Mobile Payments are in no ways like Social Media

I suppose there is fundamentally a big difference between paying some-one for something and talking to them. Clever sayings can be given away freely and you get richer by giving it. This is why platforms like Twitter and Facebook is so addictive. If you are innovative enough, you can keep on giving and the more you give the more you get (status, followers, friends etc.)

Payment systems are much different. The more you give, the less you have. You only get more, if someone gives you money specifically - if it is specifically targeted for you. The behaviour and the need to do transaction (or to contribute to the community) is very different. The systems and the psychology of creating a vibrant community is different. The need for support, guidance, privacy etc. are significantly different.

This is why I believe one should also think about the eco-system differently. The platform providers, the distribution and the business models are different. It is unfortunately not a case of "building it and they will come". It is not a case of the more we give it away for free, the richer we will get. The sooner we take the social media hat off when we debate payment systems the better.

Should we take Facebook currency seriously?

Yes, Facebook do have their own currency, you can buy it and use it for things within the Facebook walled garden. This is a typical loyalty scheme that one sees provided by merchants often. Sometimes it is refered to as credits and it is usually limited in how widely it can be used and most importantly, one cannot turn it back into money... it is a one way street. We never take these schemes serious, we never think that they will take over the world, so what is the big fuss about facebook's currency?

It is the size of course. If all of the Facebook subscribers were to open a facebook account and fund it with a substantial amount of money, this may just become a self-sustaining economy. And this is where we have to do some numbers. How big will a self-sustaining economy look like. I am sure that there are economists that will be able to guide us in this, but my gut tells me it is something like twenty million accounts (at least), with an average balance of $500 to $1000. Anything substantially less will not have critical mass.

Unless the value proposition of Facebook credits are much bigger than what it is currently, I cannot see that these numbers would ever be achieved. Should we take Facebook currency seriously? Depends what Facebook comes up with that will entice me to keep a few hundred dollars in my account... which I have not yet opened.

Nigerian mobile payments landscape during 2011-2012

I received a lot of positive feedback on my previous blogs on the Nigerian mobile banking landscape. The e-mails and comments were very informative for me and I must thank readers for this. It was clear that a lot of attention is focused on this exciting market. I thought that I would try my hand at predicting what will happen in the next two years.

The following realities should be taken into consideration when thinking about the future of the mobile money market as it relates to Nigeria:

• This is a huge country with many people. Very few (if any) deployments can claim to reach such a vast country with so many potential subscribers. (Many of the deployments in India are still regionally focused and have not yet been made available through a country-wide agent network).
• The Nigerian people are very industrious and entrepreneurial. Viable business propositions are usually embraced and developed to grow spectacularly. Propositions that do not work (on the other hand) are quickly discarded.
• Doing business in Nigeria is expensive. Infrastructure, transportation, electricity and many more basic ingredients to run a business are often in short supply and very expensive.
• The use of physical cash is ingrained into the fibre of society. Niara notes are not just used as tender, but play a role in a number of ceremonies (for instance weddings). Getting rid of or reducing the dependency on cash will be difficult. The value proposition of mobile money will have to be huge in order to reduce the dependency on cash.

Keeping the above in mind, the winners will have to be able to scale fast with a clear (or preferably more than one) value proposition. Winners will be companies that provide a proposition that hits the spot immediately, and they will have to be well capitalised. Success in Nigeria will be very beneficial, but will cost a lot of money.

Migration of platforms after realising "mistakes"

The cost of deploying a system is much less than replacing a system not delivering on its promise. The migration of systems from old versions to newer versions are always an expensive exercise. Even just stopping a roll-out process to consider a decision and review alternatives can be costly. When organisations realise that they have made a "mistake" it is even sometimes to late to convert to better solutions.

In a relatively new industry like mobile banking, where clear leaders have not yet emerged and requirements are still dynamic, the selection of a technology solution will often be re-visited. During the past year, this re-evaluation of platform decisions occurred in many of the established deployments. A lot of effort was spent on evaluating alternatives (even after lengthy deployment projects have completed). Many banks have realised "mistakes" and re-tooled (requiring major investments and leading to very long delays in getting services ready). I am sure we are all aware of many such cases.

The mobile banking industry would have been much more advanced if it was not necessary to throw out systems to be replaced by better solutions. This would have been (and can) be eliminated if companies choose platforms with robust architecture based on a proven track record.

How to value mobile financial services ventures

One of the best quality reads on mobile financial services ventures and how to invest in them is a blog maintained by Tom Noyes (Read here). The information is well researched and Tom is very direct in his opinions - no beating about the bush. He recently wrote a lengthy article on guidance for investors in mobile money (Read here).

While I do not agree with all his conclusions it is definitely worth a read. Some of the frameworks presented by him is an indication of the companies that have briefed him on the industry. It is clear that he has not yet had briefings from a sufficiently large sample of the industry.

What I do find insightful is his conclusion (and I think he is particularly accurate with this). He warns against past transactions and state that big players in the US must still act and that when they do, will impact every mCommerce company. He is of the opinion that one should be looking for companies with an existing sustainable value proposition and a capable management team.

Providing mobile banking apps for the banking industry

One day everybody is on the NFC band-wagon the other day mobile apps. It must be difficult keeping up with the hype. This is a sample of some of the "mobile apps is the next big thing" announcements, that I read during the past week:

• Fiserv announced working with WorkLight to help banks "to more easily develop services for a proliferating variety of online and mobile platforms and devices." According to Erich Litch from Fiserv: "... helping our clients provide financial services in new ways, through new channels, and to go quickly to market by building and managing rich applications." (Read here)
• Based on research done by Forresters , mobile banking lacks "any clear differentiated functionality" (interesting!) and the conclusion is that "U.S. banks will need to enhance today's functionality significantly." (Read here). In the same report a very important conclusion is reached: "...that consumers are still struggling to figure out exactly how they will use mobile banking." (also interesting!) (Read here)

Help me, because what I take away from this is that, we must develop more functionality to help banks differentiate themselves from one-another. At the same time consumers don't know what they want to do with this thing call mobile banking. Surely this is madness? Surely we must figure out what customers want, what they would like to pay for and buy and the things that will make their world work better. This hype-talk is making me tired.

Considering the age distribution of subscriber population

One of the more thought provoking articles of the week highlighted the huge difference in age distribution between first world markets and emerging markets. (Read here). According to the article as much as 50% of the population is younger than 15 years. These people, while part of the population are unlikely to have a mobile phone and have very little income or wealth. This is significantly different by factors to first world countries.

This is particularly important from a mobile banking perspective for emerging markets for some of the following reasons:

• The spectacular penetration rates of mobile banking in emerging markets are actually even more impressive. A high penetration rate for the population is even higher if one considers the real addressable market.
• The future market for mobile banking is big in these countries and can be reached as they mature if the products are designed to be relevant. By offering the right financial products for youngsters, suppliers of mobile banking will catch the future market as it matures.
• One should develop a separate distribution strategy aimed at teenagers with different needs and affordability.

Looking at the markets in Africa through a lens that is age sensitive, one will see many different aspects.
.

Summary of some high profile NFC payment announcements

Its official, if you do not have a NFC story, you are probably not serious about mobile banking. Since the announcements of Google and the implications of what Apple may be doing, NFC temperature has increased with quite a few degrees. I decided to look at the announcements during the past fortnight and group the media under high on the "will be able to index" and actual achievements. First the media releases talking about what will be done:

• Barclays with Orange and T-Mobile to launch NFC system this summer in the UK (Read here) and probably also with Everything Everywhere (or are Baclays going to do two launches this summer in the UK) (Read here)
• LG to launch NFC system in Europe next year (Read here)
• Speculation on having NFC chips on iPhones and iPads (Read here)
• VISA and Wireless Dynamics partners to do pilots in the UK and Turkey (Read here and here)

And the releases talking about things that have actually happened.

• Softbank and Gemalto trialing NFC payment in Japan (Read here)
• Futurestore in Germany tries out NFC payments and other transactions (Read here)

Still only just pilots, but at least something is running.

The challenge of activating registered customers

A large number of mobile money deployments in emerging markets now show spectacular penetration. In understanding the success of these deployments, it is important to define three definitions of penetration:

• Target market refers to the number of possible subscribers that can be registered. For instance, if the service has been deployed on a specific mobile operator network, then the target market size is equal to the total active SIM cards for this mobile operator.
• Registered subscribers are the number of customers that have been registered on the mobile money system. In other words these subscribers have a valid account on the system and can receive money from another subscriber.
• Active subscribers are subscribers that actually transact on a regular basis. The definition of active subscribers differ from one installation to another, but boils down to subscribers actually using the service.

Generally, registered subscribers can be as high as 75% of the target market, but this is rare. Penetration rates of 35% are good, whereas 15% are achieved frequently. One should expect to have more than 50% of registered customers active, but this is sometimes quite low (5-10%). Installation with higher active subscriber penetration rates are usually profitable and sustainable. It has become more and more important for operators to get this percentage higher.

Various strategies exist to entice registered subscribers to become active. This would include special offers, promotion campaigns, new features etc. The penetration rate often start climbing above a critical mass when the network effect kicks in. Unfortunately, it requires investment to ensure that the percentage of active subscribers grow and keeps on growing (until critical mass has been reached). A good article on some of these considerations has been published by CGAP. (Read here).

The backlash of the back-office for mobile payments

While it is somewhat complex, it is rather easy to make one phone send an instruction to move money from one account to another and for another phone to receive confirmation of the transaction having completed. Any competent student fresh out of university can probably get such a system working in a week or two. This is why the mobile payment industry is blessed with so many pilots and concept deployments. This is why industry veterans are frequently confronted by some company that "can do it at a much lower price-point". (Obviously without appropriate experience.)

It is only after a fair amount of subscribers and some transactions are being delivered that organisations typically realise the necessity of relevant and robust back-office support. I call this the backlash of back-office. To only realise the need for sophisticated back-office systems (at exactly the wrong time)... when the solution starts picking up traction. It is often then too late.

Mobile money systems should be designed and constructed with back-office support central to the architecture. The low cost, small value environment requires a decisive and efficient back-office... very much different in design and process than existing banking systems. These systems must be able to cater for on-line subscriber queries and requests, while at the same time monitoring large volumes of transactions. The back-office must be able to cater for unavailability of certain components and enabling call centre staff to manage adverse (and sometimes unpredictable) situations. The pressure on support staff and the demands from clients lead to complex business imperatives that can only be supported with extremely sophisticated and specialised back-office systems.

Metrics framework for mobile payment deployments

I recently read a cool article on the progress of mobile money in the Philippines. (Read here). It was full of quotes on the size of the market, the penetration, volumes etc. And what was good about it, was that it was explicit about this, given clear numbers. Some of the measurements referenced were:

• The addressable market is 70 million out of a population of 90 million
• Monthly value of P5 billion (US$ 115 million) is processed on Globe and P13 billion (US$ 300 million) on Smart.
• More than 18 000 outlets (agents, merchants?)
• Smart now have 8.5 million subscribers
  

Similar numbers (but not as comprehensive) were quoted in another article (Read here).

These numbers are impressive, but I wanted to get a feel for growth, usage, profitability and efficiency and felt that the metrics (and the numbers) just scratch the surface. What about looking at metrics like average transaction value, money retained per subscriber, volume transacted by subscriber by month or cost/revenue per subscriber or per transaction. Also what was it like one year ago and how ill it look in a years time? Things like this would have told me more about the service and how well it is doing (or will be doing).

As we get to know the industry better, should we not develop commonly acceptable metrics that we can share to evaluate how well we are doing?

The telefonica mobile money announcements are confusing

From a banking the underbanked perspective, Telefonica is one of the most exciting group to make things happen. With almost 300 million subscribers, and a healthy mix of emerging, semi-developed and first world countries, this group can influence the industry with exciting services. This is why I have followed their progress with a lot of interest (and support).

Prior to 2010, many announcements regarding mobile financial services were made. These ranged from money remittances in conjunction with Western Union (Read here), to other innovative solutions, in this case with More Magic (Read here). Fundamo also deployed our solution in a pilot environment (with support from the GSMA and Accenture) on one of Telefonica's bigger networks. My understanding (at least those that I had visibility of), was that these deployments worked well and showed a lot of promise.

Then the group process kicked in and a technology solution was selected for the group. The announcement was made early in 2010 and Trivnet was selected as the supplier of the solution (Read here). All other initiatives were delayed or discontinued in expectations of the new solution that would be rolled out swiftly to group companies that needed solutions urgently. This is why the latest announcement (Read here) was so confusing for me. Telefonica is now partnering with Mastercard to roll out this service.

When discussing this on one of Linked-In chat sessions, one of the participants commented "It would seem logical that the Trivnet experiment would be eclipsed by thus. Telefonica can chalk that up as an experiment in the space and what they learned is they need a partner with greater commercial capabilities." Bad news for Trivnet, but it does look as if Telefonica selects a different flavour for every year. Such a pity.

The mobile banking revolution: Nigerian style

Monitise was the first to announce to the world that they have received a provisional license from the Nigerian Central Bank. With a slick British PR company behind them, this was too big an opportunity not to make some noise about. (Read here). Being a listed company, the press release was factually very accurate.

Soon, many press releases followed. The one trying to out-do the other in terms of the scope of services and the impact that it would have on Nigerian community. (Read here and here). While it was clear that a number of licenses have been approved by CBN, no official announcement could be found. The CBN website remained non-committed in terms of who received a license and under what terms. It was not clear what was in the public domain and what could be reported on.

This is such big news and the different parties that have received the green light will potentially have such a big impact in the mobile payment industry that I belive it important that this information be avialable to the general public. Based on a number of sources and informal discussions that I have had, it seems that the following entities received provisional licenses:
Bank Focused
Stanbic IBTC
Ecobank
Fortis MFB
Bank-led
UBA/Afripay
GT Bank/MTN
First Bank of Nigeria (I do not know who will be in this consortium)
Non-bank led
Pagatech
Paycom
M-Kudi
Chams
Eartholeum
E-Tranzact
Parkway
Monitiz (Is this the Monitise brand in Nigeria)
FET
Corporeti

I am not sure if this is a complete list (or even accurate). I would appreciate any comments to guide me on getting the comprehensive (and official) list. Assuming that this list is accurate, a few observations:

• It is surprising that Zain (now Airtel) did not receive the go-ahead. Or at least this is not clear. They have made such progress in Africa that it must be devastating to them not to have a license in their biggest African network.
  
• Quite a few larger banks (Zenith, Oceanic etc.) did not receive licenses. Did they not apply, or are they part of other consortia?
• What happens to existing players like Moneybox and FlashmeCash?

One should also note that the licenses are provisional and that a number of milestones must be achieved in order to be able to proceed with offering a service.

Observations on the Nigerian mobile payment licenses

Nigeria is without doubt one of the most vibrant and exciting markets that I know. With a huge population, rich in natural resources, a very high growth rate and almost no personal debt, this country is ready to surprise the world with what is possible. And more than any country this is mobile payment paradise. Consider that the country's finances is well regulated, that many banks are very profitable and sound, yet a large percentage of the population do not have access to financial services. Everybody has been working towards launching mobile products in this markets.

Previously some products were officially launched, like Moneybox (Read here) and FlashmeCash (Read here), but with limited/low levels of success. These products just did not reach critical mass. Other entrants in the market were not given licenses to operate because the Central Nigerian Bank (CBN) were in the process of reviewing the regulatory framework. This was published in 2008 and identified three different licenses that would be granted in Nigeria (Bank focussed, Bank Led and non-Bank Led). (Read here). With a great framework in place, CBN then started a structured process with submissions and proper evaluation to grant licenses.

The process took a long time. An open letter than I particularly enjoyed was written during that time by Mr Taiwo Olaoye, asking for the licenses to be granted. (Read here). However the CBN was unwavering in sticking to a well-managed and rigorous process. This culminated in the provisional granting of a number of licenses in December 2010. More about this in the next blog.

Wikileaks payment revelation and implications

Most of us thought that Wikileaks are putting politicians on a spot: primarily because they have been doing things behind our backs. Saying one thing on public platforms and another behind closed doors. Of course we knew that this is the case anyhow... so we didn't need a Wikileaks story to tell us that.

The volume of all the documents on Wikileaks and the fact that the information is now distributed on multiple mirror servers, makes this virtually impossible to search. This is why I found it interesting to read about the efforts of Visa's public relations head in Russia, Dmitriy Vishnyakov in a leak. according to the leak, Dmitriy lobbed the US to work against a proposed Russian law that would weaken the position of VISA and MasterCard in Russia.

Payments are such an important cog in the wheel of any economy that control over or influence in the workings of payments can be very profitable. This is why many players will use any means to ensure that they remain valid and entrenched if possible. I am not saying that lobbying politicians is wrong to achieve specific objectives - it happens all the time, but in the case of the payments eco-system, should we not have a more transparent and open discourse... seeing that it impacts all of us?

The ultimate payment is trackable value transfer

Have you ever given some thought on why bank-notes have numbers and coins not? Some of the coins in circulation in certain economies are worth much more than numbered notes in other economies. So it cannot just be a cost consideration. I was thinking about this when I read the article about placing a unique digital identification inside a banknote (Read here).

A definite need exists to be able to track where money goes and how it is being used. (Not that I think that a unique number for each bank-note really does this). Electronic payments, though, do have the ability to make every payment unique. Rather than investing into making bank-notes more "trackable" should one not invest in electronic payment systems?

Consumer protection implications for mobile banking

The question of consumer protection is a very important topic to consider in the new mobile money world. Consumers in this case are often not well educated, have a big percentage of their assets at risks and do not always know how to escalate problems to resolution. Most regulators are seeing this as one of their key objectives to ensure that consumers are protected.

The recently published CGAP article (Read here), lists seven risks that should be considered when regulations are established, these are:

• Protecting client funds held as electronically stored value.
• Ensuring safety and reliability of services.
• Reducing opportunities for agent fraud and other harmful conduct.
• Ensuring clear and effective disclosure.
• Protecting clients’ personal information.
• Ensuring clients have knowledge of and access to effective redress and complaint procedures.
• Keeping providers liable for agents’ compliance with regulation.

The article goes into some mitigation strategies for each of these seven deadly sins -describing procedures, oversight and training approaches. In reading this structured analysis of the problem, it became clear to me that tackling mobile money without a bank is folly. Holding funds in trust and utilising other mechanisms are just fraught with risks. That is why more and more regulators (and rightly so) insists on banks holding the funds and being the final port of call for disputes.

Given their track-record, can banks do mobile banking?

Contrary to popular believe, it is actually very difficult to do mobile banking. Not only does it require complex systems doing high volumes of transactions (with very high levels of availability), but business processes are also turned on its head. Many of the common banking principles of yesteryear do not apply anymore.

A few years ago, we viewed banks as the bedrock of society. The images of banks were solid and untarnished. The few (smaller) bank failures went by almost unnoticed. As we all know, this is not the case anymore. In many ways the images of many banks are very much different. The large stock of jokes and cartoons about the infallibility of banks are an indication of this.

Also the recent failures in bank systems (For instance, read here), have not helped to improve the image of banks. If average banks have difficulty keeping ordinary (low volume) systems like ATM's running smoothly, how much more difficult would it be to run real high volume systems like mobile banking? I think it is fair to ask if classic banks are really able to run mobile banking systems?

Doing NFC or not, that is not a question

I have noticed that Orange recently made a major commitment to NFC roll-out (Read here). Just scanning the media, tweets and blogs, it seems as if a frenzy of excitement has been whipped up by Apple and Google. Just the mere fact that they seem to be ready to ship phones with NFC radios in, has got everyone excited. (Read here, here and here, to quote just a few).

Given all the excitement, it must surely be the time to start "doing NFC". Whether you are a mobile operator, bank or technology supplier, it is impossible to ignore the reality of "doing NFC". I have been in quite a few meetings this year where everyone is talking about (and making commitments) to do NFC this year. I must say this is something that I have been grappling with silently. I have been to shy to ask someone what "doing NFC" actually is all about.

In order to make NFC work on a scale that is big enough to support the business case required to fund the infrastructure, quite a large eco-system must be established. It is only going to be possible to have critical mass if a large enough acquiring network exists, if the payment or transactional back-office systems have been deployed and integrated to the rest of the payment world, if the business procedures to support NFC solutions have been implemented and so forth and so forth.

When I think about it, I do not think that how one does NFC is a question. Many other elements of the solution must first be implemented. While the rest of the world is talking about "doing NFC", I think I will focus on establishing the back office systems that will make NFC possible when the world is ready.

Tax on mobile banking may kill the goose

I have blogged previously on the detrimental effect of taxation on the success of mobile money (Read here). Taxation on mobile transactions (and in some countries on the SIM cards required for mobile payments) inhibit the roll-out and acceptance of the service. This lower adoption rate leads to lower activity, less visibility and a GDP growth rate lower than what is possible. In effect, taxation on mobile banking leads to direct loss of income by the fiscus that is more than what will be collected through taxes.

The effect of taxation on mobile services in general has now been researched in more detail. A good report confirming this effect was recently released and is worth a read. (Read here).

Have you considered unbanking the Banked?

"There's a troubling trend in this nation: People are giving up their banks." starts an article that I read recently (Read here). During 2008 the Center for Financial Services Innovation, estimated that about 13% of US households are either unbanked or underbanked. This is a large number, but what is even more interesting (worrying?) is that that this number has now grown to 25%. This is a massive shift. The article then try and fathom the reasons for this phenomena.

I would like to postulate that these customers do not want the services offered by banks (and quite frankly), banks do not want these customers as customers. They typically do not buy the services offered by the existing banks and are probably not very profitable to service. It is this disconnect between (lets call them) classic banks and lower income customers that are driving this trend. It is my view that given an alternative banking experience this trend will become a flood. If these consumers were to be able to satisfy their banking needs in a more friendly, geographically distributed way, the 25% will grow to 50%.

Here-in lies the opportunity - even in the US - to build an alternative service that will unbank the banked onto a more suitable service. This service will undoubtedly have to be based on the mobile platform.

Agent fraud and how to circumvent it

As is the case with most things that run on money, criminal elements will always be drawn to it. The more successful and visible a phenomena is, the more these elements will figure out how to corrupt it. The best way to fight fraud is to talk about it - to put it in the open and to discuss it.

A recent case of fraud involving mPesa agents (read here), caught my eye. This fraud was committed almost a year ago and I am sure suitable measures have already been taken to counter it, but it is still interesting to evaluate it.

According to this scam, a fraudulent withdrawal confirmation SMS was sent to the agent containing information obtained through a fraudulent visit by "mPesa supervisors". The SMS was sufficiently disguised to trick the agent in handing over cash to the "client" who quickly made off with the stolen money.

The following observations can be made:

• An agent should be provided with more security information prior to authorising the withdrawal of cash. The confirmation message should ideally not be carried in an open SMS message and must display in a different way.
• It is advisable to provide more verification information in the message rather than just the remaining balance.
  
• Agents should attempt to develop alternative security protocols (like requiring additional information or verification against the sender of the SMS). These protocols should be kept confidential, as it is knowledge about them that will assist fraudsters to develop mechanisms to circumvent them.
  
• One would expect that fraud will always be with us. Even the most sophisticated systems in the world are prone to fraud attacks. (Read here). It is important to ensure that levels of fraud remain low enough so as not to impact the trust in the eco-system.
  

When mWallet becomes a minimum requirement to play

I think it is pretty clear that mobile money has become a way of live for Kenyans. It is inconceivable to think of a world without mPesa and Zap in Kenya. The impact on the economy and the financial services landscape has been well researched and documented.

It may not be well-known, but the Kenyan telecommunication authority have licensed four operators to offer mobile telecommunications services in the country: Safaricom (with almost 80% marketshare and 40% Vodafone shareholding), Airtel (previously Zain) (with 13% marketshare and 80% Airtel shareholding), Orange (with 4% marketshare) and Yu Essar (with around 3%).

What I have found interesting is the activities of the other three operators. For (relatively) small operators, these companies are spending a lot of effort to launch new features and compete with their mobile wallets. Orange recently launched Orangemoney and Yu are trying their best to induce mPesa agents to switch to Yucash. Airtel's Zap has been waging a war on mPesa for longer than a year using features and price as weapons. It is interesting to observe the energy of the smaller players in this market.

It seems that a time will come in most emerging markets when having a mobile money solution will be a minimum requirement to play as is the case in Kenya.

iPhone, Google and NFC

It would be irresponsible for a mobile banking blog not to have an opinion on iPhone, Google and NFC. It is impossible to ignore the amount of excitement in the formal and social media about the instance when Eric Schmidt tapped his Nexus S on a proximity reader recently (Read here). With this small action, Schmidt signalled an intend from Google than just cannot be ignored.

I did write about the rumours related to Apple's venture into the the NFC space some weeks ago (Read here). I did highlight some of the challenges related to solving a few process and liability problems related to the secure element and personalisation then, so will not dwell on it again. Suffice to just re-emphasise that this whole mobile payment thing is much more complex and difficult to do than other digital stuff - far more difficult.

It is far more interesting to speculate on the strategic intend and approach of Apple and Google with this drive. (I enjoyed a post on technology and financial services with reference to this question a lot. (Read here)). The fundamental question is how these two giants intend integrating into the existing payment eco-system, how they intend changing it and what is in it for them. The complexity of payments is that it is tightly integrated and dependant on many other players. (Just think of the importance of banks (deposit-taking and settlement), regulators (compliance and risk-mitigation), card associations (inter-operability) and retailers (acquiring of payments), to name but a few. It is inconceivable to deploy a payment system without considering the role of these players (and many others).

Many questions remain unanswered: Do Google and Apple intend integrating into this eco-system? Working with the banks or card associations? Who will be their biggest friends and who should be scared of them? By delivering phones with NFC chips in them, what do they think will be the impact of it? Will this enable more people to transact and in when? Where will they make money? and who will loose revenue, because Apple and Google will steal it?

No matter how I dissect these questions, I only get to one conclusion: It is all about iTunes and Google accounts. The plan is that the phones will ultimately become an extension of the on-line experience. This is why Jim Balsillie (CEO of RIM) comment is so interesting: "We'd be fools not to have NFC in the near term ". (Read here).

The illusive hyper-growth position

Why is it that some mobile money deployments grow spectacularly and others just chug along without any dramatic growth? In only twelve months, some deployments grow to a penetration of 15% of their total target market, while others barely grow to more than a few percentage points.

I refer to this high growth situation as the illusive hyper-growth position. In observing what drives these deployments, I am of the opinion it is a combination of three things:

• Getting pricing wrong will kill take-up. It is important to get the fees right - not too low and not too high. Too high prices will chase prospective clients away - often for-ever. Too low prices may lead to transaction volumes that cannot be supported by the platform installed.
• Ensuring that the distribution network are built in line with the roll-out of the product is essential.It is of no use that agents are appointed, but not properly trained. The distribution network must be carefully selected and appropriately equipped.
• The mechanism and content of promotion is very important. The media used and the message will dictate if this is a success or not. It is no of no use to offer a service and then not to tell anybody of it.
  

Most important, it is critical that these three be developed in a coordinated way. It is for instance catastrophic to run a promotional campaign without having prepared the distribution network just in time. Triggering the market with a reduction in fees will not go anywhere if it is not reinforced by a supportive promotional campaign, etc.

The saga of the NFC-enabled SIM

Turkey has often taken the lead in the deployment of advanced mobile banking applications. The deployment of digital signatures (and the application in banking) is by far more advanced than anything in the rest of the world. Garanti Bank recently announced (in conjunction with Avea (a new Turkish mobile operator)) that they have launched a NFC-enabled SIM. (Read here) This is in my view, one of the most important announcements in the mobile banking industry this year. The possibilities created by this advance is huge and should be evaluated further.

The biggest challenge faced in rolling out mobile enabled NFC (waving the phone in front of a reader) solutions is that very few phones actually ship with a proximity radio. This is an essential part of the NFC eco-system. Without this little piece of hardware, it is impossible to develop NFC solutions. (No advances in software can compensate for the lack of this piece of hardware). Placing the proximity radio on the SIM card has been considered as a possibility many times, but was always discarded because of one big challenge: the radio's antennae. The SIM card is too small to also carry a big enough antennae and furthermore, the SIM card is often hidden inside the phone, sometimes behind the battery. Even if the antennae were to reside on the SIM, it would be very ineffective and different from one phone to another.

It is not clear how this problem has been solved, but it seems to have been solved. This innovation (if replicable on other networks), would allow any phone to be NFC ready by just swapping the SIM card. Other pilots have utilised the memory slots available in phones and have used proximity radios installed on microSD cards. I am of the opinion that these pilots are now doomed as it is a much more plausible solution to place the radio on a SIM card.

Why is mobile banking different to online banking?

Four years ago, I wrote a blog arguing why mobile banking is not at all like Internet banking (Read here). Most (if not all) of the arguments are still very much applicable today. The biggest being that through mobile banking it is now possible to reach a large percentage of the world's population that do not have access to banking infrastructure. This in itself is a major revolution.

However, with the massive advances in mobile phone technology and the convergence of smart phones with tablet PC's and desktops, is it still possible to distinguish between mobile banking and online banking? How is it possible to distinguish between an Internet banking session originating from an iPhone browser, a iPad's browser or a MAC? The answer is that it is not possible. It is therefor possible to perform online (read browser-based) banking from a phone. Also, it is quite conceivable that a mobile banking app (written for the iPhone) can now be run on a iPad. Is this mobile banking or tablet banking?

What is needed, possibly, is to redefine online and mobile banking in different terms and utilise new terms to distinguish between the two. I would propose still using online banking, but rather refer to mobile banking as transactional (or message-based) banking. Mobile banking (designed correctly) have utilised the phone characteristics of being able to work with messages better and also support real time push capabilities. This functionality is of course now also available on PC's and can/should be utilised by banks for this form-factor too. Transactional banking would typically focus on payment transactions (bill payments, ad hoc person to person payments, cheque-related payments etc.) whereas, online banking offer much more sophisticated reporting and information representation capabilities.

The most important difference in my mind is recognising the difference in requirements in back office systems. Online banking and Transactional banking have very different scaling challenges and the design for the one (concurrent sessions), would be very different to the other (queue management). Also the security paradigm and risk management and mitigation are also very different.

It is clear that the boundaries between online and transactional banking are busy blurring, but by making this distinction, it is possible to design better banking applications.

Businesses would welcome mobile banking

What a surprise! Fundtech in conjucntion with Aite recently found conclusively that Executives would use and embrace mobile banking if it were to be provided by commercial banks. Why did we think differently and why was it necessary to research this. (Read more about this report here)?

The notion that mobile banking is not secure and safe as is the case with Internet banking exists. How is it possible to deliver a secure service on such a small piece of equipment and what will happen if an executive's Blackberry is stolen in a pub? I am sure that this is the only concern that executives could have for not using mobile banking in their business. The fact is that it is much easier to ensure a secure (and a much better auditable) system on a personal device. The industry has failed in some ways not projecting this fact.

The implications of using mobile payments in a retail environment

Most of the spectacular successes of mobile money initiatives were built on person to person (P2P) payments. This is a transaction were money is "pushed" from one wallet to another in an instant. The recipient of the money is informed immediately that he/she received a payment. Of course, nothing stops one utilising this kind of transaction in a retail environment. One may as well just send money to a shopkeeper's mobile phone to complete a payment.

So what is the relevance of the recent mPesa announcement that mPesa can now also be used in supermarkets? (Read here). Well, it is because using mobile payments in supermarkets (or formal retail environments) are much more complex and difficult. Much more have to be catered for that does not just exist in P2P payments. Below is a sample of some of the things that one has to consider:

• The system will have to cater for multiple roles in relationship to a retail account. For instance, one would not want the receiver of funds (the till operator) to also have the ability to pay from this account. Some roles will have more functions while others may have to restricted.
• In order to support the way that a retailer works (and when fully integrated with the store automation), one may want the system to support a "pull" payment, rather than a "push" payment as is the case with P2P. This is much more complex to implement.
• The system will have to cater for other types of transactions, like for instance: refund or reversal transactions.
• The owner of the supermarket typically requires more comprehensive management information and the data stored and displayed will have to be developed in such a way that the information available caters for the need of the retailer. For instance, data may have to carry information related to the types of goods purchased.
• Furthermore, if the system is really advanced and architected well, it would already position the automation for future functionality like NFC for instance.
  

Somali payment system attracts attention from a strange source

A recent statement released by a Somali rebel group, al-Shabab and carried by Reuters was reported on widely. (Read here and here, amongst others). According to the statement, al-Shabab states that the the local mobile payment system (referred to as Zaad) is a threat to the local economy and must be discontinued by the end of the year. This story was distributed widely by an eager western press. In the eyes of many, Somali is a country of pirates with an economy based on extortion. Nothing can be further from the truth.

The condemnation of the Somali government of the ban by the rebel group was not reported on at all. (Read here). In the press release the government shows much support for the mobile banking service, highlighting the huge benefits provided by the service to the population of Somalia. Furthermore, little gets reported on the strong economy of the country based on agriculture and diaspora all over the world remitting money back into the country. The economy is not performing optimally because of the instability created by rebel groups, but is reported to be growing at rates of 4% per year. Not too bad for any country. GDP per capita is about $330 which is only slightly lower than Kenya, but higher than Tanzania for instance.

What is a pity is that very little has been said about Zaad, the local mobile payment service under the spotlight. Zaad is a locally developed and managed service available all through the country and available on all mobile operators. According to all accounts and as far as I can ascertain, it is a very well designed service and one of the first to become operational on the continent. It utilise USSD as a carrier and security implementation seems to be well though out. It seems to be rich in features and can be compared with the best available. This seems to be a really good story that should have been reported on more widely. (Read the Zaad website here).

According to Wikipedia, al-Shabaab recently decreed that gold and silver dental fillings were un-Islamic, and dispatched patrols to yank them out of people's mouths. (Read here). It is a pity that a world-class service (like Zaad) be made known to the world in conjunction with a radical group like al-Shabaab.

What is needed for digital begging?

It is clear that the way that we pay and receive payments will change drastically in the next decade. Everything else changed as the digital revolution took hold of our world, so definitely, for sure money will change too.

I was thinking about how payment behaviour will change. The things that we are used to in a cash economy as things change into digital money. Would it be possible to beg for instance? I was convinced that this would be difficult, predominantly because I believed that we will put the control of payment back in the hands of the payer.

Then I saw that the guys at Zoompass implemented a mechanism to ask people for money (Read here). As a matter of fact, the new feature even allows you to ask a whole bunch of people at the same time for money. I see where they are coming from... it is now possible to get the club fees paid in one smooth step. No more phoning or pleading to get the team's subscription paid. But this is also a great tool for beggars I think. With the help of digitisation, a beggar is now not limited to one victim at a time - one can now target a whole crowd at the same time.

The complexity of mobile infrastructure influence on mobile payments

On the right is a screenshot of my iPhone. It is a text "conversation" that I was recently confronted with. The text message that I sent to the recipient was reportedly not delivered. After some time, the recipient responded as if he did receive the message and then kept on responding five times every twenty minutes.

We have all been exposed to such a situation and (although irritating), we understand that these networks are complex and things can go wrong. For us with a bit more technical back-ground, it is clear that although I was registered on the network, something went wrong with the data-entry on the networks SMS-C.

This is possibly acceptable, because no money was lost. I had to deal with a bit of inconvenience. However, if a financial transaction or instruction was carried on these "mis-behaving" messages, money may have been lost, or it would be possible that consumers would be extremely concerned. It is just not an option to deliver financial services on a platform with this behaviour.

Now for a moment consider how to build a system that sits on top of a platform with this kind of erratic behaviour (albeit infrequently). Difficult? Almost impossible? Hmmmm