My son and I have been out and about, living the life of normal folk who don’t care about payments. We made a couple of cash payments and we made a couple of non-cash payments. We didn’t, however, make any chip and PIN or contactless or swipe payments.

The Halifax, part of the Lloyds Banking Group, just released some interesting figures about trends in customer use of payments. One of the more noticeable trends is the steady fall in the use of cash, a fact that was picked up on by a a number of news outlets.

Cash withdrawals now account for just £18.33 of every £100 spent, a £1.82 decline since 2013.

[From Finextra: Finextra news: Card is king as cash usage continues to fall – Halifax]

This got me on to BBC Wake Up To Money and subsequently a number of other BBC Radio interviews about the rise of electronic payments and the decline of cash. One of the questions I was asked was about places where you have to use cash. I couldn’t think of one off the top of my head. I was thinking of using the example of giving money to beggar in the street (which I never do, I but I’ve heard of the phenomenon), but then I remembered that beggars are ahead of this particular curve.

A professional beggar who travels hundreds of miles from his home in Lancashire to London’s Mayfair has been using a credit card reader to accept payments from wealthy tourists. Damien Preston-Booth, 37, commutes from his rented home in the north-west, but pretends to be homeless when he asks passers-by for money on the streets of London. As well as taking cash from wealthy tourists in the exclusive Mayfair area, he also has a mobile card reader and accepts payments to his PayPal account.

[From Beggar uses card reader to take donations – Telegraph]

I think this is pretty forward-thinking of him, and despite the underhand nature of his enterprise, applaud his willingness to try exciting new forms of payments at the heart of Europe’s FinTech capital.

The reader is linked by Bluetooth to his smartphone and the donor receives a receipt for the donation via email.

[From Beggar uses card reader to take donations – Telegraph]

If you want to donate to another worthy cause, the Dave Birch Holiday Home in the South of France Emergency Appeal, you can PingIt the money to @dgwbirch and I will, of course, be only to happy to e-mail you a receipt on request. But back to the point. Where do you have to use cash? On one of the shows (I apologise for forgetting which one) someone said that they had to pay cash at they local Chinese restaurant. This made me wonder: why do people go to cash-only restaurants? Apparently I’m not the only person that thinks about this.

Either we didn’t know it was cash-only, and are now furious about this fact for all the reasons examined above; or we did know it was cash-only, and we chose it anyway because it made us feel bohemian, in-the-know, and capital-C Cool.

[From Why the Cash-Only Restaurant Must Die]

Yeah, well. I don’t buy the hipster curve on this. If I am out for lunch and I see a restaurant with “cash only” in big letters on the door then I will walk straight past it. The only reason that I’ll go in is because they don’t tell you they are cash-only until it is too late. I have the same problem with taxis. I suddenly decide to hail a black because I’m in a street full of them and so can’t be bothered to use Hailo or Uber or whatever. So I put my arm out, the cab stops, I jump in and… I see a sign saying “cash only”.

At that point I should of course tell the driver to stop and let me out, but because I’m English I find it very difficult to do that and so instead sit fuming in the back until we approach my destination and then jump out to run to an ATM. It looks as if some other drivers recognise and anticipate that problem too, because it’s presumably a problem for them that the machines often have only £10 and £20 notes in them.

In a modern city such as London, this is unacceptable. Either ban taxis from cash-only operation or make them paint the cash-only taxis a different colour so that normal law-abiding citizens can avoid hailing them. Anyway: it’s a minor point. Hailo, Uber and whatever mean that none of us will be hailing taxis for very much longer and #appandpay will again triumph over #tapandpay. Meanwhile, still scratching my head about where I might last have used cash, I remembered my day out in Woking last week. I picked up my son from his friend’s house, where he regaled me with (quite unprompted) tales of his night out at Wagamama in Camberley, where he tried out their nearly new QKR! implementation. He loved it, and thought that the #appandpay convenience of the service was an absolute winner. Why wait for a server to come over to the table with a chip and PIN machine when you can just pay via the app and go?

He was telling me this as we were strolling down to check out Woking’s newest wargamesshop, the excellent “ibuywargames”. Having had a look around and decided to buy a couple of things, I noticed a PayPal chip and PIN reader in the store. I took this to mean that they would accept all forms of PayPal so, since I had my phone in my hand but my cards were in my wallet, we both fired up PayPal and I paid in-app. Another #appandpay triumph, but this time over #chipandpay. So, no need for cash there either.

But then I remembered: I did use cash after all that day. We stopped for a burrito at the truly fabulous Aracelis stall in the old Woking market. I was lured there by my son’s tales of their fantastic Mexican food. I am sorry to report that when I got there I found that they were cash-only, so I was about to walk away on principle but my son forced me to suppress my conscience and order. It was amazing. All they need is a contactless reader and I might never leave.

The point here is that one of the key reasons why cash is in decline for retail transactions (as I mentioned on several radio stations) is the rise of the mobile phone as a alternative not only to the card but also to the terminal. As has been observed here many times before, it is the mobile phone (rather than the plastic card) that it is leading down the road to cashlessness, and this is the point I wanted to reinforce. Oh, and that half of the payment experiences I’ve spoken about here were in-app.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

The UK’s new Payment Systems Regulator is now open for business. I imagine that their highest priority work stream will be around access to payment systems, because this is what “challenger” banks need in order to create the more competitive environment that the UK Treasury wants.

The payment systems regulator (PSR) has published their report on a new regularly framework for payment systems in the UK and, as I’m sure many other people did, I spent the weekend reading through it so that our clients can feed it into their product and service roadmaps where appropriate. It’s important to understand the pressures that the new framework will bring to bear and have some realistic ideas about where it will have an impact in the short, medium and long-term. We’ve all understood the big picture for some time. A couple of years ago, I wrote that

The Chancellor’s decision to go down this route clearly re-frames payments as a utility.

[From Consultation on a new payments regulator for the UK]

What most interests me at the moment, however, because of the projects that we happened to be involved in at the moment, is the high level strategic direction of travel. In the report, the regulator outlines three key areas of concern: governance, innovation and access.

• The first of these, governance, has long been a concern and it was clear from the government’s earlier consultations that there was a (perfectly legitimate) requirement to involve more stakeholders in the decisions that need to be made and more transparency around the decisions. I don’t think anyone would disagree with this and the proposed actions (such as publishing the minutes of meetings) seem reasonable. Note as an aside that the reconstitution of the Payments Council as a trade association for the industry is a direct result of the desire to split governance from “implementation”.
• Following the original Treasury consultation (the one where the Treasury essentially ignored all of the actual consultation input, or as our friends at Celent put it at the time “Our understanding is that the Treasury feels that the responses (56 in gave the wrong answer“) it was clear that the issue of the pace of innovation in payment systems was going to be added to the proposed regulators casebook. I have commented a couple of times that is not entirely clear to me how this is to be achieved but that’s not the point of this post.
• The third area of concern, and this is the one where all of the trouble will come, is the ability of new players to get access to the core payment systems. In most of the fora where I hear such talk, access is the nexus between stable, boring and legacy infrastructure and the challenges, up and comers and next big things.

It is this last point about access that is key to achieving the Treasury’s goals for more competition in the banking sector and it is exactly what one of the more interesting (in my opinion) challengers was complaining about in the press this very weekend.

The lender, Fidor Bank, had planned to launch in the UK by the end of March, but has been held up with the country’s difficult payments infrastructure. The big four – Barclays, HSBC, Lloyds and RBS – act as sponsor banks with direct access to payments systems. None has accepted Fidor as a customer.

[From UK launch of digital bank Fidor hamstrung by payments providers – Telegraph]

With respect to this point about the need for “sponsor banks”, who can access the payment system and under what circumstances, the PSR says that they propose an “Access Rule” .

This would require these Operators to have “objective, risk-based and publicly- disclosed Access Requirements, which permit fair and open access”. We proposed requiring these Operators to be compliant with our proposed Access Rule by 30 June 2015. LINK, MasterCard and Visa are already subject to an obligation to provide objective, proportionate and non-discriminatory access under Regulation 97 of the PSRs 2009.

The devil, as it always is with these things, will be in the details. People who want direct access to the payment networks are somewhat suspicious that while the operators will comply with the requirement to publish objective, risk-based and publicly disclosed access requirements, they will insist on non-proportionate countermeasures. The regulator has clearly said (in section 4.14) that their access rule will ensure that operators access requirements are proportionate to the actual risk that will be incurred by adding the new participant. I hope that they are militant in enforcing this because the actual risks, or should I say the marginal increase in actual risks, associated with the addition of direct access by low-value payment systems seems to me to be fairly small.

One specific “access” where I imagine industry participants were vocal is the case of access to the UK’s Faster Payment Service, FPS, to provide immediate settlement. Faster Payments (the scheme that operates FPS) had already put out a White Paper on their vision for the access model of the future in which they say that their goal is absolutely to provide such access to enable a level playing field for the Payment Service Providers (PSPs) that want to offer such immediate settlement services to their customers through FPS.

To show how this might achieved, they set out an architecture to offer open and fair access on “reasonable commercial terms” to the PSPs through accredited technology vendors. You can see why they want to go down this accreditation route and it makes a lot of sense because none of the participants would want to risk technology problems disrupting the operation of what is, in essence, a piece of critical national infrastructure.

What is also interesting to me about this proposed model is that for organisations that are not eligible for a Bank of England Reserve Account for settlement purposes they propose to provide an alternative to finding a sponsor bank. Organisations (such as for example Google or Tesco or Apple) might want to participate in the scheme and can easily afford to set aside the cash for what is known as “pre-funding” collateral but they might not be able to, or not want to obtain either a banking licence or a Reserve Account. What’s more, sponsor banks may not want to handle the accounts of such organisations for a variety of reasons (one of them being AML regulations) and the organisations might not want to have sponsor banks either.

Right now one of the main complaints (from, e.g., Fidor) about sponsor access is the opacity of the commercial relationships with sponsor banks, which is one of the things that the PSR intends to address. The regulator has also set out some changes on indirect access to make the sponsor banks open up their services by publishing service descriptions, eligibility criteria and costs. So for organisations who want to use sponsor banks, the menu and pricing of the sponsor banks would allow them to quickly choose the right partner and get down to business.

At high level, then, the alternative to using a sponsor bank to gain access to FPS will be to gain access through one of the accredited vendor but with liquidity guaranteed by a sponsor (in return for a fee, obviously). The settlement must be guaranteed in this way otherwise you would have to wait for it to actually occur rather make the funds available immediately. This should be cheaper, quicker and simpler than going through the sponsor.

Faster Payments see a competitive market emerging through the accredited technology venders operating aggregation services to the PSP’s (which I think is probably right) but also say that over the time they intend to work with the Bank of England to identify new models and these could potentially open more participation to non-banks (such as retailers for example). Although they don’t say what these new settlement models will be, it is certainly possible to imagine models that will allow PSPs to offer new products and services to their customers. I’m sure this is one of the areas that the PSR will be looking at in their innovation work stream.

One other point. The White Paper also talks about how the new access model will connect with non-UK markets and I can certainly see that integration into other European immediate settlement services and perhaps even in the longer term interconnection with immediate settlement services in other countries (e.g., Australia) and perhaps one day even the United States will deliver a payments infrastructure that is a world away from the 1960s legacy models that still constrain innovation today.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

There’s been a lot of buzz around Bill Gates’ challenge to bank the unbanked, set out in this excellent Verge article. Naturally I agree with the sentiments, but the use of the word “unbanked” bothers me.

There are billions of people around the world who have no access to financial services and are thus prevented from taking steps to move them out of poverty. This is a real problem. But if we call these people “unbanked”, we set up a mental framework in which the goal is to get them them banked. But I don’t think this necessarily makes sense for them or the banks. I’ll use the example of India to explain why. In India, there is a massive push on right now to bank the population.

The prime minister, Narendra Modi, launched the initiative at the end of August, setting a target of 75m new accounts by Republic Day, January 26th. The scheme’s initial goal has been surpassed: 120m accounts have been opened.

[From Banking in India: Downwardly mobile | The Economist]

Whether these are accounts are, or will ever, be used is a different issue. I strongly suspect that many of the accounts will be used only to withdraw the balances from ATMs. This makes them an expensive proposition for banks.

Although two-thirds of the new accounts are empty, Mr Jaitley says 330 billion rupees in transfer payments and wages from a rural employment scheme will soon flow into them.

[From Banking in India: Downwardly mobile | The Economist]

As in the case of the “basic bank account” in the UK, this amounts to bullying banks into providing a money-losing account to people who don’t want it. The legacy infrastructure, regulatory burden and customer service requirements around banks mean that the cost model just does not make sense.

Banks have been told to cap the charge for withdrawals related to transfer payments at 1%, up to a maximum of 10 rupees. But research suggests a charge of 2-3% is required to cover the cost of managing cash.

[From Banking in India: Downwardly mobile | The Economist]

And that figure does not take into account the losses to the poor trapped in a cash economy. So how do we get around this? Well, I’ve written at length before about why India has been such an interesting case study as the regulations have been progressively relaxed to build the mobile payments base. India recently made a very important change to the regulatory environment by allowing non-banks to get involved.

Indian telecom groups such as Bharti Airtel and Vodafone are set to be given greater freedom to take on the country’s banks by offering enhanced mobile payment services, as part of forthcoming rule changes from the Reserve Bank of India.

[From Reserve Bank of India moves to enhance mobile payments market – FT.com]

Gates highlights the role of M-PESA is creating the new “mobile money” world, but in my opinion one of the key reasons for M-PESA’s success is that it isn’t run by a bank. Banks use it (and there are far more banked people in Kenya today than before M-PESA) but it isn’t a bank product. I think this regulatory light touch has been of great benefit to the population.

My point, really, is that calling people “unbanked” frames the problem incorrectly. It rather suggests that banks are the solution but providing money-losing services to people who don’t want them is a lose-lose. The first step on the ladder to financial inclusion is what we might alternatively term a transaction account. This could be a basic bank account, or it could be any other form of pre-paid account (e.g., M-PESA) or even an interest-bearing pre-paid account as with Tigo Pay in Tanzania.

Tigo, a unit of emerging markets telecom group Millicom Cellular International , has started a mobile money service that pays interest on balances, tapping into an underdeveloped market for financial services in Tanzania.

[From Tanzania’s Tigo launches interest-earning mobile money service | Reuters]

It took a year to get central bank approvals for this service, yet within a few months it had millions of customers. As of today, they have 3.7 active million users and have been paying approximately 10% interest on balances. And, again, it’s not a bank.

The problem is not that people are unbanked but that they are excluded and new technology is giving us many different options for including them. In different countries and different circumstances, different options might be best. But it is really not clear to me that banks are the best option, even for the banks themselves.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

There are people trapped in the cash economy all over the developing world, but there are people trapped in the cash economy in the developed world too.

The Bill and Melinda Gates Foundation is most, and deservedly, well-known for their work in tackling big, big problems such as eradicating polio. But what you may not know is that they have a programme called Financial Services for the Poor (FSP) which aims to help people out of poverty by providing digital financial services (DFS). The Foundation decided to create an external advisory group to help to steer, support and promote DFS. This is called the Platform Enablers Group, because the Foundation sees DFS as a platform for products and services that will make a real and sustained difference to the lives of least well-off around the world.

I was flattered to be asked to be part of this advisory group and honoured to be able accept (on behalf of my colleagues at Consult Hyperion who actually do the ground-breaking work in delivering financial services in Kenya, Nigeria and elsewhere). There are two reasons for this:

• The altruistic reason: my colleagues at Consult Hyperion have done some amazing work, from the original feasibility study for M-PESA to the implementation of TAP, and it feels  good to be able share some of the experience and expertise to help the Foundation change lives.
• The selfish reason: the other members of the advisory group are really smart and really interesting and I learn a tremendous amount from listening to them (especially when they argue – there’s no quicker way of learning about a subject than hearing two people who know all about it disagree!).

At a recent meeting of the group, there was a discussion about trying to identify the key conditions for payment innovation that could help with financial inclusion and therefore with social inclusion. The group discussions are according to the Chatham House rule, so I can’t attribute these comments (other than to say that they come from a very clever and very experienced person and I always take her opinions very seriously) but I wanted to share them. I should add that I do have the permission of the Foundation to use this picture to illustrate the discussion:

As you can see in the picture, the three enablers discussed were:

1. A reliable and efficient identity infrastructure. I will blog about this again some time in the future as I have been exploring some ideas about emergent identity infrastructures for emerging markets and I think there may be breakthrough strategies here. In many countries there are no ID cards, no population register and no consistent identifiers, so the cost of bring customers into a system while complying with demanding KYC/ATF/AML requirements is a barrier to progress. What if we made it easer for people to join the system and then defined their identity as the reputation generated within the system that could be later bound to external identifiers?

2. A real-time settlement system. Being able to move money instantly from one account to another works fine when both accounts are in the same system (such as M-PESA). But to scale, we need to be able send money between accounts with different organisations and even different kinds of institutions (e.g., between a bank account and a mobile operator account). There are a few different ways that this can work, as my colleague Dick Clark explained at the Mobile World Congress this year.

   As part of this work, MMU released a new paper titled ‘A2A Interoperability’ last week at Mobile World Congress in Barcelona that we co-authored with Consult Hyperion.

   [From New publication: A2A interoperability – making mobile money schemes interoperable | Mobile for Development]

   If it were possible to move money between payment accounts instantly (as you can do via the Faster Payment System, for example, in the UK) then it would mean that risk associated with a rich, multi-organisation environment would be reduced significantly.

3. A regulatory environment that allows new competitors to challenge the incumbents. The US has no equivalent of the EU’s Payment Institution (PI) licence, but this would be a practical way to allow new entrants access to the infrastructure needed to deliver great new products and services.

I couldn’t help but remark that the US has none of these with the result that, as another of the advisors pointed out, there are something in the region of a hundred million people in the US today who are unserved or underserved by the existing financial services providers.

For consumers, the costs of using cash are regressive and fall heaviest on the “unbanked” – mostly low-income individuals who can least afford it.

[From Cash Is a Wasteful System, but Hard to Replace – Room for Debate – NYTimes.com]

There are people trapped in the cash economy all over the developing world, and therefore denied access to the first rung of the ladder out of poverty, but there are people trapped in the cash economy in the developed world too.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Of course, the simplest option is the addition of an RFID chip, the size of a grain of sand, which replicates the banknote serial number – so you can in theory count banknotes by scanning them with a suitable device as they move past. But that seems a little mundane.

Of far greater interest is the more complex idea of a smart banknote with a particular focus on their applications alongside mobile money in emerging markets. With the right combination of technologies, a smart banknote could be created whose appearance changed according to the value it currently represents; blank if it has no value, looking like a £10 note if it’s currently worth £10, etc.

It could then be integrated with your mobile phone and used to download money from your mobile money account (and change its face value accordingly) – and vice versa. Once it had value loaded, it could be used to buy things in shops just like ordinary notes.

Apart from the fact that this would reduce the need for ATMs and mobile money agents, it would also remove the huge costs associated with moving cash around – security guards, vans etc – the savings from which would allow blank smart banknotes to be issued for free (transporting them is cheap, because until you download cash onto them, they have no face value).

Of course, there’s always the crumple test standing in the way…

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

The MM market is currently afflicted by a lack of agreed terminology – as is normal for any new market – so first we must define exactly what we mean by MM interoperability.  If we put international remittances to one side for now, there are two distinct high level domestic candidates:

1. The ability for customers of any mobile money operator (MMO) to connect with a range of other types of financial service provider, such as banks and payment services providers (PSPs)
2. The ability for customers to send e-money between MM accounts provided by different MMOs on different platforms

Type one, more accurately termed interconnection really is a no-brainer as discussed in my previous blog post [http://www.chyp.com/mobile-money-practice/blog-entry/time-for-mobile-money-to-start-playing-with-the-big-boys]  .  Indeed it can be argued that in many markets, especially those where domestic remittances are less common, this interconnection is needed in order to create successful MM services.  It will certainly result in growth of the whole MM market, particularly in “dual economies” with a more developed financial service infrastructure as well as a high unbanked population.   It could theoretically be achieved by multiple bilateral agreements between MMOs and the various financial institutions.  In practice this is likely to be limited to interconnection between MMOs with large customer bases and the friendlier financial institutions and thus be slow and self-limiting as a mechanism to grow the MM market overall.

The more likely recipe for success will involve one or more interconnection services which plug MM transactions on one side of their switch (or other suitable infrastructure) and conventional financial service providers on the other.  These interconnections will allow much faster development of an integrated market with more participants than are possible from multiple bilateral negotiations and technical integrations.  The organisations successfully providing this connectivity are yet to emerge although there are already a few contenders lining up.

There may also be a third way to interconnect for specific use cases such as the WinguPay service concept for in store payments [http://www.chyp.com/media/library].

The second type of interoperability, between MM systems, has fewer advantages at this early stage of the industry’s development.  There are two levels of interoperability:

1.    Customers with MMO1 can send funds directly to the account of MMO2 and vice versa

2.    Customers of MMO1 can use the agent or merchant recruited by MMO2

Sending funds directly to an off-net customer account is certainly more convenient than the current norm of sending an “unregistered user voucher” which can be cashed at an agent, and it should encourage people to keep e-money in their account to use for other digital transactions.  But it is not clear that it will dramatically change customers’ use of e-money, particularly as it is not uncommon for them to have accounts (and SIMs) with multiple MMOs.  Undoubtedly MM account to account integration will happen over time but it does not have the same priority as interconnection.Again it may be achieved, when the time is right, bilaterally or via an intermediary.

Agent and merchant sharing is a potential issue for commercial as well as technical reasons.  Companies acting as MMOs are mainly doing so to differentiate themselves from competitors in their core business, and the winners tend to be the services with the biggest and most efficient agent networks.  Agent sharing removes their competitive advantage.  Worse, companies that invest in their agent network will see it given away to their less committed competitors for free.  They are unlikely to regard this kind of interoperability as motivation to invest in their agent network. Further, interoperability tends to imply a version of a four-party banking model, for which there are no scheme rules, technical standards or common user experience.  Suddenly the simple closed loop system becomes much more complex with increased administration and additional entities levying charges.  Few mobile money services can yet sustain a drop in revenue, so they will need to increase the cost to consumers who are unlikely to view higher transaction fees as enhancing economic empowerment.

Interoperability is certainly coming, and done properly will certainly move the MM industry forward.  However the various types of interoperability need to be clearly understood, prioritised, and introduced when the markets are ready, or they may have the opposite effect.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Most mobile money services currently work as closed loop systems, unconnected to other payment services.  This has the advantages of minimising costs, simplified operations, and providing real time transactions.  As mobile money was originally designed for the unbanked as a replacement for cash, a closed loop system was fine.  However, there is a growing demand for services opening up interfaces to make the service interoperable.  For example, to provide utility payments with real time notification to the billers’ accounting systems, and transfers between mobile money accounts and conventional bank accounts.

The biggest driver for this connectivity comes from “dual economies” with large banked and unbanked populations, and where the unbanked are transacting in an environment with significant conventional payments infrastructure on a daily basis.  For example:

•          Many of the shops serving the unbanked use tills which are fully integrated POS systems with reporting, reconciliation and stock-keeping systems.  These retailers will not readily become mobile money agents or merchants until their POS devices can be linked to mobile money systems seamlessly, as other payment methods are. (This also implies a need for an system which allows one POS to accept multiple mobile money services, but that’s a story for another day.)
•          Retailers, whether chains of stores or the more affluent market traders, need to be paid in mobile money then transfer their takings directly to their bank account rather than cash out at an agent then travel to a bank branch to make a deposit.
•          A key source of earnings for the unbanked is the banked population which employs them to provide, for example, domestic services. In dual economies there is a large banked population, and a lot of domestic employment. The banked senders do not want to withdraw cash at an ATM, and then travel to a mobile money agent make deposit, and then make a P2P transfer.  For them to adopt mobile money at scale, they need the ability to transfer funds from their bank account directly to their own or their staffs’ mobile money accounts.
•          Many dual economies have, or are developing, social payments.  The cost to the government of delivering money to the unbanked by conventional means can be a significant percentage of the amount disbursed.  The low cost of B2C mobile money transfers are an attractive alternative.  The same benefits are of interest to large scale employers paying their workforce.  However for this to be feasible at scale, the service needs to be provided with the same kind of connectivity and interfaces used to administer conventional disbursement/ payroll systems.

The time is fast approaching for the mobile money industry to “grow up and start playing with the big boys”.  Until it does, the growth potential will remain limited by its inability to interconnect.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

This may be because the data is supplied by the GSMA’s Mobile Money for the Unbanked (MMU) team and focuses on the community that the MMU team engages with, so perpetuating the view that mobile money is exclusively an emerging market phenomenon – a view that I disagree with, if not in actuality, certainly in potential.

Consider what constitutes a mobile money scheme:

·         Customers’ access to their account, for carrying out transactions or for managing their account, is primarily through the medium of the mobile phone;

·         Cash can be deposited and withdrawn via the intermediary of human ‘agents’ in local shops;

·         Cash can (sometimes) be withdrawn at ATMs;

·         Transactions are fast, and tariffs are low;

·         Registration is simpler and faster than for a local bank account.

In addition, it is fair to say that mobile money schemes are generally aimed at the unbanked market – that is, people who are unable to access traditional banking services, however basic – but I would argue that that is a characteristic of the available, under-served market, rather than any law of nature.

The dramatic growth of mobile money services in the emerging markets is a consequence of the huge size of the unbanked market in those countries, coupled with the launch of services that provide them for the first time with readily accessible basic financial services.

But there are mobile money services elsewhere, and they certainly occur in the so-called emerged markets. In the UK, for example, we have seen a number of such services being launched in recent years. A prime example is O2 Money, launched in Q2 2012. This has all of the characteristics of a mobile money scheme, as described earlier, but with one important extension to ensure its applicability to the British way of living – it has a companion card, a plastic card which allows O2 Money to be spent in shops, and which can also used for ATM withdrawals.

It must be said, though, that none of the schemes in the emerged markets have broken through in quite the same way that M-PESA has in Kenya. This is principally due to the differences in the markets. As an example, in the UK (as in other “developed” countries), people with a bank account can access the services offered by mobile money using cards on line or in person and most have access to mobile banking.

So people with UK bank accounts are unlikely to be regular users of a mobile money scheme, and therefore a strategy needs to be developed to recruit customers that offers something beyond the basic financial services. I am of the firm belief that such a strategy can be developed, and that a successful strategy would embrace elements aimed at three different groups: the mainstream banked; the not yet banked (teenagers); and the unbanked (the poorer sections of society).

The mainstream banked will be the most difficult to attract, and the key here will be differentiators from the mainstream banks’ offerings.  As mentioned above, mobile money offers little advantage to them.

The not yet banked are a slightly easier proposition –almost all of them have a relationship with a mobile phone operator, and are very familiar with buying things with their mobile phone. A proposition is required to meet their needs, by incorporating elements such as entertainment tickets (discounts are the key) and products linked to stadiums and venues (such as closed loop payments), and the option of a companion plastic card is essential.  But ultimately, whether or not this supports an attractive business case is another matter.

But the UK unbanked are a proposition with great potential.  There are around 1.25 million unbanked households in the UK[1], equating to around 4.5 million unbanked individuals. There is a real need here, and the unbanked could form a valuable element of a broader model for a mobile money operator. And you can bet that, in modern Britain, the vast majority of these people have a mobile phone.

To those who would say that the unbanked have no money, and cannot therefore be of interest, I would point out that, in common with poor people the world over, they pay significantly more for financial and other services than any other segment: fuel, cheque cashing, and short term loans are all examples of the amount such people are forced to pay for services that the mainstream gets either for free or at very low cost.

At the core of any unbanked proposition must be the facilitation of social payments. The majority of social payments in the UK (including pensions) are delivered directly to bank accounts, and in a cost-efficient manner that is at least competitive with any mobile money offering. However, the 4.5 million unbanked recipients receive their payments by alternative means, and at significant expense to the UK Government. Giving these recipients a mobile money account, and facilitating these social payments, should be at the core of any strategy.

Access to cash is also an issue. In many of the poorer areas of the UK bank branches have been closed, and the only ATMs that remain are private ones in small shops that typically charge around £2 for a withdrawal. By adopting the agent approach of emerging markets, access to cash from the mobile money account would be greatly facilitated, and drive additional revenue into the local community.

By definition, unbanked people do not have access to the conventional banking system, and there is an opportunity for a mobile money operator to facilitate that access and so enhance their own proposition. Basic functionality, such as direct debits, should be offered in order to address, for example, fuel poverty (if you cannot pay for fuel – gas and electricity – by direct debit in the UK, you will be paying a lot more for the fuel you use). Another aspect of being unbanked is the lack of access to loans at reasonable cost (hence the controversial rise of the so-called ‘payday loan’) – there is an opportunity for a mobile money operator to create a portfolio of relevant of financial services for their customers here, in which partnerships could be formed with local organisations, such as credit unions, in order to promote savings and loans.  I am sure there are lessons that can be learned from the experiences of microfinance institutions (MFIs) in the emerging markets.

In summary, I do not believe that mobile money is exclusively a phenomenon of the emerging markets. There are significant populations in developed markets that closely match the characteristics of mobile money customers in the emerging markets, and there is a clear opportunity for the right mobile money propositions.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

As a consequence we are being asked more and more often to recommend a platform.  This puts us in a difficult position, because frankly we are not aware of a platform out there that we can wholeheartedly recommend. Consider the two broad classes of platform: those specifically aimed at, and developed for, this emerging sector of mobile money; and those that are adapted from the banking sector usage for which they were developed.

Pure mobile money platforms are often supplied by technology-focused organisations, whose roots are in the mobile industry – these can be suppliers of (for example) prepaid airtime systems, or network infrastructure, or billing systems, though pure mobile money technology startups are also prominent in this category. These organisations generally understand the technology at a deep level, and can (usually) supply you with a reliable transaction engine. But these platforms are generally deficient in the more mundane areas that, whilst not sexy, are absolutely crucial to the success of a service – areas such as:

·         Sophisticated reporting tools, for general management of the service, and for active fraud and money laundering detection and management;

·         Proper bank-grade security features, such as role-based access controls and countersigning of value movements;

·         Support for, and integration with, internal management processes, in order to develop institutional robustness;

·         Tools for the management and training of agents and agent networks.

In contrast, platforms evolved from the banking sector have many of these features already (with the exception of the mobile money-specific features, obviously), but they fall down in their adaptation to this new sector:

·         They are too closely fitted to the conventional operational and management structures of a bank;

·         The terms on which they are offered generally mirror the conventional business models of banks, for example by tying costs directly to customer numbers, which makes the platforms unattractive to mobile money operators (including banks wishing to offer mobile money services).

So what is to be done? Well ideally I’d like someone to offer Consult Hyperion and its Associates the chance to specify and manage the building of a second generation mobile money platform  – after all, we have probably unrivalled experience in this sector, amassed since 2004, across a range of mobile money operators and platforms. But back in the real world, I’d recommend that mobile money operators follow the conventional path of service development the world over:

·         Work out precisely what your organisation wants and needs, and document it in a detailed, formal Requirements Specification. And don’t limit this to just the technical requirements.

·         Use the Requirements Specification as the basis of an RFP, and issue it to as many reputable suppliers as you can identify.

·         Formally score the responses you receive, in order to establish an audit trail of decision making.

Generally, I’m hoping to see mobile money move over the next few years from the current ‘gold rush’ state, to a more prosaic ‘business as usual’ state of mind.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

On this analysis, it seems that we in the industry have simply failed to develop services that meet customers’ needs. I beg to differ. There are shortcomings, yes, but I strongly argue that the effect we’re seeing is the result, in most cases, of misguided regulation.

There is one country that illustrates this well. For the most well-intentioned of reasons, Nigeria has ended up with mobile money regulation that is spectacularly far from what the market needs. Consider the following points.

First, the question of sustainability.  More than almost any other business, mobile money depends on scale – so licensing 19 operators in Nigeria (9 yet to launch), all of whom have to start from scratch, almost guarantees that all will struggle for a long time to build a self-sustaining business. Surely what we all want is a healthy mobile money sector, and if that means limiting licences to three or four, at least in the early years, would that not be a price worth paying?

Second, no mobile operators have been licensed, though they may operate a platform as suppliers to a licensee. This is reportedly because the Nigerian Regulator has seen the success of M-PESA in Kenya, and does not like what he sees. I have heard similar comments from regulators a number of times in the past, and I really struggle to see precisely what harm M-PESA has done to Kenya.

Third, the hot topic of interoperability. Almost all regulators love this one (and the Nigerian Regulator is no exception), as it sounds so good; make sure that everyone can send money to everyone, regardless of operator, and try to enforce efficiency by making all the operators share agents. But this is simply nonsense. The “send to everyone” requirement is most efficiently met by allowing all schemes to implement a “send to unregistered customer” capability (which, by the way, is not a money laundering risk if it is implemented properly, as a message to the recipient to tell them there is money waiting for them, and all they need to do in order to withdraw it is to register – the promise of money is always a good incentive). Further, it is common for people in sub-Saharan Africa to carry multiple SIMs, so the idea of being registered for multiple mobile money schemes will hardly be a shock to them.

The other aspect of interoperability that regulators seek to enforce is agent sharing. Let’s pick that apart for a moment. I, as a mobile money operator, must invest money in equipping an agent, in ensuring that their premises are suitable, that they have sufficient cash on hand, and (most importantly) in training them and their staff, together with regular refreshers as they turnover staff. Once I’ve spent all that money, all of my competitors can then come along and use that agent without making any investment, because interoperability requires it. Please tell me then, why is anyone surprised that there has been insufficient investment in agent networks?

There is one aspect of interoperability that neither the regulators nor the mobile money industry have so far addressed in any meaningful manner, and that is in ensuring mobile money acceptance in shops and at small merchants. As a mobile money customer, the utility of any scheme is vastly increased as the number of places I can spend my money increases – would anyone in Western Europe be impressed with a scheme that could be loaded at a local shop, but all you could then do with the money is to send it to a relative, or pay a bill?

Shop/merchant acceptance is the next frontier of mobile money. I just hope the regulators don’t enforce solutions based on the old technology of switches and acquiring networks – but that’s a subject for another post.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.