From early days of PayPal Mobile and bKash to what’s next in Mobile Financial Services?

I’ve been working in the mobile financial services industry as an executive and as an advisor now since 2005, one year after DoCoMo launched their mobile contactless payments in Japan, and 2 years before mPesa’s commercial launch in Kenya. In the early days, it was difficult to find any research to cover the industry. While assisting Wells Fargo with their initial mBanking/mPayments strategy, I remember speaking with analysts from the top research firms who were unconvinced that mobile payments would ever take off since it had an anemic false start in 2000 (in the US) although SmartMoney was breaking new ground during that same time.

As a professional in emerging technologies for over two decades, my timing to enter new markets has always been too early. My former company, Vistify, created iPad-like device with a service for grocery delivery to the home back in 2000 (precursor to today’s iPad + Instacart/ AmazonFresh/ Google ShoppingExpress!) So, no surprise that when I stumbled into the mobile payments industry in 2005, once again I was a bit early. Luckily, it’s been an industry that has intrigued me enough to keep me captivated now for nearly a decade, learning something new every year. Few industries touch so many different angles… business, development, regulations, macro-economics, banking, mobile, technology, ethnography in such a global way. Fortunately, I stuck it out long enough for the industry to catch up and have had the fortune to gain some great early lessons along the way.

Of the most prolific mobile payments services in the world, I have had the opportunity to be involved in the early days with two of them (PayPal Mobile at $25 billion in volume in 2013) and bKash in Bangladesh, now the fastest growing mobile payments service in the world. No, I never had anything to do with mPesa, but I definitely wish I had! What’s interesting about PayPal Mobile North America and bKash in Bangladesh is how different their respective markets are, but what global leaders they have both become.

Early days of bKash

First, let me start with the story of bKash early days, although this story starts about one year after I left PayPal. I was speaking/moderating at a mobile money conference at the end of 2009, when Kamal Quadir approached me to request my help to set up the business plan/go-to-market strategy for what is now bKash in Bangladesh. After later meeting with him and his brother Iqbal Quadir (founder of GrameenPhone), I knew that this would be a very special project, which ultimately brought me out to Bangladesh. In retrospect, with my background from PayPal Mobile, a subsidiary of eBay, it is likely Kamal saw the similarities between my experience at eBay/PayPal and the knowhow that was needed to develop a mobile payment system to support the needs of companies like his mobile marketplace CellBazaar (not to mention to become the financial infrastructure for the 90+% unbanked population.) Unlike the case in Kenya, Bangladesh’s regulatory environment was likely to lean “pro-bank” which meant that their startup, as a subsidiary of BRAC Bank, would be well positioned to be a mobile payments service, but also to resemble PayPal’s structure rather than mPesa’s.

The value proposition for the cash-based unbanked, coupled with the sheer size of the population of Bangladesh proved to uncover a business case I had yet to see. In addition, with the entrepreneurial knowhow of the extremely successful Quadir brothers, I had a strong belief that this startup would be prosperous. At the time, I had no idea it would rise to the levels we now see today. What is particularly interesting about this business is that the market itself was so different from the U.S., but yet, there were lessons to bring from PayPal Mobile that could be applied, not just on the model to be used, but also on design principles and strategic considerations. I recently heard Kamal Quadir speak at the Spring Seminars of the World Bank. He was asked why bKash has had such great success (80% market share) over his competition (20+ eMoney licensed services). His answer was “focus.” I agree that bKash has had the focus that others have not, but the entrepreneurial talent and network of the Quadir brothers is not to be underestimated. Among other things, part of that talent, of course, is understanding what lessons can be applied from other successful models.

How can strategic lessons from PayPal Mobile’s early days in North America apply to mobile payments initiatives around the world? When I begin working with my clients, I always review the necessary conditions required for new payments systems to be successful. They include:

1. Has no significant barriers to entry such as regulatory barriers, prohibitive infrastructure cost, requires new device behavior, or complex partnership requirements

2. Has a clear value proposition addressing a specific pain point at launch for either the payer or payee

3. Displaces a far inferior payment alternative which cannot fight back (e.g. cash or check)

Early Days at PayPal Mobile

When I joined PayPal Mobile as head of North American Business Development on January 2, 2007, we had no traction (PayPal had launched Text2Buy services one year earlier). When I left at the end of 2008, we had very little traction, but it was growing. Last year, 8 years after PayPal’s first foray into mobile, PayPal Mobile was responsible for $25 billion of volume.

What made the difference? Barriers to entry began to lessen.

Some of the services we launched were tests in the market that failed – some are still used today. But the real difference between success today vs. failure back then was consumer behavior and device used. Back in early 2007, iPhone and Android devices did not exist. People barely used mobile Internet on their phones and it was extremely difficult to navigate. QR codes existed, but no one used them. (In fact, I remember early gift card companies approaching us with QR code redemption technologies. No one was familiar with QR codes.) The devices were too difficult to do anything meaningful on them and people weren’t used to using text messaging very much for communications, let alone for purchasing things. As an example, I had cut a deal in 2007/2008 with SkyMall so that users could purchase goods by texting a code as they read the magazine. The technology worked. I even used the service to successfully purchase a luxury shower head during my morning commute on the bus to work! But let’s face it, if you need to have a two-page spread in their magazine to explain how to do a transaction, do you really think it will be used? I remain convinced that Apple is the only company that is positioned to change consumer behavior with a mobile device. Every other business will need to bolt on to that new behavior once consumers have adopted it. Those that think they can change consumer behavior over the phone may be a bit delusional as we were with PayPal in 2007. (The exception, of course, are key mobile network operators abroad, such as Safaricom.)

Now, for those of you who say, “but mPesa was extremely successful with feature phones for the unbanked, how can you say that?!” Absolutely true. In Kenya, Safaricom was in a unique position to lead the mobile payments industry and could make the service simple to use via SIM Toolkit in a cash-based market that desperately needed it. In the U.S., MNOs would have to work with financial institutions. I was in charge of those relationships at PayPal. And during 2007/2008, when we were most in need of MNOs to be able to load apps onto the phone (as did Safaricom via SIM Toolkit) prior to App stores being available, the MNOs proved not to be interested in doing so. Back then, in the U.S., MNO’s had a (love)HATE relationship with PayPal since eBay Inc. owned Skype, which was seen as a competitor; the MNOs in the US did not have the focus, investment, know-how to launch a simple to use mobile payments service via SIM Tool-kit; and 3. people preferred using PCs over mobile since the devices were too cumbersome to use. The barriers to using and launching the service proved too high in the U.S. until Apple opened up the market with a far superior UI and began circumventing the MNO lock on services through the iTunes store.


Mobile Financial Services in Developed Markets and Emerging Markets are More Similar than Expected

Ultimately, banks will play a larger role than expected in mobile financial services in most markets due to regulations even though the way mobile financial services rolls out in emerging markets will vary from how it rolled out over the decades in developed markets. We will find that the consumer facing brands/services may not originate from banks, but from third parties or MNOs with closer ties with the unbanked. Banks will play a secondary role in enabling the service and securing the deposits. But beyond this similarity around the role of banks, there are other key resemblances between emerging markets and developed markets regarding mobile payments that many may not realize. After trying to wrap my head around these seemingly disparate markets (developed vs. emerging) as an advisor to clients in both types of markets, I now remain convinced that there are more similarities than there are differences.

Today, emerging markets solve consumer needs. Tomorrow, they will solve merchant needs:

Many aspects of what we see in developed markets will come to the emerging markets over time.  In developed markets, where access to financial services has been prevalent due to card infrastructure, the role mobile financial services plays is that of enabling the final transaction around the mobile shopping experience.  The value proposition no longer centers on the consumer, but rather, on meeting the needs of merchants to increase sales.

Today in emerging markets, there is a global effort towards financial inclusion for consumers.  The next step following this will be access to credit for small businesses.  Once those infrastructures are in place, what will be next?  The velocity of money increases as friction of cash decreases.  Access to small amounts of credit (for individuals and SMEs), insurance, and savings accounts rise as does income.

Tomorrow, we will see the same trends we see in developed markets around data analytics, mobile loyalty, couponing, shopping, etc. to increase sales.  The large brands including consumer goods and pharmaceuticals see that the next few billion customers are their oysters… It will happen much sooner than many expect.  With the infrastructure of mobile payments/mobile financial services, both the consumer and merchant shopping experience will revolve around the mobile phone.

Although MNOs have the reach into the SME segment, these new services  are far from their core competencies.  Similarly, financial institutions such as MFIs, COOPs, and Banks do not have this expertise.   It will be interesting to see how this new services offering ultimately rolls out in the future.  Likely we will find that those involved with access to mobile credit for SMEs will use their distribution reach to offer new services by partnering with new marketing platforms globally.

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