Insights from the Mobile World Congress

This was again a few hectic days in Barcelona during February. The pace was frenetic, the business dinners till late at night and the attendance a record figure. It was a time to see old friends (that has been coming to this event for ten years), but also an opportunity to meet new once. Many of the truths of our industry was re-inforced, but some were shattered (as always).

It was the same as all the previous years, or was it?

As far as mobile financial services were concerned this year's congress was a watershed. This industry can now truly be counted as one of the cornerstones of this industry. Mobile Financial Services (MFS) was treated on an equal foot to handset manufacturers, billing systems and antenna designers. Mobile banking organisations received three of the twenty GSMA awards during the event and a very well-attending MFS session was arranged. While the dedicated MFS space for exhibitors were not that well subscribed (many of the suppliers exhibited in conjunction with other suppliers in other halls), the traffic at these stands were high.

What was also interesting was the number of "pure" financial services companies that were present at the event. Both Western Union and VISA had a very visible presence and many other players could also be seen. While this is an event organised by telco's for telco's, the banking participants were welcomed at the event - with some even sharing the stage to tell about their experiences and lessons learned.

Many press releases also indicated a level of activity (more about this in another blog).

The success stories of wallet deployments also seem to indicate that while mPesa was a pioneer, this is not the only player anymore that have cracked the problem of a successful roll-out.

Rural Bankers Association traking banking to the next level

The Rural Bankers Association of the Philippines (RBAP) is an association of banks with the objective of bringing the benefits of the economic system to increasing numbers of rural customers through a strong, responsive rural banking system. This association is older than fifty years and have a track record of working effectively to improve the conditions of millions of people living in the rural areas of the Philippines. As such, this association is ideally placed to leverage the benefits that mobile banking bring. And this is exactly what the association is doing.

Working closely with Globe and their GCash product, the RBAP effectively increased cash-in and cash-out points to more than 18 000. In conjunction with GCash, this association developed a number of specific products that can be used by their members to facilitate payments and rudimentary banking transactions. By working with GCash, both the mobile payment provider and the bank association are seeing benefits.

These actions have lead to and increase of 45% in mobile phone banking transactions within the rural banking sector. The cumulative amount of mobile phone banking transactions in the accredited rural banks already exceed 5 billion pesos. This is a great example of how a mobile banking platform can assist associations with an objective to bring effective banking services to the poor.

Mobile banking projects are like marriages

I always wanted to write this blog, but was worried that it would be understood in the wrong way, but here we go. I have had insight into many mobile banking projects (both those done by us at Fundamo, as well as our competitors - some that I have a lot f respect for). I have come to the conclusion that all of these projects are like marriages: many problems are resolved (and some not even), but nobody talks about them. These projects are presented to the outside world as being totally harmonious.

Mobile banking projects are extremely complex affairs, predominantly because it touches so many different parties. (The eco-system is very complex). Because of this, these projects are confronted by many instances where relationships between the different parties are tense. It is projects that tackle all of these issues and resolve them that ultimately deploy successfully. Strong partnerships often emerge because of the problems resolved by all parties involved. Yet, few people talk about the challenges after the fact.

The problem with this situation, is that newly weds expect a blissful relationship. New mobile banking projects often falter because the complexity are often under-estimated. It is important to tackle mobile banking projects with experienced counsellors, failing this, these projects could end up in divorce.

Credit Cards in the Mobile Payment eco-system

Many mobile payment solutions claim to integrate to credit card systems. The examples are myriad and it is very difficult to evaluate the different solutions with each other. "Front-ending" credit cards with mobile devices can unfortunately present itself in many different ways, with different implications, risk profiles and business applications. In order to try and bring some clarity to the many different schemes, I have defined the following three categories:

• Mobile payment systems acting as a new acquiring mechanism. This type of integration is the most common with many examples. The solution enable the mobile payment provider to accept payment from participants by allowing them to enter card-number into mobile phones. (or sometimes allowing for a pre-registration). These systems usually act as a merchant, super merchant or an acquiring bank and does not involve the issuer at all. The risk associated with card not present transactions should be mitigated in these type of solutions.
  
• Mobile payment systems adding utility to existing issued cards. These systems usually augment existing card issuers by providing for mechanisms (outside of the card domain), to increase security. Applications include alerting services and the delivery of dual factor authentications tokens. These solutions can only be deployed with full collaboration (or ownership) from the issuers.
  
• Virtual cards being utilised within a mobile payment application. These type of solutions allows for the issuing of a "virtual card number" that is associated with a specific mobile phone. Transactions originating from the phone (and not traditional POS or ATM's) can be performed by these solutions. Very specific niche applications are usually approached by these systems with full support from a specific sponsoring bank (in the role of issuer).
  
• New innovations that can not be classified into existing card scenarios. These applications hook onto credit card systems in proprietary ways to offer improved security or more transactional capability. Examples are systems supporting money remittance through dual cards, or new types of transactions, or implementations of Secured by VISA (for instance).

It is important to have clarity on the different approaches when looking for a mobile payment solutions as not all systems will solve a specific problem.

AT&T mobile banking iPhone application

One of the fun things of writing this blog is the right to change my mind. I have been quite critical of the Qualcomm acquisition of Firethorn in the past (read here), but a recent tit bit of information made me sit up and think. It seems that the Firethorn solution has morphed into a fully functional banking portal according to the site appletrendz (read here).

According to this website, an application for the iPhone (running on AT&T) exists (developed by Firethorn). This application allows access to thousands (yes thousands) of different financial institutions from the iPhone through the same interface. As a matter of fact, it seems as if it is possible to access more than one institutions' information on the same application at the same time. The list of features and functions available also seems to be quite extensive. The information available on this site raises a number of questions:

• What is the business model for this service? Can it be provided in a commercially sound way and is it therefore sustainable?
• How are the usernames and passwords secured (to allow login to all these thousands of financial institutions). My understanding is that access can be made with the AT&T six digit PIN only. Does this mean that bank login information is stored somewhere? Who is liable when this storage is compromised?
• What is the competitive advantage of this service over the dedicated service available from each individual bank? How does the banks feel about this service? Do they see it as a threat?

Interesting implications, but well done to Firethorn.

SMS banking is not as simple as it sounds

While it is quite common to talk about mobile banking, it seems that "SMS banking" i9s a term that is used by quite a number of professionals. SMS banking seems to be the categorisation of any interaction with banking services via mobile phone making use of SMS's. SMS banking does not use any menu's, downloadable applications or other types of bearer channels (like USSD).

If this is the definition of SMS banking, I would like to suggest that a number of sub-categories exist within the main category of SMS banking:

• Mobile terminating SMS banking would be a class of services that sends SMS messages to the subscriber. Alerting services are typical examples of such services.
• Mobile originating SMS banking would be all of the services that can be implemented by allowing a subscriber to send a SMS to a short-number. The SMS would have a special code and the banking server would respond according to the code in the message. It is possible to distinguish between different types of banking services under this heading:

1. Simple enquiry services (e.g. sending "BAL" to a number and getting the balance delivered to the phone.
2. More complex transaction services. More than one SMS and completing a more complex transaction through a number of "chained" SMS's. The system maintains a state to ensure that different SMS's can be concatenated. (e.g. to pay an account by requesting the outstanding amount and then confirming payment)
3. Combination of SMS transactions with other channels. (e.g. a SMS-based payment request, secured by means of a IVR prompt)

It is clear that SMS banking is not as simple as it sounds and would require very capable professionals to deploy properly.

Egypt regulatory changes can stimulate mobile banking

The Egyptian Financial Supervisory Authority (EFSA) was established last year and brings several regulatory bodies under one umbrella. In an article in the Daily News of Egypt (Read here), the establishment of this body was described as looking after "non-bank" financial products.

Launching mobile financial products as "non-banking" products have been tried before. An approach that I have seen is to offer a mobile wallet as a mechanism to manage investments (rather than savings). This would enable a mobile wallet to be seen as a "non-banking" product and thus could be regulated by an organisation similar to EFSA. A customer would be able to place cash into an investment product and to withdraw from such an investment again utilising a mobile phone. The usual challenges with such an approach is access to other clearing switches (most notably payment systems and ATM switches).

Fortunately the article ends with an afterthought: that the Egyptian Central Bank is finishing final work on a regulatory framework for money remittances and that this will be available soon. The relevance of this paragraph in the article is interesting.

Bringing finace to Pakistan's poor: lessons for other regions?

"Imagine your life if you had no access to banks, ATMs, credit cards, or savings and checking accounts -- just cash that you needed to hide or carry around. It would be hard to save, plan, get ahead, take chances, or feel secure". This is a quote from a CNN article. In the article information related to the Telenor product EasyPaisa (recently launched in Pakistan) is given.

Pakistan is a very big country. This is the second most populous Islam country (after Indonesia). The people of Pakistan are very hard working with an ingrained entrepreneurial spirit. One sees small merchants everywhere and trading is commonplace. The launch of EasyPaisa should be seen in this context and some of the comparisons with mPesa are very insightful:

• Pakistan is significantly larger than Kenya (180 to about 40 million people). Safaricom is the dominant mobile operator with a market share in access of 70%, whereas Pakistan is highly competitive with five incumbent operators.
  
• EasyPaisa is a product launched by a bank (owned by the mobile operator - the operator bought a bank in order to launch the product), whereas mPesa is a product launched by a mobile operator. mPesa is not positioned as a banking product, wheras EasyPaisa's objective is to open a bank account (with savings capability) for every subscriber.
  
• EasyPaisa started with a few simple products that could only be serviced by agents. This enabled them to grow, motivate and train the agent network, prior to the launch of the banking product aimed at individuals. According to the article, Telenor has 150 000 merchants to convert to a target of 20 000 agents within a year. mPesa currently supports more than 10 000 agents.

It would be interesting to see the Pakistan service expand and grow and to learn new lessons in a country with distinct differences.

An Android re-take on security for mobile money applications

Financial payment applications are a unique breed of applications. These are the applications installed in the ATM's on the chip in your EMV cards and running on chips in Point of Sale machines. These applications manages and sits at the heart of the fibre of electronic payments. Without them, retail operations, cash dispensing, electronic bill payment and many more essential functions would not be possible.

In order to ensure a safe, secure and predictable environment, these applications should be tamper-proof, well identified (signed), well tested and understood. These applications are always certified by an independent body and many external controls are built into the system to ensure integrity and balance.

It is most likely that mobile phones will be used to perform many of these payment functions (retail payments, cash disbursement etc.). As a matter of fact, mobile phones would be doing the bulk of these transactions as well as payment transactions that were never possible before. Utilising applications on mobile phones that break down the principles needed for security, predictability and transparency is dangerous and irresponsible to say the least.

The Android operating system is probably the most open operating system for mobile phones today with extremely rich features. With Android it is now possible for anyone to build applications and trick others to load it on their phone. These applications (quite unique to Android) can easily be loaded on the phone in a (relatively) uncontrolled way, can run in the background (unique to Android), can interact with applications residing on other devices (remote from the actual phone) and can launch other applications (unique to Android) with no information to the consumer.

I am not the best hacker that I know, but I can tell you this: Android is the perfect platform to build the perfect application with ill intent, and those applications will be built.

The big pity is that a few unfortunate incidents created in this way, will lead to immeasurable damage to the trust in mobile money solutions in the eye of the man in the street.

Mobile money a potential conduit for criminal activities

One of the biggest stumbling blocks for mobile money deployments is the regulatory controls designed to ensure that mobile money are not to be used for criminal activities. (By criminal activities it is meant funding of terrorism, money laundering and application of money collected in illegal ways). This is way the need exists to know with a high degree of certainty who did what transaction.

The result of this "need to know who did what transaction" got translated into a dreaded three-letter word: KYC (Know your customer). Anyone that have done a serious (and legal) mobile money deployment will tell you that KYC requirements and compliance are probably the biggest challenge. Without the need for KYC, many deployments would be much easier, less expensive and will be more effective in bringing financial services to the people that need it.

Many people are of the opinion that the level of rigour prescribed are not in line with the risk that is being mitigated. The fact that a poor person in Africa cannot have a mobile money wallet, because he/she does not have a proper ID-document (or proof of residence) is a shame and does very little to help the world fight organised crime and terrorism.

I have became a fan of Dave Birch's thoughts recently and one should read a recent blogpost on this topic. His recommendation makes a lot of sense:

"My suggestion is that we fix on 500 euros as the breakpoint. People should be allowed prepaid cards, prepaid accounts, money transfer accounts or whatever with no identification provided that the maximum balance is limited to 500 euros (it is currently 150 euros) and a maximum annual turnover over 10,000 euros (it is currently 2,500 euros). This will lower costs and ease accessibility -- I might even go and get an O2 Money card -- thus achieving a variety of goals including social inclusion and reduced transaction costs for the poor."

Massive barriers still exist for NFC payments

I really respect individuals that are prepared to say things the way they see it and not the way that they think people want to hear it. In a recent article Sandy Shen, a research director for Gartner made very valid points (that I think should be made - even thought these may be unpopular).

It seems that consumers really like NFC payments and that they would want to have this deployed quickly. The ease of use and the intuitive application seems to be exactly what consumers want, but huge barriers still exist before this will be a viable solution.

• It is unclear how the business case would work for the deployment of NFC payments, or as Sandy described it: "...that there is no convincing business case for either banks or mobile phone operators,"
• Availability of handsets remains a significant problem. Estimates of the number of handsets that will be NFC enabled keeps declining year by year. Sandy says: “The handset vendors are sitting on the sidelines to see how the market will pick up.”
• Lastly the perceived security remains a big stumbling block.
  

It is important that these constraints be highlighted in order to deploy solutions that are viable and that are based on a workable business case.

The importance of researching mobile money markets

Many people representing many different organisations are working extremely hard at building a new world off mobile financial services. The operators of mobile payment services, mobile network operators, banks and regulators all have dedicated staff that are very committed to mobile money initiatives. Engineers and architects working for vendors (like our dedicated people at Fundamo) also contribute to the shared vision.

Yet, people that perform an essential role in growing this industry are often overlooked. These are the analysts and researchers that observe, measure and give feedback to the practitioners. Without their efforts, it would be impossible to motivate sales, investment and regulatory changes. If we are not able to point to improvements, growth and successes, this industry would die. Similarly, we also have to be accurate at what has been done wrong. It is analysts that help us do this.

Many organisation do stirling work in this regard. I am thinking of institutions like the Finmark Trust, MicroSave and Bankable Frontiers. This article has been triggered by the excellent work being done by the guys at CGAP. Mark, Ignacio (who is now at the Gates Foundation), Jim and all the rest; keep up the good work.

Andriod spells the end of secure mobile payments

When Android was announced as an operating system (eighteen months ago), I predicted that that it could lead to serious security attacks (Read the last paragraph in my blog). In a recent (much publicised) incident, this is exactly what happened. A rouge application that utilise phishing techniques to steal banking details appeared for Android-based mobile phones. While this is the first known incident, expect many more to follow. Android as an operating system is just ideal for developing applications with ill intent.

I believe that there are two sides to this story:

a. This is the end of the promise of secure mobile banking (at least on Android-driven) phones. All the potential of not repeating the challenges of browser-based banking has now disappeared. Developers of mobile banking solutions (and operational executives) will have to consider this reality whenever they launch products or design business processes.

b. Android is here to stay. It is a reality that we as mobile banking professionals will have to live with. It is important that solutions are designed in such a way so as to take cognisance of the holes in Android, but more importantly: that consumers are educated on how to work with necessary new security mechanisms (like memorable items)

Will electronic money replace cash...ever?

A recent discussion on one of the LinkedIn discussion groups initiated by Meneke made some fascinating points on the possibility of cash ever getting replaced by mobile money (Read here). I was a bit late in contributing to the discussion and when I wanted to, all has been said. yet, the discussion made me think about the topic. This discussion was followed up with a panel discussion where more thoughts were shared. The proceedings of this discussion is documented here. One should also read what Dave Birch has to say on the topic (Read here). The points that he makes and the way that he does it is always entertaining. One should also read the many other articles and opinions published on the Internet on this topic (For instance here).

The most important consideration for this discussion is to realise that less than 5% of actual money supply is actually represented by physical cash. A very small percentage of money is utilised for retail payment transactions. Whereas the demise of cash will mean a significant change in the total value of money, it would have a small impact on electronic money. The majority of the world's money is electronic anyhow (already). Electronic money is used for big item transactions (investment, funding transactions, foreign currency etc.) as well as retail transactions (cards and mobile payments). A move to totally replace physical cash will be a very small move (say an increase in 2 to 3%). I believe that this is quite possible and can happen swiftly.

Much of the discussions on the LinkedIn group was on ways to make this happen (user confidence, ease of use, acceptance, fraud etc.). If we figure out how to offer consumers an electronic way to pay while considering these imperatives, electronic payments would start to dominate cash easily. Mobile payments (if implemented correctly), is the only way to address the valid constraints. Mobile payments will ultimately lead to the elimination of cash.

Mobile payment lessons to be learned from Casino's

Many of the more innovative mobile payment solutions that have been launched recently have much in common with Casino's. We have seen a plethora of new and exciting mobile payment solutions in South Africa during the past two months. (This does not make South Africa unique as people keep on innovating in this area). Two of the more recent products launched in South Africa are Mowaly (Read here) and Ammomobile (Read here). Both of these (as is the case with many similar solutions) acquire their own merchants. In other words, you can only pay with Mowaly or Ammo at outlets that have specifically been contracted. This is probably the biggest challenge to profitability of these type of deployments.

The characteristics that I find most interesting is that often these solutions turn into float-solutions. This means that if you have funded your wallet, you cannot cash the money back. You have to spend it (or pass it on to some-one else). Turning value into money have all kinds of ramifications and these solutions often limit the subscriber's ability to get the cash back for what has been deposited. This reminds me of Casino's where the ammunition is not cash, but chips. When entering a Casino, one would deposit cash in exchange for chips. This is very similar to the said mobile payment schemes. Only difference, with Casino's one can cash the chips in for cash.

Strikes may be a way to drive mobile banking take-up

Mobile banking take-up has been quite satisfactory in most instances that I have been involved. It seems as if consumers see the benefits of having access to their financial matters by means of a personal mobile device.

Yet, most banks and mobile banking operators are looking at ways to increase uptake and transaction volumes. This is often stimulated by means of special offerings, an increase in promotional activities and the provision of additional features.

Finextra recently reported on a planned strike of financial services staff in Finland (Read here). The report seems to indicate that Finnish banks expect a growth in the usage of online services during the strike. This is a very positive side-effect of a strike I think. By withdrawing expensive services (and not having them available for a period - as if the bank is coping with a strike), consumers are in essence forced to use (the more effective) electronic channels.

Strikes (or temporarily withdrawal) of services in branches may be the most effective way to stimulate the uptake of mobile banking.... Just a wild thought.

Will large banks license enterprise mobile banking solutions?

Citibank recently discontinue a pilot with a mobile banking vendor. The pilot was intended to show how the bank could utilise mobile banking platform as a service. Many offerings exist today (in most countries and on all continents) where banks can contract mobile banking as a service. This is attractive in many ways as it ensures that some-one else must focus on a the complexer operational issues. Also, this approach (while sharing downstream recurring revenue) requires less capital in the beginning.

Why would a bank then consider licensing their own enterprise solution? The reason for this is more control, more competitive advantage and more options. It is clear that the mobile channel (in most markets and for most sectors) will grow in importance. This will be the primary way that banks will interact with their customers. This will be their prime touchpoint, the way that their clients will experience the bank's brand. By embracing mobile banking, banks will be able to operate much closer to their clients.

It seems almost inconceivable that banks should outsource mobile banking.

Mobile Money in Europe set to take off

As is the case with most lasting changes, mobile money is not replacing cash in one fell swoop. While things do take time and it is often experienced as very slow, this change is only slow in terms of the perception. Replacing cash with electronic payment mechanisms (many of them based on the mobile phone) is an unstoppable force that will fundamentally change the way that we pay.

Once again, another proof-point can be found in a recent study conducted by Frost and Sullivan (Read here). According to this study the Western European mobile money market is set to take off and will be worth up to EUR5 billion by 2013. The report highlights the fact that it is both mobile operators and banks that are getting involved with mobile money and this time they are serious. They follow evolutionary strategies where consumers are given rudimentary services first - to get them comfortable with the concept. Over time, the services are getting more and more sophisticated and will gather more subscribers according to the research.

It seems as if mobile money is now turning into a run-away train: as it gains momentum it becomes virtually impossible to stop. I suppose the lesson here is that one should rather get on the train, while the speed is not too big. Comes a time when it will not be possible to get on.

Exponential growth in US mobile banking activities reported

I keep press releases that I find interesting to blog about in a special folder. Sometimes I don't get to them and then I have to throw them away because they expire. However, I looked at this press release by Mercator (dated July 2009) (read here), and I felt that the message is still fresh and relevant.

The report refers to the comparison between two consumer research assignments conducted in May 2008 and June 2009. With two report one year apart, it is possible to draw some conclusions on changes in behaviour. The report concludes (amongst others) "exponential growth seen among the younger generations" in using their mobile for banking and also payments. The big growth in numbers reporting that they now use their mobile to also pay and transfer money (I believe) is really significant. If the reported growth is to be projected to today, close to half of the US population in the age-group below twenty-five are using their mobiles for financial services.

Anybody in banking not taking this seriously should be fired.

Mobile payments square up with iPhone applications

This is one of these sexy announcements that everybody picked-up on. I had to swim through an avalanche of alerts, e-mails and tweets to be told: "Twitter founder's new venture is shaping up" (Read here). And then one is told how this new invention (called Square) will revolutionise payments forever. You cannot be serious!

See, what Square will do, it will turn your card info (also the track 2 data, that is not visible on the card) into a sound. The Square device is plugged into the ear-phone socket on an iPhone. The invisible information on your card is now audible!

I can just imaging a number of applications that will be so much easier to write, like fraudulent capture of card information at restaurants, or the storage of card information to be re-played later (after a valid transaction had happened.) I am sure that one can think of more applications where the Square could be used to steal money.

A better name for the Square could have been Hole, as it creates a massive hole in the well-defined security dispensation for magnetic stripe cards.

Mobile banking receives criticism too

Twitter is such a good tool to be connected to what is happening in the real world. What is great about it, is that one can read the messages of people that you do not even follow. I recently saw the following two tweets (from people I do not know at all):

"Chase Mobile Banking Alerts are always late. I get deposit alerts two-three days after they go in. Might as well send me an alert via mail."
"Seriously, Bank of America, why do you have a mobile banking app if it's not going to reflect the correct information?"

and I am sure that there are many others. I find criticising tweets of mobile banking very interesting. Not only does it show that people are starting to use the service, but that they are also developing levels of expectation of what the service should include.

Card Association certification of mobile payment schemes

Using mobile phones to secure card-not-present transactions have been announced frequently. This is probably one of the areas in payment where innovation is rife. Anyone that have experienced the inconvenience of a stolen card and this card then being used for fraudulent transactions on the Internet will appreciate the advantage of using mobile phones in this way.

This blog is not about the many attempts to secure card payments in a proprietary way - and many examples exist - but about the fact that the card associations now seem to be certifying some of these solutions. I think that this is a major step forward with significant implications. The fact that unique payment solutions (some of these being very different to what we generally would have done) now get Credit Card Association endorsement or even licensing is indeed very interesting.

While quite a few of these examples can be found (one that we at Fundamo are intimately involved with), I would like to just quote two:

• Mastercard recently announced their Chip Authentication Program (CAP) which allows for a One Time Password (OTP) to be generated by a phone (Read here). This means that someone can use a card on the Internet with a OTP that has been generated by their mobile. This is quite interesting as merchants can validate the OTP for a specific transaction. Security is much higher and the computing power of the phone is utilised well.
  
• The mCheck solution deployed on Airtel in India is also an interesting case study.(Read here). While I do not know the detailed architecture of the solution, it is my understanding that the encryption capabilities of the SIM card is used to good effect to secure an ordinary Credit Card transaction. This is solution is endorsed by VISA, even though it is very specific to mCheck.

This approach, while commendable, may lead to a situation where so many acceptable schemes are available that it becomes extremely difficult to keep track of legal mechanisms. The allocation of liabilities may also not always be clear to the uninformed. The proliferation of different Credit Card Schemas could lead to some problems.

The technical requirements for interconnected mobile banking

This posting is an attempt at listing the key technical requirements that must be present in order for two mobile banking systems to be able to inter-connect. This means the ability of a subscriber in one system to be able to send money (preferably in real-time) to another subscriber on the other system.

Both systems must be able to do the following:

• Adhere to the same message routing strategies. It is essential that the payment instruction issued on the one system should travel to the correct destination system and then that the actual target account be identified. This is not a simple problem as the routing should cater for multiple accounts associated with the same telephone number. Banking systems use the concept of a BIN to route payment systems, Telco systems use international dialing codes and operator codes (or look-up tables if number portability has been implemented). Which one of the two should banking systems use?
• A mechanism to clear the transaction and ultimately settle the transfers must be implemented in the same way by both systems. This is not a trivial issue as clearing and settlement creates all kinds of liabilities that must be analysed properly and catered for in the selected system. Reconciliation and detection (and correction) of discrepancies are also important.
• One of the most difficult interconnect problems is the schema for the management of uncompleted transactions. This type of situation would occur when the originating system did not get a confirmation nor a decline message from the destination system. The resolution of such conflicts are extremely complex. The design of roll-backs, pending transactions etc. is not trivial.
• Reporting systems must be agreed on.
• Technical handshakes, unavailability of one of the systems and consideration like load management (because of the potential huge volumes) must be well defined in order for the solution to work.

In my interaction with industry specialists and technical suppliers, it is my perception that this problem is not understood well at all. Very few companies have the experience and expertise to design and build such systems.

The popularity of Mobile Banking Worms

I found Twitter to be one of the best sources of information. I am constantly logged into the service (either by means of my PC or iPhone). One of the streams that I track is a search on the keyword "mobile banking".

On the 24th of November the Twitter search stream filled up with the following news item: "New Worm Attacks iPhones, Targets Mobile Banking ". I think that this Tweet was re-tweeted probably hundred times. In reading the associated press (here), it is clear that this is probably a no-event. The attack focused on clients of ING in the Netherlands and only if the subscriber's iPhone has been jailbroken. The target community for this attack is probably less than ten phones.

So why is it that people find this article so interesting. I believe it is because of the following reasons:

• Anything related to an iPhone is news
• The potential risk associated with remote banking is always interesting. It seems that security and how it can be penetrated is always newsworthy.
• And then, could it be that mobile banking is also of sufficient interest that people want to hear about it.
  

What is it: Interoperable or interconnected mobile payments?

One of the biggest benefits that I have because of the wide readership that I have, is the interaction that I have from valued readers of the blog. The comments that I receive are so valuable and I would like to thank everyone that respond to my attempts at publishing something worthwhile. I received an e-mail from a good friend on my latest entry. I will quote a short paragraph:

"...there is a difference between interoperability (...to connect components that interoperate) and interconnectedness (where systems are interconnected and are able to communicate between each other)". As is the case with all things, using the wrong terminology will confuse everyone. We must be succinct and accurate with what we say to ensure accurate understanding. (sometimes difficult for me considering that English is a second language). So should it be interoperate or interconnect. In order to answer the question, lets evaluate what I think we were talking about.

The term should describe the situation where one mobile banking subscriber on (lets say) system one can send or receive a payment from another subscriber on system two. These two systems (system one and system two), must be able to communicate/interact in such a way that payments can be cleared between the two subscribers. We would like to achieve this in such a way that system one and system two should not necessarily be connected, but that a transaction path must (at a minimum) exist between the two systems.

While I see that interoperate is not correct, I am not sure that interconnect describe this also. Maybe we need another term? Any suggestions?

How do you regulate to ensure interoperable mobile payments?

I was recently asked: "What needs to take place, both from a technical and regulatory perspective, for mobile banking to be fully interoperable...". This is such a good question as it verbalise a growing need (specifically from subscribers) to have this functionality available, as well as highlighting the two factors that must be addressed in order to solve this complex problem: technical and regulatory.

Before talking about the technical and regulatory requirements, just some general observations that will illustrate the extremely complex nature of mobile banking interoperability:

• Mobile banking payments are of a totally different nature than any other type of payment, because of the following two characteristics, in combination: The payment is initiated by the payer (not the payee as is the case with most electronic payments). This simple fact have major ramifications in as far as clearing, disputes, roll-backs etc. is concerned. The complexity is aggravated because mobile banking (by nature) should be real-time.
• Current game plans in big eco-systems are to build a competitive advantage over other competitors through mobile banking. The mobile banking supplier with the biggest market share (and thus having the best chance of ensuring interoperability) usually do not want this to happen as it would dilute their competitive advantage.
• While it is possible to route a telephone call to a unique telephone number, this is not as easy with a payment. Some factors that could complicate this are more than one bank account associated with one telephone number, implications of wrong numbers and other incidents where reversals may be required.

I will describe some of the technical requirements of interoperable payments in the next post.

What drives dedicated mobile banking professionals?

Contrary to what many people may think, the deployment and support of mobile banking systems is extremely hard work. The complexity and the tolerance levels of these systems are on par with the most complicated systems that can be deployed. Furthermore, these projects are often under difficult timeframes.

Mobile banking professionals are always under pressure, often out on a edge (because new frontiers are being crossed) and with limited support. Price pressures on many of these projects also mean that monetary benefits cannot be their main motivator.

Yet these special people almost always are full of energy and passion. They produce miracles and serve as inspiration to others. Why is this the case?

I know this is because most are working in this industry because they are driven by a bigger purpose: to help people that are less fortunate than them. Or to quote from the movie The Soloist: "The dignity of being loyal to something you believe in. "

Posted from my iPhone

Some thoughts on the hierarchy of agents

Mobile Operators utilise agent hierarchies for the distribution of pre-paid airtime. By implementing a multi-layer of agents Operators can reach a much bigger market. For instance with just ten super-agents an
Operator can have thousands of agents in the field.

This approach does have one major drawback: in order to
make deep hierarchies work the Operator must sacrifice big margins. This means that this approach is an expensive distribution mechanism.

It seems that it is obvious that Operators should utilise the same approach when implementing mobile money systems. However there are three reasons why this should be re-evaluated:

• The available margin in mobile money systems are significantly smaller than airtime. It is usually not possible to offer the same level of margins to support multi-layers of agents.

• Indications are that Mobile Operators should be more involved with support, training and controls for mobile money agents. Deep hierarchies implies that the Operator does not have the same access to the agents that they would need to support these agents effectively.
• Good mobile money systems are based on sophisticated banking systems (as apposed to over-extending airtime systems). This means that commissions can now be controlled in much more focused ways.

It does seem that mobile money system should have flatter hierarchies. In the long run this may even lead to an approach where airtime can be distributed cheaper.

Posted from my iPhone

A fresh new VISA

For those of us that have been working in the payment industry for some time, VISA was always seen as the protector of the status quo. Even new initiatives that were sometimes brought to market took a long time to deploy or were not applicable. (Remember SET?). VISA was an extension of the institutionalise banks, and (the perception were), that banks used the card associations to protect their interests, rather than help their customers. The fact that both Mastercard and VISA were controlled by the same banks meant that competition did not always pan out the way that one would have liked it to be.

This is why it is so good to see a new VISA that emerged after the listing. The approach is now much more open and driven by an honest effort to find solutions that customers would want. Nowhere is this more clear than in the mobile payment industry. The people and decisions that we are experiencing as an industry shows a new style of collaboration and openness to new ideas. A search of the news channels will show many initiatives that supports this view (Read here, here and here). One of the exciting initiatives is the mDirect initiative recently launched by Mobile Money in South Africa. In this instance the go to market strategy was based on joint branding between MTN (a mobile operator) and VISA. This would have been unheard of ten years ago.

Could it be that a change in ownership and governance structures can have such a dramatic change in behaviour? It does seem to be the case.

Balance of competitive forces is a prime consideration for mobile banking regulation

The complexity of providing regulatory frameworks for transformational banking is well known. While regulators are keen to create mechanisms to ensure access to banking services also for the poor, they have to the risks in changing existing regulations. I have written about these risks. (Read here). To recap, the following are the typical risks that one should be thinking of:

• Utilising the system for criminal activities (money laundering, funding terrorism etc.)
• Protecting the customer so that deposits are safe and also information protection
• The creation of money

Lately, in discussions with regulators and what I have seen in the market, it seems that regulators are also apprehensive about an competitive imbalances that may be created by allowing transformational banking. My first reaction was that this is not the mandate of regulators, but thinking about it, this makes a lot of sense. The natural forces in a free market system ensure behaviour that will not harm the customer, keep costs in check and contain criminal actions. If these forces are lost because of a dominant player all of these benefits will not materialise. Regulators concerned about the balance of competitive forces may just be getting it right.

A view on the trigger behaviour for mobile payments

It is my believe that many experts just re-package what they heard other people say. The saying: "Originality is the art of concealing your source", is true for most people. However, some individuals do exist that are capable of new, original thought. It is these people that build new offerings and ultimately change the world. I am privileged to know quite a few such people. One of them is my good friend Dave Parratt.

We have shared thoughts on this industry through many hours of discussion and always found his thoughts interesting and stimulating. Unfortunately I cannot share all of them because they were shared in confidentiality. However, he recently spoke about one such theory in a podcast published on the web (Read here). I suppose this means that it is now general knowledge and I can also publish it.

Dave postulate that widespread adoption of payment systems are triggered by change in behaviour of the population. He says (for instance) that the big move to card-based payments from check-payments was triggered by people that started travelling more frequently. Check-payments from foreigners were frowned on, but quickly got replaced by a plastic card.

He then describe (in much more detail than is possible on this blog), how the need for "card-not-present" transactions will drive the adoption of mobile payments. He does not believe that mobile payments (ala NFC) will replace card payments in retail environments, but will definitely become the preferred mechanism to pay in situations where cards cannot be used. (On the web, call centers, and of course on your phone). Transactions where you wanted to use your card, but cannot because you could not swipe the plastic, it is those type of transactions that are the low hanging fruit for mobile payments.

Some books that one should read in order to appreciate mobile banking

Peter, one of our senior solution consultants sent me the following quote:

"Overcoming poverty is not a task of charity, it is an act of justice. Like Slavery and Apartheid, poverty is not natural. It is man-made and it can be overcome and eradicated by the actions of human beings. Sometimes it falls on a generation to be great. YOU can be that great generation. Let your greatness blossom."

— Nelson Mandela

This really resonate with me. This is what I would want to work on and what I believe mobile banking can change. I found two books worthwhile reading with similar messages:

• "Portfolios of the Poor" is a great book describing the complexities of managing money if you are poor. The book looks at the many different instruments that poor people use to manage their financial world. (Read here)
  
• In "You can hear me now", Nick Sullivan talks about his experiences in poor countries and also the effect of cellphones on the wealth of people (Read here)

I am looking forward to hearing about other books that is a must read for us that are passionate about using mobile phones to better the lifes of billions.

Visiting our new offices

My apologies - this blogpost was mistakenly published to the wrong blog. It was meant for my private blog.