Emerging markets have long been pioneers in terms of mobile money. While adoption has more widespread in certain markets, across the sector there is a lot of interest in mobile money offerings from operators, financial institutions and regulators.
Ultimately, the goal of these products is to drive financial access to the unbanked and the underbanked, and this is made possible by the high mobile penetration in these markets.
In most emerging markets, a significant percentage of people don’t have bank accounts. This makes them a prime market for mobile banking, which allows them to use their handsets for services that would previously have involved visiting a bank branch, such as withdrawals and deposits. Due to the lack of financial infrastructure in these markets and the according low volume of transactions, it does not make business sense for banks to open branches in these remote locations, so serving the unbanked population is only made possible via mobile.
However, it is becoming increasingly apparent that most mobile money services are restricted in a certain way – the users and programmes can only operate within their own network. This means that consumers can only interact with others using the same mobile operator, or via agency locations that belong to that operator.
While services such as Kenya’s M-PESA have seen widespread adoption, a major contributing factor to this success was Safaricom’s majority share of the market. This provided the operator with the requisite scale and the ability to interact with most of the country’s mobile users – other markets however lack this scale, meaning that usage is not widespread.
This has resulted in more and more mobile money providers recognising the importance of interoperability to adoption. Being able to connect to different providers doesn’t just enhance scale by providing customers with more access points – it also adds to the efficiency of the value chain and ecosystem.
With today’s mobile money programs, the provider has to handle their own investment and infrastructure. If there are multiple providers then there is a lot of duplication, and this adds to a minimum level of cost that needs to be recovered.
The entry barrier for mobile money programs can be reduced if infrastructure is made common across multiple providers. This can be achieved with a hosted platform that sits in a data centre, thereby carrying guarantees of reliability and security. This also makes it easier for providers to integrate into the platform, reducing time to market.
Ashwin Raj, of Visa Mobile Managed Services, notes: “If a service provider acquires a mobile money solution, they then have to connect it and integrate the product, which requires a certain processing capability. Enhancing traditional mobile money programs involves adding a number of additional elements to make them interoperable. With unified open-loop solutions, we can make other programs interoperable from day one and provide additional benefits as well.”
The advantages of interoperable open-loop services are clear. Previously if a customer wanted to send money to a relative or friend who was on a cheaper talk plan from a rival operator, they would not be able to use the service. This becomes a barrier, making the customer resort to cash or some other means of payment. Similarly, closed-loop services were redundant in remote areas without an agent affiliated with the correct network. Interoperability essentially creates a unified mobile money infrastructure that allows for far greater interactivity.
Jagdish Mitra, of mobile payments specialist Tech Mahindra, highlights the importance of interoperability to financial inclusion. “Our solution is based on the banking correspondent, which is more than a mobile banking agent working for a single network. The correspondent carries information connected to every particular bank in terms of the cash available for transactions”, he says. “The banks use this mechanism to deliver their services to customer via the mobile bank; this is essentially a point of sale connected to the end systems of the banks through mobility.”
This system can then be opened up further to commerce services, encompassing concepts such as money transfer between villages. The poor literacy and numeracy present in some markets can be a boundary to both adoption of the service and user security. Mitra adds that in the spirit of financial inclusion, Tech Mahindra developed a solution to allow such potential customers to benefit from the services regardless. The correspondent is equipped with a device which can quickly identify users via photo records, as well as taking thumb prints on-site and tying this to an account.
Particularly in emerging markets, there has been a shift in attitudes towards mobile financial services from being a value-added service to being a holistic payments offering. Operators are no longer merely interested in extending customer ‘lifespan’ for another month to reduce churn; they want to provide these services as a significant branch of their business, and to do this they need to work closely with financial institutions.
Regulators are keen to ensure that this happens – for many markets, mobile financial services are unproven ground so it’s important that financial institutions are there to provide the protection and guarantees that consumers have come to expect. Regulators are trying different approaches to align operators with financial institutions – this is a significant change from the early days of services such as M-PESA.
The shift is well underway, and will continue as consumers now want to evolve over a financial value chain – once they have been provided with access, they aspire towards the next level. Banks and operators are able to capitalise on this via partnerships, as providing two trusted brands is proven to inspire customer loyalty.
In India for example, ICICI Bank has partnered with Aircel to provide services to the unbanked. This has prompted the regulator to create a structure which allows for this, combining the operator’s distribution network with the compliance and best practices of the banks to provide services and accounts to customers.
There is a lot of interest beyond the banks and operators in reaching this unbanked segment. Corporate customers can for example use the technology to implement a payroll system, while government departments can use the same payment methods for dispensing benefits. These elements are being incorporated into offerings, while consumers are also being offered services such as savings and micropayments to encourage them to use their accounts.
Mobile money has gone from strength to strength in emerging markets, revolutionising the way that people manage their money. It’s clear that interoperability is the key to pushing adoption further and truly democratising the ‘all-inclusive’ approach to finance.