Mobile Payments & Standards - the Real Value of Mobile

Discussion follows below in answer to this article posted by SWIFT last year:

09 Jun 2009 by Dialogue magazine

Mobile payback

(The full version of this article originally appeared in Dialogue, Issue 21, Q3 2009. To download a copy, visit the documents section of the Dialogue community. To subscribe to the print edition of Dialogue, please email your contact details to: Dialogue@swift.com.)

The adoption of mobile payments in developing markets, particularly Kenya, India and China, is becoming more widespread, even commonplace, in rural areas where no other banking or payment infrastructure exists. A recent report from consultancy firm Arthur D. Little predicted that mobile payments are poised to rocket in developing economies over the next few years, with total transaction volumes expected to reach USD 250 billion by 2012.

Consumers can use these services for bill payments, person-to-person payments and remittances, with transactions typically completed via a basic SMS message. This form of payment provides advantages to customers because of its convenience as an access channel – most people have a phone that is usually turned on – the ease with which transactions can be executed and the potential for completing payments in real-time.

In more developed markets, where the majority of the population has access to a wide range of bank facilities, there is still NFC (near field communication), or contactless payments, via mobile phones for small transactions such as paying for taxis or pizza delivery.

“Mobile payment schemes in emerging markets – such as M-PESA in Kenya – have been hugely successful and are currently bigger than any other payments means in the country, except cash,” says Perrine Fiorina, analyst, Celent. “Pilot schemes have started in Europe, but this form of payment hasn’t been adopted by the masses as of yet.”

Remittances are also big business and are a key area of focus for mobile payments operators in developing economies. In December, M-PESA signed a deal with Western Union to allow Kenyans working in England to transfer money home by SMS in a matter of seconds.

But potential problems still lie with cross-border implementation and establishing a set of guidelines and regulations, as thus far, most countries have developed their m-payments infrastructure independently.

“Although Western Union has made some progress in facilitating cross-border payments in developing markets, there needs to be an update of regulation so that this kind of payment can be widely accepted,” saysFiorina.

Read the whole article in Dialogue, Issue 21, Q3 2009.

How far can mobile payments leverage existing market infrastructures?

How can mobile payments, involving two distinct industries, be coherently regulated?

Have your say. Leave a comment:

This comment is posted in the SWIFT Workers' Remittance User Community at SWIFTcommunity.net:

The reality is that regulations for the mobile industry are already in place with respect to communications and alternatively the financial industry already has regulations with respect to payments.

We need to reclassify mobile payments as electronic account to account payments that are independent of international borders.

Once this is done, mobile's role is simply as a new channel for the payment initiator complementing the web, the ATM (ABM), Call Centre and branch.

The real value of mobile is in the identification and communication with the intended beneficiary. To achieve this value:
1. By using the country code in front of the phone number, the mobile phone number becomes a global User ID
2. Anyone with a mobile phone can be communicated with via SMS

In the developed world, the mobile phone as a channel will be (already is) very popular with the smart phone users and a P2P payment service will merely become a menu choice. These countries tend to be the source of most international remittances whereas the developing countries, which are characterized by many unbanked individuals who currently own a mobile phone.

P2P payments both domestically and internationally present a substantial customer acquisition opportunity for established banks nationally and on both sides of a remittance corridor.

Standards

To be border independent, it is very important that standards be set surrounding both local and international P2P payments. In my opinion, this has already been done through the SWIFT Workers' Remittance message set.

The real value, and this is where SWIFT can provide significant value for all participating financial institutions (and potentially mobile carriers masquerading as banks), is in maintaining a global directory of mobile phone numbers with routing instructions to the financial institution of the intended recipient.

The challenge is that, should SWIFT maintain this directory physically, it would prove unwieldy. But what if it was new kind of directory... a directory that is dynamically maintained by the mobile user by virtue of their registration with their financial institution (or account holder)?

Not only would the growth of such a directory be viral, it need not contain any personal information of either the sender or the recipient.

SWIFT - potential for advanced value and role in P2P Payments

Should SWIFT be the trustee of such a directory, all core assets could be leveraged. Similarly, it provides an opportunity to add value locally as well as internationally.

Many nations are developing mobile payment initiatives in isolation whereas SWIFT playing the role as standards body could tie these local initiatives into a cohesive, global whole.

Adding local P2P payments will dramatically grow the Core of the Core for SWIFT and will enable the enforcement of market practice and leverage the Partner ecosystem to scale the initiative globally.

I wonder if SWIFT will seize this incredible opportunity... it is a game changer and maybe the most significant innovation in history?!

Does Zoompass represent a well thought out assault on Canadian Banks?

Is Zoompass the first of a sea change in mobile payments? For years, the mobile operators have been striving to proove that they add value to NFC based mobile payments. NFC really just turns the cell phone into a fat credit card and beyond the distribution of handsets, the mobile carriers don't add any value to the actual payment transaction as it uses the existing Point of Sale network.

So why not just create a mobile payment service where it is your card that is used to make the payment?

Consider the following.

1. The user experience, similar to all stored value mobile payment solutions is less than perfect......6 or more days to get set up.

While the registration experience is slow to fund the Zoompass account with a user’s existing bank account, this doesn’t stop them from using the service immediately with their credit card while they wait for the bank account registration process. The Zoompass client is quite user friendly and once the user has completed the initial registration, the service becomes much easier to use and very convenient.

2. The user still has to manually initiate a transfer from their bank account to their Zoompass account which is inconvenient due to the 2-3 business day wait for settlement.

This will likely change when they are granted Interac status. Then they will be able to offer a service similar to PayPal in which you do not have to pre-fund your account, it is done dynamically when you make a payment from your Zoompass account. When this happens, Zoompass will automatically debit the attached bank account making the service much more convenient for the consumer.

3. After several years Paypal is still minor in terms of volume in and out of Canadian Banks.

While volume out of the Canadian banks is relatively minor, it tends to be a one-way transfer. The largest eBay users are merchants who tend to keep their money in their PayPal account thus the money stays outside the bank and payments are made from their PayPal account without ever having to come back into the bank. One thing is for certain, both Zoompass & PayPal are accruing all of the fees associated with these payments and the banks receive nothing.

In addition, PayPal as a P2P payment mechanism is marketed directly to people that purchase on eBay with the benefit that they have some recourse in their transaction. There were approximately 8.4 Million eCommerce consumers in Canada in 2007. At best, PayPal represents 15% of those payments. Thus their ability to market their mobile payment service is hampered by the small audience that they address being approximately 1.26 Million people. Note that PayPal fees average 3.66% which is higher than existing credit card revenues for issuers.

CONTRAST THIS WITH THE FACT THAT ZOOMPASS HAS DIRECT ACCESS TO 20.7 MILLION MOBILE SUBSCRIBERS IN CANADA and they are very good at marketing to them. This is more than any single bank. Once Zoompass moves out of the Beta stage, they can simply send a FREE TEXT MESSAGE TO EVERY SUBSCRIBER with a compelling reason to sign up with Zoompass.

4. The mobile carriers have entered the space but banks likely won't react until proven scale.

If the banks wait until Zoompass has achieved scale, it will be too late to counteract the momentum.

5. The banks own the vast majority of interchange revenues.

Interchange represents 4.5+ Billion dollars in fees annually to Canadian card issuers. When contactless payments become prevalent, there will be a new revenue stream from payments that were formerly made with cash thus creating additional interchange revenue. Zoompass has a clear strategy on how to participate in the existing revenue stream as a card issuer, but also in the new revenue stream created by cash replacement transactions with NFC enabled mobile payments. This puts a chunk of the existing $4.5 Billion at risk as well as a chunk of the new revenue.

6. Email Money Transfer (EMT) remains the big 5 banks competition to Zoompass domestically.

While EMT is a completely viable service which will retain its niche in higher value transfers, this service is not offered through the mobile phone. The service is only convenient when you are on-line and, in addition, it is significantly more expensive than the Zoompass service. It is also limited to participating banks. Other than registration time lag, Zoompass brings significantly more convenience to a person-to-person transfer.

When Zoompass moves out of Beta the likely chronology is:

1. Offer automatic funding of registered Zoompass accounts from bank accounts
2. Increase daily, weekly and monthly limits (to compete directly with EMT and to increase the market for transfers)
3. Issue PayPass enabled, Zoompass branded, contactless MasterCard credit cards and market to all subscribers, likely with some loyalty program tied to the Zoompass payment service (i.e. sign up for your new card and get 20 transfers for free)
4. As a free service, move the Zoompass branded MasterCard information to the new NFC enabled mobile phones, effectively moving the Zoompass credit card to “top of wallet” for all purchases. This means that Zoompass controls the new primary mechanism.

In summary, why not take all of the fees for remote mobile person to person payments, take a chunk of the existing interchange fees and position yourself to take a chunk of new interchange revenue?

Never have the Canadian banks faced a more formidable competitor.

It seems simple.... but will the banks mount a response?

Customer Acquisition & Remote Mobile Payments

Let's face it, payments are at best a break even proposition for the banks. While there is a great deal of hype surrounding mobile banking, it is mobile payments that make a difference!

The value of mobile payments is that it helps attract new customers... and relatively cheaply. If the bank can attract a new customer and retain them until they are profitable... now you have a busines case.

How does a customer become profitable....? By engaging in the other services available from the bank. "I'll have some fries with that deposit account - float? -  What's float?  I will take some insurance, a  car loan and a mortgage please... and oh yes, please charge me a monthly fee for the services with my deposit account."

Mobile payments will skyrocket... when banks internalize this fundamental truth.

... and I'm done with this guy!

Mobile Banking - Business Case?

Maybe its just me... although I noticed in a recent post to the excellent Blog by Brandon McGee at Mobile Banking that HSBC is charging for some of their mobile services i.e. alerting. This may be the only way to get a positive business case for the roll out of Mobile Banking.

When contrasting this business case to the huge available fee generating market for Mobile Payments, I am frankly shocked at how often the banks try to replicate the ATM/Branch/Website on the mobile phone instead of understanding that the mobile is poor for browsing and poor for extensive text entry. The research has shown that the consumer will pay a premium for the convenience of using a mobile device to perform a financial transaction, whereas the they expect to be able to subscribe to alerting services for free! Sounds like a case for a rich client on the phone.

If the task i.e. Sending Money or Buying Stuff is either Immediate or Impulsive and it is Inconvenient to use another channel then it is a suitable task for the mobile. However, it is imperative that user be able to perform the task in an convenient, fast & secure manner.

PayPal has proven that "transaction processing" is where the money is and that the banks still just want to let you view your account balance on a mobile!

Maybe its just me...

Mobile Phone - the New Terminal

The mobile phone really is the "new terminal".

For us Westerners, the land line phone is a staple which of course every family and business has. Did you know that on planet earth there are about 2.7 Billion mobile phones versus 1.2 Billion land line phones?
The democratization of communication is changing the way the world works. India adds 12 million new mobile subscribers every 3 months, Africa registers 7000 new users each day. Still this represents less than 20% of their respective populations. The relatively low investment in wireless technology will ensure that this growth continues unabated.

This phenomenon opens up the possibility of improving the planet! How? Communication (read information...) really is power. The Congo had its first democratic election this year. There were over 60 candidates to choose from. Before mobile phones enabled access to information, this process would have been a farce. Many of the cities & towns have no roads connecting them.

Previously, most of the individuals in the developing countries were relatively faceless, but now we can reach them as individuals. By bringing the countless millions of people access to information and encouraging them to participate formally in the economy, we have a tremendous opportunity to affect the overall standard of living in the developing countries.

By identifying and communicating with people, who previously were unreachable, we can bring them into the formal economy by engaging in group efforts like the South Africans have started. A government encouraged initiative called Mzansi.

"South Africa's four major retail banks - Absa, First National Bank, Nedbank and Standard Bank - as well as Postbank offer the Mzansi account.

Along with "container branches" and mini-ATMs in townships and rural areas, Mzansi is an initiative by the country's banks to put full-service banking within at most 15 kilometres of all South Africans, and an automatic teller machine (ATM) within at most 10km of their homes.

"South Africa compared with other developing countries is on the right track in banking its bankable population," the Banking Association says in a statement.

According to the association, about 13-million South Africans were "unbanked" at the time of Mzansi's launch. In the seven months between October 2004 and May 2005, an additional four percentage points of the population was banked via the Mzansi account, placing the country on a par with Argentina and a step away from Malaysia."

Now if we could only reach all of those unbanked who already have a mobile phone....

Trying to make a difference!