Mobile Money Asia

Ten Practical Ways to Enhance the Mobile Money Offer

2013-05-21T19:52:00.000+08:00

Here is a collection of concrete ideas I’ve put forth in the past to make mobile money more useful for customers. Sadly, I have yet to see any taken up, even as a pilot. Since this is a virgin blog for me, I thought I’d recycle these ideas here.

1. Allow money transfers over time to oneself

Don’t just help people move money once they have it: help them put together the money they need to make a payment. Invite customers who receive e-float to directly assign this money to some purchase(s) or payment(s) they need to make in the future, thereby preventing the money from being withdrawn today. Mobile money has broken the distance barrier in payments, and it should be extended to help people manage payments across time as well. That’s what money management is all about. This can be done simply by adding one optional question on the standard send money menu (transaction value date), and letting people send money to themselves: Me2Me. (Watch short video on the full idea here).

2. Receipts website

Customers want to be able to show a printed receipt if there are any questions around a bill paid or a business transaction settled with mobile money. This can easily be provided through a dedicated website service: enter your phone number and the unique transaction ID from the transaction confirmation SMS, and the website generates a printable bill for you. The possibility of getting a receipt at a cybercafe will offer peace of mind for business uses of mobile money.

3. Business account numbers with automatic error detection

A common form of fraud is for people to buy something with mobile money, and immediately reneging on the transaction by claiming that the money was sent in error to the wrong number. This can be eliminated by making all transactions irreversible, but that seems harsh because people do make errors from time to time. A better solution is to let business users of mobile money get a business account number distinct from their mobile phone number, which would incorporate a single check-sum digit. (Checksum digit is the result of a fixed mathematical operation on the rest of the digits in the account number, such that if a digit is mis-typed the new checksum digit does not match the one appended to the account number.) This allows automatic detection of erroneous account numbers.

4. Optional description field on all money transfers

Another common complaint of business users of mobile money is that they cannot identify who they got the money from (e.g. if the sender has used a relative’s phone instead of their usual one) or which order or invoice it is meant for (if it’s a repeat customer). This can be addressed easily by providing an optional reference field on all money transfers, so that the sender/buyer can enter any appropriate information agreed to with the seller to identify the payment.

5. Lending through peer vouching

Microcredit has shown us that lenders don’t need to know much about their borrowers as long as the borrowers know a lot about each other, and there is an incentive mechanism for people to screen and monitor each other. Mobile money customers who want credit could get other customers to vouch for them, with the weight attached by the lender to each person being based on their vouching track-record. Given some positive incentives for good vouchers and enough time for the system to learn, certain customers would naturally self-select themselves as de-facto loan agents in their town.

6. Community-level incentives to promote savings

Peer pressure has been a core tool to instill borrower discipline, but has seldom been used to promote savings discipline. One idea might be for a mobile money provider that is expanding into a new village to agree on a community-level reward once total e-money balances reach a certain level. The reward would be agreed to with the town elders (e.g. paint for the school), who could then be expected to play a role in promoting savings and the mobile money system behind it around town. Total community savings could be displayed on a thermometer at prominent place, for all to see, prompting people to want to save so as not to fall behind everyone else.

7. Simplified phone menu structure

Mobile money menus are getting long, as mobile money providers seek to promote more diverse reasons for doing essentially the same thing: sending money to someone else (to another mobile phone, to pay a bill, to buy airtime, to buy physical goods at a store, to get cash, to park money in a bank account, etc.) For basic users, this menu clutter may be causing substantial confusion and hindering adoption of new uses which reside in as yet unexplored parts of the menu. It may be better to consolidate all these uses into one menu item –send money—and let the system detect which application the customer wants to do based on what destination number he/she types in (a phone number, a biller code, an agent number, etc.) In this way the provider can still market many and diverse use cases, but need only educate customers on one standard send money process.

8. Depositing money without requiring IDs

Once you are registered as a mobile money customer, the phone and PIN should be the only things you need to do any transaction. Except that you are usually asked to show an ID to make a deposit: the regulator wants to be able to trace who the money came from, and the mobile money provider wants to ensure that you are depositing it into your own account and not bypassing P2P charges by depositing it into someone else’s. A solution to all this is to make customers request a deposit from their mobile phone at the agent and authenticate with their PIN – essentially turning the deposit into a pull transaction.

9. Withdraw through a friend

One common reason why people share PINs is so that you can ask a friend going into town to pick up some cash from your account on your behalf. It’s an entirely legitimate use case, an especially common one in the early phases of a mobile money deployment when agents are thin on the ground. But PIN sharing of course compromises your entire account. Instead of badgering customers for it, why not design an appropriate solution for it: create a withdrawal request against a one-time password which you can then share with your friend. Your friend can run away with the requested withdrawn amount, but no more. This would work much like when one sends money to an unregistered customer.

10. Focus on the basics

OK, this last one may sound like a cop out, but we need to recognize that features alone cannot drive demand. In the end, there are some basics that need to be gotten right if anything else is to work: marketing concrete use cases rather than general capabilities; driving a consistent customer experience at the agent; not skimping on agent commissions; maintaining system uptime; not growing agent numbers wildly ahead of transaction numbers, because that will kill the business case for most agents. And, despite all I’ve said above, guard against productitis: product proliferation that aims to satisfy ever-finer needs of excessively narrow customer segments.

- Ignacio Mas

Ignacio is an independent consultant on mobile money.

Cashing In on Mobile Money in the Cocoa Farmer Supply Chain in Indonesia: New Study Reveals Farmer Interest in Mobile Money Applications and Agent Banking

2013-05-20T07:51:00.000+08:00

This is a guest post on Mobile Money Asia by Brian Dusza, Shelley Spencer and Grace Retnowati.

Cash is the primary currency of trade for the 80,000 farmers harvesting cocoa in Indonesia’s rural districts of Luwu and Poelwali Mandar on the Island of Sulawesi. Farmers use cash to purchase their inputs, sell their harvest and pay their living and farm expenses. While transactions that follow the purchase from the farmer are performed through established channels in the banking systems, only a small percentage of cocoa farmers in this section of Indonesia have a bank account or any formal credit. Mobile technology, however, can change the farmers’ current reality and usher in a new era of financial inclusion. Findings from a recent market research study, commissioned by USAID’s mobile money program in Indonesia, e-MITRA, and performed by MicroSave, reveal that cocoa famers are receptive to this change. The market research studied the financial behaviors and patterns by surveying 549 cocoa farmers (a statistically significant sample) and conducting in depth interviews with farmers in four focus groups. The research provides a glimpse into the promise for mobile payments and agent banking to reach this community revealing that sixty seven percent of small holder cocoa farmers are willing to use their mobile phones and pay for a mobile money solution to conduct their financial transactions. These findings are likely to apply across Indonesia’s broad agricultural sector that employs 34% of the workforce in Indonesia. You can access a copy of the report here.

The new market research advances work by USAID in 2011 that outlined a business case for a mobile-based banking system in this value chain. You can read a copy of the 2011 report here. Cocoa farming is an important segment of Indonesia’s agriculture sector; Indonesia is the world’s third largest producer

of cocoa beans. Despite the size of this industry, the farmers producing the cocoa typically are poor and face significant financial challenges. Smallholder famers that produce most of the cocoa on Sulawesi earn annual incomes averaging $2,000 a year from the sale of their crops.

The recent market survey study moves the program one step closer to introduction of a mobile money product for these farmers by identifying the financial patterns of the farmers that can influence mobile money product design. The most significant findings are highlighted below:

Cocoa Farmers are Willing to Use and Pay for Mobile Financial Services

Cocoa Farmers Willing to Use Mobile Money

Two thirds of the cocoa farmers (67%) surveyed expressed a willingness to adopt a mobile money solution for their financial transactions.
Seventy-five percent (75%) of the farmers believe mobile money would help save them time and offer a convenient way to conduct their financial transactions.
Eighty-six percent (86%) of farmers willing to use mobile money are willing to use agents for cash-in/ and cash-out transactions.

Perceived Benefits of Mobile Money

Cash and Cocoa

The study found that cocoa farmers, similar to other small holder farmers in rural districts, transact mainly in cash. Farmers use cash for transactions including the sale of their cocoa harvest and to pay their bills:

Ninety-eight percent (98%) of the farmers receive payment for their cocoa sales in the form of cash.
Ninety-seven percent (97%) of cocoa famers pay their bills with cash.

Savings a Rarity for Cocoa Farmers

Farmers who Save

The study found that most farmers do not save and seek to supplement their income from cocoa production by planting other crops:

Less than half of the farmers (46 %) reported that they currently “keep” or save cash (using either formal or informal channels).
Of those famers who save, more than half of the farmers (54%) save in banks or BPRs (rural credit unions). Other farmers (46%) save in semi-formal and informal channels. Ninety-nine percent (99%) of farmers who save in banks also save in semi-formal and informal channels.

Cocoa farmers Lack Credit and Don’t Borrow Money

Sources of Loans for Farmers

The report chronicles the different sources for credit and borrowing for cocoa farmers including formal channels, like banks. It also delves into the use of informal lenders including: (i) cocoa collectors and traders who purchase the farmers’ crops and typically reduce the price paid for the crop as the “cost” of the loan, (ii) farmers’ groups (Gapotkan) Gadai , (iii) the practice of leasing out land for a loan, and (iv) borrowing from pawnshops (Pegadaians).

Only thirty-six percent (36%) of farmers report that they borrow money and then generally borrow from a bank only when the loan is subsidized by a program of the Government of Indonesia.
Women farmers are more likely to borrow from PNPM, a government community development program.
Farmers who borrow from banks continue to borrow because they now are familiar with banking process and have an established credit history.

Remittances will Not Drive Mobile Money Adoption for Cocoa Farmers in Indonesia

Unlike other countries where remittances has driven mobile money adoption, cocoa farmers in Indonesia do not generally send or receive money from 3^rd parties making this an unlikely entry point for mobile money adoption:

Two-thirds (66%) of the farmers reported that they never received money from their family members/friends.
Less than one third of the farmers (27%) sent money to their family members or friends (living within or outside the country).

Recommendations for Mobile Money Product Development

As suggested by USAID in 2011, the cocoa farmers of Indonesia present a valuable control group for the introduction of mobile payment and agent banking products. This new market research reveals receptivity by farmers to the adoption of mobile money products but thoughtful product design and development of a trusted agent network will be essential. The market research study includes several insights for product design and roll out. Providers entering this market can use this research to inform their product and entry strategy and use those lessons as agent banking becomes permissible in Indonesia and mobile payments systems continue to spread into the rural and poor communities of Indonesia. Getting it right the first time will be important for as one farmer said: “If such a [mobile money] service is available, we will surely try it. We may decide to not use it later on but we will at least try.” The time has come to try and providers should answer that call.

Bank Indonesia recently released guidelines for pilots by banks and telecommunications companies using mobile technology and third parties to provide limited banking services to important sectors like the cocoa industry.

Brian Dusza is the Deputy Director for the Office of Economic Growth at the USAID Mission in Indonesia, Shelley Spencer is the Program Director of the Payment Innovations Group at NetHope, Grace Retnowati is the Country Director for MicroSave in Indonesia.

In an Industry of Disappointments, Why is WING Cambodia Successful?

2013-05-17T10:26:00.005+08:00

I was delighted to read in the Phnom Penh Post last week that WING Cambodia was now processing close to US$1 billion per annum and had been profitable since the start of the year. Profitability had been achieved just on four years since the launch of the business, and in an industry where profitability is rare, I think it is a remarkable achievement, even if the original estimates assumed breakeven a couple of years earlier. What was even more pleasing was that it has put WING back on the map in the mobile money world, as the business had slipped from view somewhat with an ownership change over the last eighteen months. I was the original Managing Director of the business and saw it through its first three years of development, from creation of the business plan in the offices of ANZ in Australia, to the build of the model in Cambodia, and from launch through its first eighteen months of trading. I have tried to stay close to how it has performed since then so these are my views as to why WING has been successful, when so many others have not.

From the very beginning a strong vision was developed by the project team, articulated to new staff that joined, and then constantly reinforced. The vision of making money fair to Cambodians resonated with staff as we all knew that our target segment of the unbanked in that country didn’t get a fair go when it came to money. They are over-charged by money-lenders, garment workers have money stolen from under the mattress, and money is a source of constant worry. The vision became part of a belief system that we were doing right for the country, and at the same time building a sustainable business. I firmly believe this helped us attract the right kind of staff, and exit those who didn’t believe in the vision. This became so important, as with development of any innovation in a developing market, there were constant barriers. Belief in the vision helped the team to get through obstacles and created resilience. Pleasingly, the vision in WING continues to this day.

When WING was first conceived, mobile money was very much in its infancy. M-Pesa had just re-launched, and there were few other models in the world operating. With the absence of a template to build the business on, we partnered closely with our marketing agency River Orchid and applied a design framework to the business model. We sought to immerse ourselves in the community we would offer services to, and to deeply understand the customer; her needs, fears and desires. Every element of the value proposition was created with the customer at the core, and segmentation of the market was completed on an attitudinal and behavioural basis, rather then the normal bank segmentation of income groups. Our agency embedded staff in the business so that the design process was integrated, and this resulted in communication strategies and products that were unique, aspirational and targeted. Customer boards were created where the initial target segment of garment workers and university students were inserted in the design process to test and adapt offerings. The focus on design in the early stages of WING has helped develop a strong brand in the market that is being exploited today.

The business model was nascent, product offerings were new, and the development of the agent network was complex and expensive. We made many mistakes during the first three years, but adoption of a test and learn approach allowed the business to adapt as issues arose. Every element of the business was monitored, particularly as reporting tools developed. The agent model was restructured within the first twelve months, and products were adapted quickly. Data became critical to understand what was working and what was not. The business had to be nimble enough to fix product issues within many constraints, particularly with the original risk framework. This test and learn approach has continued with development of new products that have contributed hugely to WING’s growth such as over the counter cash transfers, and cessation of some elements of the original business model such as commission based activation agents.

It is not the most exciting part of any business, but development of a strong operational focus was an important component of WING’s success. We have started to see the emergence of frauds in a number of mobile money operations, and I always contemplate that their operational processes must have elements of weakness. In WING, we had to develop eighty-six new operational processes to support the business. These processes had to be written, tested, audited and then trained in order to ensure they were embedded in the business. Risk management had to be completely integrated into process development to ensure that there were no gaps for fraud. WING had its genesis in a bank, so we brought a bank’s mindset to operations and risk. This included development of a risk framework and management committees that were diligent in assessing new risks, and managing existing risks and issues. This operational focus has provided a foundation for WING’s growth.

Cambodia is a challenging country in many ways. The modern history of the country has meant that an entire generation was tremendously impacted, and one effect has been the ability to find experienced and educated staff of a certain maturity and age. Knowing that we would find it difficult to find senior staff, we adopted an approach of hiring young, and hiring smart. There is no shortage of young managers coming through the system in Cambodia and I was delighted with the quality of staff we had. Augmented by a few expatriates, I had a management team that was largely female, and had an average age in their mid-twenties. Whilst they needed development, they were ambitious, they were intelligent, and they were passionate about the vision for the company. This attitude was present throughout the company and many of the staff from the beginning of WING continue in management and supervisory positions today. Many of those who have left are in impressive roles in international companies in Cambodia and elsewhere, which I believe is a testament to the baptism of fire they had in WING.

There are of course multiple reasons why any company is successful or not, and I have touched on just a few that were critical in the development of WING. The engagement of IFC in helping to educate the regulator on mobile money among other projects was vital, as was the award of an Enterprise Challenge Fund grant from AusAid in the early days of the business. Internal support from a small number of executives from ANZ who believed in the business model during the early days kept the business funded, whilst the tenacity and determination of some of the original management such as current CEO, Anthony Perkins and Agent Manager, Viseth Thiev have ensured that the business is now thriving. Everyone who has been associated with this business since its start in 2007 should now be justly very proud.

- Brad Jones

Mobile Money Interoperability in Indonesia announced

2013-05-15T13:59:00.000+08:00

Indonesia’s top three mobile network operators today announced a ground-breaking initiative to allow interoperability between their mobile wallet services. All three have had licenses to offer e-money services for some time, but none have gained wider traction, due partly to restrictions on the ability to cash out.

Today they announced that it would be possible to send a Person-to-Person (P2P) service from any of these three operators to another.

Users of Indosat’s Dompetku, Telkomsel’s T-Cash and XL Tunai service can now send a P2P to users of the other networks using their SMS or USSD service for a fee of 2000 Rupiah. Users can use agents, outlets and ATMs to cash-in to the service.

The service was announced at a joint event hosted by Bank Indonesia, with participation from the Ministry of Communication and Information. At the event, Bank Indonesia also introduced its pilot program for Branchless Banking using UPLKs (Financial Services Intermediary Units)

Five banks have announced that they plan to participate in the pilot (Bank Sinar Harapan, Bank Mandiri, BTPN, CIMB Niaga and BRI). Bank Indonesia also demonstrated a pricing information system that would benefit rural farmers by giving up-to-date commodity information on a mobile phone.

A brochure (in Bahasa Indonesia) explaining the services is available here and you can expect to some more information about this in the Indonesian press soon.

Michael Joyce is a policy advisor working with the Government of Indonesia on mobile money and financial inclusion. He has been working on mobile money in Asia for five years, specialising in risk, regulation and operations. The views on this blog are his own and do not represent the views of the Government of Indonesia or constitute legal advice.

Indonesia launches Guiding Principles for Branchless Banking

2013-05-02T17:53:00.000+08:00

It's been apparent for many years that Indonesia is a market well suited to use Branchless Banking and Mobile Money to extend financial services. It has difficult geography, an enormous population and relatively low levels of financial inclusion, but a thriving mobile sector. Until today, mobile money or branchless banking services have seen only limited uptake, in large part because of regulatory obstacles. In recent months, the Central Bank (Bank Indonesia) removed some requirements regarding cash-out for mobile money, but this week it took a further step by releasing Guiding Principles for Branchless Banking.

These Principles are not a full authorisation for banks to use agents to extend services; instead Bank Indonesia will authorise a limited number of banks to conduct services through agents in pilot areas during 2013. These agents will be known as "UPLK"s (Unit Perantara Layanan Keuangan) or Financial Intermediary Service Units. The guidelines will allow certain activities to take place in Bank-Led, Telco-Led and "Hybrid" models and will allow pilots in eight provinces (South Sumatra, North Sumatra, West Java, Central Java, East Java, Bali, East Kalimantan and South Sulawesi).

Compared to many markets where Branchless Banking has taken off, Bank Indonesia is a more cautious and active regulator, and so intends to use these pilots to better understand regulatory and implementation issues in Indonesia before fully authorising any pilot activity. While widespread roll-out of branchless banking or mobile money is still some way off, this is still a significant step towards providing financial services for some 100 million people who are currently excluded.

You can download the official release from the BI Website (in Bahasa).
An unofficial translation is available here. Note that this translation has been updated on 16 May 2013.

Unburdening Phone Menus in Mobile Money

2013-04-27T12:48:00.000+08:00

Disruptive innovation typically occurs when market outsiders conceive of a service with a radically simplified user experience, offer it at a much lower total cost, and –crucially— incorporate an order-of-magnitude improvement in one key dimension that really matters to the mass market. It’s a good enough service, with a wow factor. Meanwhile, established players engage in a proliferation of features and pricing plans that only appeal to larger, more sophisticated users, who happen to be the customers they listen to more closely. As Clayton Christensen emphasizes in The Innovator’s Dilemma and subsequent writings, the disruptive service is often so basic that established players don’t even see it as competition, giving it plenty of room to grow – until it’s too late.

This plot fits perfectly with the development of mobile money, and especially Safaricom’s M-PESA service in Kenya. Mobile money reduces banking services to a bare-bones store of value and means of payment function, and blows away banks in terms of sheer retail footprint.

It is natural and entirely desirable for mobile money players, once established, to seek to improve and broaden their offering, adding features that appeal to their better customers. This comes at the cost of higher product complexity and, eventually, a more expensive service for ordinary users. They become incumbents, opening the possibility of history repeating itself.

On the complexity point, take a look at the M-PESA menu. You can now send money to a phone number (P2P), pay bills (send money to a corporate), buy airtime (where Safaricom itself is the biller), buy goods (pay a store bill on the spot rather than at the end of the month), withdraw cash (pay a store in return for taking cash rather than goods), and send money to your own bank account (M-Shwari or M-KESHO). The only difference between these is who you are sending money to and why. They are use cases around a basic money transfer capability.

Mobile phone user interfaces have tended to productize the use cases: the menu directly exposes a variety of things you can do, such as the above list. It reminds people of what they can do each time they look at the service phone menu, and advertisements for use cases can incorporate a call-to-action linked to a specific item on the menu.

On the other hand, a user interface built around a product logic has the drawback of appearing to customers like each of these use cases is something new and different, needing to be explored and understood separately. Menus first get long, then nested, eventually burying the lesser known use cases. Service categories and names seem increasingly arbitrary and confusing in customers’ minds. Menus need to be updated frequently to fit new services in, disrupting customers’ sense of familiarity with the service. All this can constitute a barrier to customer experimentation: many people will stick to what they know (largely, P2P) and ignore the rest.

An alternative is for the phone menu to expose the basic functions rather than the use cases of the service. Let’s call them send money, get money and view balance. Under send money, to identify the recipient you could enter indistinctly a phone number, a biller or merchant code, an agent code, a bank account number – or you can access a menu of pre-defined destinations (your own bank account number, frequent billers, buying airtime from the operator, etc.) In all cases you are then asked to enter the value of the transaction, and an optional description for the transaction. How the latter is precisely worded might differ based on who you are sending money to: it might say ‘your purpose’ for basic P2P, cash withdrawal, or transfer to your own bank account; ‘your account number’ for bill payment; ‘for which phone’ for airtime purchase; etc. Having captured these three standards bits of information, the user interface then displays the full intended transaction, including the applicable charge (since different amounts and use cases might incur different charges), and asks the customer to confirm it by typing in his or her PIN.

With this approach, the phone menu remains simple, short and stable. Two steps in the menu protocol are skipped (selecting the service, and confirming the transaction which we have combined with entering the PIN), making transactions faster. Because there is only one send money option and all transaction types work the same way, customers feel they have to learn the mechanics of sending money only once. Different use cases can still be advertised, but they would be promoted as one more reason to send money rather a new service that needs to be discovered and understood separately.

Similarly, the get money function would offer a standard way of getting electronic money from various sources, and could conceivably incorporate a loan feature (i.e. get money from the provider, as with M-Shwari), pulling money from your own bank account, and possibly requesting a cash deposit from the agent (which would achieve electronic rather than offline authentication of the depositor, thereby eliminating the risk of P2P bypass and improving KYC compliance).

When you want to promote many diverse use cases, should you differentiate them into products through the user interface (like an á la carte menu in a restaurant) at the risk of creating overly long menus, or should you consolidate them into a minimum set of distinct functionalities (like in a Swiss army knife) at the risk of not expressing the use cases explicitly? The question is ultimately an empirical one: which one will stimulate more usage? I am not sure what the right answer is, but I do think it’s worth asking. I don’t get the sense that this has been given due attention either by operators (who are merely replicating established formulas) or researchers.

The user interface logic needs to be looked at with a long-term perspective, since mobile money use cases and functionalities can be expected to grow quite substantially, and legacy practices will become more and more of a burden with time and success. (Do you remember when your operating system fit in a floppy disk?) Mobile money operators need to give serious thought to how to future-proof their user interface strategy.

- Ignacio Mas

Ignacio is an independent consultant in mobile money and branchless banking and has previously been Senior Advisor in the Financial Services for the Poor program at the Bill & Melinda Gates Foundation and at the Technology Program at CGAP. Previously he was Director of Global Business Strategy at Vodafone Group, Executive Vice President of Marketing and Account Management at DoCoMo interTouch, and Senior Manager responsible for telecoms investments in Europe for Intel Capital.

He has undergraduate degrees in maths and economics from MIT and a PhD in economics from Harvard University. He has also been Adjunct Professor at the Booth School of Business at the University of Chicago.

Indonesia’s Mobile Money Moons Align

2013-04-04T10:09:00.000+08:00

In the fourth most populated nation on the planet over half of the 270 million people are under 30 years old. Ambitious, entrepreneurial with strong family values, we are seeing the emergence of a middle class in Indonesia that exemplifies the unique family bonds that bind people of many ethnic backgrounds together across the most beautiful archipelago on Earth.

Indonesia is the regions only member of the G20 and is a unique, diverse culture and market that leads ASEAN with a rich and independent heritage. An economy that has ridden the tsunami of the global financial crisis of 2008, Indonesia has emerged as one of the strongest economies in the world today with a GDP of over US$800 billion. Yet, Indonesia still has approximately one hundred million people who cannot, or do not, access financial services of any kind across this vast and diverse economy.

Both regulation and innovation are alive and well in Indonesia. Innovation through banks, mobile network operators and handset manufacturers such as Blackberry, aims to reverse this ‘financially excluded’ trend. Bank Indonesia has enabled the players, albeit it cautiously over the years, and is about to release guidelines built on input and learning from Indonesia and around the world that will allow the latest innovations to build upon the ecosystems that have been built up over the years.

Innovations from microfinance players such as Bank Sinar’s pilot in Bali to numerous mobile payment start-ups such as mSaku, mobile money services such as T-Cash, Dompetku and XL Tunai to regional banks such as BPR KS. Many of these players have more advanced mobile banking ‘apps’ than many international banks around the world. Innovative solutions such as cardless withdrawals at ATMS - a relatively new concept in Europe and elsewhere - have been commonplace in Indonesia for years. Many of the ‘new’ mobile financial products around the world are business as usual here in Indonesia! Bank Indonesia has cautiously allowed innovation and now it looks like the pieces are beginning to fall into place.

Mobile phones and mobile broadbands’ explosive growth is enabling more and more of these solutions across all spectrums of the economy and financial services. Increasingly, we see financial Inclusion at the heart of this innovation and this will continue to grow with the help of the office of the President of the Republic of Indonesia, Susilo Bambang Yudhoyono and his commitments under the G20 Financial Inclusion ‘Peer Learning Program’ and the launch of the G2012 Mexico Financial Inclusion Challenge: Innovative Solutions for Unlocking Access.

Immediately, following this announcement in June last year Indonesia hosted the first “ASEAN Financial Inclusion Summit” where the Minister of Finance, Pak Agus D.W. Martowardojo delivered in his speech that ASEAN countries need to position financial inclusion front of center on the national agenda. Indonesia may be about to the benefit from this growth, which will help lay the foundation of payments for the next 20 years.

An example is Bank Sinar in Bali who launched “Sinar Sip” a mobile banking solution designed for the under-banked in this market. Another recent deployment is led by Bank Andara, Indonesia’s first wholesale microfinance bank. “Andara Link” is a unique deployment of Visa technology that has enabled thousands of microfinance branches across Indonesia to pay bills and send and receive remittance and other mobile payments. m-Saku is a local mobile payments platform set up by Indonesian developers and Visa. It allows Visa cardholders to top up their mobile phone, anytime, anywhere 24/7. (www.m-saku.me) Blackberry has just announced its intention to enter the fray with Permata Bank. Its ‘Blackberry money transfer’ is bound to generate interest and visibility, but can it stem the Samsung tide?

The Mobile Network Operators have launched mobile money services over the past four years and whilst e-money regulation is in place, mobile money still faces regulatory hurdles and branchless banking restrictions currently require strict “Know Your Customer” rules to be followed. Whilst a growing number of banks & mobile operators deliver bank grade security, reliability and connection to the various networks, the operators have yet to get the chance to really address the technical and regulatory issues imposed upon the industry. These “closed loop” deployments have been allowed to test the waters but have not been empowered to achieve scale, even though they have so far been ‘accepted’ by the consumer.

The industry has been preparing for this amazing opportunity to deliver to the unique needs of the unbanked and under-banked consumers in developing countries. Timing is everything and after the last year I have spent travelling to Indonesia I am excited at Bank Indonesia’s Deputy Governor, Pungky Wibowo announcement that Bank Indonesia (BI) will soon issue its long-awaited guideline for branchless banking. The guidelines once issued, will be reviewed in December to determine whether or not it can be fully applied as a Bank Indonesia regulation. The focus will be ‘security, technology, risk management and other related issues’. Once the guideline is issued, BI have said that the prospective branchless banking operators would have to register their services to have their readiness assessed by the regulator.

The time is right. Established players, domestic and international are coming together to enable the banks, mobile operators and consumers the opportunity to partake in a mobile and interoperable ecosystem that has been tried and tested globally over many years. New mobile-based solution will continue to offer the benefits of closed-loop payments (cash-in/out, person to person transfers, bill payment) while at the same time providing consumers a payment account that offers global acceptance and standards of security & reliability that will ensure mobile financial services are “future proofed”.

Bank Indonesia has consulted widely and has taken input from its world class local and international partners, researched global references cases and combined this with local knowledge and listened to consumer demand. Serious investment is required to allow the regulatory framework to evolve towards branchless banking and BI and Indonesia’s government has put in the necessary work to do so. The provision of Branchless Banking services by banks and mobile operators will allow non-banks to accept consumer’s deposits to their mobile money and mobile bank accounts. By deploying this proven technology under appropriate supervision, every city, town and village across the country can be brought into the financial ecosystem. Bank Indonesia, which has so successfully managed the economy throughout the GFC, is working hard to combine the success stories and regulatory lessons of mobile money in Kenya, Brazil and Mexico to deliver regulations for the complex Indonesian market place and this is no mean feat.

The respective moons of regulation, technology, financial inclusion and consumer demand are aligning in this market. Indonesia will continue to see inclusive mobile financial solutions being developed that will bring the unbanked into a rapidly developing mobile financial services ecosystem. A financially included Indonesia is the future and it is happening now.

- Stephen Breen

Stephen Breen is a guest blogger on Mobile Money Asia and is one of the most passionate leaders in Mobile Money today laying the foundations for the industry in Asia Pacific. His passion for financial inclusion saw him develop products that helped reduce the cost of inbound international remittance to the South Pacific from c.30% to 5%*. He is now following his passion for Mobile Money with a global payments company based in Singapore.

Follow Stephen on Twitter: @stephenrbreen

*Source: www.sendmoneypacific.org

Good News for e-Money and Remittance Operators in Indonesia

2013-03-27T11:10:00.000+08:00

For a few years now, all eyes have been on Indonesia as a potential growth country for mobile money and branchless banking. The market potential is obvious – with an enormous population (250million), a large number of unbanked (40-60%), booming mobile ownership and challenging geography, it seems like a clear winner. But every attempt has come across an obstacle – regulation. Banks are unable to use agents to provide accounts, so cannot build low-cost agent networks. The big telcos have all received licenses for electronic money and remittance services, but have been unable to capitalise on them. An article in the Electronic Money regulation (Bank Indonesia Regulation Number 11/12/PBI/2009) prohibits outlets from “cashing out” e-money unless that outlet has a remittance license. This has effectively limited mobile money services to operating through large organised retail chains and telco’s own outlets, excluding small owner-operated businesses.

In some recent good news for e-money operators, this last restriction appears to have been lifted. The Regulation on Funds Transfer 14/23 /PBI/2012 has a specific provision, Article 4, that says that Cash Payment Points (Tempat Penguangan Tunai or “TPT’s”) are allowed to provide a cash-out service without requiring a funds transfer license. Although this regulation doesn’t specifically mention e-money, it is covered as one of the “record keeping” systems as specified in the definitions of this regulation.

This change will cover cashing into or out from a customer’s own wallet, but it’s still not clear if it would cover “over the counter” or “wallet to non-wallet” transactions. Bank Indonesia is working on a circular to help clarify these points which is expected in the coming quarter.

In recent months, representatives from Bank Indonesia have made some significant statements on their desire to see more innovative and financially inclusive services from both banks and mobile operators. While banks are still awaiting promised guidelines on branchless banking, it’s good to see the sorts of transactions available to e-money providers expand and I look forward to seeing e-money issuers and funds transfer providers take advantage of this change.

The regulation in Bahasa Indonesia is available here. An unofficial English translation is available here.

- Michael Joyce

BBM Money - BlackBerry Taking the Lead in Emerging Market Payments

2013-03-01T18:13:00.000+08:00

The launch of BBM Money in Indonesia this week is interesting for a number of reasons. Using the BB PIN as a proxy for an account number that allows 'in-chat money transfers' to BBM contacts is one. Another is how the service uses elements of an unbanked mobile payments business model to provide services to banked customers.

Before I discuss this it would be worth sharing some background of the environment in Indonesia where BBM Money was launched;

BlackBerry is a premium product in Indonesia. It's even considered cool#. The large majority of its users are banked. In fact the premium nature of BlackBerry ownership is a prime indicator of an affluent customer. Launching a dedicated payment service in Indonesia for BlackBerry's 7 million economically active customer base is part of a very targeted strategy.

BB Messenger is king in Indonesia. BBM has 98% penetration of BlackBerry users. BlackBerry have combined with Indonesian MNOs to offer prepaid 'Biz-Social' plans for as little as US$6/m, providing unlimited emails & BBM access. BBM is the business and social communication tool in Indonesia. When I was working in Jakarta last year the ratio for business communications was 30 BBM conversations : 4 emails : 1 phone call. Before I got my BlackBerry, work progressed very slowly. Similar ratios would apply for social communications. Not having a BlackBerry in some Indonesia circles is akin to placing yourself on social death-row.

Scheme credit & debit card (i.e. Visa & Mastercard) penetration in Indonesia's banked populations is low. However the electronic banking infrastructure is advanced and better than most developed countries. A payments service that uses Card-Data-On-File like Google Wallet will only have a limited application. However a service that allows transfers to a 'pre-paid account' will appeal to a greater number of users.

So the BBM Money service is smartphone based, is integrated into a widely used social/business communication tool and targets banked customers, what elements of the unbanked business models did it take its lead from and how was this achieved?

1. Available To The Mass Market. BBM Money can be downloaded for free from BB App World. While not available to all of Indonesia's 250m population, it is available to 7m BlackBerry consumers. BlackBerry's has a significant 50% market share of smart phones in Indonesia. BlackBerry's subscriber base growth is benefiting as consumers shift from feature phones (...and yes Android phones have impacted their share of the smartphone pie however BlackBerry still have doubled their subscriber base in the past 2 years).

2. Simple On-The-Spot Account Opening. Once the BBM Money App has been downloaded from BB App World, a simple on-the-spot registration process opens an underlying Permata Bank e-money account and associates it to the users BB PIN. This uses Indonesia's e-money regulations that allow for limited-use account opening with no KYC checks.

3. Multiple Points to Cash In & Cash Out. After the registration a user's BBM Money account can be loaded real-time from any bank's online, mobile or ATMs service. This utilises Permata's real time gross settlement through multiple ATM switch integration, connecting BBM Money to 100+ banks and 70,000+ ATMs. Effectively a user can download, register and load their account within 5 minutes, all from their lounge room.

Cash out is either a cardless ATM withdrawal at one of Permata Bank's 700+ ATMs or simple 'transfer to bank account'- real time to 100+ banks.

4. Remote KYC Checks: The Indonesian e-money rules allow for accounts to be opened without KYC check, however to send P2P or cash out a user must confirm their ID at an agent. BlackBerry has leveraged their handset sales retail networks to facilitate this process. This is a key asset to the service as they are located in every major and most minor shopping centres- a location where most affluent consumers spend their leisure times on evenings and weekends.

5. Supports a payment proposition that solves a pain point. In additional to the heavy conversational traffic use of BBM, Indonesians also use BBM Groups as a channel to sell goods. A user will post a picture of items they want sell, which other group members bid for- effectively BBM Groups are used to run a private eBay service. What is lacking is an accompanying payments service, like PayPal is to eBay. A client survey revealed that 70% of BlackBerry users were aware of BBM Group selling and 50% had participated in it. The Groups are based on invitation-only principle so while BBM Money lacks the supporting Pay Pal structure like charge backs, the participants are 'known through contacts' and replaces the current settlement process of bank account transfers.

Will BBM Money be successful when many new mobile payments have and continue to fail? Only time will tell. However the approach of utilising unbanked business model principles in targeting banked customers is interesting and I thought it was worth sharing.

- Paul Reynolds

Paul Reynolds is an Associate Consultant with Mobile Accelerate. He previously worked for Monitise in Indonesia and was part of the team that designed and built BBM Money.

# In Indonesian marketing circles they talk about the 'The Three Bs of Cool' in youth aspirational marketing. This includes; BlackBerry, Black Mild (cigarette brand) & Braces.

Agent Banking in China: The Thousand Mile Journey has Begun

2013-02-08T06:56:00.001+08:00

Chinese philosopher Laozi is quoted as saying that a thousand mile journey begins with a single step. I thought of that proverb when I recently had the opportunity to visit the far north east of China to investigate opportunities for agent and mobile banking in rural communities. As I outlined in my previous blog on the opportunity for mobile money in China, there have been positive developments from a regulatory perspective recently. The People’s Bank of China is supporting a pilot this year to allow agent banking in some provinces with an aim to develop financial services down to the village level. This is very exciting, as although China has banking penetration of 64%, access to finance through branches, ATMs and other channels is another matter.

Village Life in Rural China in Winter

I had an interesting insight when I visited a village in China this week. By all accounts, China has nearly 1 million villages, and from what I understand, it is unusual for a village to have a bank branch or ATM (although I would love to see research on the distribution of branches at the village level in China). This presents significant challenges to the residents, who will often have to travel many kilometers to reach a branch. Despite the fact that the cash economy prevails, this barrier of access still presents issues, as rural residents will often receive pensions or subsidies that will be paid into a bank account. In addition, many villagers will spend much of the year working in larger cities and industrial areas, so domestic remittances are common. Accessing these payments when you live 30 kilometers from the nearest branch, you don’t own a vehicle and it is minus 30 degrees presents significant challenges!

Typical Grocery Store in a Chinese Village

A merchant I spoke to was overcoming these challenges in a fascinating way. He runs a small grocery store in a village of a couple of thousand people, and his customers shared their frustrations on not being able to deposit or withdraw cash from their bank accounts without visiting the nearest town some distance away. His solution was simple and effective. He has set up an Internet banking account with a PC and modem, and now does electronic transfer of cash from his account to the recipient for a small fee. He also allows withdrawals when the sender has transferred to his bank account. He sets transaction limits so he can manage his own liquidity and he keeps a log book to track transactions. He has also branched into prepaid airtime direct from his bank account where he tops up the customer’s phone from his balance and receives a small cash commission. In essence, he is a banking agent, albeit on an informal basis.

I am always amazed at the ingenuity shown by customers and agents in emerging markets. This example demonstrated to me that firstly, there is absolutely an unfulfilled need for agent banking in China, and that secondly smart merchants will realize this need and will embrace formal agent banking solutions as they develop. I have said previously that I believe China and other markets in Asia like Bangladesh and Pakistan will eclipse anything happening in mobile money in Africa once the programs gather momentum and the regulatory environment is established. China is on the cusp of an exciting time in financial inclusion.

- Brad Jones

My Five Mobile Money Predictions for 2013

2013-01-06T10:02:00.003+08:00

As the memories fade of a short holiday and work starts to ramp up again for the year, I thought it might be interesting to document my five predictions for mobile money in emerging markets for the year. If nothing else, it will be interesting to look back in 12 months to see whether I was accurate, or wildly off the mark! So, at the risk of looking foolish in 2014, here are my five predictions for the year.

Pakistan and Bangladesh will become the new stars of mobile money.
Agent-initiated over the counter transactions will be recognised as the ‘killer app’ in mobile money.
Mobile money interoperability will become a reality in some markets.
Google will launch mobile money in more emerging markets.
There will be further platform consolidation in mobile money, potentially leaving only three to four big players.

2013 will be the year people stop talking about M-Pesa, and start talking about other successes in mobile money. I don’t think I have been to a conference in the last five years where M-Pesa wasn’t the center of focus. All credit for what has happened in Kenya, but the industry desperately needs more stars, and this year I think we will start to see them. We have a huge growth market for mobile money emerging in Bangladesh, with many banks taking advantage of the regulations to launch agent-banking services. A CGAP blog post and Bangladesh central bank report from July last year were both cautious on the success of mobile financial services at this early stage, however I hear that some of the first movers are experiencing extraordinary growth in customer numbers, and more importantly transaction volume. Pakistan is doing exceptionally well, and in the last quarter of 2012 there were over 31 million transactions and US$1.5 billion in payment volume across the entire branchless banking system. My understanding is that a lot of this volume is coming from Easy Paisa given their position in the market (around US$1.2 billion payment volume in 2012 with 60 million transactions), and this leads on to my second prediction.

Over the counter transactions are becoming the ‘killer app’ for mobile money. Much of the growth for Easy Paisa has come from agent-assisted transactions for bill payments and cash transfers, with over 160,000 transactions every day and around 4 million unique customers per month. Essentially a customer of the service does not need to be registered or have a mobile phone, but can complete a transaction with the agent initiating the transaction on his or her own mobile phone. Of course, KYC and AML processes need to be in place to ensure the transaction complies with regulation, however the process removes the friction of having to register as a customer, and provides the agent with immediate revenue and transaction volume. WING in Cambodia has seen spectacular growth in the last 12 months since the introduction of an over the counter cash transfer product that essentially allows the service to operate as a domestic Western Union system (take a look at their great TV commercial here). The benefit of the over the counter service is that it helps to create a highly trained and incentivized agent network. The challenge is eventually moving customers onto individual accounts, although it is far preferable to be doing this with an existing revenue base.

Interoperability will become a reality in some markets. There has been much talk about the benefits of interoperability in mobile money, but not a great deal of action as yet. Visa announced the launch of Mobile Prepaid in November 2011, with plans for MTN to launch the new product in Nigeria and Uganda. Over 12 months later we are yet to see this launched, however there was a recent announcement on the launch of mVisa in Rwanda, where customers will be able to use shared agent networks of mobile money providers. This is a very interesting project as Visa has the potential to bring years of experience in developing rules and regulations for interoperability as well as technology solutions. The industry should take a close look at how this program develops, as there will be many lessons to be learnt, particularly on commercial models for interoperability.

Watch out for Google. I have blogged previously on the launch of Beba in Kenya. What I really liked about this product is that it uses contactless technology in a very smart way by removing the friction of two major issues seen in both developing and developed markets. Firstly, the contactless acceptance infrastructure, or lack thereof, and secondly, the lack of mobile phones with contactless capability. Google leap-frogged these two issues by firstly picking an industry that caused problems for customers. Over-charging and theft in the public transport industry meant that customers of and company owners of buses were both motivated for change. Google issued the bus drivers mobile phones with contactless readers and issued customers cheap plastic contactless cards that they can top up at agents. By all accounts the service is well received, and Google have plans to expand into Asia and other parts of Africa pending regulatory approvals. So my prediction is by the end of 2013 the launch of mobile payment systems by Google in emerging markets will be a talking point.

There will be further consolidation in the platform market for mobile money. Over the course of the last few years we have seen Visa acquire Fundamo, SAP acquire Sybase, and most recently Tech Mahindra acquiring 51% of Comviva. Visa and MasterCard have developed outsourced services similar to debit and prepaid processors for mobile money. The platform industry is shifting away from license and maintenance revenue, to transaction-based models with centrally managed platforms that host a number of entities. As the industry shifts, it will become harder for smaller companies that are less well capitalized to continue to invest in development of their technology, and to fund the cash flow needed to support their business with the absence of large license fees. Whilst there will always be some clients who prefer to host their own technology, in 2013 we will see the continuation of a shift from license models which will cause some smaller providers to look for some sort of exit, either through merger or acquisition.

So they are my predictions for 2013 in the world of mobile money. I would be pleased to hear your predictions as well, or whether you think I am wildly off the mark. Feel free to email me at brad@mobileaccelerate.com, or leave a comment on the blog.

- Brad Jones

Mobile Money in Asia: Opportunities for Growth

2012-12-18T22:57:00.001+08:00

Mobile money in emerging markets has been one of the more exciting, and one would hope sustainable, innovations in financial services over the last decade.We are seeing impressive growth in many mobile money schemes in Africa and these developments have led to similar levels of focus and increasing investment in financial services for the poor in Asia. The direction in which the industry will develop in Asia will be fascinating.Will organisations look to replicate the success of ventures such as M-Pesa with massive mobile operator-led closed loop systems or will they look at different models that reflect the market variations in Asia? My argument would be that due to differences in bank penetration, regulatory oversight, and mobile operator commercial models, mobile operator-led financial services models will not proliferate in Asia, and in the long run, banks will be far more successful in providing these services. I would also argue that in the long run, Asia will eclipse what we have seen in Africa to date in regards to mobile money.

Please see the remainder of this article published in the journal, e-Finance & Payments Law & Policy at http://www.e-comlaw.com/e-finance-and-payments-law-and-policy/.

- Brad Jones

Mobile Money in China. The next big thing?

2012-08-29T13:11:00.001+08:00

Everything is big in China. It has the world’s biggest population with over 1.2 billion, it has over 160 cities with a population of more then 1 million, there are over 1 billion mobile subscribers, and millions of people have bank accounts. Despite this, the gap between access to bank branches in urban areas versus rural locations is huge, with only 0.34 banking outlets per 10,000 people rurally, compared to the national figure of 1.34. Further, in an interesting post this week in the Economist, the author noted that there had been almost zero impact from traditional mobile money services in China, despite the benefits that would be derived, particularly given the lack of bank branch access in rural markets, and the massive urbanisation that is currently occurring. Is this about to change, and in true China fashion, when it does change, will it awaken the world to the opportunity of mobile money in emerging markets?

In contrast to the article in the Economist, whilst there has not been much happening in China in the context of ‘M-Pesa type’ activity, there has certainly been a lot of activity in regards to mobile payments. Mobile banking has been present in China since 1999, and all of the major banks including China Construction Bank, Agricultural Bank of China and the Bank of China allow customers to access accounts, make funds transfers and other services through a mix of STK, WAP and 3G data. There have been deals between operators such as China Mobile and the domestic scheme China Union Pay to develop the use of mobile for payments, including NFC and remote payments. Consulting firm McKinsey believe that China is currently at an inflection point with mobile payments set to become a $40 billion industry driven largely by digital content and ticketing, and that competition is going to become intense between banks, mobile operators and third party providers. Much of this activity however will centre on the urban centres, and will not address the need to fill the gap between urban and rural access to banking services.

It is this gap where I think some of the most interesting mobile financial services activity in China is about to start. The regulators in China have been watching markets in Africa and elsewhere for some time now, and have recognised the opportunity that mobile money and branchless banking can bring to help drive financial inclusion. In March 2011 the China Banking Regulatory Commission issued a circular that encouraged financial institutions to look at alternative channels such as mobile to improve access to finance in rural locations, in an effort to assist with economic development in those regions. There has been recent discussion that the People’s Bank of China were keen to commence pilots in rural locations specifically in mobile money, and had issued guidelines that will govern where these pilots will occur, and the participants to deliver the services. The services that need to be provided to customers include airtime top-up, remittance and some payments. The guidelines provide strict requirements for KYC and risk management, and also provide recommendations on the type of agents that should be selected, including convenience stores, mobile phone shops and post offices. PBOC make recommendations on how services should be marketed, and provide an overview on how participants in the mobile money pilot should report their findings back to regulators to aid with future regulation of mobile money. The guidelines are extremely interesting in that they appear to have been drafted with a close eye to other mobile money schemes in emerging markets.

As an industry we should watch China with great interest over the next 12 months to see how these pilots develop, and whether a framework for large-scale extension of branch accessibility can be built. With over 30% of the population unbanked, there is a significant opportunity to drive financial inclusion through mobile, perhaps catapulting China to be the leading mobile money market in the world. For a country where scale is everything, this could be a phenomenal achievement in the history of financial inclusion.

- Brad Jones

‘’Follow That Taxi!’’...To Learn How To Build a Mobile Money Agent Network in Indonesia

2012-08-12T12:14:00.000+08:00

In Indonesia a number of mobile money players have started stretching on the sidelines, waiting for the referee to call a start to play. The referee in this case is the Bank of Indonesia. The starting whistle is the much anticipated changes to the regulations that allow setting up of Cash-Out Agent Networks- while in theory are allowed today but in practice current rules are too restrictive.

The excitement over Indonesia’s mobile money potential is well founded. It has a population of 250m, 60%-70% of which are unbanked or under-banked. They are also adopters of technology; mobile penetration reported to range from 90-110%, they are the second largest users of Facebook globally, and third largest Twitter users.

As mobile money players start preparing their business models, I want to highlight a success story of another Indonesia business- Blue Bird Taxis and the local lessons they can teach mobile money businesses looking to build an agent network in Indonesia.

Blue Bird Taxis, it has a fleet of 20,000 taxis and drivers, serving more than 8.5 million customers each month. Their metallic blue cars are instantly recognisable. Ask any Indonesian for help with a taxi and they will invariably refer you to Blue Bird, commenting they are trustworthy and reliable. Blue Bird’s reputation is evidenced at Jakarta’s Soekarno-Hatta Airport where queues at the Blue Bird Taxi rank are twenty deep while other taxis wait idle.

An instantly recognisable brand, considered reliable and trusted to point to that they are referred to strangers, what mobile money business would not want the same for their agent network? So what lessons can we learn from Blue Bird Taxis?

# On-boarding and Ongoing Training: Blue Bird recognises that drivers are the face of their business. They put each of their drivers through a basic orientation course to familiarise them with company policies and procedures. There are also regular follow-up briefings at which drivers are encouraged to share ideas and experiences in dealing with unusual situations or difficult customers

This results in well trained and knowledgeable business representatives. As the saying goes, a chain is only as strong as the weakest link. Ensuring a level of quality in the agent network representing your business will create strength in the overall brand.

# Consistent Customer Experience: Use a Blue Bird taxi and you will notice all the drivers are in uniform, they are polite and friendly, they don’t talk on the phone or play loud music, seatbelts are fitted in the back seat and there are no overpowering scented de-odorises. While this might seem background to the ultimate service of being driven from Point A to Point B, as a daily user of taxis when I use another taxi company it’s the varied customer experience that I notice.

Similarly mobile money customers want consistency in the service experience with agent networks. Another important thing to note is the relative service expectation from the customer. If the mobile money business uses existing retail merchants, the merchant is not selling a customer a can of Coke, they are the interface for the customer to access their money. Customers view this as a more personal interaction and expect it to be treated differently.

# Supported by Strong Customer Services Team: Blue Bird’s Call Centre has received Customer Satisfaction and Loyalty awards for the past 6 consecutive years. These have been measured on speed of answer, staff knowledge & manner, consistency and customer satisfaction. While the Call Centre is the focal point for direct customer interaction, Blue Bird also use their call centre to support their drivers- when a driver needs help with directions, a difficult customer or an accident, the trained call centre staff are available 24 hours and at short notice to assist the driver.

A Mobile Money Agent can feel alone. They are nervous about making a mistake, especially when faced with an unusual situation or disgruntled customer. A supporting call centre that can be relied upon to resolve issues quickly, increases the confidence of the agent network and the customers they serve.

Regulatory change in Indonesia will see a number of mobile money businesses quickly establish in attempt to gain market share in a very attractive market. Indonesians are mass adopters of new technology; however they also value a customer service etiquette favouring politeness and fairness. Potential situations that could result in conflict will be avoided. Blue Bird Taxis have focused on their driver business model- typically a weak area for taxi businesses, and made it core to their success. Once the regulations do change, mobile money businesses will need to have a similar focus on their agent network model if they want customers to trust and use their service.

-Paul Reynolds

Paul specialises in business start-ups with a focus in the past 5 years in mobile payments. He has worked in Indonesia for the past 12 months for a leading global mobile money business.

Connecting Developed Market Capital with Developing Markets Innovation

2012-07-22T19:33:00.000+08:00

I was genuinely excited to read a number of weeks ago about the launch of the Savannah Fund in Nairobi. This US$10 million incubator and accelerator has been established purely to invest in digital and mobile initiatives in Sub-Saharan Africa. Once they raise the capital, they will use the funds to provide mentoring to start-ups, provide follow on investment to those that graduate from the incubator, and then also invest in more mature businesses in the region. Nairobi has been selected as the location for the fund, which makes a lot of sense given the focus and energy that is being generated from the success of M-Pesa and associated businesses. The efforts by Eric Hersman of iHub fame and his partners to generate interest and investment in East Africa technology projects should be widely acknowledged.

What is interesting has been the attention that has emanated from this announcement on the venture capital, accelerator and incubation industry in emerging markets. Traditionally, entrepreneurs in markets like the United States tend take the path of raising initial seed funding from friends and family, before connecting with incubators or accelerators who may provide early stage funding and advisory support, often coupled with co-working spaces with other start-ups. Whilst the product is being built and launched, entrepreneurs will start the well-worn path to Silicon Valley to pitch for Series A funding. This model has worked effectively in the United States for many years and while investment in venture-backed companies only equates to between 0.1 percent and 0.2 percent of U.S. GDP annually, these companies employ 11 percent of the total U.S. private sector workforce and generate revenue equal to 21 percent of U.S. GDP. That is quite an impact!

However, it was previously thought that Silicon Valley VC firms wouldn’t realistically invest in companies beyond a cycling radius from their offices on the outskirts of San Francisco, but I think recently, evidenced by the Savannah announcement, times are changing. India has been leading the charge, tapping into approximately $337 million of Silicon Valley venture capital in the last quarter of 2011. I asked Ben Lyon from Kopo Kopo in Kenya his thoughts on raising capital in emerging markets. I was particularly interested in what he had to say, as he and the Kopo Kopo team have been fund raising recently. On interest in funding, “investors worldwide are beginning to realize and act on the potential of emerging markets, which means more avenues - and better deals - are becoming available to entrepreneurs”. However he did note that in East Africa, it is “getting more difficult to raise funds in the $100,000-$1 million range, and that investors seem to favour safer growth stage investments over high-risk early stage investments”. This was interesting, and reflects the view I have had from other venture capital firms focused on emerging markets that technology was a little too risky and hard to understand, and that traditional industry such as manufacturing or banking was a safer bet.

Growing interest in the technology sector in Africa however has attracted a number of venture capital funds in addition to Savannah, including Adlevo Capital and Sawari Ventures. Entities such as Accion are also playing their part, with the announcement in May of the US$10 million Accion Venture Lab fund for seed investment and advisory support. In addition there has been huge growth in the development of technology hubs, accelerators and incubators in Africa, with more than 50 now in 20 countries. These entities are building strong relationships with governments and the private sector to position Africa as a market where innovation will prosper. The development of this innovation infrastructure will build confidence and expertise in start-ups, and potentially address the issue of investors being more attracted to growth stage and mainstream industrial initiatives.

In Asia (with the possible exception of China), the approach seems to be somewhat more fragmented, and in markets such as Singapore, supported heavily by the government. Organisations such as JFDI are working hard to develop the accelerator and incubator infrastructure with events such as Start Up Weekend Phnom Penh, and membership of the Global Accelerator Network. Start ups in the Philippines and Indonesia comment on the difficulties accessing funds in those markets and the lack of a start-up culture. However a market that will have half the world’s online population by 2016 presents a massive opportunity and we must see growth in start-up infrastructure in the same way it is developing in Africa currently. There is room in Asia for more private incubators, accelerators and venture partners connecting innovative start ups in mobile and digital with developed market capital.

Whilst emerging markets have been attractive as growth stage infrastructure investments to date, they also present significant opportunities to investors in digital and mobile. We are seeing the next billion people come online in these markets using a mobile phone as their browser, rapid advancements in payments infrastructure and a growing middle class. Some venture capital funds are sensing this opportunity and are testing the waters in Nairobi, Jakarta and Mumbai. As we see the start-up infrastructure build and governments recognise the impact the digital sector could have on their GDP, I firmly believe we will see rapid growth and investment in this sector. Massive revenue opportunity and the raw talent is there in emerging markets – what is needed now is further investment in accelerators and incubators, and funds like Savannah.

- Brad Jones

Contactless Payments in Emerging Markets: Can Mobile Leap Frog Developed Markets Once Again?

2012-06-17T21:04:00.000+08:00

Much has been made of the disappointing growth in mobile contactless payments and near field communication in developed markets. Issues such as sunk cost in existing point of sale infrastructure, business models between operators and banks, and the maturity of handsets and embedded near field communication (NFC) chipsets have presented challenges that have yet to be completely overcome. Contactless cards themselves have struggled to gain huge traction, primarily due to the lack of acceptance in developed markets, and industry players have been slow to look at using phones as contactless acceptance points. Initiatives such as Isis and Google Wallet in the United States, and bridging solutions for mobile contactless including secure micro SD card have provided some solutions for pilots and trials, but it would be fair to say there has not yet been a significant commercial success in mobile contactless in a developed market (with the exception of Japan, and to a lesser extent Korea). Which makes the announcement of Apple’s Passbook in iOS6 all the more fascinating, but that is a blog for another day.

The subject of this muse is the fascinating developments that we are seeing in NFC in mobile payments in developing markets, and my hypothesis is that they could be successful in reducing the some of the friction in mobile money, and potentially leap frog what we have seen in developed markets. Digicel Pacific’s launch of a mobile contactless solution in Tonga effectively removes the friction that customers have in making payments at merchants, whilst Google’s Beba card and contactless solution for transit in Kenya simplifies the customer acquisition process by removing the need for a phone at all in order to make transit payments, and leap frogs the point of sale acceptance barrier by using Google Android mobile phones as card readers and acceptance points.

Digicel Pacific Mobile Money Advertisement

One of the difficulties and indeed, a major inhibitor in growth in mobile money is the clunky process of paying for goods or services at a merchant. The process of having to open a mobile session and then enter merchant or agent identification or phone numbers, and PIN codes either side of the transaction, makes the entire process easily over 60 seconds. This is frankly too long to be attractive to either the consumer or the merchant, and the friction of the experience leads people to pay by cash rather than mobile. Digicel Pacific in conjunction with Verifone recently launched a mobile contactless solution in Tonga where international remittances provided through KlickEx can be cashed out, and merchant payments made through the use of contactless stickers, and low-cost POS devices. The source of funds is the Digicel Mobile Money account. This video provides a demonstration of the transaction, and clearly shows the lack of friction at the merchant location. Whilst the economics of investment in POS devices versus increased transaction volume aren’t available, the mobile money team at Digicel should be recognised for piloting an improved process for acceptance in mobile money.

The launch of Beba in Kenya by Google has been a fascinating development for mobile money. The very simple transit system works like this. A customer goes to an agent in Nairobi and is given a free contactless card. The customer does need to have a Gmail account in order to be registered. That card is then loaded with a maximum of KSH10,000 (US$115). Customers can reload as they need to at the agents throughout the city. When a customer gets onto a bus the card is waved in front of the drivers Android phone with NFC reader and the card is debited the fare. They are not charged a transaction fee for the service. The customer then receives a SMS receipt with the cost of the fare and their account balance. The solution solves a particularly difficult problem for customers in that bus drivers are known to hike the fares when there was inclement weather or heavy traffic (seriously, has anyone ever seen Nairobi WITHOUT heavy traffic!), so the solution appears to address a problem in the market. Interestingly, Google is using Top Image to merchandise the solution and develop the agent network, the same firm that has been critical to the success of M-Pesa.

Google Kenya Advertisement for Beba

What I really like about the Google Beba solution is that it has taken out two major friction points for mobile contactless payments in developed or developing markets – firstly, the customer’s phone, and secondly, contactless readers at the point of sale. The simple fact is that not all customers will own a phone that is mature enough to have either an embedded NFC chip, or be able to utilise a bridging technology such as Micro SD cards. By issuing a low cost contactless card, and relying only on the NFC-enabled phone of the bus driver, Google appears to have addressed a market need, ensured that any potential transit passenger can be activated, and by partnering with Top Image is potentially developing an agent network that can support the ecosystem. In addition, by only using the driver’s phone for acceptance, Google has removed the need to invest in expensive point of sale infrastructure and card readers, and instead uses a relatively low cost Android handset. This is a great initiative, and it is not hard to surmise that we would have seen far greater issuance and usage of contactless cards in developed markets if the cost of acceptance could be driven down by such an approach. What is unclear in Kenya is the revenue model for Google, although this initiative could certainly be a bridgehead for the company in developing payment solutions for emerging markets, which should send a shudder through existing mobile money providers and payment schemes.

Mobile contactless and NFC technology present a compelling proposition to issuers, merchants and customers alike to increase the speed of transaction, enable value added services such as loyalty and offers to be provided, and continues to place the mobile phone at the centre of the customer experience. Whilst traction has been slow in developed markets, are we seeing once again the ‘leap frog’ effect of technology in emerging markets? I am sure all of us in the industry will watch the developments in Tonga, Kenya, and other markets with great interest.

- Brad Jones

Thanks also to ex-Visa mobile contactless and NFC expert, Craig Richman for his review of the draft and feedback on this blog post.

Show Me the e-Money! Using Payroll to Support Your Mobile Money Liquidity Strategy

2012-05-29T08:18:00.000+08:00

This is the second blog in a series of posts where the contributors, all involved in the creation of WING Cambodia, share their thoughts on the importance and challenges of e-money and liquidity management

A core component to any mobile wallet business is how easy it is for a customer to fund their account to do transactions. A lot of the focus needs to be given on building the capability in the ‘cash-in & cash-out’ network to enables the unbanked to convert physical cash into electronic-money, however an important channel of electronic funds will come through the integration to existing banking infrastructure. This makes sense as the majority of the money in the economy resides in bank accounts, and more importantly can be transferred electronically. Integrating to the banking infrastructure will allow the flow of money from the banked (corporations and people) to the unbanked.

Payroll as a Source of Liquidity for Mobile Money Accounts

When you think about how most ‘banked’ customers fund their bank accounts, it’s through their wages or salaries being deposited by their employer. Why should it be different for mobile money account holders?

Mobile Money Infrastructure is Valuable to Corporates & Governments

A mobile money service provides significant reach to disperse electronic money for payroll services or G2P payments. Managing physical cash payments to the unbanked creates a large overhead for Governments, Manufacturing and Agricultural business. Mobile Money payroll solutions that leverage their accounts and cash-out network are able to remove the physical cash payment overhead from corporate and governments, creating the ability charge a fee for payroll services. However more importantly it assists the flow of liquidity into the mobile money system.

The Key to Corporate Payroll Services are Banks’ Transactional Banking Divisions
Banks have strong and deep service relationships with their corporate clients. Many large employee companies have complex needs when it comes to cash management and their bank play an important role. Among other products and services banks will support a company’s payroll, comprising of (a) disperse-to-bank-account & (b) cash-based payroll service. Integrating into a bank’s payroll service can allow a third option: (c) disperse-to-mobile-money-account.

What is important here is to understand that the corporate client relationship is held by the Transactional Banking division of a bank. Larger banks are divisional organisations. Consumer Banking and Transactional Banking divisions operate as two separate business with separate service models and most likely different technology platforms to run client accounts. If a mobile money business wants to understand the payroll needs of its target customer base, it’s the Transactional Banking divisions who have deep relationships with large employee companies and are looking for solutions to help their clients.

...However Payroll Services Will Take Time to Develop

Bank-client relationships have been built over many years of trusted service delivery. Banks will not risk their relationships until it can be proven that the service is dependable and meets the needs of both the client and their employees.

Yes it will take time to build the relationships & understand the stakeholder needs, however like the banked population have adopted e-banking through access to their salaries dispersed to their bank accounts, payroll services will increasingly play a large role in the success of mobile money.

Paul Reynolds currently works for a leading mobile banking and payments company in Indonesia. He has worked in mobile money for 4+ years and banking for 14+ years.

Show Me The E-Money: Keeping it under control.

2012-05-23T20:31:00.000+08:00

This is the first in a series of posts where the contributors, all involved in the creation of WING Cambodia, share their thoughts on the importance and challenges of e-money and liquidity management.

Mobile Money is sexy. It uses technology in new and exciting ways, it reaches out to millions who were previously excluded, and it gives innovators a chance to build new networks from the ground up. But if you look behind the scenes, there’s a whole lot of boring-but-important stuff going on. Managing and reconciling your accounts isn’t sexy but is absolutely necessary for the success and growth of your business.

For most MNO-led or third party mobile money operators, some of the magic happens in their “pool account”. They have realized that individual bank accounts are difficult to open, expensive to maintain and integrating directly with bank systems is very tough. To get around these problems, they use a sleight-of-hand whereby they maintain one or more bank accounts to represent all the e-money in the system, and use their mobile money platform to maintain individual accounts or wallets for the mobile money customers. At any time, the total amount of money in the bank account(s) should equal the total amount of e-money in the mobile system.

Sounds simple, but making e-money work is tough and is one of the biggest risks faced by an operator. At first, there won’t be much change in the pool account and making the two match should be easy. The value will go up when an agent or master agent deposits money (converting real money to electronic money), and it will decrease when someone wants to do the opposite, usually a biller or a merchant who wants to receive their cash. When the average customer does a transaction, the pool doesn’t change.

As the network grows, so will the frequency and complexity of these deposits and withdrawals. There will be more and more agents, more and more merchants or billers, and possibly even other complications such as remittances or interbank transfers. If the operator ever plans to go beyond a simple P2P model and provide services to government or business, managing e-money will become a crucial part of the business. I have seen operators who started intending to create or remove e-money once a month end up having to do hundreds of transactions daily, each requiring a paper trail and senior management sign-off.

This complexity also brings risks. As the balances change more frequently, they become harder and harder to manage and reconcile. If the reconciliation process is poorly managed, it can hide internal frauds and losses. Internal staff who know that management aren’t paying close attention can create e-money out of thin air, potentially costing the operator millions in lost revenue as well as significant regulatory penalties.

The key to managing this risk is to make sure that the processes to manage the e-money pool are clear and have sufficient controls in place. Some key points to consider include;

Understanding: Do you understand all the accounts involved? Mobile money platform providers will often use their own terminology for the accounts involved in the process, and it is important that they are all understood. There should be no “hidden” accounts that have an unclear purpose and can be used to fund or hide frauds.
Segregation: Is there a true segregation of duties in the process? This includes not only the person who initiates a request from the person who executes or authorises it, but also the person who reconciles the accounts. If the person who initiates the request is also in charge of reconciliation, they can easily hide fraudulent requests. It is also important that the information input into the reconciliation process comes from an independent source. If one person is responsible for both execution and data extraction, they may be able to obscure transactions by manipulating the reports used for reconciliation.
Management Involvement: Management of bank accounts and e-money is too important to leave to junior staff. Senior management must have a good understanding of the process and should potentially be able to roll up their sleeves and get involved in the reconciliation process.
Escalation and resolution: If the reconciliation highlights errors or mismatches, it must be clear how to escalate these to senior management and how to resolve them. In many cases, a problem has been going on for months but the underlying cause has been hidden because no-one understood the implications of a failure to resolve the reconciliation.
Documented process: For the e-money processes to be truly effective, they must be formally documented in a clear and easy to follow format. This is particularly important as the business grows and the process and team will need to scale up to manage the increasing volume and complexity of transactions.
System capacity: Many e-money systems have evolved from top-up platforms or been written with an emphasis on throughput rather than integrity. They may lack the detailed transaction-level reporting and handling of cut-off times that is necessary to do bank account reconciliations. Banks typically freeze their accounts for a period each night to make this easier to manage: 24x7 mobile money operators have no such luxury.

For mobile money operators who are trying to break free of the shackles of banking that seem to complicate everything with difficult compliance requirements, the level of detail required to manage e-money risks might sound like bad news. Commercial banks have dedicated teams to manage their inter-bank reconciliations, with obscure Latin names like “Nostro” and “Vostro”. Mobile money operators are naturally averse to introducing this sort of complication, but paying close attention to reconciliation processes in the early stages of your business will prevent losses as well as providing the opportunity to scale up and provide more and more services and opportunities for growth.

Michael Joyce is a consultant specialising in mobile money operations and risk management.

http://www.linkedin.com/in/mikejoycenet

Better Than A Pig: Why Financial Inclusion Matters

2012-05-10T08:52:00.000+08:00

For many of us who work in mobile money, the benefits that come from financial inclusion are clearly understood, and to a large extent provide intrinsic motivation for us to work in this industry. It serves as a timely reminder when we come across people who either don’t understand the benefits of financial inclusion, or perceive that reaching those who are unbanked is too hard, unprofitable or unnecessary.

I had an interesting experience some weeks ago when I met an experienced banker in an emerging market that has a sizeable unbanked population, but has not really seen huge steps in financial inclusion to date. We discussed the size of the market, the substitutes for formal financial services, and the solutions that had been tried to date without much success. The market is significant, with approximately 35-40 million people who have not been banked, and GDP per capita of approximately US$3,300. 70% of the population is rural, with urban migration of about 3% per annum. Many of those migrating are moving to manufacturing jobs in the cities, so domestic remittances are a large component of rural income. Substitutes for formal financial services proliferate, with remittances being sent by bus regularly, and in some cases through the post office. Solutions for the unbanked have primarily been government driven, and have relied on payroll cards for workers. Not surprisingly, the majority of these payments are converted to cash with remittances being sent through the informal market.

In my experience in mobile money, these indicators would point to a market that would be highly suitable for mobile money, and I put that view to the banker. His position was somewhat unexpected. To paraphrase, anyone who wants a bank account in this market has one (i.e. they earn enough money to qualify), and the people who don’t, have no need for an account nor do they want one. This observation surprised me, and shook my perception that most people in the financial services industry see financial inclusion as a ‘good thing’ or indeed possible.

In terms of our communication in the industry, maybe it is a good time to be clear on why financial inclusion matters, and to articulate this whenever we get the chance, to help people like my banker friend. I take the view that there are three reasons why financial inclusion matters – firstly, because I believe it can profitable, secondly, because the poor need bank accounts, and thirdly, because the poor want bank accounts, in the right context.

Why should a financial institution service the mass market? Well, it can be profitable:

Having worked in a bank for a number of years, I know very well the pressure that comes on quarterly results. For pro-poor projects to be a success they need to demonstrate a ROI and positive NPV, otherwise they are perceived as corporate responsibility projects, with far less tangible benefits to the business. The Mzansi accounts in South Africa are an interesting case study. Originally a low cost bank account for the mass market, the accounts are evolving into more sophisticated offerings that still cater for the mass market, but allow for cross-sell of more profitable products as customers need change over time.

Does someone who is poor need a bank account? Absolutely, particularly given substitutes:

One of the early experiences I had in financial inclusion was to attend a conference of micro-finance experts in Cambodia. The overriding message I took from that conference was that in the absence of accessible bank accounts (at that stage micro-finance institutions in Cambodia couldn’t take deposits, and WING was just a glint in a few eyes), rural Cambodians would often invest life savings into a pig or cow. The illogic of that grabbed me. What if the pig died? What if a family member fell ill and there was a need to access part, but not all of the value of the pig? Surely if someone had enough money to buy a pig, they had enough money to place in a bank account? I had a similar experience with our agents in Cambodia. In many markets in the world cash liquidity has been a problem for agents. Not in Cambodia – most of our agents had literally thousands of dollars in their small shops, stored carefully in safes and strong boxes. Amazingly, few of them had bank accounts, but they did have perceived and real security risks, many of which could have been mitigated by access to a bank account.

Does someone who is poor want a bank account? Of course, as long as it meets their needs for convenience and access:

There are significant barriers to the poor in accessing financial services, often specific to the market. Bank failures may have eroded trust in the financial system or geographic reach may make it difficult to reach traditional bank branches or channels such as ATM or POS. Regulators who allow third party agents such as mobile phone shops or convenience stores to facilitate deposits and withdrawals greatly overcome the issues of access, and even potentially trust, as the customer is generally dealing with known parties in the community.

But even if there is access, do the poor want a bank account. They do if it is designed with their needs in mind, and perhaps includes features such as life or funeral insurance, or is designed for a specific purpose such as education. Research that was done at WING Cambodia soon after launch indicated that 25% of customers preferred to store their money in a WING account rather than informal methods that they had previously used. A learning we had early in the development of WING was that there was always a need to accompany account distribution with financial literacy to overcome technology barriers when using the service.

This has been a very quick overview on why financial inclusion matters, but I do think the debate and discussion is important. As with any product or service design, it is important to start with the needs and wants of the end user first, and it would be fair to say that this hasn’t always been the rule in mobile money in emerging markets. As banks start taking a far greater interest in the provision of accounts to those previously deemed unbankable, carefully considering why your account is better than a pig will take some consideration.

- Brad Jones

A missed opportunity: Mobile money failing to meet the needs of small businesses

2012-05-07T17:21:00.000+08:00

During my time with a nascent mobile money venture I was always frustrated at how difficult we found it to work with small businesses. It is not something we suffered from exclusively; I see it when I look at the large number of mobile money operators out there.

Much effort is put into enabling large utility bill payments as a way of attracting customers and driving transaction volume. These efforts, undoubtedly important, are often pursued at the expense of enabling payments for smaller businesses. I argue that both are essential and should be pursued in parallel.

Let me give you an example. Soon after launch, small businesses were clamouring to meet with us and work out how they could use our product to collect payments. We had small billers, restaurants, and delivery companies all keen to meet with us. They seemed to instinctively grasp the opportunities our product presented before individual customers did. In addition, their needs were broadly the same.

One of the businesses that came to us was a gaming company, which ran a Massively Multi player Online Role-Playing Game (MMORPG). Their biggest problem was distribution. Their customers, in order to play, had to visit one of a network of stores that had a computerized voucher system and purchase game time from them. This meant that the company was forced to maintain a network of stores and all the cash management problems that came with it. Their customers were increasingly playing from home and were demanding a means to buy game time, at all hours, from the comfort of their home.

Their request was simple. Could we provide an account and access to a real time report? They would do the rest.

Their customers would sign up for a mobile money account and link it to their game account. The company would connect the report to their billing system and disburse game time automatically on receiving payment. Simple. This had the potential to transform their business. It would free them from having to deal with a network of stores, allow them to attract new customers and drive usage. Anything that attracted new customers (especially in the youth segment) and drove usage, worked for us. Our interests converged beautifully. There was one snag. Our platform and vendor were unable to meet these very modest demands. I was amazed.

We would never have thought to pursue the opportunity with the gaming company; we would not have known it was there. They came to us and that is exactly the point. Mobile money operators need to offer this type of simple functionality, enabling businesses to connect and let those same businesses figure it out. They are not asking for much. If you build it they will come. Remember, they will be far more effective at converting their customer base than the operator could ever hope to be.

Mobile money operators cannot afford to be turning anyone away. It is here that I feel vendors have been doing mobile money efforts a disservice. This type of simple flexibility/connectivity should be coming as standard and I don’t see it anywhere. Which brings me to a more general point. Vendors do not seem to understand what mobile money operators are faced with and fail to anticipate their needs. With platforms in multiple markets and years in the business, you would expect more from them. All too often, once the platform is dropped in, they wash their hands. Mobile money is hard enough as it is and vendors are not pulling their weight.

- Joep Roest

KYC - Turning Risks into Opportunities

2012-04-29T11:14:00.000+08:00

In my last post, I asked why KYC (Know Your Customer) is so hard. In many cases, it’s not because the regulators require it, but because the mobile money has not taken a risk-based approach to designing their KYC processes. If you examine your KYC processes carefully, you will probably find many opportunities for improvement. Here are some suggestions:

Too restrictive: Is your list of allowable documents too tight? If you only allow a few ID types, you may be excluding many potential customers. I have found that even in countries with a National ID scheme, huge numbers of people do not have an ID because the cost to obtain or replace one is prohibitive. Some operators get around this need by allowing a more informal ID, such as a letter from a local official certifying the person’s ID.
Too confusing: Is your list of allowable documents too long? I worked with one operator that started by allowing up to eleven types of ID. Some of these ID types were almost never used, but the lengthy KYC form confused the sales agents. We found that by shortening the list of allowable ID types, the process was simplified and the error rates improved dramatically.
Too much paper: Do you really need to maintain a paper photocopy of the ID? Having a copy of the ID is useful for the operator’s compliance team to do reviews of the KYC process, but often provides little value and creates massive logistical headaches. If you are working in a country with a widespread National ID system, you may be able to rely on the ID number alone.
Too many requirements: Are you collecting a passport photograph of the customer? This is very rarely a regulatory requirement. Very few customers will ever need a face-to-face interaction with the operator, so this places a large burden on the customer for very little benefit. Why not consider a signed statement from the agent confirming they have met the person and the ID is valid?
Use checklists: Checklists are powerful tools to reduce error rates. Your current KYC form probably has a blanket statement to be signed the agent that the document is correct. Identify your top four or five most common KYC errors and create a checklist for these individual faults. This checklist can be used by the agent, the agent network manager and your own back office staff. For more on checklists, I highly recommend reading “The Checklist Manifesto” by Awul Gatawande. There’s also a good summary at http://www.newyorker.com/reporting/2007/12/10/071210fa_fact_gawande?currentPage=all. A quick teaser- introducing simple checklists into surgeries across the world, including both developed and developing countries, reduced complications by 36 percent and deaths by an incredible 47 percent.
Instant Activation: I believe that instant activation of accounts is vital to the success of mobile money. CGAP released analysis indicating that customers who did two or less transactions in their first month only had a 4 percent chance of being active in their third month. Operators need every chance to get customers active in the first month, and being able to transact immediately, at the point of sign-up is a key driver. Explore every opportunity for instant activation, including tiered transaction limits, or enhanced risk reporting on new customers.
Agent Monitoring: A solid agent compliance program is also essential. Agents who are based on commission will always sign up too many inactive customers. Whenever an operator finds an agent signing up non-compliant customers, they must pass this information back to the agent and discipline them to make sure this behaviour stops. I will provide more information about effective agent compliance programs in a future post.

Of course, all of these will need careful thought and honest discussions with your regulator. While mobile money is a new topic for many Central Banks, Financial Inclusion is not. For many, this is one of their key goals. I believe all operators should promote the inclusive aspects of their service when talking to regulators, which will help the operators and regulators work in a co-operative fashion towards common goals.

In my next post, I will look at an unfashionable but very important component of mobile money – designing and securing processes concerning e-money creation.

- Michael Joyce

KYC for Mobile Money - Why is it so hard?

2012-04-08T21:37:00.000+08:00

KYC stands for “Know Your Customer”. Most people forget that. They think it means “Collect lots of paperwork” or “Comply with annoying regulations” or “Make it hard to sign up for a new account”. Most mobile money operators don’t take any effort to really know their customer and the reasons the customers have for using the service. All most operators care about is one question, “Do I have enough documentation about this customer to keep the regulator happy?”

Of course, a mobile money business can’t operate without a happy regulator, but it’s important to understand the reasons behind KYC. If we understand the risks we’re really trying to deal with, we can also see the opportunities to provide a safe service that maximises financial inclusion.

Before we design a KYC process, we need to ask why we need “KYC” at all.

The most common answer is, “Regulation”, usually accompanied by the two words that strike fear into every banker, “Money Laundering”. But if we delve deeper, we find three reasons for collecting customer information.
1) Protect against systemic risks: regulators want information about customers in order to protect the financial system against crimes and money laundering.
2) Customer protection: Customers must have some way to identify themselves to the operator in the event that their phone is lost or stolen.
3) Intelligence: demographic information may be useful to operators, or to their funding partners, especially if they are receiving any development funding or grant money.

When most mobile money operators talk about KYC, they’re really only talking about the first step of the KYC process. Anti-Money-Laundering (AML) regulation usually refers to this as “Customer Due Diligence”. It’s an important step, but it also needs to be followed up with other actions such as risk rating and transaction monitoring in order to constitute an effective AML plan.

By thinking about the reasons to know our customers, it should be possible for operators to design a KYC process that balances these goals without presenting too many obstacles for the customer or costs for the operator. But many operators don’t get this as far as this decision; they panic at the magic words “Money Laundering” and the fear of the regulator and go straight to an archaic paper-based collection process.

Money Laundering and Terrorist Financing are definitely things that banks and regulators need to be concerned with, but personally I think it’s hard to see how well designed mobile money in developing markets will lead to widespread money laundering. In every single market, it is attempting to replace cash-based or informal transactions. Every transaction is recorded in a sophisticated real-time system. The system limits are lower than the amounts most money launderers would be interested in, even if the criminals open multiple accounts. Most mobile money operators have access to technology and reporting systems that are light-years ahead of the legacy systems with which most banks are burdened. What self-respecting criminal would choose to travel to ten different mobile money agents to deposit the money, move their money through a traceable system, then travel to ten different agents to withdraw it, when they could simply send the cash in a brown paper envelope instead?

The key international body that sets international standards for Anti Money Laundering, the FATF (Financial Action Task Force), recommends risk-based approaches to money laundering and recognises that financial inclusion is vital to preventing money laundering. Most regulators also recognise risk-based approaches in their AML regulations, but so far not many have been willing to put this in practice and make allowances for mobile money. Banks are guilty too, of not wanting to push the regulators on this issue.

If the mobile money operator is not willing to adopt a risk-based approach, they will end up mimicking a bank, but in a very bank-unfriendly physical environment. They collect an application form, a photocopy of an ID, some passport-sized photos, a signature, a thumbprint, and possibly a letter confirming an address. These are photocopied on worn-out machines in dusty rural markets, gathered up by the agents, then sent via rickety buses and motorbikes to the head office. If the customer is lucky, the photocopies were clear, the documents pass the quality check, and are scanned, re-typed and archived in creaking bookshelves for seven to ten years. If the customer is unlucky, their creased, stained, dark and blurry photocopies are rejected and sent back for the whole process to start again.

By this time, the documents have probably passed and been processed by four sets of hands (agent, network manager field staff, network manager back office and operator back office). In an extreme case, the customer must wait until all this activity is complete before they can use their account.

There is some benefit of a risk-averse approach like this, if the provider has plans to allow international remittance or other more complex financial services such as savings or insurance that will require a higher standard of Customer Due Diligence. But it does seem like overkill for the initial product of a transactional wallet, and it definitely presents barriers to entry to the unbanked. If anything, requiring stringent ID requirements will actually force some people to use fake ID or to borrow ID from a relative instead of opening an account in their true name.

Technology goes a long way to reduce the risks of mobile money. The use of SIM cards as two-factor authentication is in many ways superior to the technology of magnetic credit cards or internet banking. But launching a mobile money business is a risk – it is hard and expensive to set up your agent networks, your technology linkages, your marketing campaign. Before launching, providers need to think carefully about the risks of their customer onboarding process. Understanding this risk in full should create opportunities for a simpler process that meets the needs of regulators and promotes financial inclusion. It might not be easy to convince regulators that your risk-based approach is sufficient to protect the banking system, but it will be worth it in the long run.

In my next post, I will talk about how to turn the risk-based approach to KYC into an opportunity for simplification.

- Michael Joyce

Mobile Payments and Android. Are you ready?

2012-04-05T16:06:00.004+08:00

"Everything takes longer than you think and then it's suddenly been there all along" That is my pitch on mobile payments in a nutshell and is always followed by the question "Will YOU be ready?" That said some things DO come faster than you think.

The convergence of low cost smartphone and mobile payments has arrived. G-Cash in the Philippines, a mobile payment service targeting the unbanked the last 6-7 years, has launched an Android app. Just a short (4 years) time ago you had to register and transact on the service via '/' delimited SMS messages in a specified format. It was a user experience nightmare that few could get correct without assistance. It was the assumed necessary evil as the masses, we were told, only had access to SMS or USSD.

Step change is occurring rapidly behind the scenes.

Feature phones are disappearing in urban areas and being replaced by Chinese, Indonesian, and Indian low cost android or blackberry handsets. Data is the new killer app as it drives secondary commerce opportunities. Data is certain to slowly become as or more important than network airtime. The evidence is Telcos selling network infrastructure and trading their business model from pushing minutes to driving mobile marketplace margin.

Mobile Marketplaces need mobile payments.

MCB Bank proved in Pakistan that feature phone functionality isn't the real barrier we perceive it to be by reaching consumers with the award winning, transaction generating, Mobile Web only, MCB Mobile service. But that was a bank targeting existing bank customers so it was assumed a higher end consumer and not a relevant peer to mass market services. G-Cash has been targeting the mass prepaid consumer without doubt since launch. The fact that they feel an Android app is worth their effort signals to me that change is happening. This marks the end of the beginning. Expect mobile payment volumes to start to rise over the next 3 years on cost smartphones in disproportion to market penetration. Expect the bandwagon to overflow with followers trying to capture the profitable "prepaid smartphone consumer". Android OS handsets provide the security, customer experience, aspirational feeling, and finally the price point to get large numbers of handsets into the market.

It's only the end of the beginning and the middle might take longer that you think.

Marketplace merchant players and mobile financial services providers will start to see the glimmer of volumes required for real investment in the industry to find the long tail of it's potential.

But are you ready?

- Aaron Oliver

Aaron Oliver has over seven years working in mobile payments and commerce, and close to seventeen years in the information technology industry. He currently works in business development for mobile payments in a global payments company in Singapore.

Four Core Components to Any Mobile Payments Business

2012-04-01T21:35:00.004+08:00

Two weeks ago in this blog, Brad Jones posted a synopsis of The Demise of Nokia Money where he made a very fundamental point, ‘’...the old adage of payments remains the same – scale takes time’’. Payment services are competitive, forcing low margins and creating the need to build a large customer base doing multiple transactions to be profitable. Having worked with Brad and WING Alumni to build & launch WING Mobile Money in Cambodia, and being a keen student of other mobile money implementations, I have identified four core components that in my view need to be addressed to build a successful and scalable mobile payments business.

1. Customer Acquisition

Customer Acquisition requires four things; marketing, marketing, marketing, and customer trust- although this last one can be overcome by a good marketing campaign. Consumers take money seriously and they are not going to blindly trust a payment service with their money. Customers need to be convinced that your service is robust and trustworthy. On top of that, whether it’s by card or cash, customers a current means to pay for goods and services or transfer money. If you want an example, look at Visa and the amount of money they spend on the Football World Cup and Olympic sponsorships. It’s not surprising they are consistently one of the world’s most trusted brands. 99.9% service up-time and a universal presence also help.

2. Service Activation

Once a consumer has been convinced of the service merits, how easy it is to activate the service is critical to whether, and how often, a customer uses the service. A major factor in service activation is the regulations that govern services that offer financial transactions.

In developed markets like the US where customers typically have a payment cards, services like Google Wallet and ISIS use ubiquitous payment service providers like Visa, MasterCard and American Express and the issuing banks to manage and adhere to the regulations. Customers can download an app and link a payment card, easy.

In emerging markets where there are both a large unbanked population and a lack of scheme payment cards like Visa, service activation is more challenging as regulations require a level of Know Your Customer (KYC) checks to be completed. Central banks have or are implementing modified rules around e-Money licences and KYC rules to make it easier for services offering low value electronic transactions, however the physical requirement of ID checks can be a major inhibitor to service activation.

3. Account Liquidity

How easy it is for a customer to fund the account is the next critical component. As mentioned previously services that link payment cards have an advantage for account activation, in regards to account liquidity, credit card linked services are ideal as they have an approved credit limit, allowing customer to purchase now and pay later.

Other accounts that are pre-funded, for example the Google Prepaid Card and American Express’ Serve require customers to plan in advance to fund the account.

Consumers typically get paid their salary into their primary bank account. Transferring into a prefunded account via inter-bank clearing can take several business days. This delay compared with the immediacy of current payment methods- cash or card- will be a restrictor in consumers adopting the mobile payments service. Amex’s Serve plans to overcome the liquidity challenge by allowing cash advance from American Express cardholders and voucher based reload cards that can be purchased at convenience stores. This allows for instant value load however the consumer is charged from 2%-5% of the value of the transaction.

In emerging markets mobile payments business have the steep hurdle of first convincing cash-only customers to trust storing their money electronically, then to provide cash-in/cash-out network infrastructure.

4. Driving Value Transactions

After building customer numbers and linking core service propositions encouraging customer account liquidity, the next challenge is to drive value transactions- that provide good margin and are repetitive. Repeat transactions like transport and coffee transactions will have limited margin as both the merchant and consumer are likely to be price conscious and have existing alternative means to pay.

Google Wallet’s positioning that the value is in the ‘big data’ of the transaction rather than obtaining value through transaction fee margin. Speaking with the Asia Pacific Managing Director of a leading global marketing and loyalty company, he said that loyalty programs are ‘’a way to bribe consumers to handover their data’’. Google by linking payments and loyalty programs appears to be a good strategy to collect rich consumer data. Besides big data another main value transaction is facilitating digital content payments. A shining light is the example of Apple’s App Store concept. They collect a 30% commission on digital content sold. In emerging markets with the large number of unbanked & low penetration of scheme debit/credit cards, having a mobile payment mechanism that enables digital content purchasing should allow for a strong negotiating position for a share of the sizable commission.

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There is no set play book to design and combine the components that make up mobile payments. Each market and target demographic has their own nuances. However the industry appears to be a draw card for innovation and I am enjoying watching the creative solutions both developed and emerging market businesses are adopting.

- Paul Reynolds

The Demise of Nokia Money

2012-03-14T10:07:00.001+08:00

Dramatic news in the mobile money world this week with the announcement that Nokia was withdrawing from its Nokia Money business to focus on core offerings. The change in strategy will not happen immediately however, with a Nokia company spokesman outlining that the service will continue to operate in India whilst it works on an exit strategy with its partners, regulators and other stakeholders.
For those of us in the industry, this hasn’t come as a major surprise, as there have been rumours and discussion about the possibility of this for some time, and visible changes in strategy and senior management from Nokia as they completed the test and learn cycle of their financial services offering. As an industry however, it is interesting to consider what lessons can be learned from this experience. As an observer over the last three years, three major observations on challenges with Nokia Money spring to mind. These are; overblown expectations, strategic alignment and distribution.

The Nokia Money service launched with much fanfare and expectations of 80 million customers by the end of 2009, and 300 million customers by the end of 2011. These numbers far exceed the total number of emerging markets mobile money customers today, and it can only be guessed that internal business cases were highly geared to massive take-up. This was probably the same for Nokia’s primary technology partner Obopay, who managed to convince Nokia to take a substantial stake in the company, with speculation that this was around US$70 million. Whilst I am a huge supporter of this industry, and I firmly believe that investment by big players are key to success and scale, the old adage of payments remains the same – scale takes time. Unfortunately setting unrealistic timeframes on customer scale, and therefore revenue have probably made it difficult to maintain support for a business offering in an organisation that is already facing external pressure for results.

The original Nokia Money business plan was to build an open payments system that linked unbanked customers to financial institutions in order to transfer money, pay bills and airtime, and buy tickets. The concept was attractive in that Nokia created a customer friendly user interface that could operate on either Nokia, or other branded phones. Eventually Nokia phones would be pre-loaded with the application, which could then be activated by the customer through their service provider. Distribution would be managed by the extensive network of Nokia outlets and agents that are present in emerging markets. I struggled a little with this proposition – my experience in emerging markets has been that the best agents tend to be the ‘mom and pop’ shops that offer a range of services and products and see mobile money as an additional revenue stream. My observations in many markets is that mobile phone shops, whether they are Nokia distributors or not, tend to focus on smaller volume, larger ticket price items, and as such struggle to understand the economics of transaction based revenue.

From a strategic alignment perspective, the challenges that Nokia are currently facing are well documented, and CEO Stephen Elop has commented that Nokia need to focus on core activities such as handset production and logistics and distribution. Unfortunately for Nokia Money, unmet expectations of customer take-up have probably caused the senior management of Nokia to lower the axe on a business that sadly was starting to show some 'green buds' of growth. I have been fortunate in meeting many of the people involved in the development of Nokia Money, and to a person they were committed, intelligent and focused on what they were trying to achieve. I am sure these latest developments are disappointing for them, but they should also be proud of the achievements they had in furthering the development of this industry. As the industry matures and scales over the next five to ten years, I am sure organisations like Nokia will look in hindsight at a missed opportunity to diverge their business in emerging markets. Nokia have come a long way from manufacturing rubber boots in 1865, but in the long run, their strength has appeared to be the ability to adapt and innovate into new markets and products. Only time will tell whether exiting financial services in emerging markets has been the right move.

- Brad Jones