Mobile banking is taking off in the developing world with services such as M-Pesa and Zain’s Zap, though profits have not been high. Meanwhile, in the developed world, uptake is mainly confined to the mobilisation of existing banking services. By George Malim





Mung Ki Woo of Orange: the mobile provides
consumers with their first electronic payment product

Visa’s Mary Carol Harris: mobile payments are
filling a void and meeting a need in developing markets

Gavin Krugel at the GSMA: in developed markets
the growth of mobile payments has been
disappointingly slow

“We’re not seeing as significant uptake as we’d expect and we’re not seeing financial institutions enter the sector. Developed markets have the internet and point of sale payment so I’m not sure of the benefits but it has been disappointingly slow in terms of development.”

Mary Carol Harris, head of mobile at Visa Europe, agrees. “There’s a difference in approach between developed and developing markets because mobile payments are filling a void and meeting a need in developing markets,” she says.

“There’s strong potential for P2P money transfer and our colleagues are very active in India, the Asia-Pacific and Latin America where we work closely with Telefónica.”

As does Mung Ki Woo, vice president for electronic payments and transactions at Orange. “The situation in emerging countries is very different from the one in developed countries. In emerging countries, people essentially use cash and banking infrastructure is generally limited,” he says.

“In developed countries, people already have an abundance of payment products and the banking infrastructure is very well developed and widespread. However, in both cases, mobile penetration and utilisation is high and consumers are prepared to do more with their phones.”

In Europe, Harris says the situation is more delicate, even in markets such as Germany and Austria where credit card uptake is low.

Common standards

“There’s a lot of work being done on common standards and we’re focussed on where we’re strongest which is in the face-to-face world,” she says. “That’s where you have to be if you’re going to evolve consumer behaviour. We’ve had successful contactless payment trials with O2 and Barclaycard that have given very positive feedback. We’ve also has successful trials in France, Turkey, Switzerland and Spain and we currently have a live trial in Finland.”

Telekom Austria has recently announced it is to offer a Visa credit card that will work as a normal credit card but also include extra services such as transaction confirmation by text message, mobile cashless and contactless payment systems and a mobile insurance package.

The service will be run jointly by Visa, Telekom Austria and the operator’s wholly-owned A1 bank. Telekom Austria has reported that two-thirds of Austrians don’t have credit cards so there’s plenty of scope to develop the market for mobile money among its 4.6 million customers.

The card will allow payment transactions at more than 24 million points of sale and about 1.4 million ATMs. Hannes Ametsreiter, CEO of Telekom Austria group, says: “We are opening up a new business area with A1 Visa card, combining for the first time the benefits of a financial product with Mobilkom Austria’s innovative service portfolio.”

However, just because banks, or at least the ones not owned by operators, are slow to push forward mobile offerings, it doesn’t mean the concept of mobile money has foundered in developed markets. It’s more a case of finding applications for it.

“We’re seeing commerce applications to enable consumers to transact on a personal basis, such as application stores with a suite of services appropriate to them starting to emerge,” adds Krugel. “I’m less interested in using my phone as a banking channel and I think the concept is moving more towards value-added services and less towards the aggressive approach we are seeing in developing markets.”

In those markets, there are more obvious benefits. “Developing market consumers don’t understand the need for banking or want a bank account,” he says.

Money transfer

“The perception is that it costs more than it’s worth and we’ve seen deployments take banking to new markets without success. However, once it’s understood what consumers want — mainly domestic money transfer — and they have seen the benefits, they start to migrate towards more sophisticated banking.”

However, even developed markets have fragmented attitudes towards the financial services sector. In Europe, for example, users in some countries don’t have familiarity with credit cards while others, such as those in the UK, aren’t used to paying for financial services.

“In most of Europe, customers are accustomed to paying for financial services and receiving a bundle of services with a debit or credit card and account,” explains Mary Carol. “The UK is one of the most difficult markets because banking charges have only recently come in and customers are reluctant to pay for them.”

Krugel sees mobile as a means for banks to expand their communications with customers but doesn’t see banking becoming tightly enmeshed with mobile.

“In developed markets there’s a role for the banks in terms of extending their services to mobile but I’m not sure how I’d respond to O2 or Vodafone providing me with banking, I’d prefer HSBC or Barclays,” he adds. “Yet I’d respond well to O2 providing me with services like tickets.”

Harris at Visa is targeting just that sort of demand. “Contactless payment, whether on a phone or a card, is designed for buying your coffee, sandwich and newspaper and is suitable for fast food merchants in busy metro areas where cash transactions and speed are the targets.”

Krugel adds: “In developing markets it’s a different play. Research has shown that consumers are more aware of mobile brands than banks and trust mobile operators more.” Consumers are used to handing money over to banks in exchange for air time every day so trust them with their money.

Regulatory compliance

“The developed world has credit cards so mobile operators don’t want to be banks or be in banking. They just want to offer additional services,” he says. “However, in developing markets there’s an unmet need and operators understand you need to be a bank or partner with a bank so operators use their brand strength to partner with a financial institution for regulatory compliance.”

For Woo, it’s a case of putting payment power in the hands of users for the first time. “In emerging countries, the mobile is used as a tool to provide to consumers with their first electronic payment product,” he adds.

“So far, most projects have been launched by mobile operators, generally in collaboration with banks. We launched Orange Money in the Ivory Coast in partnership with BNP Paribas at the end of 2008.”

Nokia has recently announced that it is entering this market with its Nokia Money offer, which confirms the high market potential of this set of services. “This is a new domain, so it is too early to say how he situation is going to evolve.”

Credit card companies certainly still have role because they provide both a means to develop relationships with financial institutions and a means to add international payments and access mechanisms and a means to tap into national payment systems.

“Visa and Mastercard see a significant opportunity in partnering with mobile operators because of the size of their customer base and the opportunity that has in terms of co-branded mobile money deployments,” says Krugel.

They could even bridge the gap between the operators and the banks. “We find ourselves translating between banks and operators and facilitating that bridge,” adds Harris at Visa Europe, which is owned by an association of 4,600 European banks.

Consumer proposition

“In the mobile world, it’s very complex and there are lots of different agendas so there definitely will not be a one-size-fits-all model. Mobile operators want their share from mobile money. The technology works, it’s a fantastic consumer proposition but the business model is one of the most complex issues.”

Traditional cross border providers of money transfer services such as Western Union are also unlikely to become marginalised. The GSMA examined options to increase the volume of such transactions and concluded that mobile network operators would be unable to do a more effective — or cheaper — job due to the sheer complexity of international settlement.

“Once we got into the detail of how complex such services are and the regulatory burden they face, we immediately understood the strength providers like Western Union bring. Operators will focus on deploying domestic solutions and link into the likes of Western Union to remit across borders.”

In fact, Krugel is so converted that the GSMA has partnered with Western Union and Belgacom RCS to provide cross border services to operators. “Mobile introduces them to a whole new customer segment that has lower transaction value but greater volume,” he says.

Perhaps mobile banking appears to have made such stunted progress in developed markets as a consequence of over-enthusiasm in earlier phases of its development.

“There are a lot of things that have been tried and failed,” says Harris. “We tried to go too fast too soon on mobiles but improvements in the speed of networks in developed markets means users are no longer plagued with cumbersome WAP services. User interfaces have also improved — and not just on the iPhone. We think we’re at a turning point having learned the lessons of the past.”

That for banks and operators will come when the additional value of mobile money can be unleashed. “There’s a lot of potential value in putting payment on a device,” she adds. “Can it cut operational costs for bank? Can you couple it with value-added services such as loyalty or couponing?”

It’s worth noting that Telekom Austria is doing just that right now. For each purchase made on its A1 Visa Card, customers will be awarded mobile points that will be added to other loyalty points for the purchase of a new handset.

Generating value such as this from mobile payments could be the key that unlocks the value of mobile payments in developing markets but, however services develop, they will be different in each mature market they launch in. GTB