Rolling out mobile banking in Libya

On the 14 February 2011, More Magic and Nokia Siemens Networks announced a collaboration to offer mobile commerce and financial services. (Read here). The new partners describe the advantages of the solution and the big opportunity that they see in this space. The press release also announces that the solution would be rolled out in Libya and would be running for an initial period of four months on both network operators.

On 15 February a few hundred protesters gathered in front of the police headquarters in Benghazi. The situation soon escalated into a conflict zone that made headlines as parties started fighting for control of the country. Many foreigners left the country as the situation slipped into major unrest area. It is not clear what the status of the mobile payment project is at this time.

The press release could not have come at a worse time. One should possible consider to make press releases about events that have been concluded successfully, rather than intended actions that could be impacted by events that we do not have any control over.

This thing called mobile payments is actually very difficult

It is worthwhile to read an excellent article written by Ohad Samet (Read here) on why it would be difficult for both Apple and Google to start offering real payment services to both vendors and buyers. It does not make sense to repeat the well structured article, but it is interesting to reflect on two things:

• Real end-to-end payment solutions are in essence about managing risks. Fraudulent transactions, failed transactions and non-performing transactions should be eliminated from payment schemes. The skills, the technology and the experience to do this effectively, cannot be created overnight. It is not just about appointing the right people, but also about many other things.
• We all use the products of Apple and Google and we respect what they have achieved. However, it is clear from this article that they will not be able to produce end-to-end payment solutions over-night. It is food for thought to consider this. If great companies like this will have difficulties, would it not be more so for mobile operators, banks and other companies to launch new payment solutions?
  

When financial systems require military intervention

"Italian police to play central role in protecting banking IT assets", reads one headline and "Police guard CBA cash machines as glitch hits transaction processing" reads another. These two stories were released within a week from each other.

Luckily, nothing else followed and we could rest a little bit easier. Financial systems are not deteriorating at such a rate that the only way that it will remain stable, trusted and predictable will be through military intervention. Hopefully this will not become a trend.

Western Union's mobile remittances strategy

It often happens that one is confronted by another Western Union press release regarding mobile money. (Like for instance this one). Quite a lot are being said about turning Western Union service into a mobile enabled service. Even if one visits the official Western Union website, one can find a mobile money fact sheet (with very little effort). (Read here).

It may not be commonly known, but Western Union started out as a telegraph company more than 150 years ago. This service was provided to loyal customers till as recent as 2006, when the "Telegram and Commercial Messaging services" were officially discontinued. By this time, almost all revenue was being generated from the remittance service started in 1871. (It only became the biggest generator of revenue in 1980 when it surpassed telegram revenue!)

It seems that this organisation is capable of re-inventing itself to remain relevant in a changing world. Their mobile initiative is (in my mind) a very clever strategy because of two reasons: a)They have shown that they can re-invent themselves b)They have the tools to ensure that they remain relevant in this new world of mobile payment remittances.

All mobile remittances consist of two legs: The "send leg" and the "receive leg". It is extremely difficult (as a matter of fact impossible) to change one of these legs into a mobile wallet without considerations of the other leg. Because Western Union controls many of the existing points of presence in these legs for cash transactions, they are able to activate true mobile remittances much more effectively than others. This is a classic case of developing a strategy based on your strengths to ensure that you remain relevant in future.

Mobile operator competition, rather than cooperation drives mobile money

In the establishment of a payment dispensation, it is important to consider the size of the payment community. Closed loop payment systems catering only for a few payment participants are doomed to fail as it would only be relevant for a few payments. This is why it is important to create a payment community that is as big as possible.

As mobile operators start to recognise the relevance of mobile payments, it would be to their advantage if they can create larger communities that will accept the same payment instrument. The bigger these communities are and the better the cooperation, the bigger the benefits. This is why we are seeing more and more announcements of mobile operators collaborating (Read here), or even forming Joint Ventures (Read here and here). The intention with all these initiatives are good and (if successful) will benefit all.

The intention of this is good, but if these organisations cannot truly cooperate, nothing will be produced and all the good intentions will go up in smoke. The investment would have been in vain. What I find intriguing is if it will be possible for companies that are used to compete (and do this with intensity) can actually cooperate. Many of the structures, culture and values of mobile operators are based on out-performing the competition. Will it be possible to suppress these impulses and to act swiftly on collaborating? I don't think so.

Furthermore, history has shown that progress in mobile banking has never been achieved through collaboration and cooperation, but rather through fierce competition. The successes achieved in the Philippines, Kenya, Pakistan and other countries can all be attributed to competition, whereas initiatives like Simpay (based on cooperation) delayed the deployment of mobile payments in Europe with years. Why don't we learn from history?

Mobile banking application madness

Why would you name a conference: "planet of the apps?" (Read here). It is a catchy name, for sure, but it also inadvertently made me think of the famous movie released in 1968. In this movie some humans are lost on a planet controlled by apes. I saw this movie as a child and it was very scary. I experienced a world that I could not understand and it really felt extremely threatening. Maybe this is what the organisers meant? a scary, confusing new world?

I do think that the current mad scramble to release applications for mobile devices are often not well considered, nor understood. It is often not underpinned by a good business plan nor in support of a clear business strategy.

Some of the risks of a mad rush to roll-out mobile banking applications for mobile devices are the following:

• Configuration management of applications, devices and clients and the relationship with each other can turn into a nightmare of keeping tabs of all the applications downloaded and installed.
• Client support can escalate into a situation that will be difficult to contain, if support agents are not trained properly and empowered to deal with queries related to transactions generated by these applications.
• Back office integration and support for major spikes in transaction volumes can be underestimated. This in turn can lead to unreliable services and lost transactions.

Just some thoughts to consider.

You don't need a pilot license to be flown somewhere

A recent article on Finextra indicated that O2 is seeking to gain a license from the FSA in the UK to offer financial services (Read here). This is something that happens often and is an absolute waste of time and money in my view. It is quite possible to offer financial services under your own brand without having to have a license. Many examples exist in the retail industry where famous retailers have been selling bank accounts, insurance and lending products for years utilising some-one else's license.

The complexity is not just in getting licensed, but also to build an organisation that will ensure compliance, maintain the terms of the license and manage the risks associated with non-compliance. The resources, skills, management approach and governance required to do this is often under-estimated. Changes in the risk profile of the organisation is often also not fully comprehended.

This is almost the same as applying for a pilot's license in order to attend a business meeting that will requires a transatlantic flight. When others have done many transatlantic flights, one will still be tied up in all the prerequisites to be granted the pilot's license. As is the case with the airline industry, there are many qualified and licensed pilots that can help you establish your own mobile financial service.

Towards a unified framework for mobile banking

A recent article described the mobile banking and payment industry as "confused". I tend to agree with this observation, especially after I read the article. (Read here). The article attempts to identify the different models used in offering mobile banking solutions and comes up with nine. The interesting thing is that I don't think that this is even close complete. One probably could describe another five more (especially considering emerging markets). This means that one can do mobile banking in at least fourteen different ways!

This diversity in how the problem is approached and solved is extremely problematic because it can lead to many problems:

• Developing interoperable solutions will be difficult because different systems operate in a different way. While the need is big to inter-operate (Read here), it would be difficult with many different approaches to consider.
• Evaluating different solutions (for instance for a RFP) is difficult because different vendors may approach the solution in different ways. It would then be difficult to compare the solutions and get to the best answer.
• The problem with skills will be propagated. As it is, we do not have enough skills in the industry. When staff move from one company (having applied mobile banking in one way), to another company (with a different model) productivity gains will be slow.

In short, it would be beneficial if we had a unified framework for mobile banking. It is not clear how this will be achieved, though and who will take responsibility for this.

Massive growth in mobile banking usage in South Africa

A recent survey of mobile banking usage in South Africa shows significant growth in usage of this service. (Read here). This survey published about two weeks ago, shows that the number of subscribers now using mobile banking has almost doubled (up from 27% to 44% in one year). The growth in transaction services was also healthy with purchasing airtime and bill payments the biggest penetration. A substantial percentage (12%) are now sending money from one phone to another.

What is interesting about the South African mobile banking landscape is the number of players providing a viable services. Most of the banks (if not all) provide mobile banking services, the two largest mobile operators have launched mobile money services and many independent providers are also growing strongly (Wizzit, Pocit, MiMoney, to name a few). This shows that a market can develop well with healthy competition and a number of independent players. While this does not lead to one spectacular success, this is probably more sustainable and will lead to a healthy and sustainable growth.

Ericsson's push into financial services

Another strong telecommunications brand recently announced their push into mobile financial services. Ericsson is one of the new players in this market. The announcement was made just in time for Mobile World Congress. (Read here). Reading the many press releases on this announcement and having some insight in the industry myself, the announcements are somewhat confusing to me.

According to my understanding, it is Ericsson's intention to compete with Western Union and get a "reasonable share of the market". The intention (it seems) is to not offer a service to consumers, but to rather work "with financial institutions, mobile operators and other service providers". This is an interesting strategy and according to my evaluation unlikely to succeed, predominantly because of the following reasons:

• Western Union will remain competitive, primarily because they have a major distribution network. It does not seem as if Ericsson wants to compete with Western Union in this. This means that Western Union would have a huge and unassailable competitive advantage.
  
• Connecting money remittance sources with targets is a very crowded market with many new entrants. Many have tried and failed to enter this as a new player. Competition is often on the basis of price and margins. It is not clear what Ericsson's competitive advantage will be in their new venture.
• Ericsson's strength: their telecommunication infrastructure solutions cannot necessarily be leveraged to provide mobile financial services. Banking systems and telecommunication systems differ in many ways.
• In emerging markets, mobile financial systems have only been successful with solutions targeting subscribers and with sophisticated agent management solutions. It is not clear if Ericsson intend developing these solutions themselves, or plans to work with existing suppliers.

While I have immense respect for Ericsson as a company and what they have done for the telecommunication industry, I would be surprised if they can make a major jump into financial services without an experienced partner with a proven track record in this complex industry called: mobile financial services.

Fact: Emerging markets will grow faster

Andrew Burns (World Bank Manager of the Global Macroeconomic Trends), recently hosted a one hour Q&A session. (Read here). He touched on a number of issues, but quite telling for me where his prediction that growth in developing countries to be more than double that of high income countries (more than 6 percent in each of 2011 and 2012 vs 2.4 and 2.7 percent for rich countries).

We all knew this intuitively, but here is some hard evidence: Emerging markets will out-perform first world countries during the next two years by far. This, coupled with the fact that very little payment infrastructure exists in emerging markets is an indication of the importance for mobile payments. It is critical that mobile payments be launched on the back of this growth trend.

We will have to postpone first world mobile payment deployments for a while, as we attend to this major growth opportunity.

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.
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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.