|Issue:||Asia-Pacific I 2009|
|Topic:||Mobile money – transforming the wireless paradigm|
Lucas Skoczkowski is the CEO of Redknee, a communications software company providing products for services delivery to wireless network operators around the world. Mr Skoczkowski has received the Ernst & Young Entrepreneur of the Year Award and the Top 40 Under 40 Award for Canada. Prior to Redknee, Mr Skoczkowski worked at Nortel Networks and Clearnet in various realms of Product Management. Mr Skoczkowski currently serves on the Redknee Board of Directors. Lucas Skoczkowski earned a Bachelor of Science in Electrical Engineering from the University of Waterloo.
Mobile money is the latest of many spendable symbols – starting with seashells used to buy coconuts. Mobile money is prepaid credit; the same credits used to pay for cellphone calls. Used as mobile money, these credits can be transferred by a worker to his/her family in another country or used to pay bills at a local store. This will give most of the world’s population – less than one sixth have bank accounts – their first access to banking services.
Mobile money, m-transactions, micro-payments, mobile banking, and mobile commerce – no matter how you refer to it – the ability to use a mobile device to access bank account information or to execute financial transactions is providing an unparalleled level of flexibility and convenience to a growing number of subscribers worldwide. Collectively, global mobile banking transactions are expected to grow from 2.7 billion transactions in 2007 to 37 billion by 2011, contributing close to US$8 billion in incremental revenue to mobile operators by 2012. So how does the rest of the Asia Pacific region emulate the success for which Japan and Korea have paved the way? The answer lies in two key areas – targeting the unbanked community and elevating the mobile phone as a key tool of commerce. A transaction could be anything from transferring funds to a friend’s mobile account, withdrawing funds from an account, receiving a remittance from an overseas relative, to paying for a service such as a taxi, or purchasing a candy bar at the corner convenience store. The concept of performing real-time mobile financial transactions is clearly becoming increasingly acceptable. In fact, there is a latent and growing demand for mobile money services in emerging markets where financial infrastructure is not readily accessible. The ability to transfer funds via a mobile phone in ‘under-banked’ regions means that people can avoid many hours of travel between remote villages in order to pay bills or collect wages. For those in the developed markets, the rise of near field communications (NFC) technologies also provides an opportunity for operators to directly enable a micro-payment environment while providing value-added services. Services can include billing-on-behalf-of third parties, where charges are allocated to a subscriber’s prepaid or post-paid account by the operator, and loyalty/promotional initiatives, such as targeted advertisements or coupons can be credited. Banking services for the ‘unbanked’ According to the GSM Association, fewer than one billion out of 6.5 billion people worldwide have bank accounts. At the same time, the penetration of mobile subscribers in emerging markets is increasing rapidly – with 85 per cent of the next billion subscribers expected to come from areas such as East Asia, Africa and Latin America. The parallel between the high-penetration of mobile subscribers in regions with a large unbanked population is striking. A key benefit of mobile money services is its ability to enable communication service providers and financial institutions to provide the world’s unbanked population access to banking and financial services, without the need to invest in building a bank branch network. This is particularly helpful for emerging markets, such as China, which has only 530 point-of-sale terminals and ATMs for every million people. Other examples of mobile money services that are helping the unbanked population access banking and financial services include: • International remittances let foreign workers transfer money to their home countries. These are generally international person-to-person fund-transfers of a relatively low value (under US$200). An end-to-end mobile remittance service would involve the sending mobile operator, an international money transfer service (e.g. Western Union), and a receiving mobile operator. Each of the three parties would receive a service charge that would be allocated between them. Generally, the greatest flow of remittance traffic is from the developed countries to adjacent developing regions – examples include: from the Middle East to Bangladesh and Pakistan; or from the US to Central and South America. • Airtime reselling extends the dealer network of the operator to smaller population centres by allowing any subscriber to become an airtime reseller. An airtime reseller purchases airtime from the operator distribution network at a discounted price via SMS on his/her mobile handset. He then sells airtime, once again via SMS, to end subscribers at the full price – keeping the mark-up and thereby earning an income. In addition to creating an entrepreneurial framework, the operator benefits from reduced overhead and distribution costs, as well as the elimination of theft/fraud write-offs associated with distributing physical vouchers. • A mobile wallet provides the equivalent of a bank account to the ‘unbanked’, and allows cash deposits and withdrawals. The mobile wallet is accessed via the mobile network and enables the subscriber to check the status of the account, make micropayments to merchants for goods or services, a taxi driver, perhaps, and even receive his or her weekly wages via the mobile wallet. The mobile wallet can be complemented with other mobile money services – such as the ability to recharge or top-up their mobile service account. As emerging markets develop, linkages with financial institutions will increase to extend the utility of the mobile wallet to contemporary financial services. • Roaming recharge allows mobile top-ups and transfers of minutes between subscribers of an alliance of operators. Subscriber benefits include the convenience of topping up while roaming, by using vouchers of other operators in the roaming network, as well as being able to conveniently transfer funds between subscribers of different operators. From an operator’s perspective, roaming recharge services enable increased roaming revenues for prepaid subscribers as well as the incidental revenues from any applied service charges. However, the growth of mobile money services is partially hindered by both the lack of interoperability between operators and regulatory concerns. Issues of interoperability can be readily addressed by integrating the billing infrastructure of network operators – as in the case of the KAMA KAWAIDA service offered by an alliance of six East African operators. KAMA KAWAIDA allows the subscribers of alliance member operators to move freely across the five countries just as they would on their home network, including the ability to recharge their mobile account as well as transfer funds between accounts. Regulatory issues stemming from concerns of taxation and money laundering can also be mitigated by providing the regulatory agencies with full visibility and traceability of any mobile transaction. Operators also have the ability to charge and remit any applicable taxes or surcharges as the case may be. Nevertheless, the unbanked population is not only a problem for the developing, emerging, markets. Research suggests that the unbanked population in mature markets, including the US, is significant and growing – mainly because of the migrant worker population. With over US$278 billion in transfers sent using traditional means from industrialized countries to the world’s emerging markets in 2007 alone, the potential for growth in the mobile remittances in the emerging and mature markets cannot be overlooked. Mobile revenue from international money transfers in North America is expected to grow from US$27 million in 2008 to US$1.4 billion by 2012, whereas revenues from national transfers will only reach US$17.5 million in the same period. Mobile phones as a tool of commerce For the population that has access to established banking infrastructure, the primary focus on mobile money services thus far has been associated with an increasing need for real-time access to account information – coined ‘nano-economics’. In the case of mature markets, mobile banking services offer subscribers real-time access to account balances, the ability to transfer funds and make payments or validate transactions. The largest inhibitor presently affecting consumer acceptance of mobile banking pertains to subscriber concerns with respect to security for personal data. This will be alleviated over time with the increased adoption of mobile security standards and tools. NFC technologies also present another complementary m-payment technology. Designed to work over very short distances, this ‘contactless technology’ essentially involves a mobile phone that has funds stored on its SIM card. When the phone is placed close, say within less than 4cm, to a point-of-sale (PoS) terminal using the same technology, the subscriber can make purchases by entering their PIN code. The subscriber only needs to top-up the ‘wallet’ in his SIM card regularly via a Trusted Services Manager, which could be the operator, a third party, or a bank. Many operators are working on enabling NFC technologies; a number of commercial GSM handsets supporting NFC should hit the market this year. A recent report stated that mobile money transfer and contactless NFC will together account for 50 per cent of overall market payments globally by 2013. Of this, 70 per cent will come from the Far East and China, Western Europe and North America. Nevertheless, it remains to be seen whether NFC technologies will reach the critical mass needed to stimulate mass adoption because of mobile terminals or because of the PoS infrastructure in the retail channel. Revenue generation is likely to follow the bankcard model, with the operator getting a share of the transaction fee due to the key role it plays. If analyst forecasts are sound for the market opportunities in the Asia Pacific, the mobile money opportunity is considerable and cannot be ignored. The wireless paradigm is indeed changing once again with the inclusion of mobile money services – with subscribers, dealers, operators, banks, and money transfer agencies all benefiting from the convenience and revenues generated from these services.