Mobile Banking

During the past period I was exposed to a number of individuals from first world countries with an interest in mobile money for the unbanked (MMU). What struck me in all of our discussions is that the insight and understanding about the realities of the people at the bottom of the pyramid was totally lacking. It is important to really understand life of people that have to confront the realities of life on 2ドル a day, before we can start to produce relevant solutions. The best way to learn (of course) is to join these people for some time, to live with them and to interact with them. This is the only way to really get to grips with their situation. Also if you are brave enough to do this, prepare yourself to learn more about compassion and the meaning of life than what you will get from best-selling authors.

Poor people have a lot more to give to us (the more affluent) than what we can give to them. They have a keen understanding of community (that we have lost), of care and support of each other and figuring out priorities. Contrary to what we often think, many of these people do not want to live like us. They do not have a need to be corrupted and weighted down by luxury and possession. They merely would like to have more predictability and sufficient resources to cater for their daily needs. Only if we understand this and much more (that I am not really qualified to offer), will we be able to offer relevant solutions.

We have to start from a perspective of respect and equality when we approach the challenge. We must be open to learn and to embrace. We must be prepared to think out of the box and apply the knowledge and insights of the people we want to help. Only then will we be able to remain relevant.

KPMG published their 4th consumer and convergence report recently. This report is of interest because of the rigour of the research as well as the fact that trends can now be compared with the previous three years. (Read and download document here). Also, the research is more global than others as consumers are researched in 22 countries. (more than 5 500 consumers participated). The 22 countries represent a good mix of first world and emerging economies and also provides for good regional coverage. It would be accurate to say that this study represents a global perspective. Some of the more interesting findings related to mobile banking are:

• Consumers are much more comfortable to perform financial transactions on mobile devices than two years ago. Globally a growth of more than 100% in the two years were reported.
• The biggest reason that consumers raise for not using mobile for financial transactions remains security.
• A definite trend to use financial services more regularly on mobile devices was uncovered. For instance 5% (up from 0%) use these services almost daily. (12% up from 4% weekly)
• Unfortunately, reporting on regional differences on the take-up of mobile phones is limited in the report, but sufficient information is available to indicate that the penetration of mobile banking services is much higher in emerging economies (especially Asia), although no information is given on trends.

This report (like many others) confirm the move to accessing financial services via mobile devices. What is insightful in this report is the rate of change.

Distrust in the Banking System sows return of Homegrown currencies" reads the headline of an article in American Banker. (Read here). I could not help reading further and found some of the thoughts interesting. It seems that many schemes like this operate legally in the US. Currency is offered as an alternative purchasing tool in a specific community and could be used to stimulate economies or to market special offers. According to my understanding, this currency is backed by the dollar and does not constitute the issuing of new money.

This article triggered my memory and with a little help of my friend Tian, I stumbled on the Community Exchange System (CES) (Read here) - quite an innovative way to look at local currencies. The website makes the following claim: "With the impending implosion of the usury-based, global money system, now is the time to seek a new way of 'doing' money, one not based on debt and controlled by a global monetary elite that seems happy about destroying our planet in the pursuit of profit." The creator of this system is a guy called: Tim Jenkins. (One of the interesting stories about him, is that he escaped from a high security jail as a political activist with a key that he carved from wood!). Download this story here.

The use of and the likelihood that money/currency may change does exist. It may only happen in niche areas or for specific uses (like in the retail environment). By digitising alternative currencies and making them available through a mobile transacting platform, the use may become more prevalent. Just another wild thought.

I started my career as a Nuclear Scientist, working on nuclear reactor projects. The key about a nuclear reactor is to ensure that the neutrons produced by fission of an Unranium atom is enough to sustain the reaction in adjacent atoms. One refers to a situation where sufficient neutrons are produced to sustain other reactions as critical mass.

The deployment of mobile banking is also subject to critical mass. If the penetration is not quick enough to reach critical mass, then the deployments become de-funk and ultimately fail. I have often wondered what critical mass for mobile banking is. Is it a percentage of the population? Is it regionally bound? What are the factors that make something work and how can we manipulate it? Based on my observations, I would say that the following factors influence critical mass for mobile banking:

• The speed to get to critical mass influences critical mass. If the growth is spectacular and fast in number of subscribers, critical mass is less. If take-up is slow, it is possible to get to critical mass, but the absolute number will be more.
• The need also dictates critical mass. If the need is big (for instance in countries with very little payment infrastructure) critical mass will be reached quicker.
• Penetration must be sufficient to ensure that the network effect takes root. Even if the penetration is high and it does not satisfy the need of others to also participate in payment, then critical mass has not yet been reached. That is why factors like the design of the product, regional or socia-economic clustering and competition all play a roll in what critical mass means.

In deploying mobile payment solutions, it is important to have a good idea what will constitute critical mass.

High performance mobile money management is here. Accenture announced their new mobile money management service, providing rapid, cost-effective delivery of anytime, anywhere financial services. (Read here).

Accenture is well known as best-in-class advisory service company, but maybe less well-known is the size of their managed services. Providing managed services to many blue-chip companies, this function contributes a significant portion of the revenue of the group. The new group is called Accenture Mobility Operated Services (AMOS) and runs Fundamo technology. Companies looking for peace of mind, yet confidence that the service are well manage and and can scale should consider AMOS as the supplier to their mobile financial services offering.

The European Payments Council recently published a White Paper for Mobile Payments (1st Edition).l If you are serious about mobile payments, it is an essential read. You can download a copy from Finextra site (See here). (Document EPC492-09, Version 2.0). The European Payment Council (EPC) is the final word on payments in Europe and basically serve the banking industry. It is therefor of particular importance that this White Paper was produced and the content should be take serious.

The document touches on the need for mobile payments and benefits and also describe a number of use cases. Of interest is the fact that both proximity and remote payments are described. These two types of payments will have to co-exist and it is important that both should point to the same account details. Some ramifications of this is discussed, but the proposed way forward is sound and is based on best practice.

What I found particularly sobering (and positive) is the description of the secure element(described as "a formally-certified, tamper-resistant, stand-alone Integrated Circuit, i.e. a “chip” to store the customer’s personal data, the issuer's payment credentials (security keys) and other critical data") . It seems as if there is an acceptance that this should reside on the UICC (also known as the SIM). While it is problematic that the SIM is owned by the Mobile Operator, the paper acknowledge that this can be resolved through collaboration, contracting and the definition of standards. (Also read: European Payments Council – GSM Association
EPC 220-09 Mobile Contactless Payments Service Management Roles).

It looks as if more and more players (and more influential players) are recognising that the SIM card will play the central role in mobile payments.

In a recent report produced by Finextra, the analyst house Ovum warns banks to consider the security risks associated with mobile phones. (Read here). The analyst, Graham Titterington, makes some valuable observations about the potential security breaches possible on mobile transactions and then recommend that banks should look at the problem holistically.

He conclude that banks should deploy "end-to-end encryption" techniques from the handset to the back-office systems at the bank. With the increase in computation capability of end-user devices, this is now possible. I cannot agree more.

A few points need to be made though:

• Mobile banking is fundamentally more secure than Internet banking, because the underlying carrier is more secure. One should not loose sight of this.
• Encryption based on specific certificates and derived keys are possible with mobile devices because of a dedicated SIM card. This is the perfect way of distributing identity keys - alternatives in the Internet world is cumbersome. This should be utilised in encryption schemes - it is madness not to consider them
• The encryption algorithms utilised in mobile telephony are already built and available on all handsets. (This is part of the handset license conditions.) Utilising these primitives in encryption schemes must be considered.

I a recent article published by CGAP (Read here), the phenomena of multiple SIM cards for one user is discussed. In this article, Jan Chipchase talks about the fact that subscribers often own (and use), more than one SIM card from different operators. Often the subscriber cannot afford two phones (or does not want to carry two phones around). The result is that unique mechanisms and behaviour can be identified in these markets. The most obvious being a market for phones that will accept more than one SIM card.

Jan makes an important point that may seem obvious: identity of a cellphone user is tied to a SIM card and not a phone. Two SIM cards mean two identities. In the world of transformational banking, this does mean two wallets. It is therefor extremely likely that consumers would own more than one wallet in a world of multi-SIM. This poses interesting questions:

• How does this impact on regulatory requirements? In most of the regulatory dispensations, subscribers are subject to limits (value in a wallet, daily transactions etc.). Should a system cater for this and recognise that a subscriber actually have two or more wallets?
• How should one deploy the user interface in a multi-SIM phone? How would a transaction look like (or work) where a payment is made from one SIM card to another in the same phone?
• Thinking a bit into the future, where the secure element for an NFC transaction is suppose to reside on the SIM card, how would this work if the phone has two SIM cards?

This just again show how important it is to develop mobile financial strategies around the SIM card in emerging markets. This concept is quite foreign in a smart-phone world, where the identity dependency of the SIM card is not always visible (or masked).

Here is a thought. Why should credit cards and mobile payment devices be different? A credit card is something that I typically carry with me to make payments, at the same time, a mobile phone is a device that I carry with me to (amongst others) make payments. Surely it makes sense to envisage a situation where credit cards and a mobile payment device are merged so as to be one device. In other words, the thing that I swipe at the merchant outlet, is the same thing that I do my mobile payments on.

This is not so far-fetched. A number of recent inventions seem to indicate that this is a very likely scenario. It will just be a matter of time before the card that I swipe and the device that use to do remote payments will be exactly the same. Two examples can be made and is a case in point:

• Visa CodeSecure is a device that was recently launched (Read here and here). This is a fully functional credit card (magstripe and everything), but with a keypad and a display. This credit card can be used to generate secure one time passwords (OTP). (See the picture)
  
• It is possible to buy a phone from a company called Real Card Phone that can fit in your wallet. This fully functional dual-band phone comes with voice recognition and text message capabilities. The phone is as big as a credit card (although it is a little bit thicker). (Read here)

I believe that it would make a lot of sense to get a credit card from my bank that is able to do everything that a credit card can, but that (in addition), the credit card can also be on-line and accessible by my bank. In this way, it would be possible to do remote card transactions with "the card present", develop new security enhancing abilities or even disable the card remotely. I think that this will be a major step forward.

In the lifespan of cash the way that we know it, why is the year 2030 relevant? Well according to a survey done by MyVoucherCodes (Read here). more than half of Britons are of the opinion that Cash would have disappeared by then. This means that we would not be able to offer notes and/or coins as legal tender. I think that this is significant.

I have made predictions like this in a number of instances (Read here and here). However, this is only possible if consumers actually believe it. Cash will always be king - as long as the man in the street believe this. But when consumers start preferring alternative (electronic) payments to cash, this must be spelling the end of cash.

In my mind, this finding was one of the most important ones that I have read in a long time.

One of the great things about mobile banking is that, if implemented correctly, it provides for the ability to pay another person. This is something that is so much easier than with traditional banking. This is frequently referred to as P2P payments. When one google P2P, by far the majority of references are of Peer to Peer file sharing and related topics. Long before any references can be found to P2P payments, articles start appearing on P2P banking and P2P lending. This started me thinking...

P2P lending is a mechanism that allows individuals or groups of individuals to borrow money from others with very little (if at all any) interactions from other parties. This approach of interaction between individuals to supply banking products is quite novel, but makes a lot of sense in a connected world. I was wondering what can be learned from P2P lending initiatives vs. P2P payments. This is my un-informed list:

• I am not clear about the regulatory dispensation required to make loans with different currencies across different regions. Based on my experience with mobile payments, I am sure that this must be a huge challenge. The fact that many examples can be found of successful deployments of P2P lending must mean that this challenge has been solved. I am sure that there must be lessons learned that can be shared.
  
• Most of the P2P lending schema's utilise third parties to distribute and evaluate loans. It seems that it would be impossible to get these schemas to work (get them off the ground) without a well-developed agent-network. This is one of the lessons that we have also learned from P2P payments. Finding, appointing and training networks for P2P lending must be similar to those for mobile banking. There must be areas of synergy.
  
• Many of the P2P lending initiatives focus on the alleviation of poverty. The thinking is that by facilitating the flow of funds to poor areas, entrepreneurs will be enabled to grow economies thereby creating jobs. This vision is often shared by P2P deployment companies too. There must be some synergies.
  

As always, just a few thoughts to stimulate ideas and conversation.

It was reported recently that Vodafone Qatar would be launching a mobile money remittance service in conjunction with Doha Bank early in the next year (Read here). Anybody following mobile payments are aware of the massive benefits that remittance services bring to emerging markets as well as the relevance of the Middle East. The large migrant workforce and the vibrant and dynamic banking industry makes this an ideal market to deploy mobile remittance services. Vodafone is also well-known for the good work that they have done in this space in Africa with the well-known product mPesa. In the light of this, the Qatar announcement is particularly interesting for me because of two reasons:

• It seems that the planned product is different to the typical product launched in Kenya. While the basic functionality and the features remained the same, the registration process and compliance seem to be very different. This is good as it shows an ability to conform to different requirements in different markets.
• The prominence of a partner bank from the start of the service is also different. This is a more mature approach (for a more mature market). This may mean a slightly lower slice of the action for the mobile operator, but ensures a more robust (from a compliance perspective) approach.

It is clear that the Vodafone Group is a approaching this space in a deliberate and well-planned way.

Barclays is said to invest £ 1 Billion in improving the service to customers in the next three years. (Read here). According to the article this will be for branch improvement and investment in technology (like "mobile banking"). I get excited by big amounts like this and where global brands like Barclays make a commitment to spend to improve their customer experience.

What also interest me is the business cases that support these big amounts. As we know, big business is happy to spend, providing they can see the return on their investment. In the article, we get some insight in the business case for this huge investment. In areas where bank branches have been revamped, they have seen "growth in current account share more than double". I am not sure what this mean, but it seems as if they now have many more current accounts and this must be a good thing. The article also indicate that the group "also plans to add up to four million retail banking customers".

This is probably why they also mention mobile banking. With mobile banking properly deployed and with that kind of budget, it should be easy to add four million new customers in less than three years, providing you know what you do.

Whenever mobile money initiatives are quoted, the great work done in Kenya by Safaricom is sure to be mentioned. mPesa has become a well-known brand and rightly so! But the worry has always been that this is the only flash in the pan. Some analysts referred to the advances of Zap on the Zain network . Zain even won a GSMA award in Barcelona for Zap in the beginning of the year. However, many doubts have been raised about the actual success of Zap and the number of real transactions running on the Zain network.

That is why it is great to see the advances that MTN is making with Mobile Money in the many countries that they operate. MTN is the biggest network in Africa and the Middle East (measured on the number of subscribers). They operate networks in some of the most exciting markets in the region (South Africa, Nigeria, Iran) and have consistently grown their turnover and profitability when other networks struggle. While I have intimate knowledge of the different MTN initiatives, I never disclose information that I have that is not in the public domain. That is why I can now use some recent articles referencing some of the big advances in MTN roll-outs:

• The growth in subscribers in MTN Uganda has been rampant. A service launch just more than a year ago, now have a million subscribers and projects two million by the end of the year. (Read here).
• Not only does the system in Uganda have a large number of subscribers, but has already moved close to 200ドル million and the pace seems to be accelerating. (Read here).
• The service in Uganda shows very healthy metrics (average transaction value of 21,ドル more than 1600 outlets etc. ) (Read here)
• The mobile money service in Ghana recently announced connection to nine of the local banks. This means that subscribers of mobile money and clients of these banks can transact with each other electronically. (Read here)
• The functionality and reach of Mobile Money in Ghana is referred to frequently in the local media (Read here and here).
• Even in small country Rwanda, MTN is making progress with the roll-out of Mobile Money (Read here)
  

Two articles caught my eye recently:

M banking closes the poverty gap" says the BBC website and "Could Mobile Banking End Poverty in Africa?" another website proclaims. Both articles elaborate about the new m-Kesho product recently launched by Safaricom in Kenya (I also referred to it in this blog). The connection between providing an electronic means to save and the eradication of poverty shows a massive lack of understanding of the challenges of the poor. Poor people save anyhow (with our without electronic saving accounts). It is not their ability to now suddenly be able to save electronically that is going to make poverty go away.

It is my (unscientific) opinion that poverty is fundamentally caused by two factors:

• The cost of money to poor people are much too expensive. The cost of storing, moving and multiplying money is extremely expensive, especially if the indirect cost (loss of money, transport to get to money etc.) is taken into consideration. This cost of money has been estimated to be as high as 25% of the income of poor people. Mobile Money can (without a doubt) reduce this cost.
• The skill with which money is used often lead to an increase in poverty. Inappropriately timed loans, wasteful spending or badly balanced portfolios always destroy wealth. Even in more affluent communities this behaviour leads to poverty. If the skill in using money can be improved in poor people, poverty will also be dealt a death blow. And, yes, Mobile Money can help in many ways to increase money management skills.

So, yes, poverty can be defeated by mobile money schemes... but not in a simplistic way.

Just having written the previous blog, I was wondering what would be the characteristics of mobile financial products. What would get a financial product to qualify as mobile? Or what should one be looking for when finding financial products to deploy on mobile?

There are some things that, counter-intuitively, should not be a disqualification for mobile financial products. For instance, mobile financial products should not be for small amounts only - it is quite fine to do this for big value tickets too. As a matter of fact (if properly deployed) the phone could be a nice security enhancer for large value financial products.

The following is my list for characteristics of mobile financial products.

• Should be real-time products. Balances should be up to date all the time and any transaction should be applied immediately.
• Should be identity dependant. The ownership of the product and the identification of the ownership should be central to the product. The mobile phone carries identity best.
• The product should be dependent on some dynamic element. Transactions/payments that can be run against it or prices/exchange rates that change. Long term products where nothing change are better suited to paper. (takes less electricity)
• Information display and input fields must be limited. You do not want to complete a few page application form on a phone.

I am sure this is not an exhaustive list and much more can be said about this topic, but hopefully this stimulate some thinking.

The traction of mobile wallet solutions in a number of countries are now a reality. Millions of people that have not had access to financial services can now experience the benefits of rudimentary payment types. They can now send and receive money, purchase goods and have immediate access to information about their money. But this is not the end of the road. Other financial products that could previously not be delivered now becomes a possibility.

• Savings products are the most likely next application. As a matter of fact, many studies have indicated that subscribers with mobile wallets start using the wallet as a means to keep their money safe. Even though no interest is paid, subscribers are still comfortable in keeping their money in a wallet. This is why the launch of M-kesho recently by Safaricom in Kenya is so interesting (Read here). This is a true savings product living next to the mPesa mobile wallet. As an aside, one would think that the right way forward would be to turn the wallet into a savings account (rather than having a separate savings account.
• Extending the reach of wallets to assist with loan products take many different forms and examples from Kenya to Pakistan and the Philippines abound. The fact that it is now easier to pay out a loan, to collect repayments more smoothly, to assess creditworthiness etc. are all reasons why this sector will grow. (Read here)
• The next wave without any doubt will be when insurance products (and other risk related financial products) are to be delivered by means of mobile wallets. This will be real in a short time-frame and significant benefits will be available to both consumers and suppliers.

The operators of wallet solutions should plan to be ready to launch other financial products as their offerings start to mature.

One of the great things about our industry is how quickly a new name can appear and then become part of the vocabulary. One such a word is Smishing. In short Smishing is Phishing by making use of SMS's. The how-to of Smishing is describe in many places on the Internet (Read here) and has even made it into Wikipedia (Read here).

Using fake SMS's to get unsuspected consumers to respond to promises of wealth ("you have won the lotto") or fear of implied actions ("your account has not been paid), is not a recent phenomena. Since SMS'ing became a general means of communicating, this medium has been used to trick people into paying money (when they don't have to) or meet unknown stalkers (when they should not). What makes Smishing different and dangerous is that the technique is now being used to steal identity for purposes of accessing banking or payment information. In the light of this risk, it is important to take measures to protect consumers.

It has become important to implement a standard, easy to use and mutually understood mechanism to authenticate interactions between customers and their financial-services suppliers. This would take the form of a challenge and (secret) response. Some banks have already implemented such mechanisms, but these are not well understood, not widely used and definitely not standardised.

I always enjoy reading about China and payments. This is without doubt the biggest market for electronic payments, and therefor for mobile banking. However, so many things about China are different to what I am use to: culture, business practices, language, macro- and micro-economies. The lessons that I have learned in deployment of mobile banking solutions would probably only have marginal applicability.

Yet, it seems as if China is really moving forward aggressively in creating an ideal environment for mobile banking to thrive. I am basing this on two recent articles that I have read on Finextra:

1. It seems as if a regulatory environment is being established to govern non-financial institution payment service providers (Read here). I think that this is particularly progressive in a number of ways. Not the least being the fact that recognition is given to non-financial institution payment providers. This recognition would enable (providing that they conform to the regulations) institutions, like network operators and regulators, to offer payment services.

2. According to another article, China Unionpay has signed up a group of the country's banks, wireless operators and handset manufacturers to form a mobile payments alliance. It is possible to think of many mobile payment alliances having been established in many countries, but being able to sign an alliance with both banks and operators being a party to such an agreement is relatively unique. (Read here). If this alliance is going to work well, the mobile banking deployments will definitely be stimulated.

Maybe we should take more notice of what is happening in China. Maybe some-one can point me in the direction of an expert that could speak at a next conference and enlighten all of us.

Also read a recent blog that I posted on China.