Wow! What a fantastic conference. Going to this conference reinforced my hypothesis that we, in North America, are very far behind in our understanding around the innovations in mobile financial services and need to open our eyes to what is happening abroad. During the conference, I sent out 44 tweets real-time regarding interesting facts/figures/thoughts regarding what was being said. Feel free to take a look at http://www.twitter.com/mpayconnect or on my website at: www.mpayconnect.com.
As I synthesize my notes, I’ll have more thoughts to share. Here are 10 points to start.
Some key takeaways…
1. The mobile financial services industry is finally coalescing, but has a long way to go. There is serious chaos and fragmentation today regarding the efforts being driven globally. This is reflected by a level of complexity in knowing how to launch mobile financial services… what partners to use, how to set up an agent network (or whether to leverage existing networks), what the role of the banks are, how to brand, what the business model is, etc. The efforts in the Philippines and in Africa are paving the way for some best practices. Still, there is a level of regional/cultural differences that will significantly impact HOW these services should be rolled out from one market to the next. Case and point: mPesa was launched in both Kenya and Tanzania. Kenya has seen overwhelming success (6.5 million subscribers in just 2 years) while Tanzania has yet to reach a critical mass. There are numerous variables that must be taken into account. Learning from past successes and mistakes will be critical. 5 years from now, the model will be figured out and the approach will be very easy to scale from one market to the next. Today, it’s still a puzzle to be solved, but getting closer to being replicable. There is no longer a question whether MNOs will work with banks. With the exception of some outlying regions with crazy regulations, the answer is… MOST DEFINITELY. How the banks play with the MNOs will differ between markets.
2. The industry seems to be largely driven by a handful of “free agents”, or consultants, who have the benefit of working in various geographies with numerous ecosystem players to bring that knowledge base to the MNOs, banks, etc. This makes sense given the speed at which the innovations and lessons are unfolding and benefits everyone.
3. The business model is yet to be figured out. What?! Yes, you heard me. There are complex models that have been developed, but the payback period (if ever) is 3-5 years, from a stand-alone P&L perspective. So, how do MNOs justify the investment? Churn reduction. I don’t buy it. Why? In a fragmented market where all MNOs are chasing this business, how does one reduce churn? Doesn’t it become a necessity to doing business at all? Indeed, I think the better way of thinking about this is… In a market with this much hype around the role of mobile for financial services, EVERYONE will be chasing this business in markets where there is customer demand. As such, NOT launching this service will mean losing customers. In other words, launching mobile payments will not be a way to move ahead of competition (OK, maybe for a short period in the beginning), but a way of not losing to the competition later. In game theory, the entire MNO market is in a prisoner’s dilemma. One move by one, necessitates a move by all. It’s a defensive position to launch the service.
4. OK, so what about interoperability? When it comes to payments, the system HAS to be interoperable. In Kenya, where Safaricom enjoys 80% market share, they’ll be able to get away with a closed system with their own agent network domestically. As they expand internationally, however, they will be connecting into existing networks (like Western Union). In many other markets, where the MNO doesn’t enjoy such a market dominance, MNOs will have to choose a (3rd party) system that works with all the operators. Otherwise, it’s like launching a cell phone service that enables a customer only to talk to one operator. It just doesn’t work. So, again, what does this mean for churn reduction? The CEO of Safaricom and Zain claim that the strategy lies in the brand connection with the customer. That may be true. I have to believe that best practices will be followed by all the operators which means… it’s not really the service, but the brand itself that speaks more to competitive edge.
5. What about mobile wallet platforms? There are NUMEROUS vendors out there. Many claim to have functionality that is yet to be built. It’s chaos trying to figure out with whom to partner in this area. It would be fantastic if a research firm did a serious, in depth, look at these players today, to help MNOs decipher who’s best for what geography.
6. It’s important to understand the layers involved in rolling out Mobile Financial Services. For instance… choosing who does the user interface, who handles “virtual account” reconciliation, and who handles the international remittance settlement may be quite different. Beware of vendors who doth protest too much. Everyone has their strengths. As of now, I don’t know of a single player who is best in class in all these areas for all geographies. If you do, please let me know!
7. Mobile financial services (or mobile payments) is a business, not a product, (to quote Safaricom’s CEO). As such, it’s critical to: 1. Ensure the MNO CEO’s support, excitement, and long term commitment; 2. Set up its own dedicated unit to drive forward; 3. Understand that the rollout of the service will take 12-18 months to do properly. (Shortcuts will ultimately lead to failure, which can be recovered, but re-launching will be needed and could impact customer faith in your services); and 4. The business model may not justify itself from a stand-alone P&L perspective, but should be viewed strategically across the business and the impacts it will have.
8. The role of the customer and their existing behavior as it relates to mobile phone usage and payments characteristics can NOT be underestimated. In this business, there is no such thing as “launch and see what happens.” Studies around payments needs, behavior, and the right way to offer the service leveraging the phone is absolutely critical, or the offering will fail. Case and point. You can’t launch a text-based UI with customers who are illiterate. By the way, just as important as it is to get the customer-side right, so too is it critical to get the agent network correct. That’s a whole other discussion for another time.
9. There is no need to circumvent financial services networks that already exist. mPesa in Kenya launched a service for customers to use ATMs, but without cards (where they use the phone for a PIN, etc.). While this appears innovative and ground-breaking, it really limits customers from being able to use their stored value in other cash-out retail outlets. It makes little sense to upgrade existing ATMs to take a new mobile PIN, knowing that they can’t use cash out at retailers without yet more changes to the POS systems. Why not just issue cards? They’re not expensive. In addition, trying to educate consumers on a new method to pull money from an ATM is difficult. mPesa had to employ people to stand near the ATMs to teach customers how to do this. And still, consumers are reluctant to try it out. Some may argue that these consumers have never used an ATM before and that may be why they’re reluctant. That may be true, but regardless… They can’t do this with retailers, so why set up a new system, invest lots of money, when cards already works pretty well? Yes, I get the fact that card penetration is not the same in Kenya as elsewhere with retailers, but remember: To quote Paynet’s Mathhewman: Don’t rebuild systems that already exist. There’s no need… especially in today’s market when all costs needs to be justified.
10. Liquidity. If there’s one area that’s going to continue to challenge the mobile financial services efforts in countries building new agent networks, it’s the question of how much cash should be on hand for these mom and pop shops being used as cash-in and cash-out agents. In addition, the speed of reconciliation and settlement of the agent network’s funds will continue to be critical, a source of advantage for MNOs who can settle with their agents faster than others. The role of the merchant bank cannot be underestimated here. I believe there will be 1 to 2 global banks that focus on getting this right who will become the de facto standard bank for the MNOs. Whichever bank does this soon and correctly will be in a significant first-mover position to serve (and enjoy the business benefits of serving) MNOs who will manage the funds of the next billion customers who otherwise would never have any relationship with banks.