of paybox by Sybase and now the big investment of Visa in Monitise only a few independents remain. Only Fundamo, Uthiba and a few others can still claim full Independence in this industry.

Why is it important to license technology from independent suppliers?

Lets look at a few scenarios. In the case where a customer wants to offer a solution on any handset (not just Nokia), or run on any message platform using MasterCard (for instance), the choices are now even more limited. In selecting any of the listed suppliers, a clients cannot be sure that the selection of Handset manufacturer, Credit Card supplier etc. was done in the best interest of the client. These suppliers will now inadvertently be influenced in their decisions to consider the interests of their shareholders. This is not the best place to be.

The questions is: How important is independence in this game, especially at a stage when so many changes can still be injected into the market?

The role of word-of-mouth in MFS adoption

I recently attended a discussion where the best ways to market Mobile Financial Services were discussed. Very valid ways of explaining the benefit of a new type of financial utility were mentioned. One could use Radio and printed media. Billboards and displays of the message on storefronts were also thought to be a good mechanism to sell the concept. Of course, if the budget allows for it, television is always a good marketing tool.

Experience seems to indicate that word-of-mouth almost invariably plays the biggest role in ensuring a fast roll-out. The need to engender trust in a foreign product is best accomplished by what people you trust tell you. If it is possible to get clients to start convincing prospective clients to join this works best and this is the way that a revolution is started. Some MFS operators have attempted to stimulate Word-of-Mouth campaigns by actually paying clients for signing up new clients. It turns out that the only way that it is possible to achieve a true Word-of-Mouth campaign is by delivering a product that meet the needs of clients. Actually exceeds the needs of clients.

The need for financial services in poor communities

What is it that is really needed by poor communities in as far as financial services are concerned? Do people with a low income and very little money really need financial services? Because if they do not need financial services, what are we busy with... this banking the unbanked thing. So, I thought that I would list the things that people need in communities with limited resources:

• They have the need to be able to receive remote payments electronically, without having to take a day out and to travel. Many people in poor communities need payments from families working in cities or elsewhere or use government grants as the means for subsistence. The act of receiving these payments are often expensive and complex.
• The ability to be able to save towards a target is not really available to poor people. Even if some-one cultivates the discipline, the actual mechanisms (putting cash in a bottle etc.) is not convenient or safe. Many people want to buy something big or are planning a major expense (e.g. sending their kids to university etc.). The only way that they can do this is by means of targeted savings.
• If something happens (like an accident or an unplanned expense for instance), poor people also need access to lending products.
• I do believe that poor people also need to be able to have a record of their financial transactions. This is important from a number of perspectives, but the most important is that such a transaction records will assist in financial education. It is (for instance) extremely difficult to produce and manage a budget, if no record of financial transactions exist.
  

Many studies seems to indicate that the need really exists, but what do you think?

Mobile payments' transaction costs

I recently had a discussion on what the pricing should be for mobile payment transactions. Of course, the right answer is "what the market will sustain." In other words, what is the value delivered by mobile payments to subscribers. But before this discussion can be had, one should have a crisp understanding of the cost of these type of transactions. If the price is less than the cost, delivery of the transaction will not be sustainable.

Below is a list of the different sources that will contribute to the ultimate cost of the solution. This is not comprehensive list and I would not like to put specific values to each as they tend to differ from one deployment to another, but I hope this will get the ball rolling, and stimulate further discussion:

• The first contribution is capital cost. It is impossible to offer these services without investing in systems, infrastructure and equipment. I have found that this is the cost element that is most vigorously attacked. Mobile payment operators are of the opinion that if they can cut this to the bone they will be able to deliver a cheap service. The contrary is true: spend on the installation and the rest of the cost will be lower.
• Registration costs are often bigger than expected. Preparation of registration material, the people required in support of the process and of course marketing cost all contribute to this. It may be a good idea to ensure that the subscriber pays for this.
• We have found that the biggest cost is often the cost of support. The cost of a call center, support center, people that reset errors and technical support. This is often under-estimated and sometimes escalate if the system selected is not meeting the need. This cost is a recurring cost and should be balanced with capital cost. If the right investment is made in the beginning, operational support will be much less.
• Cost elements that are often not catered for (or not properly understood), include the cost of compliance, the cost of fraud and theft, the cost of lost opportunities etc. Systems that does not work or allows loop-holes for fraudulent attacks etc. will ultimately be more expensive than others.
  

Different ways to integrate Card with Mobile

We live in a world that is controlled and dictated by credit cards - at least in the first world. It is impossible to consider a world without credit cards... no more restaurants or online purchases. But with the invention of mobile money schemes, it has become important to develop different ways of integrating credit cards with mobile phones.

The first integration that one usually sees is the connection of a card to a mobile so that alerts can be sent to the phone when the card is used.

The biggest challenge, of course, is to ensure that a credit card payment can be accepted (or received) utilising a mobile phone. Many solutions have been deployed and today mobile phone subscribers utilise their phone to pay for goods and services using credit cards - in a similar way to using your credit card on the Internet. Some solution providers have utilised different ways of making these transactions more secure and more innovations will happen.

Another approach is to issue a new type of card that is tightly integrated with the cellphone. Some of the more famous examples are Smartmoney in the Philippines and also Mobile Money in South Africa. Many more examples exist, for instance a recent announcement of Romania's Raiffeisen Bank, with a dedicated card that can be used to send money via mobile phones. (See here).

I am actually more interested in other innovative ways that a card can be integrated to a phone: Like being able to disable the card and again enable it via the mobile phone. This feature was recently announced by Veritec (they called it MTC - Mobile Toggle Card) (Read more here). I think that these type of solutions are really innovative and adds a lot of value. So are the ability to change your card PIN on the phone and to be able to link a new card on the phone. These and more functionality are all available on the Fundamo platform out of the box.

Mobile Money Summit introduces a spirit of collaboration

The number of press releases during the past three days emphasising new collaborations is an indication that the Mobile Money community is maturing. The fierce competitive spirit between different companies in the past has been replaced with a drive for open interfaces and creating networks of benefits for all connected parties.

This is a good sign and will lead to a massive growth in successful deployments and operations. By enabling the transactions generated by specific solutions to be made accessible to others the combined growth will benefit every-one. The Western Union announcements specifically is an indication of a willingness to collaborate and changes the dynamics of the different players. I would suggest that it is now important to look at mechanisms that will ensure more connections to as many players as possible.

Mobile Money Operators that do not inter-operate will become less relevant.

The sequence of financial inclusion

This must be attributed to Lawrence Yanovitch who spoke about it at the work-session that I attended at the WEF. I thought that it is a great framework for financial inclusion that I had to document it. (I have elaborated a bit on it myself). When we think of mechanisms to bring the underbanked into the banking system common wisdom usually dictated the implementation of micro lending. Mobile payments is now also something to be considered, but do we do this in conjunction with micro lending or not. And what about platforms for saving? How do they fit into this puzzle. So Lawrence suggested a sequence for financial inclusion:

1. The first component that must be provided is an effective payment system that can now be deployed by means of mobile technology. This payment system must be secure, easy to use and enable payments over a distance (money remittance). The system should support the needs of the subscriber to such a degree that a large percentage of the cash be taken up into the system.
2. This is then a logical transition to savings. With cash having been turned into electronic value, it will be easier to start offering savings products based on regular payments. These products should typically be targeted savings products with a monthly installment. Credit risk does not exist as it is a savings product, but the discipline of the subscriber to meet his/her monthly installments will be important.
3. The behaviour of a subscriber (and the history) with regards to payments and savings will provide mechanisms to start scoring credit, making the introduction of lending products easier.

So the sequence is: teach them to pay electronically, then to save and then offer them loans.

Tower Group's latest projection on mobile banking

In a recent report, the Tower Group reported that mobile banking has now become "mainstream". (Read here) In this report, it is predicted that the number of mobile banking customers will reach 10 million at the end of 2009. (I presume that this is in the US, as this number has been reached at least two years ago globally). The report also predicts 53 million by 2013.

Seeing that I know that Tower Group made such predictions previously, I thought that I would go and check it out. This is what I found:

The first time that I could find that Tower Group made any prediction was in June 2007 (Read here). According to this report 400 thousand people used mobile banking then and was expected to grow to at least 22 million by 2012 (or even higher). Then a report was produced in November 2007 (Read here) where it was predicted that a million subscribers would be reached by the end of the year with 40 million by 2012. In a quote that I saw, Tower Group indicated that the tipping point in mobile banking has been reached in 2008.

If I collate all these predictions and fill in the gaps - the predictions was pretty accurate and remained consistent. Something tells me that the current predictions will not be that off the mark.

Thinking about the ideal personal device for mobile payments

I have been using a Sony Ericsson K800 for a number of years now and it is the best camera phone that I have ever seen. The camera specs are more than good enough for my everyday needs and the user interface has been designed very cleverly. Window's based phones integrate best with my desktop for calender sync and the Blackberry is without doubt the best e-mail phone. The i-Phone is (as most would agree) best for multi-media, but not the best-best to manage e-mails or send text messages.

This makes me believe that the common wisdom that the phone will ultimately morph into everything. (Phone, GPS, Camera, Productivity, Multi-Media and Wallet), is not unnecessarily true. It may be possible to produce such a device, but the possibility exists that devices with a specific focus (this is a camera that you can phone on too, or this is a multi-media tool that you can also send e-mails on) will become more popular. If this is the case, I was wondering what a device would look like that has been designed first and foremost to be a mobile payment device and then a phone, etc. This is my take on some of the things that you would probably find on such a device:

• It would be branded in such a way to emphasise money.
• It would come standard with integrated and advanced proximity (NFC) technology
• The display would be geared towards statements (rather than multi-media)
• Advanced security components would be built into the firmware (maybe even some biometric capabilities)
• A portion of the device would be thin enough, so that it can be used at ATM's or POS's. In other words, the device can be swiped or something like that.

So what do you think?

Multi-currency in mobile payments: What does it mean?

Many vendors claim that they support multi-currency in their mobile payment/banking solutions. After giving it some thought, I was not sure what this mean. Or to put it differently, I am sure it means something different for different platforms.

I believe multi-currency support can be grouped under one of the following categories (arranged in degree of sophistication):

• No Multi-currency
• Different currency for different deployments. A specific deployment can be initialised with any of the supported currencies.
• The platform supports currency conversion transactions from one currency to another. This is implemented for transactions originating or terminating external to the mobile banking platform.
• Full support for multi-wallets with different currency, full multi-currency conversion during real-time transactions, with clearing and settlement capabilities.

It is clear that multi-currency can mean different things to different people.

Some thoughts on tax and mobile payments

I remember reading somewhere that a new fashion of clean-shaven faces emerged in Russia after one of the Tzar's started taxing beards. It is true that, while taxes are an important source of income to governments, it also impact behaviour. A number of taxation issues are relevant when considering the economic impact of mobile payments:

• Mobile payments and specifically wallets may lead to income becoming more visible and thus easier to tax. This may deter unbanked people to open wallets. It is important to consider minimum tax-brackets and mechanisms to make this visible and transparent, so that visible income should not attract tax that was not normally paid.
• Value added tax payments are a whole topic of discussion on its own. Whereas payment for goods at a merchant is a clear indication of a purchase and should therefor attract VAT (where applicable), this becomes grey for person to person (P2P) payments. The collection of and the the definition of VAT may have to be re-thought as P2P payments become prevalent.
• Taxing of electronic payments (which is quite common in many countries), adds to the cost of mobile payments. This is surely an unnecessary tax on technology that could contribute directly to economic growth

In summary, governments should consider not taxing mobile payments transactions.

Enterprise brands vs Consumer brands

Anyone interested in mobile banking and payments would agree that one is confronted by so many brands. Regional groups, small companies, great ideas, innovative products. As you start unravelling the puzzle, it becomes more and more complex and confusing. Who should you be talking to and why? What I have seen happens is that some-one new to the industry starts talking to every-one and the more they talk the more confusing things turn out to be.

So here is my advise: decide if you want to find a consumer product that you may want to use or re-brand or partner with, or if you are looking for an enterprise brand - a company that will help you to develop your own mobile banking strategy and help you deploy your own product. This is one of the first decisions that must be taken.

Consumer brands are usually somewhat regionally baised. For instance MTN banking is a Africa, Middle East brand, whereas m-Pesa is of course well-known in Kenya, while mChek is predominantly and Indian brand. These companies offer specific products to end-subscribers and they have lot to offer in terms of their actual consumer products.

On the other hand, when considering a enterprise brand, it is important to be clear about the ability of the company to support your own specific needs. You should ask yourself if they will be around in future to support and enhance your investment in mobile banking. It is important to select a company with critical mass and with good procedures in support of enterprise companies. Few of these are around.

The most dangerous companies are those with a consumer brand and trying to be enterprise solutions too. You would not know if they are helping you or competing against you.

Difference between encrypted and ordinary SMS mobile banking

The use of SMS infrastructure for mobile banking makes a lot of sense. Many deployments with this (very popular) mechanism is available in many countries. This type of mobile banking is rather easy to implement and can be accessed on any handset, in any country and with (if not low) at least predictable cost. It is relatively easy to deploy and extend and can be made available to any market within a short timeframe. As a matter of fact, the neighbour's son that recently completed that computer diploma thing, can probably do the integration.

Unfortunately, it is also basically not secure, can easily be hacked, the service is not reliable (or predictable) enough (for banking). The user experience is open for interpretation and consumer protection is therefor also difficult. Support costs and training is always a challenge.

Encrypted SMS deployments while significantly more complex solves all of the above problems. Consumers are presented with an easily understood menu on any handset (the same format as all of the other services on the handset). The solution works on any handset is available from anywhere in the world and is almost un-hackable. This type of infrastructure utilise the most advanced encryption technology (piggy-back on inherent GSM security primitives) and is the basis for most of the success stories around (including mPesa, MTN Mobile money, Smart Money and mChck).

One should be careful to distinguish between SMS mobile banking and encrypted SMS mobile banking. The only similarity is the actual carrier technology.

Do you speed up when you hear the bell?

I started working on mobile banking and payment solutions in 1999. This is now ten years ago. If someone told me that this would be a marathon, I would not have believe them. During those early years, I came to realise that this is going to be a long journey and we structured ourselves accordingly. Growing our capacity in line with the market. Today, because of this strategy we are a very healthy business and able to serve our customers well.

The question is when to really start accelerating. If it was a race, we would be listening to hear the bell indicating the final round and if we paced ourselves well, we would still have capacity to speed up. It would be interesting to debate how this bell would sound in the mobile banking race. My view is that it would be number of transacting subscribers. When this industry produces somewhere between thirty and fifty million active subscribers, the bells would go off. When this bell starts ringing it will be up to those companies with enough resources to define the new industry. We definitely intend to be in the final pack.

Some thoughts on Mastercard's P2P payment platform

MasterCard recently announced the launch of a mobile-based service for P2P transactions. (Read more here). This is a great idea and makes a lot of sense. The concept is that you register your MasterCard for the service. You could then use your phone to send money from your MasterCard to any other MasterCard. The money is merely debited from your MasterCard and credited to the receiver's MasterCard. Makes you think why nobody thought of this before.

The fact is that it has been thought of before (many times). Read about the previous attempts here, here and here. If you take some trouble you will find much more references and these are the ones that have been reported on. I do know of a few projects that were attempted but nothing was ever published about them. So what went wrong? Why is it not a roaring success?

The simple answer is: "the business case". The thing is that all MasterCard's are issued by banks on the understanding that they get paid for each transaction done with the card. This payment is a share of the merchant fee (also referred to as the interchange fee). In other words, merchants pay for every payment received by means of a card. In P2P transactions the merchant is absent and it is always difficult to find some-one to pay enough to satisfy two banks.

More about the Mzanzi Accounts

David Porteous (Bankable Frontiers) gave a very good presentation on the Mzansoi account scheme at the recent MMU summit. Although I am quite familiar with the scheme, it once again enforced a number of lessons regarding the roll-out of transformational banking. I do not have all the statistics at my fingertips, but let me summarise the scheme and then I will make some conclusions.

The Mzansi account scheme is a special type of account developed by all the major South African banks and launched at the same time by all during about 2003/2004 timeframe. The vision with this scheme was to provide a low cost bank account on a non-competitive basis that would ensure access to more people to the banking system. The program was very successful with large numbers of bank accounts being opened and the co-brand becoming well-known. However, the usage profile was quite low with one-time cash-withdrawals the primary transaction. It is also my understanding that although average revenue per account per month is about $1.50, most (all?) banks run this scheme at a loss.

What is the conclusions for mobile banking?

• First it is possible to launch transformational bank accounts (with full KYC compliance) and ensure massive take-up: especially if a need exists and proper marketing support is given.
• It is possible to generate revenue from these accounts at a level that can drive a business case, providing costs can be reduced to acceptable levels.
  
• It is important to provide additional utility (like bill payments, money transfer, airtime purchase etc.) to ensure improved loyalty and to generate additional revenue. These services can only be provided by means of mobile phones.

The Mzansi "experiment" in South Africa serves as a great case study for transformational banking and is more evidence of the need that exists at the bottom of the pyramid.

Have you seen it?

I remember the first time I read about "browsers" and "crawlers". I have never seen or used the Internet during that time (late eighties) and I did not have a clue what a browser is. The picture that I had of a browser was not even remotely what it turned out to be when I saw the Internet in action at a later stage. I was reminded again this week of the difference between learning about something and actually seeing it. It is almost amusing what models people build in their heads of what mobile wallets are and how they work. We that have seen these systems in operation have a clear understanding of how they work, what should be considered when working with them and what can go wrong.

It struck me recently that many people speak of these systems on the basis of what they have read and what others have told them. Some of these people project themselves as experts and even speak at conferences. When you hear an expert speaking about mobile wallets, do yourself a favour: Ask them this simple question: "Have you seen it".

Groupwide deals

Fundamo recently announced that they concluded a deal with MTN for the deployment of their wallet solution to all 23 country-operations in the group. Progress has been swift with ten countries already deployed and a further five in process. It has been rumoured that other large mobile operator groups are also looking at groupwide deployments of wallet solutions. The question is what makes groupwide deployments different than individual country deployments and what is required to be able to deliver on such deals.

Groupwide deployments are different to individual deployemnts and more complex because of the following reasons:

• Groupwide deployments usually require the incapsulation of some groupwide standards that must be adapted through extensions for individual countries. This is not as easy as it may seem.
• Groupwide collaboration on lessons learned, innovation and also inter-operability must be incorporated in all of the projects. This leads to a lot of project overhead.
• Commercial contracting though centrally based acquiring departments are usually significantly more complex than smaller individual contracts. Because of the size of these deals, suppliers are usually under bigger pressure with more exposure from a liability perspective. Delivery within these types of contractual frameworks are much more onerous on suppliers
• If suppliers can define groupwide blueprints and use economy of scale on these projects, deployments can be quicker and more predictable.

The deployment of Groupwide solutions are significantly more complex, but if done properly can deliver many benefits.

The five stages of Bank Adoption

Having now worked with many banks in many countries during my ten years in the industry, I believe that I now have enough raw data to postulate five phases of Bank Adoption of mobile banking. This is still theory and it would be good to test it with other experiences and this is why I am publishing it in an untested format.

The five stages of bank adoption of mobile banking is as follows:

• Phase One: Denial. During this phase the bank vehemently deny that they would ever need mobile banking. They explain why customers do not want to do transactions from silly things like mobile phones.
• Phase Two: Experimentation. A few young people in the IT department convince some managers to experiment with unimportant things like alerts. Take-up is slow especially because no marketing budget is spent on this. This fuels the opinions of skeptics.
• Phase Three: Collaboration. Marketing executives seeing that this is not going to go away start collaborating with (especially) mobile operators. Many different models for this exist, but all produce a solution partly mobile operator, partly bank. The marriage is uneasy but executives try to make it work and limited success is seen.
• Phase Four: Mainstream. The realisation suddenly dawns that it would be impossible to do banking without mobile banking. The bank starts investing heavily leveraging existing infrastructure. Existing Internet banking or ATM solutions are ported to many different types of handsets. Marketing budgets are spent on this new thing and uptake is good. The business case is however under pressure and doubts are raised regarding security
• Phase Five: Maturity. After lots of experiences banks realise that this is not a channel play, this is not an extension of classic banking, but a totally new thing. The CEO realises that many existing truths must be changed in order to grasp the full context of what mobile will do to banking. I think that this is the end state

Anyone out there that can re-enforce this theory with their own experiences?

When is an Idol an Idol?

The local version of Idols (South Africa) had an "interesting" result this month. It turned out that not all of the SMS's to vote for the winner was delivered in time. A few hundred thousand SMS's that was sent in time, was not counted as it was delivered after the cut-off time. In an unprecedented move, MNet (the local franchisee of Idols), recounted the votes and declared another Idol the Idol (read more here).

This problem was obviously a result of infrastructure somewhere that could not cope with the volumes (or something else). We that work in the infrastructure understand the complexities of routing messages through many infrastructure components in order to ultimately deliver a service to consumers of an acceptable quality. However, many single points of failure exist and problems like this (very high profile) situation can occur.

This incident made me realise again how complex it is to design a Financial System of acceptable quality that must run on such an unpredictable network. The challenges to ensure reliability (and recovery) in a real-time payment system installed in an environment that is fundamentally unstable (have many single points of failure) is huge. In many discussions that I have had in the industry, very few practitioners understand the problem, and even less have designed solutions that are able to cope in these environments.

Carol at MMT09

I had an opportunity to listen to Carol Realini's video-cast at the MMT09 event organised by Clarion in Johannesburg recently. I have always been a fan of Carol and respected her for the impact that she had in the IT industry. I was also amazed about the amount of money that she was able to raise to fund Obopay. After her presentations, I had two lasting impressions: She can talk up a storm and Obopay is struggling to define itself.

I am absolutely of the opinion that successful companies are very crisp about what they are and how they position themselves. It is extremely dangerous to be everything to everybody. This is why the Obopay story was so confusing. Carol projected a company that will be delivering solutions in emerging economies and in the first world, a company that is open to contract on commercial terms that is anything (from licensing to ASP or revenue share). According to my understanding, Obopay can be a consumer brand or a technology brand. I am sure she said that she would be happy to partner with banks or with mobile operators, while she wants to bank a billion unbanked subscribers she will also go after the existing banked market-segment. And more.

This means that it is difficult for her to fit into the eco-system as one does not know if Obopay is competing or collaborating... and what Obopay may decide to be tomorrow. Maybe this is what happens if you have millions of dollars to spend.

The importance of Identity

A lot has been said and more written about "identity theft". We all also know it is not as if some-one "stole" your identity. It is more about someone collecting enough information about you to be able to represent you for a specific purpose. I found this article about identity written by Robert Siciliano particularly stimulating.

The differences between verification and authentication was also very interesting as this has a direct implication in the deployment of mobile banking and refers to the two most complex problems that must be solved in deploying an effective mobile banking solution:

Authentication is about the first step in setting up a mobile banking account. During the registration process it is preferable to authenticate the account holder. This is usually done by comparing a photo-ID with the person (or sometimes with a realtime image of the person). Mobile banking applications not doing a proper authentication of the subscriber runs a number of risks (from regulation to fraudulent transactions). The best way to do this is by means of some biometric data (picture of the face)

At the time of each transaction, a mobile banking solution should verify the subscriber. This is usually done by a combination of a certificate and secret information. This certificate and secret information should have been connected to the subscriber's identity during authentication.

The degree of rigour utilised in designing mobile banking solutions will help defend against identity theft.

Mobile banking patents

The number of patents that have been lodged to claim ownership of the concept of using a mobile phone to make a payment is staggering. Because this is important to me, I have tried to stay on top of any Intellectual Property claim that is made in this space, and I am amazed. Maybe because it is sheer magic to see a payment transaction being performed by means of a hand-held device that makes people think they own the concept.

It is unlikely that any of the overall claims regarding mobile payments will ever stand the test of proper patentability. The concept is too generic and obvious (?). Also some of the existing prior art (that has been tested in court) did not stand up to scrutiny. (the Vazvan patent). I am much more interested in the claims that is being made of inventions that are closely related to mobile payments. As the industry and the technology starts to mature, it is likely that some of these patents will become much more relevant.

A Framework for Compliance

We at Fundamo have worked hard over the past ten years to find a mechanism to ensure that our clients' deployments comply with local banking regulations. During this time, we developed significant collateral that we refined with each new deployment. We produced a substantial document with a clever model to assist our clients to ensure compliance. We have called it a Framework for Compliance.

During the recent WWU worksession organised by the GSMA, we made a number of aspects of this framework available to everybody. This was done because we believed that general access to this information by all, will improve the industry's ability to comply. It will also demonstrate that the industry has a genuine drive to find ways to comply. While others may be surprised that this intellectual property was made available, we believe that it will improve the general capability of the industry for everybody to benefit.

Aspects of the framework will appear on Fundamo's website soon and players in the industry will be welcome to download this compliance framework.

MPI as a new regulatory entity?

Since the growth of Micro Finance Institutes (MFI's) in many parts of the world, new regulatory bodies were established to regulate Micro Finance. It was (wisely) recognised that existing regulation and control for lending products cannot be made applicable (as-is) to the micro-lending industry. The much more smaller amounts and a risk profile very different to traditional mainstream lending products necesitated a new thinking. The format of regulatory bodies for MFI's are diffirent from one country to another, but many similarities exist.

As we are grapling with mobile payments, money transfer and providing banking services to the underbanked, one should consider a new category of Financial Services. At the same time it may be advisable to establish a new regulatory dispensation (with different rules and applications), to not only govern these financial services, but also facilitate the growth of the industry. The question is, will central banks and national regulators be bold enough to do this?

Card number or Cellphone number

Here is a question:
" When requesting some-one to send you money via a mobile payment schema, would you want them to send it to your card-number or your cell-phone number?" What is the most suitable routing number for a mobile payment?

If we were to pose this question to consumers, I am sure that the majority would pick a cell-phone number. Using a cellphone number as a target number for mobile payments will also be more secure as it would not compromise a card number (which, if it falls in the wrong hands, can be used for fraudulent transactions).

This means that, if we were to deploy a P2P solution based on credit (or debit) cards, a mapping between the cellphone number and a card number will have to be maintained. An interesting question for me is who should ideally be in charge of this mapping table: a bank, the mobile operator or the card association?

Feedback from MMU worksession

Gavin and his team is doing an amazing job at making sure that the mobile money initiative retain the momentum that it currently enjoys. The Worksessions organised by the GSMA is a critical instrument in making sure that the industry develops into a sustainable environment for all participants in the eco-system.

During the recent worksession held at the Mount Nelson in Cape Town, the following insights struck me:

• The complexity associated with the establishment of a viable agent network. It is critical that the micro-economics of a typical agent be designed in such a way that it is sustainable for prospective agents.
• The mZanzi initiative of South African banks to sign-up millions of account holders offers many answers. Dave Porteous' presentation on this topic was very informative
• Regulatory dispensations are well understood by the experts and should not be the hurdle experienced by many. However, a lot of work must still be done to ensure that it is understood better by all.