Mobile wallets enabled further financial products

The traction of mobile wallet solutions in a number of countries are now a reality. Millions of people that have not had access to financial services can now experience the benefits of rudimentary payment types. They can now send and receive money, purchase goods and have immediate access to information about their money. But this is not the end of the road. Other financial products that could previously not be delivered now becomes a possibility.

• Savings products are the most likely next application. As a matter of fact, many studies have indicated that subscribers with mobile wallets start using the wallet as a means to keep their money safe. Even though no interest is paid, subscribers are still comfortable in keeping their money in a wallet. This is why the launch of M-kesho recently by Safaricom in Kenya is so interesting (Read here). This is a true savings product living next to the mPesa mobile wallet. As an aside, one would think that the right way forward would be to turn the wallet into a savings account (rather than having a separate savings account.
• Extending the reach of wallets to assist with loan products take many different forms and examples from Kenya to Pakistan and the Philippines abound. The fact that it is now easier to pay out a loan, to collect repayments more smoothly, to assess creditworthiness etc. are all reasons why this sector will grow. (Read here)
• The next wave without any doubt will be when insurance products (and other risk related financial products) are to be delivered by means of mobile wallets. This will be real in a short time-frame and significant benefits will be available to both consumers and suppliers.

The operators of wallet solutions should plan to be ready to launch other financial products as their offerings start to mature.

Smishing by any other name

One of the great things about our industry is how quickly a new name can appear and then become part of the vocabulary. One such a word is Smishing. In short Smishing is Phishing by making use of SMS's. The how-to of Smishing is describe in many places on the Internet (Read here) and has even made it into Wikipedia (Read here).

Using fake SMS's to get unsuspected consumers to respond to promises of wealth ("you have won the lotto") or fear of implied actions ("your account has not been paid), is not a recent phenomena. Since SMS'ing became a general means of communicating, this medium has been used to trick people into paying money (when they don't have to) or meet unknown stalkers (when they should not). What makes Smishing different and dangerous is that the technique is now being used to steal identity for purposes of accessing banking or payment information. In the light of this risk, it is important to take measures to protect consumers.

It has become important to implement a standard, easy to use and mutually understood mechanism to authenticate interactions between customers and their financial-services suppliers. This would take the form of a challenge and (secret) response. Some banks have already implemented such mechanisms, but these are not well understood, not widely used and definitely not standardised.

China leading the way in mobile payments after all?

I always enjoy reading about China and payments. This is without doubt the biggest market for electronic payments, and therefor for mobile banking. However, so many things about China are different to what I am use to: culture, business practices, language, macro- and micro-economies. The lessons that I have learned in deployment of mobile banking solutions would probably only have marginal applicability.

Yet, it seems as if China is really moving forward aggressively in creating an ideal environment for mobile banking to thrive. I am basing this on two recent articles that I have read on Finextra:

1. It seems as if a regulatory environment is being established to govern non-financial institution payment service providers (Read here). I think that this is particularly progressive in a number of ways. Not the least being the fact that recognition is given to non-financial institution payment providers. This recognition would enable (providing that they conform to the regulations) institutions, like network operators and regulators, to offer payment services.

2. According to another article, China Unionpay has signed up a group of the country's banks, wireless operators and handset manufacturers to form a mobile payments alliance. It is possible to think of many mobile payment alliances having been established in many countries, but being able to sign an alliance with both banks and operators being a party to such an agreement is relatively unique. (Read here). If this alliance is going to work well, the mobile banking deployments will definitely be stimulated.

Maybe we should take more notice of what is happening in China. Maybe some-one can point me in the direction of an expert that could speak at a next conference and enlighten all of us.

Also read a recent blog that I posted on China.

Some thoughts on SAP's acquisition of Sybase

SAP recently announced that they intend to acquire Sybase for cash. Two aspects of the deal is interesting: The valuation of Sybase (a premium of 56% on the listprice) and the fact that mobility was frequently mentioned in the official SAP press. This news triggered many articles and a lot of analysts had something to say about the deal (Read here, here, here and here). The debate ranges from a database war (which is madness with Sybase's small database marketshare), to in-memory analytics and access to clients.

Yet, the concensus of all the articles that I have read is that SAP wants to use this acquisition as a spingboard into mobility. (In the words of Bill McDermott: "companies around the world will be able to run their business from many devices."). This is an ambitious move and would be difficult to execute on, but if successful, could have a major impact on the direction and influence of SAP. The problem here, is the difference between enterprise software and mobility (that is often/mostly) a personal choice. How a company like SAP will branch both (corporates and individuals) will be very tricky. A vision of being able to manage stock as they move and to be able to enter invoices at the point of service delivery is exciting and could lead to a new ERP world.

With relevance to this blog, what will happen to Sybase's mobile banking? My guess is that it will get lost in the noise. The penetration, success and uniqueness (from a technology perspective) is so low, that I do not believe it was at all visible in the acquisition and that it would not feature on any of the SAP plans. I also do not think that mobile banking will feature in strategic drives or sales incentives. It is my opinion that this is the end of the road for Sybase mobile banking.

The relevance, importance and future of P2P payments

Pretty much any payment if you analyse it in the end is a person to person (P2P) payment. We have grown used to the majority of these payments happening in cash. "Oh, by the way, here is the $10 that I owe you..." This is way that we have paid each other for centuries and we will have difficulty changing. Today, a small percentage of these payments do happen by means of other mechanisms (cheque payments, on-line electronic transfers, etc.). But the majority still is executed by means of cash transactions.

Of course, this is because cash has a number of characteristics that ensures that this work so well:

• Cash is immediate (As soon as I got paid the money, I can use it again).
• Cash is irreversable (If I have the money, nobody can reverse the transaction without my consent and or knowledge)
• Cash transactions are cheap (to the consumer, but not to the eco-system)
• Cash does not require a name (KYC) attached to it.

In a recent study performed by eCom Advisers (Read here), almost half of the respondents in the survey indicated that they would want to have an electronic mechanism to replace cash and checks as a person to person payment mechanism. Why is this the case?

• Cash is pretty inconvenient in many ways
• It is impossible to do P2P payments in realtime and over a distance
• Electronic payments can be more secure, more predictable and actually at a lower cost (for the eco-system) than cash.
  

With the advances in mobile payments, the deployment of suitable infrastructure and (most important) education, it is highly likely that cash will start to be replaced as the P2P payment tool of choice. This may not take too long to happen.

Mobile banking is changing bank customer behaviour

It is now accepted as being a reality for banking: mobile will be a part of the future of how banking will be delivered to consumers. As was the case with ATM's, it is highly likely that consumer's behaviour related to their interaction with banks will change, as mobile banking usage picks up. Something else that we can have fun with speculating...

Based on prelimanry research and other evidence, it does seem as if the growth of mobile banking leads to a reduction in visits by customers to branches and a reduction of calls to contact centres. This is of course good news as this will directly lead to a reduction in cost. Some observations also seem to suggest that consumers do more transactions now. It is as if the ease with which mobile banking allows consumers to do transactions, stimulate them to do more. But what are some of the other changes that we could also expect?

• Consumers will be more aware of their money (or the lack of it). I believe that consumers will become more educated about spending and saving money. People will budget better and become more savvy to manage and use their money.
• More sophisticated mechanisms to stimulate impulse buying will become prevalent. This will change spending patterns and the effectiveness of alternative sales and marketing approaches.
• As mobile banking systems become more mainstream, more advanced applications will be developed (making use of cellular characteristics like location based services for instance). This will lead to opportunities where new social and entertainment behaviour patterns will be triggered.
• Mobile banking will change the competitor profile regarding banks and also non-banks starting to offer financial services. This will mean that customers will start buying their banking products somewhere else (than traditional banks) and even expect it to be bundled with other products.

What do you think?

Implications of the Cybersource acquisition for mobile banking

Visa announce last month that they would be acquiring Cybersource for cash. (Read here). The move to acquire this company is clearly an effort to extend the security of VISA payments. Cybersource provides merchant functionality to almost three hundred thousand companies and owns intellectual property that reduce fraud in card payment transactions in the on-line world. During the briefing session, it was reported that Gerry Sweeney (Visa's head of global e-commerce and authentication) said that mobile is clearly a growing and important channel for them. Why did he say that?

Also in another article, Michael Walsh, president and CEO of CyberSource is quoted as saying: “... the platform is built in such a way that adding new mobile capabilities would be fairly seamless “ (Read here). It seems clear that there has been some discussion about the mobile banking implications of this acquisition. Seeing that it is not spelled out what it means, it offers a great opportunity to speculate. This is a few of the scenarios that I could think of:

• Visa offers a hosted mobile banking solution to issuing banks in a similar way that they offer alert services today.
• Cybersource is in the process of developing a mobile based, secure authorisation mechanism that will allow card not present transactions to be secured by means of a phone. Alternatively, VISA is considering standardising on some dual authorisation mechanism that will be licensed to vendors (Cybersource being the first one).
  
• VISA and Cybersource is working on a "hub" that will sit between mobile and clearing systems. If a bank connects to this "hub" mobile banking transactions will receive priority and value added services (security enhancements)
• Some of the features of new NFC phones will be supported by VISA switches.
  

Any other suggestions?

Death to cash at origin

Paper money cash is such a problem in many ways. It is a very expensive payment tool, with lots of management overhead and distribution cost. It is not at all secure (probably the least secure than any alternative payment tool), it can form the basis for money creation and sits at the heart of many detrimental aspects of any monetary system. It would be best for all if we could eliminate paper money.

In reading a recent article published by Juniper (Read here), I realised that many people (and this differs from country to country) are still being paid in cash. (whether a salary or some kind of grant). The payment process of individuals is the source of a large percentage of cash in circulation. It struck me that this is where the fight against cash should start. All salary and grant pay-outs should be made electronically (and I believe that this should be legislated).

It is relatively easy (and it will become easier) for any individual to open a bank account or get access to an electronic wallet (even in poor countries). Only if cash was electronic in the first place, do we stand a chance of defeating paper money in the interest of all of us. I say: "Kill money before it gets born."

A world where push payments rule

Airplanes have a very specific characteristic. They can only fly forward. It is impossible for aircraft to fly in reverse. The aerodynamics and principle of flight dictate that flying should be in a forward motion - this is just the way that it is. The problem with the payment world is that it is running in reverse. The fact that the payee initiate the payment process and not the payer is the wrong way round. In the world of check payments, of debit orders and credit card payments, the guy receiving the money must start the electronic process. Also referred to as a pull payment. This is akin to allowing some-one else to take cash out of your wallet, rather than you taking the cash out and handing it over.

The danger of this approach is that fraudulent transactions are much easier, controls and audits are much more complex and a transaction takes a long time to complete completely. (because one must allow the payer to dispute the transaction and then to be able to reverse or refund the transaction). This became evident to me recently when I read about the conflict between Blippy and Amazon (read here). The concerns that Amazon has about another system getting access to card payment information is real, because this information can then possibly be used to pull money (fraudulently) from another credit card.

Payments should be a push affair. The payer should start the payment process and money should drop in the payee's account with a real-time confirmation. This approach is easily deployed by means of mobile payments and millions and millions of push payment transactions occur daily in emerging economies where mobile wallets take-up is more dramatic than spectacular. It would have been great if payments in first world countries could have been architected in the right direction (rather push than pull). I am sure that new innovations (like Blippy) would then have taken off much faster and with less risk.

Mobile banking is not needed in Canada

It would be great for Canadian banking executives to visit South Africa. The FIFA world cup is being hosted in South Africa during June/July and two of the main sponsors are VISA and FNB. Both these companies have made major inroads into providing innovative and popular mobile banking solutions. FNB specifically, have shown that they can deploy mobile banking solutions currently being used by more than twice as many clients than use their Internet online banking. They achieved this by delivering mobile services specifically geared towards the mobile device. Their clients can do more with a mobile phone than they can do online.

It is my opinion that if Canadian banking executives were deploying mobile banking solutions in this way, their clients would be more positive towards mobile banking. In a recent survey conducted by Forrester research (Read here), Canadians indicated that they fail to see a compelling reason to use mobile banking. Forrester recommends that Canadian banks focus on smart phones as 90% of existing mobile banking users use smart phones. Maybe this is where the disconnect is. Should banks not develop solutions for clients that do not use mobile banking at this stage?

What was ANZ bank thinking when they suspended mobile banking?

I could not believe it when I read it. If you do not own a iPhone, ANZ bank in Australia would suspend their existing mobile banking, because, wait for it: "..most of what they use M-Banking for can be accessed from TXT or Internet Banking". (Read here and here).

Immediately, twitter was full of comments from ANZ customers:
" ANZ is shutting down it's Mobile Banking service so now I have to SMS or phone them. WTF? Wrong direction ppl!"
"ANZ is killing off its mobile banking site. Why? It was good! I used it! Bah."
"So annoying, I use the ANZ java app on my BlackBerry :("
"stupid ANZ killing mobile banking, I use it all the time"

According to the announcement a very small percentage of ANZ clients use the service anyhow, so the impact would not be that big. It would be interesting to understand why such a small percentage use the mobile banking feature. Is it because it does not work? or is the registration process complex? Could it be that mobile banking was not marketed successfully, or is it just true that Australians do not want mobile banking? The obvious approach to all of this, would have been to fix the problem and to keep the service running as it would (at a minimum) serve as a basis for learning.

Maybe this announcement is part of a bigger plan, to possibly change suppliers or structure the service in anther way. How many times have we seen the technology department taking "architectural" decisions and then not inform marketing or not packaging it in such a way that it is plausible for their customers. I have a feeling that ANZ have decided to take a new direction in offering mobile banking to their customers, but have not told us yet.

Anybody with some insights?

A new mobile payment dispensation at VISA

One often underestimate the importance of leaders. Leaders influence behaviour and set directions. It is leaders that create an environment, style and culture. People that know, would also agree that the leaders created through the banking industry look at life in a pre-defined way. The way that banking executives approach risk is significantly different to executives in ... for instance the telecommunication industry.

Visa has been involved with many mobile banking and payment initiatives in the past. These range from multiple NFC trials, special phones, remittance projects and alerting services. Many of these projects culminated in some production successes, but none had any spectacular uptake. In many regions, banks are looking at Visa to guide decisions and suppliers ready themselves to build new phones, POS and ATM's that will conform to new VISA specs. Unfortunately, the direction of VISA was often taken from a banking executive mindset (the majority of VISA executives are ex-bankers).

This is why it is so exciting and fresh to see the announcement of the appointment of Bill Gajda to head VISA's mobile business. (Read here). Bill joins VISA from the GSMA where he was responsible for (amongst others) the GSMA's mobile money initiatives. Prior to this, he worked primarily in the telecommunications industry (including Ericsson). What will the new leadership do to the culture, style and direction of VISA?

Identity theft and the opening of mobile banking accounts

This blog entry was triggered by a research report produced by Javelin on financial fraud in the US (read here). What caught my eye was that a measurable number of fraudulent transactions could be attributed to opening fraudulent mobile banking accounts.

I suppose this is a new hole where a fraudster can use a phone to connect a phone login to an existing bank account and in this way get access to the funds in the bank account. Mobile banking is at its most vulnerable at the point of registration. It is important to ensure that the very high security available on mobile phones not be compromised by a weak registration process.

The best way to ensure that a bank account is not compromised is to only allow "over-the-counter" registration. Only if a bank-employee has verified ID documents is it possible to register a client for mobile banking. This is of course an expensive process and complex from a client's perspective. Another mechanism is to use the ATM-network to perform mobile banking registrations. This is a secure way, as the registration would require a card present and the PIN selection can be transmitted in a very secure way.

Yet, many banks cannot deploy these mechanisms and often allow clients to register on-line. This means that the registration process is much weaker (because of the limitations of the Internet). This is the weak link in connecting a phone to a bank account. If the need to allow mobile banking registration on the Internet, fraudulent registrations will occur.

What about China and banking the unbanked?

Often when banking the unbanked is being spoken about, we talk of the billions of people that have a cellphone and no bank account. As a matter of fact, "banking the next billion" has become a battle cry from Silicon Valley to Bangalore. Fact of the matter is that a big part of this billion live in China.

In a recent article in Finextra (read here), it was reported that card companies (Visa, Mastercard, etc.) approached the WTO because they are being blocked in issuing their cards and building acceptance networks. This made me think about this vast market in relation to mobile banking (especially banking the unbanked). I pride myself in knowing about mobile banking initiatives: what is being launched, by who, how they conform to regulations, what the commercial models are like. I know the people and I know the tactics. But when it gets to China, I know almost nothing.

So this is the question: if things are happening in China, why don't we know about it? Why does the Chinese experts not share with us what they are doing, or why don't they come and learn what others are doing? Why can't I find any (or very little) information on the Internet or in analysts reports? Maybe banking the unbanked is not high on the agenda in China...

The Mobile Money IP infringement claim

A recent IP infringement claim (Read here), made it into the news channels and I had many enquiries because MTN and Standard Bank (both Fundamo clients) was mentioned in the stories. Based on the articles in the media that I have read, the claims refer to a feature that enables a customer to activate and de-activate a credit card by means of an associated mobile phone.

I do not want to comment on the merits of the claim as I have not seen any of the actual documents, but would like to make the following observations:

• It is important that the law protects intellectual property ownership. Proper mechanisms exist to ensure that this is possible. The law ensures that conflicting parties can defend themselves adequately (ultimately in court). One should allow this process to take its proper flow until conclusion.
• It is a pity if parties resort to the media (early in the process) to place unfair pressure on other parties. While this is done often, and the media definitely has a role to play, utilisation of the media at the start of litigation should be questioned. Maybe this is a sign of some desperation.
  
• IP litigation is a complex and a specialised sector of the law. One usually finds that specific firms and specialists in the area are retained to build and argue a case. I have found it interesting to see that 3MFuture Africa (the claimant in this case) retained the services of retired judge Heath to represent them. Judge Heath has an accomplished career in South Africa and is well-known and respected, but definitely not as an IP expert.
• The fact that more and more IP claims are being contemplated (also read a previous post), is a further indication that the industry is growing and has reached a certain level of maturity.
  

The business model of Eko in India

I read a recent article on Eko (Read here) and then looked at the blog archive, because I was sure that I wrote something about them, but then found nothing. I could not believe it. I have the biggest respect for Anupam and his partners as I know a little bit of what they do and how difficult it has been. It is not easy to deploy solutions that people criticize and do not take serious, but the team remained focused and have made big progress.

Eko is a Delhi-based company that have developed and is busy deploying a banking solution for low income people in India. The functions available on the product is specifically geared towards people at the bottom of the pyramid and is distributed through informal retail outlets. Customers can access the service with cheap phones (making use of USSD when I last checked) and perform the transactions that they typically need.

What I like about Eko is that the approach is geared towards the problem space. Cost of delivery is of course critical and the service is designed to support this. The use of outlets is critical and the business model allows for these important elements of the eco-system to participate profitably. While it is important for entrepreneurs to keep value-creation in mind, I also realised that the team at Eko also have the real interests of their target client in mind, and that is the real reason for their success.

A coordinated regulatory dispensation between telecommunications and banking

Financial and telecommunication regulators are very different. Both in their objective as well as how they go about doing it. Financial regulators are in essence concerned about the systemic risks associated with a complex money system. Their approach is to ensure that all players conform to certain rules so as to ensure that the financial system do not collapse. They develop and enforce detailed rules to ensure that they can monitor and protect the inter-connected money-world.

Telecommunication regulators, on the other hand, are concerned about the fair allocation and usage of scarce resources. It is a fact that we only have so much spectrum or sixteen digit numbers available. The challenge is to ensure that all players in the telecommunication system get access to this limited supply. They are (of course) also worried about the integrity of the telecommunication system, but it is my contention that this is not their primary driver.

I have always been of the opinion that mobile banking and payment solutions should be governed by the financial regulator because mobile banking have the potential (if not properly managed) to destabilise the financial system and the impact of this will just be very bad for all. Much of the regulatory discourse has been to discuss financial regulation topics: KYC, money supply etc. However, the industry should also develop mechanisms to ensure fair access to limited resources. One could for instance argue that MNO's should allow any bank access to their SIM cards (as it is impossible for banks to distribute their own), and this is where the Telecommunication regulator do have a role to play.

This is why I was impressed with the recent announcement out of Pakistan (Read here), where both regulators announced that they would work together to develop a new generation of framework for mobile banking. Is this a first in the world?

The need of the unbanked - or why is transformational banking necessary

What is it that poor communities really need 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 I think people need in communities with limited resources, just to get the ball rolling:

• 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 or handouts 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 available. Even if some-one cultivates the discipline, the actual mechanisms (putting cash in a bottle or savings clubs etc.) are 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 correct way that they should do this is by means of a targeted electronic savings product.
• If something happens (like an accident or an unplanned expense for instance), poor people also need access to lending products. Better still, many of these mishaps can be catered for by well-designed risk products. Most of these new financial products are only possible with efficient, electronic payment systems.
• 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 (I believe) is that such a transaction record will enable 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?

The collaboration between DFID and CGAP

CGAP recently announced the UK Department for International Development (DFID) to expand ongoing global efforts to use information and communication technologies (ICT), especially using mobile phones. (Read here). This is a very positive move for the the future support of Mobile Money for the Unbanked (MMU).


CGAP did stirling work in financial and advisory support for many deployments all over the world. Their involvement can be traced to the ultimate success of many of the leading solutions in emerging economies today. Similarly, it was through a DFID grant that mPesa was initiated in Vodafone. This can also be seen as one of the trigger-events in the MMU industry.

By joining forces, these two organisations now acknowledge that the vision of providing electronic financial services to the Bottom of the Pyramid can be delivered. The involvement of the Bill and Melinda Gates Foundation in the initiatives that these organisations are now tackling is a further endorsement. The biggest challenge that must be resolved is to help organisations get over the first investment hump quicker. It is important to show that commercial success can be attained without significant capital investment.

My observations of the recent mCommerce in Karachi

I was the guest speaker at this year's mCommerce conference held at the Sheraton hotel in Karachi. The conference was sponsored by MCB and as always well organised by Total communications. I attended the event last year as well. (Read my comments about last year here)

Two things struck me about this year's event:

Much more talk about real consumer successes.
The take-up and transaction volumes of both MCB and Easypaisa received a lot of attention. It was my impression that all of the delegates were excited about the inroads that these two companies have made and the milestones achieved by them. It seems as if they serve as an inspiration to other banks and mobile operators.

Collaboration between regulators
Both the banking and telecommunication regulators were prominent at this event. Both made excellent presentations during the same session and it seems as if a genuine intention to collaborate exist. This is a good sign for the future of mobile banking in Pakistan.

I had a sense that the participants were looking for business insights and that the mood was very much focused on finding business solutions rather than looking for maverick technology.

Mobile banking inter-operability/connectivity challenges

I have written previously about interoperability/inter-connectivity (Read here and here). I have also promised to discuss some of the high level technical challenges of implementing this capability in the current schema and have not yet done so. This blog-entry is a stab at describing some of these challenges. Two major challenges spring to mind immediately. The routing of payment instructions and backing out of failed transactions. I will discuss both briefly below:

The routing problem

The schema for clearing international telephone calls and to ensure that calls terminate at the correct operator utilise a combination of two types of routing techniques. The first is based on international dialing codes and (in some countries) operator codes too. In other words, routing is on the basis of meaning in the number (This is similar to BIN's incorporated in credit cards). In countries where number portability have been implemented, routing is also done on the basis of a look-up table.

Which of the two approaches should be used for mobile payments? If the payment is to be routed on the basis of a meaningful number, should the telephone number be used or a dedicated number? Who will maintain such a number and what procedure will be required to ensure higher accuracy of the routing (like check digits etc.)? If a special number are to be issued, will subscribers be able to remember it and pass it on to payers? On the other hand, if routing is to be done on the basis of a look-up table (an international routing register), who will be responsible for the maintenance of this register and what procedures will be followed to change and delete records? (just consider potential fraud of changing records are not managed well).

Failed transactions

The mechanisms of credit card transactions allows for a payment to fail at the merchant's point of sale if the transaction takes to long to complete (this is called time-out). No harm can be done with this approach as the recipient of the funds (the payee) is in control of the payment. When the request for payment does not complete successfully in a pre-allocated time, the transaction is deemed to have failed and everything is rolled back. Credit card payments are also often only cleared some time later. The merchant do not have immediate access to the funds.

Interoperable mobile payments are confronted with two major challenges because the payer is often in control of the payment and because of the need to clear the funds in real time. This means that the recipient (the payee) would be informed that the payment was successful and having been informed the payment cannot be reversed (or rolled-back). The funds must also be made available to the payee immediately. This is quite easy to implement, except when things go wrong. The technical challenges of undoing failed transactions in this scenario is extremely complex. I am not aware of systems that are capable of doing this in high volume environments today. The design of the protocols that will ensure financially robust interactions is also very challenging.

Conclusion

I think it is clear that the design, deployment and maintenance of inter-connected payments between a multitude of mobile money operators is far more complex than what meets the eye. Many architectural challenges will have to be solved in order to make this real and robust. It is my opinion that most practitioners refer to the vision of interoperability of mobile payments without consideration of how difficult it will be to attain. It may even be technologically impossible.

What is the implications of Mobile Operators buying banks

It was widely reported that China mobile bought a 20% stake in Shanghai Pudong Development Bank recently (Read here, here and here). Although the rationale of the investment given by China mobile was rather sketchy (talking of future synergies), much speculation erupted. Some analysts believed that this was merely a cash injection in the bank at the call of government, while others indicate that this may add to the revenue of the operator.

The key consideration may be to get access to clearing capabilities in a regulatory friendly way. One of the best examples of this having been executed successfully is the purchase of a small micro finance bank (Tameer bank) by one of the large operators in Pakistan (Telenor). The recently deployed Telenor mobile financial service (called Easypaisa) is turning out to be spectacularly successful, but also legal as it is a service launched by a bank, but distributed by a mobile operator. There are speculations in Pakistan that Telenor's biggest competitor (Mobilink - an Orascom company) is actively looking for a bank to buy (Read here). Some informed sources have told me that the purchase may even be of one of the smaller retail banks. Surely this is a ratification of a strategy where an operator would buy a bank with the primary intention of launching financial services.

Can anything be more serious than mCKinsey

Of the blue-chip management consultants, I have always thought of McKinsey's as the most serious. They will not try and get on a hype-wave and sell you unproven concepts. When you contract McKinsey's you expect level-heading, robust solutions. This is a block-buster consulting company with a brand that top executives relate to. This is why it was with interest that I read a recent article in the McKinsey Quarterley called: "Capturing the promise of mobile banking in emerging markets". (Read here).

The article says that the deployment of mobile financial services is a "strategic shift" for mobiel operators and an attempt to counter slowing subscriber numbers and reduction in profits. Big words coming from a major management consultancy. What I liked most about the article is all the numbers:

• For every 10,000 people, developing countries have one bank branch and one ATM—but 5,100 mobile phones.
• Mobile devices reduce the cost to serve customers with financial services by 50 to 70 percent
• About 45 million people without traditional bank accounts use mobile money, but predict that this number could rise to 360 million by 2012
• In less than three years, the opportunity could generate $5 billion annually in direct revenue

I also found reading the comments interesting. Not only are most of a very high quality and demonstrate a lot of insight, but the majority of authors are all from emerging countries (China, India and Nigeria). Really worth a read. Well done McKinsey.

The far-reaching implications of the mShift's patent infringement claim

The way that I understand patents is that this is the only mechanism to register ownership of an idea or an invention. If a patent is granted, one gets the ownership of the invention. Patents must conform to the following conditions: The invention must be novel and not obvious. In other words, it must be something that not everyone and his dog could have thought of. This is the first condition, the second is that it must be original. You cannot patent something that you saw somewhere else or that someone told you about. If the invention was spoken about previously or documented somewhere, the clever IP attorneys refer to this as "prior art".

Okay now having explained patents, lets get back to mShift. mShift is a supplier of mobile banking technology to companies predominantly in the USA. They recently claimed that Intuit infringes on their patent (so called patent 866 registered in 2005) and they are suing for damages. The patent describes a very general way of mapping banking transactions to a framework that can be displayed on a mobile device. I would describe it as a protocol conversion design (If you are interested, you can read the exact patent here).

The date of the invention is important as I believe many (more than many) instances of prior art exists. First patents like this were granted in Finland in 1992. As a matter of fact many countries had production systems of mobile banking in 2003. For the patent to be granted in the first place is strange, but if mShift's claim were to succeed, this would create a very awkward precedent.

This would mean that the advanced (leading) suppliers of mobile banking solutions in the world would be forced to ignore the US as a market, as their solutions that were built prior to the mShift invention would infringe on the patent?

It is not capacity but acceleration that is the problem

When discussing the challenges of building good software to run mobile banking (especially transformational banking), the big question on many lips is the ability of these solutions to scale. The transaction volumes are much higher than anything that financial systems had to deal with previously. Even in relatively small countries like Kenya, mPesa is running peak transaction volumes that no traditional financial systems were designed to cater for.

Under these circumstances it is actually dangerous to design mobile banking architectures that front-end existing banking systems. While it may be possible for the mobile banking portion to cater for big volumes, bottle-necks will become obvious in the core banking systems. The cost of upgrading core banking systems so that they are able to run the increased volumes often kills the business case. A much better approach is to take all the mobile banking traffic off the core systems and use stand-in, dedicated systems, specifically designed to scale.

However, it is not just the ability to scale and to deal with large volumes that is important in considering technology platforms. Some of the other aspects are:

• Not only is it important that a mobile banking system should be able to scale fast and manage large volumes, but also to recover fast from unpredictable situations. The system should also be able to protect itself from adverse conditions (e.g. an integrated service not being available, or infrastructure malfunction), by (for instance) shutting down gracefully. The system should protect the integrity of the financial data at all cost.

• Mobile financial transactions often dispay interesting characteristics. It is often the fast changes in transaction volumes (acceleration) and not the absolute volumes that breaks a system. The ability of the system to ramp up from low volumes to high volumes quickly and/or back again is also critical.
  

As is the case in most instances, these lessons are learned only by means of experience. It is almost impossible to anticipate performance challenges in designing mobile banking software. It is only observing the behaviour of production systems that these lessons can be learned.

The Mobile Money for the Unbanked Tracker

The GSMA published data on deployments of mobile money for the unbanked solutions. The emphasis on this collection is that only data of sites that are actually live and in production will be published. The tool is available here. This is a big step forward as it ignores all the claims and future deployments, but focuses on what is in production today. The document lists 61 deployments. I thought that I would highlight some statistics on these 61 sites, as documented here:

• The majority of the implementations are in Africa (52%), with Asia Pacific a close second (38%).
• Ghana, Kenya, Somalia and Tanzania all boast three deployments, while India, Pakistan and South Africa have four each.
• The oldest deployment still in production is Celpay in Zambia (2001), with 56% of the deployments done since January 2009.
• Of the large operator groups, only two claim more than five deployments (Zain with seven and MTN with five)
• The technology that drives the deployments are supplied by a number of vendors (Fundamo (10) and Utiba (6) are biggest.)

Based on my knowledge of the space, I believe that the real number of serious production deployments is closer to 45. Nevertheless, interesting reading.

Brandon McGee and mShift

Brandon McGee established himself as an expert in the mobile banking industry by regularly publishing information on what is happening in the industry. The information available on his website is often a collation of media articles and is a very good reference on what is happening in this industry.

Brandon also organises workshops and is a guest speaker at conferences. He also runs an online group for banking executives with an interest in mobile banking. He is often asked for advise on the selection of vendors and products.

It would give more credibility to his neutral opinion if he did not run and advert for mShift on his blog-page

Regulatory framework for mobile banking

Many practitioners in the mobile banking industry would rate regulatory challenges as the biggest hurdle to the deployment of mobile banking. A lot has been written about it and many panel discussions and work-groups have tried to find solutions. While some regulators are much more forward looking and have demonstrated that it is possible to deploy transformational banking in a controlled way, others have clamped down on these initiatives.

I am frequently asked to provide information, white papers and framework documents to describe some of the intricacies of the space. We at Fundamo developed very good collateral during the past ten years. We use this collateral to the benefit of our clients and our partners. We have made some of this content available to parties in the industry, but do not usually share it openly.

I would like to recommend a very good research paper in this regard. It is a document produced Rasheda Sultana from the Grameen Foundation, and explains many of the concepts well. While, I have some reservations on some of the conclusions and information in the document, I can recommend a read, especially because it is available on the Internet for free. (Download here).

The relevance of Western Union certifications

Western Union announced a vendors program some time ago. The intention of this program was to enable software vendors to develop mobile payment applications that can integrate to the Western Union remittance hub. Such an integration would enable scenarios where the Western Union agent network would be able to remit through other distribution channels (specifically mobile operators agents).

During the week of the MWC, Western Union announced that they have now certified the first two vendors to integrate to the Western Union remittance hub. The two companies are Fundamo and mCheck. (Read here). It is now possible to license these platforms, contract with Western Union and connect to the biggest remittance network in the world.

Many aspects and implications to the industry of the announcement of the certification, should be highlighted:

• Western Union demonstrated the ability to license third party software vendors. This is not as easy as it sounds and means that Western Union has developed a competitive capability that other remittance hubs seem not to have.
• The approach of allowing independent third party vendors is a move that could trigger a lot of activity. This is an open, transparent approach that will ultimately extend the reach of mobile financial services.
• The focus on mobile operators is interesting from many angles (this blog does not have enough space to do justice to this topic). By partnering with Mobile Operators, Western Union will create much significantly more distribution points than would be possible if they limit their relationships with (for instance) banks.
  

Vodafone prove mPesa repeatability

One of the most important discussion points regarding transformational banking at the recent MWC slipped away almost un-noticed. This was a very important inflection point in the industry and very few (if any) commentators picked up on this.

The success of the mPesa deployment in Kenya has been discussed and referenced many times. We all acknowledge the groundbreaking work that was done by Safaricom in this regard. Yet, there was the concern that this was a once-off; a freak of the special circumstances of Kenya. Some observers commented to me that it is unlikely that the success of m-Pesa will be repeated. This placed a damper on other roll-outs as no-body was sure what was the reason for the phenomenal success in Kenya.

This is why, I believe, that the success that Vodafone (through its subsidiary Vodacom) achieved in Tanzania is so important. It was reported that more than a million subscribers have signed up on the service (Read here), but indications at the Congress were that this number has now more than doubled. The fact that Vodafone has demonstrated that they can duplicate the success of mPesa in other countries, is of significant importance. This means that the Kenya experience was not a fluke, and that Vodafone has learned what it takes to make these roll-outs work. It is likely that they now have a recipe and can replicate this more easily in other countries.

This is a major risk for other Operators that are not ready to respond, as it seems that it took quite some time for Vodafone to get it right in Tanzania. They had the benefit of experience. Just think how long it will take if you start from scratch...

And now for the GSM's MMT Rio

One of the great things about global events (like the recent MWC in Barcelona) is the opportunity to network. This is an opportunity to meet the insiders and experts from all companies and institutions playing a role in our fledgling industry. This is the only way to learn about what is going on, what projects are in trouble, who is buying who and what expert would be interested in a job offer. It is a chance to meet new faces and to stimulate the brain with new concepts and ideas. It affords opportunities to meet clients and prospective clients. I cannot see how it is possible to take strategic decisions if one does not attend these events.

Many profit driven conference organisers have played an active role in organising these kind of events, but they have proliferated and often attract an audience that are not as knowledgeable as one would have liked. I have always found the events organised by the GSMA to be delivering the goods, The next event organised by the GSMA is the mobile money summit scheduled for Rio. Can't wait.

The role of banks in transformational banking

Transformational banking is a totally new way of approaching banking. Whereas traditional banking focus on typical banking products (like loans, savings etc.), transformational banking's prime focus is top provide low-cost and flexible payment solutions. This is usually delivered via mobile phones and networks of agents play an important role in distributing and servicing these products.

Transformational banking have been the domain of mobile operators, with the biggest successes achieved by operators in emerging economies. (Examples are Smartmoney in the Philippines and mPesa in Kenya). Bank's contribution were limited to providing regulatory coverage, settlement services etc. But this is rapidly changing as banks start to wake up about what is possible and realising that this is not a threat, but rather an opportunity. I am aware of many such initiatives, some that I can identify by name and others that I can talk about only cryptically:

• One of Fundamo's clients is a major bank in South Africa (Standard Bank), that is rolling out transformational banking into rural South Africa. This initiative is called Community Banking.
• The recent announcement between Yellow Pepper and Fundamo (Read here), targets a number of banks in Latin America with the Transformational Banking product, MONY.
• Banks in Pakistan and India is looking at launching mobile wallet solutions, without using the complex and expensive core banking systems that they use for their existing banking products.
• A bank in Brazil is considering moving a significant number of their low income subscribers off their core banking system and onto a transformational banking platform, to serve them better at a lower cost point.
• A major bank in the developed world is considering a "transactional wallet" associated with the primary bank account that could be used to do small transactions on their client's phones. (Rather than putting additional load on the core banking system).
  

I am sure many more examples can be found.

Congratulations to Zain for winning the inaugural GSMA MMU award

The Mobile Money industry received recognition with the inaugural award for Mobile Money Services at the annual GSMA awards ceremony being presented to Zain for their Zap service. It was great to see the hardworking people at Zain getting acknowledgement for their efforts through this prize and I would like to congratulate George and his team in this regard. (Read here).

In the spirit of this controversial blog, two points must however be highlighted. It would not be fair to the readers of this blog, if I do not highlight some controversial aspects:

• The ZAP product in terms of its scope and application seems to be ambitious. Zain is tackling the MMU problem in a different way with innovative thinking. Yet, the success of the solution should not be just measured on the basis of features only, but how well it is received and the volume of use. In this regard, it seems as if the service is not doing that well. (Read here, here)
• The claim of having the service available to 12 million subscribers in seven countries (or as Mr Hajeri said: "active subscribers" when he received the award), is clearly misleading. The total Zain subscriber base in the seven countries (Kenya, Malawi, Niger, Sierra Leone, Tanzania, Uganda and Ghana) is just more than 13 million. To claim 12 million subscribers is a bit ambitious, especially when the country managers in Sierra Leone reported only 5 000 subscribers recently (Read here).
  

The Mobile banking fairness principle

One of the benefits of the MWC is the opportunity to have in depth discussions with experts from all over the world on the topic of mobile banking. I managed to find some time to chat with Qasif (Head of Channels for MCB Bank in Pakistan), and he explained his fairness principle for me, that I found particularly interesting. I will describe my understanding of this in my own words:

The ultimate aim of mobile banking should be to collect as much of the wealth of your customers to be reflected on the bank's balance sheet. This is not too far-fetched if one considers that a person to person payment from a customer of the bank to another customer of the same bank, does not change the aggregated amount at all. If the bank can enable their customers to do all payments electronically, the money will never leave the balance sheet of the bank. This objective would leave banks much better funded and through leveraging of these "in-transit" deposits can lead to good profits.

The fairness principle says that one should never charge the payer for an electronic payment. The notion of a transaction fee is not fair, nor will it entice the behaviour that will leave money on deposit. One should make electronic transactions free, charge a lot for cash-out transactions and provide the means to pay for everything possible electronically. In this way, money will never leave the bank. Think about it...

Mobile payment and banking press releases this week

Thanks to my friend Philppe Lerouge that compiled a good collection of GWC press releases (Read here), I was inspired to make my own collection specifically focussing on those that I believe will have the biggest bearing on banking services in emerging countries. This is my list of the most important press:

> BOKU partners with Philippines telco Globe for m-payments (Read here)
> Oberthur Technologies partnered supplier of mobile commerce platforms Utiba to create a suite of mobile money services (Read here)
> Western Union certifies Fundamo and mCheck as the first vendors that can connect to their infrastructure (Read here)
> Gemalto security solution selected by MTN Mobile Money running Fundamo (Read here)
> Zain's ZAP solution wins GSMA Awardfor Mobile Money Services (Read here)
> Vodafone announces the launch of mPesa in South Africa on Vodacom (Read here)
> Roamware announces Mobile Payment Plans with Interoperability issues (Read here)
> Nokia announces their partner bank in India for Nokia Money: Yesbank (Read here)
> Yellow Pepper partner with Fundamo to launch mobile wallets in Latin America (Read here)
> Verifone invests in Chinese mobile payment company Trunkbow (Read here)
> CGAP reporting from MWC (Read here)

Lots happening.