Operators ready to take a bet on money transfer service
Banks and operators may finally be coming together to use mobile technology to make financial payments and to transfer money between customers, even across the world. Sue Tabbitt talks to those wanting to move the cash.
January 30, 2008
By Sue Tabbitt
This will be the key year for mobile financial services. Ben Soppitt, director of the GSM Association’s mobile money transfer programme would bet his life on it. Well, he’s pretty convinced, and the broader evidence seems to back up his claims.
So how ready is the telecoms industry to take good advantage? Sadly, not as ready as it could be, in the majority of cases. This is because many players have misunderstood the opportunity.
“There is a terrific amount of interest in mobile financial services, but a lack of real understanding, both among operators and the banking community.” Soppitt notes.
To some extent this is because they haven’t thought through how they are going to scale their offerings to generate worthwhile revenue streams; moreover, the majority are still missing the point about what represents genuine value to the end customer in a mobile finance or payment context.
The first applications to make the headlines and give a taster of what’s possible have been micro-payment solutions – those that allow the mobile phone or the mobile phone bill to be treated as a kind of credit card for small value transactions – in place of the small change traditionally spent feeding the parking meter, buying chocolate from vending machines, or an underground train ticket.
Theses “presence-based” applications are becoming easier, as wireless device to device communications technology is built into mobile phones, enabling mobile phones to be treated as a mobile wallet.
The latest technology to enable this is near field communication or NFC, a short-range high-frequency wireless communication technology enabling contact-less exchange of data between devices over a distance of about 10 centimetres.
NFC phones can be linked to bank account, allowing money to be debited directly from the consumers. Alternatively, pre-paid phones can be used, using credit already assigned to the phone.
Its early days for NFC phones, however and the technology is not essential to exploiting the mobile payment market.
Opening the wallet
Mike Beech, VP of product management charging at Acision, a messaging and charging company used by over 300 network operators and service providers, makes a contrast with wallets on phones: “Mobile phone accounts have the advantage that the money is not tied to the phone, but to the account holder,” he notes.
Acision is working with mobile operators to enable them to open up their payment systems to allow customers to pay for goods outside of mobile phone services.
“With a mobile phone account, if a phone is lost or stolen, the account can be blocked and re-opened through another phone. This also enables the easy and frequent upgrade of handsets – a common occurrence especially in markets like Asia – without having to run down a wallet and build up another one.”
Whichever approach they use, mobile micro payment applications have the advantage of subtly binding customers into their mobile contracts, at a time when loyalty is more precarious than ever – such is the competitive market and users’ readiness to shop around.
There is reasonable revenue potential too, so long as operators don’t get greedy and try to command too much of a share of the transaction. The general rule is that volume should be the goal, which means being prepared to take small percentages of a much larger pie.
“Getting the balance right between richness and reach is the key to success,” notes Hugh Roberts, a senior strategist at Patni Telecoms.
His company works with network operators, services providers, value-added service suppliers and vendors to develop their service and product strategies, market and brand positioning, revenue fulfilment and business modelling. Roberts himself has been tracking mobile payment for the last 15 years, and has worked with Japanese operator DoCoMo in this area.
Paying for goods and services using mobile phone is common in Japan, the largest market for 3G users, where the public is accustomed to using their mobiles to swipe their way through ticket gates or buy snacks from machines. DoComo’s latest phone, currently in prototype, is designed to let users to do this while the device is still in their pocket.
The real money
Noting that Europe lags behind otherwise less developed markets when it comes to success in mobile financial services, Roberts argues that this has less to do with technology, and is down to the fact that the industry has lost sight of where the real money lies.
“Europe tends to be fixated on complex services which are hard to manage and bill for”, he explains. “Japan and the emerging markets, by contrast, go for very simple, mass-market applications which whet consumers’ appetites, and can be developed into more complex revenue streams over time.”
For this reason, Roberts holds us premium SMS as an excellent path into more advanced mobile financial services – compared with say, more cumbersome barcode based schemes as used in concert ticketing applications, for example, which add very little value for the customer.
Take Austria, where 90% of all parking in Vienna is now SMS-based, and almost ever city in the country is SMS-enabled.
This is because all of the operators have come together to develop a uniform mobile payment system, Paybox, which works across all networks, and has attracted around 6,000 merchants.
By being prepared to share a larger pot, the operators have gained customer buy-in, paving the way for new, value-added services in the future. The risk is that customers will choose another operator, but an even greater concern is that customers will walk away if they are not offered the choice. Whether they select you over a competitor will depend on the strength of your own brand positioning, pricing and differentiation through sources of added value.
“For telecoms operators, this is a culture shock,” Roberts says. “They are used to imposing their own standards, but customers won’t accept total lock-in other than perhaps on some premium content.”
So which are the real trail-blazing applications? The benefits for the customer of paying for goods and services using their mobile are the convenience of being able to pay quickly and securely – mobile phone accounts are more secure than credit cards – without the need for cash or to have credit card details to hand, and that transactions are more traceable: cash receipts for small items are soon lost, if they exist at all.
Consumerism or bare necessity
How likely consumers are to use an application will depend on the value the service represents to them. It is impossible to generalise globally here. Developed markets are driven by consumerism and convenience; emerging markets may be driven more by bare necessity.
The growing market for mobile money transfers and other more recognisable banking services is being driven by the latter. Undistracted by fancy new services that users may never want, operators that have already enjoyed success in this market are those that have addressed a straightforward need with a basic but extremely valuable solution.
Take migrant workers who come to the West to earn a living – money that they then need to send home. The option to avoid a high risk associated with posting money in brown envelopes or the expense or wiring it through a traditional international bank service is an appealing one, which has sparked a growth in peer-to-peer money transfer services.
“Customers are people who probably can’t get to a bank during office hours, so a basic service which allows them to securely transfer funds directly and securely to another family member’s mobile phone, using SMS, without upsetting the boss, is of clear value,” explains Jote Bassi, VP of marketing and sales as Anam, which operates a global SMS money transfer service.
The process is just like sending a text message; a user simply sends a standard SMS, including the keywords ‘#cash’ followed by the amount they want to send, and, after a very simple authorisation process, the sum is automatically sent to the recipient. This acts as the instruction, then Anam, as the licensed intermediary, takes care of the money transfer. The receiver does not even need to hold a bank account. “Simplicity is the key”, Bassi notes.
Small commission
So what’s in it for the operator? “They can charge a small commission on the transaction – taking care of course to ensure that this undercuts any alternative money transfer services, to make it worthwhile to the user,” he says. “Add a small increase to the monthly fixed price element of the mobile phone bill; or bundle the service along with other sub-scriber services. Pricing can be tweaked as needed for each market.”
Subscriber loyalty is the big benefit, says Bassi, “especially as competition is so intense. This is a great way of getting customers to sign up to contracts. It adds to the portfolio of service operators can offer and at a minimal risk.”
One of the leading examples of such a service in full operation today is a peer-to-peer fund transfer service in the Philippines, called G-Cash, from domestic mobile operator Globe Telecom.
G-Cash, which entered the market three years ago, began by allowing customers to use the credit in their pre-paid phone cards to send and receive cash, settle bills and pay for goods in shops. Today, as well as acting as a credit card to pay for goods and services, it offers micro-finance repayment facilities for business in the Philippines and the ability to receive transfers from family members working overseas.
Embracing the high-volume, maximum –reach model, Globe is more than happy to settle for a nominal amount, of a new US dollars per transaction – much less if it’s a micro-payment. The operator now handles over €100 million of G-Cash transactions every day.
The rewards are a massive early-to-market advantage, a substantial customer base – the latest official figure is 1.3 million users of the G-Cash service, but the number could be substantially higher by now – and the chance to control banking services for a large proportion of these customers; many may have no other form of banking.
Meanwhile, more than 3,500 businesses are linked to G-Cash, both in the Philippines and internationally.
Vodafone pilot
A year ago, Safaricom, a mobile communications provider in Kenya part-owned by Vodafone, launched a similar service, M-Pesa, which allows customers to complete simple financial transactions by mobile phone.
The service is a pilot for the Vodafone group. It is aimed at mobile customers who do not have a bank account, typically because they don’t have access to a bank or they don’t have sufficient income to justify an account.
To use M-Pesa, customers register at an authorized agent with their Safaricom mobile number and an ID card. Once registered, customers can put money into their account by depositing cash at a local agent; send money to other mobile phone users by SMS instruction, even to recipient s who are not Safaricom customers; withdraw cash at a local agent; or buy Safaricom airtime.
Anyone doubting the potential of such services may draw breath to learn that the service added $8 million to the company’s bottom line in the first three months.
While this isn’t necessarily a proposition that could be replicated successfully in developed countries, independent market observers believe related services could transfer very well, such as business –to business payments between suppliers.
“A common misconception is to see this as just an emerging markets opportunity,” says Soppitt of the GSM Association. “But it is just as relevant to developed markets”. The opportunity is for mobile financial services more broadly, but international peer-to-peer transfers are a catalyst.
“Think of all the value-added data services that will come along in the future”, he adds. “An operator that provides a mobile wallet will be a primary source of engagement for any future service. Deploying a wallet is key – to avoid being dis-intermediated from all of this value-added stuff. This is a brave ne world that goes way beyond the scope of traditional telecoms. If the operators don’t take their place now, they could get left out altogether.”
Value to the consumer
Soppitt’s point is that, even if the business managers can’t see the commercial case immediately, the value in getting into this market early is strategic. “While there may not be a vast amount of profile here in the short-term compared to their core business, entering the mobile financial services game now is central to maintaining their value to the consumer.”
The good news is that would-be partners are jumping out of the woodwork to enter into mutually beneficial alliances, making it potentially quite easy to break into the market without too much upheaval, remodeling or risk.
The banks themselves are extremely keen to enter into alliances and joint ventures with operators and intermediaries, because this enhances their own value to the client, securing their loyalty and potentially introducing them to new services, pushing up average revenue per user.
Some service providers, such as Safaricom, have gone the whole way and launched their own mobile banks. Others have formed joint ventures. But the most common approach is to form business partnerships – which need not be exclusive.
“Our strategy is to partner with a bank each time, but to make sure we arrive at a win-win situation with the partners,” notes Mung Ki Woo, vice-president of mobile payments and contactless, at Orange.
Orange has launched a mobile money service, carried out completely on a mobile handset. The offering is due to be launched early this year in Côte d’Ivoire, Senegal, Egypt and Jordan. Users ser up a pre-paid account, linked to their mobile phone, which works like a pre-paid bank account.
Users can use Orange shops or third-party merchants which have been fully screened to credit their account. “ Our model varies slightly depending on the country, but we’re resolute that we won’t go it alone”, says Woo. “Our challenge is to make sure that we don’t offer something that’s too similar to existing services - otherwise what’s the value? That means we can’t simply just expand into banking; we have to invest something new.”
Developing partnerships with organisations like banks is a challenge in its own right, however. “It’s like Mars and Venus - we’re different species,” says Woo. “We’re two different industries with different cultures and different terms.”
Determining who will own and manage the relationship could get political too. “For us, this depends on the market”, Woo explains. “In emerging markets like Africa, the image of banks is rather negative and only 10-20% of the population have bank accounts anyway, so it makes sense to have an Orange-branded services. In the UK, on the other hand, banks work hard at their image and their customer service, so it would make more sense to co-brand or adopt the bank’s brand. The mistake is believing that one size fits all.”
Smoothing the way
Involving an intermediary is one possibility. Experienced in negotiating mutually advantageous arrangements, intermediaries can smooth the way, making sure everyone is speaking the same language and that expectations are managed.
“They will find merchants and deal with the banks and credit card companies, and integrate the payment services,” explains Anji Khanna, director at mobile billing specialist Tanla Mobile and a director of the Mobile Data Association.
Tanla is one of five accreditated intermediaries in the UK to introduce PayForIt, intended to be a standard system of payments of £10 and below. Its heritage and parent company are in India, a country of massive mobile growth.
“Do you really want a bank to deal directly with your customers, for examples?” asks Khanna. “The danger here is that they may come to feel that they don’t actually need the mobile operator in the middle.”
Intermediaries can help ensure that mobile operators know their place, too, and that they don’t become too greedy. That applies when dealing with merchants as well as financial service providers.
“In the long-term, if your aim is to compete with credit card companies, for example, your aim should be to retain 5-10% of the transaction value and give the rest to the merchant. If, as has been happening up until now, operators persist in trying to take 30-40% or even more, they won’t achieve the scale they need to dominate the global market. Instead they’ll ensure that it’s the credit card companies that industrialise the market.”
For mobile banking services, those percentages should be even smaller – typically a flat fee of £10 on a transfer of £1,000, for example, equating to 0.5% or less of each transaction. With a potentially vast market to play for, operators need to go in low to aim high.
Operators interested to move on their own seeds of ideas and initiatives from the boardroom to the market would do well to talk to independent bodies such as the GSM Association and its mobile money transfer program me in particular.
This was set up to pool ideas, information and best practice so that newcomers can learn from the mistakes and early lessons of others, and network and collaborate wherever a mutually serving opportunity presents itself.
At the association, Soppitt says that is it “doing a lot of work to provide a central point of knowledge and expertise in this area, and to co-ordinate all stakeholders, so that we can propel the market forwards”.
The organisation is working with technology companies and system integrators, such as Accecenture, Capgemini, IBM and Logica, he says.
It also liaises closely with the financial services industry and industry regulators, to ensure shared definitions and terms, interoperability, tools and views of the market. “This ensures that everyone understands each others, and that all the work they do adds value.”
Another useful port of call may be the Near Field Communication Forum, a non-profit industry association that promotes the use of NFC technology to make it easier to get information, easier to pay for goods and services, easier to use public transport, and easier to share data between devices.
A final message is not to get bogged down in one corner of this potentially vast opportunity, but to keep an open mind and an eye on the bigger picture.
As the GSM Associations’ Soppitt concludes: “Many don’t see beyond NFC payments. They see mobile financial services in its broader context as being restricted to emerging markets, where personal banking services are less developed. But the opportunity is much bigger than that”.
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For additional information, please contact:
Patrick Smith
Sonus PR
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