When in 2004 Globe Telecoms of the Philippines launched its G-CASH product as a competitor to the productive money transfer launched in 2000 by Smart, the other mobile operator in the Philippines, it seemed crystal clear that it was only a matter of time just before mobile payments and mobile banking became a major part of the way in which poor people received financial services. The MicroSave-Microenterprise Access to Banking Services (MABS) M-Banking Conversation 2009 held in Manila, motivated some reflection on what has changed in ten years in the m-banking environment. This particular Briefing Note considers some of the essential developments.
Platform / Protocol Within the early days of mobile payments, 2 main issues concerned potential providers. Would there be coverage in the areas where the unbanked and possible users will be located? And what programs / communications could the mobile phones support? It turns out that they should have been more worried about business models, and customer value propositions.
The coverage issue has largely disappeared, at least for global system for cellular communication (GSM) services. Few would-be mobile payment service providers now appear concerned over coverage. In most lower income markets general packet radio stations services (GPRS) services are now offered and 3G has been launched or is anticipated. Network reliability might still cause concern, but is most likely no greater an obstacle to operations, than other infrastructure constraints routinely faced in remote areas (power cuts, bad roads etc). In fact in many countries the mobile communication networks have proved the most resilient in times of crisis. The evolution of the handset is more difficult to monitor, but is certainly changing rapidly. Three trends seem relevant. Figure one highlights the extent to which increasingly more phones are “enhanced” – by which we mean able to handle within the air application downloads using GPRS.
One of the main concerns ten years ago was the hassle factor experienced when clients needed to download an application using customer identity module (SIM) toolkit. In fact most early solutions requiring menu downloads or for customers to remember long “strings of numeric codes” were not commercially successful, and created an asymmetry between the segments targeted and reached. Although targeting the unbanked, it was largely the banked plus literate who were able to manage the download process and the unbanked need dedicated assistance and support to handle this process which dramatically increased the expenses of launching a service. With more modern handsets, a dramatic fall in the costs of handsets, java applications, GPRS services (and an increasingly technologically-aware market) these issues seem largely to have been resolved for many users. Of the same concern was the capacity of the SIM cards issued by mobile workers to handle the additional applications. Although small data is available it seems that most networks have successfully migrated most customers to 64k SIM cards in the normal course of business, thus eliminating the constraint and also eliminating the need for customers to complete a potentially confusing SIM swap to avail of a mobile payment service.
The third problem concerns security, with operators having to make trade-offs between ease of deployment and use and security. Problems remain and continue to be a key function of debates on the appropriate business structure and partnerships required to succeed. There are now probably three groups of “core solutions” and related business models that are competing in the market, which reflect these types of trends:
i) SIM dependent plus integrated solutions – The best understand example of such a solution is M-PESA from Safaricom, which is now pre-loaded on all new Safaricom SIM cards. Becoming integrated into the SIM card, the solution may operate, and was designed to operate, for the most basic phone, and has end-to-end encryption.
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However given the degree of technological integration this type of solution is extremely challenging for a non-mobile network operator (MNO) to offer and thus gives an MNO a huge advantage over other mobile payments providers, and is thus a core feature of MNO lead business models.
ii) USSD solutions – equally successful are solutions that use unstructured supplementary service information (USSD) and simple menus to deliver mobile payment solutions. Bank cellular payment providers in South Africa have seen the greatest success with USSD
solutions. However as the initial leg from the transaction is not encrypted or protected, most of these services have been confined in order to “closed loop transactions” – where money is passed between accounts or users at a single bank, but not between banks. This is a large constraint to achieving widespread use of mobile payments as interactions is going to be confined to either the bank’s own customers and out of system payments need to be to cash. As all phones can use USSD, the solution can reach large target segments, and as the USSD service will not require integration with the SIM card, these services can be launched with minimum involvement of a MNO. Although the MNO needs to agree to make the service obtainable and this has been a problem in some marketplaces. In USSD solutions anybody can “play” and banks have tended to be the particular winners.
iii) GPRS/Java solutions : involving downloads. As noted above downloading solutions to an “enhanced” mobile phone is considerably easier, and an increasing number of people have higher quality phones, or soon will have them. It is likely that most people who are banked now have phones that can handle such downloads. This business model is perhaps the most contestable as the downloadable software can be from a bank, mobile network operator or any other third party. The particular drawback remains that the solution is no more secure than accessing the internet, and also to compensate the provider for the linked risk transaction fees tend to increased.