 | Issue: | EMEA 2009 |
| Article no.: | 11 | |
| Topic: | Wireless broadband? In emerging markets, | |
| Author: | Justin Ho | |
| Title: | Co-CEO | |
| Organisation: | Utiba Pte Ltd Singapore | |
| PDF size: | 200KB |
About author
Justin Ho is the Co-CEO of Singapore based Utiba Pte Ltd, a pioneer in the field of mobile based transaction systems. Mr Ho carries more than two decades of experience in the technology and finance domains. Before founding Utiba, Mr Ho had worked with NCR and Compaq Computers at various senior positions related to security and electronic commerce. He also founded Emerge Asia and was its Managing Director. Justin Ho holds an Engineering degree from the University of Melbourne.
Article abstract
Mobile money is a revolutionary service for people in developing and emerging markets. It gives people without access to traditional banking services all the advantages of a bank. For workers from developing regions working in other countries or cities mobile money is an economic lifeline to their families, letting them easily and inexpensively transfer the money they earn abroad to their families. In developed countries, mobile broadband provides sophisticated services, but in emerging markets, SMS is more than sufficient for their needs.
Full Article
Many people believe that wireless broadband will enable a world of mobile money. But the reality is that in the developing world, its SMS and regulations that are driving mobile money adoption, not faster Internet speeds. Some people also confuse mobile money to mobile banking which is a mistake. Put simply, mobile banking ties the customer to a particular bank and must be transacted through that bank’s platform; it is generally limited to how and with whom that bank allows the customer to pay. Mobile money is completely different. One can pay for goods and services using their mobile phone for anything, anywhere, and not be restricted to the location of the funds or the type of product bought. Global money We need a global mobile money system useable anywhere in the world. Analysts estimate there will be 1.4 billion wallets by 2015.1 It will influence economies and lives and help lift emerging markets from poverty. Mobile phone penetration rates in the developing world have reached 97 per cent and 49 per cent in emerging markets so this will be possible. 2 The key hindrance to the growth of mobile money is a lack of internationally recognised institutions, systems, and regulations to allow mobile money to become not only ubiquitous but also borderless. There is still no international clearing and settling organisation for mobile phone-to-mobile phone payments, but this is where the opportunity lies. A global mobile payment system – akin to Visa or MasterCard – would be useable anywhere in the world and availability for all provides economic opportunity for all. We don’t have it yet because of the many vested interests in each country. Regulators are trying to understand a new technology and protect their money supply. Banking interests conflict with mobile operators and scepticism exists regarding security and business models. There are a wide variety of solutions in various countries, but nothing yet that works across the world. Regulators are questioning to whom the payments belong and what the roles of banks and mobile operators are. Another issue is how do central banks in each country open up payments whilst maintaining control of the sovereign integrity of their payment systems and managing issues such as money laundering and terrorist money movements. Big in Japan Wireless broadband’s application to mobile money in developed markets is driven by content that people are prepared to pay for. You need both, but it is a ‘chicken and egg’ situation. If you cannot be paid, you won’t deliver the content. If you cannot create critical mass for content, why bother with complicated payment systems? DoCoMo i-mode3, opened a content billing service for merchants and charged nine per cent4 of the bill value. I call this a ‘friction charge’. Content providers collected 91 per cent of the revenue so they made enough profit to develop more applications and content. The low charge allowed the payment system to flourish. Soon, conventional goods and services including train tickets, parking, music, tickets and karaoke were added. Contactless payments and credit card payment using mobiles expanded the capability. A fraction too much friction Around the same time in other developed countries, the battle was lead by operators who were restricted to content billing and could not create ‘electronic money’. If they wanted this capability, they had work in partnership with banks and by all accounts the banks were not motivated. Telcos and banks asked, ‘who owns the customer?’ Early applications allowed mobile payment at a vending machine or a transport turnstile. These payments promised greater convenience, but they required standards for proximity payment and expensive upgrades for phones and the bank’s POS readers. An industry stalemate developed. Even content billing under the operator’s domain struggled and the operators’ ‘friction charges’ of up to 60 per cent of the revenue caused the system to flounder. Where Japan succeeded, Europe failed. Now let’s head back to Europe in 2009. Previous EU legislation only allowed banks to issue electronic money. Telcos had done so for specific products like ringtones and then only with a high ‘friction charge’. Show me the money New legislation expected in August 2009 means that other non-bank institutions will be allowed to issue ‘electronic money’ for payment of any goods and services. This breaks the standoff between banks and telcos and open a new age for mobile money in Europe. Content providers will now be able to deliver services over broadband and be paid using mobile money. Telcos will need to play a role in this payment sphere or they will become the next generation’s ISP. In emerging markets, an individual’s needs are still based upon necessity. Life in a developing country, sitting at the bottom of the economic pyramid and Maslow’s hierarchy of needs, is clearly different. It is 2002 and Grace is a Filipino worker who has moved to Singapore as a maid; she is known as an overseas foreign worker (OFW). She dos not have a bank account and her family lives in a remote village called Cantilan, a town r twelve hours by bus to the nearest bank. Grace works for US$200 per month; she gets one day off per month and sends US$170 back home on that Sunday. It takes time and costs about US$15, which is nine per cent of the amount sent. Her husband, Rico, owns a rice field and makes about US$70 per month. Grace’s money is critical to the well-being of the family – to send the three children to school, pay for power, food, health care, school fees and save money for a small tractor. Rico makes a two-day trip to the nearest town each month to collect the remittance money. The cost of the travel and time out of the field would amount to US$7. It is now 2009, mobile penetration has exploded in the developing markets and in the Philippines data options such as SMS have opened up new services. Globe Telecom has launched G-Cash and Cantilan is supported by a rural bank called Cantilan Bank. Merchants accept G-Cash for payments including power, water, medicine and supplies. G-Cash agents convert G-Cash to cash as needed and Cantilan Bank accepts loan repayments in G-Cash. Grace now remits her salary using G-Cash Remit at a cost of US$3.50 and her husband Rico now gets Mobile Money instantly on his phone, saving a two-day trip. He pays for his bills and tractor loan using G-cash and converts half of it to cash in Cantilan at his local agent. The Human League Human impact is measured in time, money and convenience; in this example, a small rural bank was able to extend its reach using mobile phones to places which otherwise could not support a branch. The operator was able to help its customers and retain an OFW as a loyal customer even when she was in Singapore. This story is constantly replayed in countries like Pakistan, Bangladesh, Malaysia, Thailand, Madagascar, Vietnam, Kenya, Sudan, Ghana, Tanzania, Mexico, Brazil and many others. These emerging economies, with their 3.5 billion people, currently lack access to formal financial services, but by 2012, 1.7 billion people without bank accounts will have mobile phones and access to data services. So how is it starting to work? Industry played a vital role by investing; Regulators provided legislation that allowed a mobile financial system to develop; and rural banks joined the mobile eco-system before commercial banks focusing on high income customers noticed the opportunity. The data is transferred using SMS (Short Message Service) or USSD (Unstructured Supplementary Service Data), so there is no need for wireless broadband. This can change people’s lives as long as governments establish compliance and regulatory policies that allow mobile operators and banks to effectively deliver these services where they are needed. Leaders in the area have been the Philippines and Brazilian central banks, and it is our responsibility to make this happen and give the world’s Ricos and Graces a better life. Money makes the world go round Banks and mobile operators will work together because it is good business; every country needs mobile money systems. This will allow OFWs with ‘mobile wallets’ to send money home to emerging markets. Imagine Raul, a worker from Mexico, toiling away in Madrid. He receives his salary directly in his mobile wallet. On a rare night off, MGM might stream a preview of the latest James Bond Movie to Raul’s phone by broadband and let him buy tickets to the film with a message from his mobile. He will pay for the train ticket by letting a proximity reader scan his mobile and go to the city to see the film. Later, he will check his family’s bills online using his mobile broadband link and use a mobile money remittance hub to pay these bills in Mexico City – directly from Madrid – using his mobile money wallet. Back in Mexico City, Raul’s wife will also receive a remittance he sent directly to her wallet by SMS. Although broadband access catalyses wallets in developed countries, SMS still meets the needs of emerging markets.
