It would be fair to say that the last decade in the developing world was the decade of mobile money. From a humble 7 services in 2007, mobile money is now an extensive industry of 277 services in 90 countries. In the past few years, mobile money has transformed the financial landscape in many countries lifting more than 600 million unbanked and under-banked people out of financial exclusion. Globally mobile money services are now processing a billion dollars a day and in some countries like Kenya and Zimbabwe have become the largest financial platform. While the rapid growth and transformational impact of mobile money is undeniable, industry experts often say that the ‘closed-loop’ nature of many mobile money services is limiting its true growth potential. ‘Closed-loop’ effectively means that customer of one mobile money service cannot transact directly with customers, agents and merchants of other mobile money services or payment systems.
In this context, Interoperability has been widely discussed as the way ahead for mobile money industry. Interoperability in a broader context means customers of one mobile money service are able to transact with customers of other payment systems (within the same country or in foreign countries) such as bank or other mobile money services. Thus when interoperability is available, customers will be able to transfer money between a mobile money account and bank account or between two mobile money accounts belonging to different mobile money services. Interoperability also extends to other use cases such as cash-in, cash-out, merchant payments, bulk payment, bill payments et al. An example of this would be, that customer of ‘mobile money service A’ can cash-in or cash-out at agent belonging to ‘mobile money service B’.
The present scenario
Mobile money providers have put in significant amount of effort in integrating their services with banks. Today, a considerable number of mobile money providers are integrated with banks offering bank-to-wallet and wallet-to-bank transfers. According to GSMA, in December 2017, 9.2% of incoming transactions were bank-to-wallet and 5.3% of outgoing transactions were wallet-to-bank. Mobile money providers have also enabled international interoperability between wallets. For example, a consumer can transfer money directly from Orange Money wallet in Botswana to EcoCash wallet in Zimbabwe. While mobile money providers have been open to integrating their services and platforms with banks and cross-border mobile money providers, they have not exhibited the same enthusiasm while integrating with other mobile money providers within their own country (domestic interoperability). Currently domestic interoperability is limited only to 15 countries with interoperability agreements in place between domestic mobile money providers. These countries include India, Indonesia, Madagascar, Mexico, Nigeria, Pakistan, Peru, Philippines, Rwanda, Tanzania, Thailand, Bolivia, Egypt, Philippines and Jordan. However, domestic mobile money interoperability will gain impetus in 2018 with Kenya, Ghana and Zimbabwe planning to launch it. These 3 countries are amongst the top 8 African countries where more than 40% of the adult population uses mobile money. The implementation of domestic mobile money interoperability in these countries will encourage the regulators and mobile money providers in other countries to adopt interoperability.
The operating models
Globally mobile money providers and regulators have followed two different approaches to domestic mobile money interoperability.
In the first approach, which is implemented in countries like Tanzania and Madagascar, we have seen mobile money providers coming together and establishing bilateral agreements to enable domestic money transfer interoperability. In Tanzania, in June 2014, Airtel (offering Airtel Money), Tigo (offering Tigo Pesa) and Zantel (offering Ezy Pesa) collaborated to enable direct money transfer between mobile money wallets of these services. Vodacom (offering M-Pesa) joined the trio in February 2016, completing the domestic money transfer interoperability between the major providers in Tanzania. In March 2018, TTCL (offering TTCL PESA) and Tigo agreed on enabling mobile money interoperability. Similarly, in Madagascar, Orange (offering Orange Money), Airtel (offering Airtel Money) and Telma (offering mVola) launched money transfer interoperability in September 2016. All mobile money providers have formed bilateral agreements with other providers and the settlement happens independently between two parties.
In the second approach, which we have seen in countries like Egypt and Jordan, the regulator provides a switching infrastructure and mandates all mobile money providers to join it. In Jordan in 2014, Central Bank introduced JoMoPay, a real-time payment switch for processing and switching mobile financial and non-financial transactions in STP (Straight Through Processing) basis and routing messages between multiple mobile payment service providers. Multiple mobile money and mobile banking services such as Umniah Mahfazti, Zain Cash and Bank of Jordan Mobile banking have connected to the JoMoPay switch. JoMoPay has also integrated with other payment systems in Jordan such as eFawateercom, Jordan’s bill presentment and payment solution, the RTGS (Real Time Gross Settlement System) and JoNet, the national ATM switch (Figure 1). These integrations and use of switching infrastructure extends interoperability beyond P2P money transfer to other use cases such as bill payments, merchant payments and ATM cash-in and cash-out. In Egypt, mobile money and mobile banking services such as Orange Money, Vodafone Cash, Etisalat Cash (Flous), NBE PhoneCash, Banque Misr BM Wallet and CIB SmartWallet have connected to National Switch (123 brand) facilitating interoperability. The interoperability extends beyond P2P money transfers to other uses cases like merchant payments. Ghana is also adopting a switch-based interoperability approach.
Benefits of interoperable transactions over the off-net transactions
Off-net transactions are used by mobile money providers to send money to consumers on other mobile networks. In this case, when sender sends the money to a recipient on another network, the recipient receives a code via an SMS. Recipient has to show the code to an agent of sender’s mobile money service to get the remittance in cash.
Off-net transactions are ‘wallet to cash’ or ‘digital to cash’ transactions, where recipients have to cash-out full money from agent in stipulated time (generally few days), otherwise the money is reverted to sender. In case the recipient wants to use the remittance received in digital format to pay bills or transfer money to someone else, then she has to go to mobile money agent (belonging to her mobile money provider) and do a cash-in into her mobile money wallet. Interoperable transactions are more convenient for consumers, as recipient receives the remittance in digital format directly in her mobile money wallet and can store the money in wallet as long as she wants. Recipient can cash-out the money partially or fully whenever she wants or use the money in digital format to pay bills and merchants.
Interoperable transactions are also beneficial for the mobile money providers. In case of an off-net transaction, the sending mobile money provider has to pay commission to agent for cash-out. However, in case of interoperable transactions, no cash-out happens for sending operator and it saves on commission. For the receiving mobile money provider, since the incoming remittance from an interoperable transaction is in digital form, hence no cash-in commission needs to be paid. Thus an interoperable transaction is a win-win for both sending and receiving mobile money providers. Moreover, interoperable transaction is also good for the vision of a cash-light economy as it allows money to remain in a digital form.
The statistics obtained from the markets which have adopted interoperability show the consumers preference of interoperable transactions over off-net transactions. An African operator which has enabled interoperability has seen the proportion of interoperable transactions rise exponentially and proportion of off-net transactions decline in total P2P Send transactions
The industry initiatives
In October 2016, the GSMA Mobile Money team published harmonized mobile money APIs. The GSMA is encouraging its members to adopt these APIs. These APIs will enable faster integration with third party systems facilitating quicker interoperability between mobile money and banks, or among mobile money providers.
In October 2017, Bill and Melinda Gates Foundation launched Mojaloop, an open-source software to enable interoperability between banks and financial service providers. Mojaloop is free-of-cost, thus can be used by financial service provider, governments and regulators to develop an inclusive payment platform at low cost. It is designed with the aim to serve as a model for national payment switching systems. Mojaloop has been developed in collaboration with fintech firms including Ripple, Dwolla, ModusBox, Crosslake Technologies and Software Group, and employs technologies such as the Interledger Protocol for settling funds among multiple providers across their individual systems. Mojaloop software can be accessed on GitHub, an open-source development platform. It has 4 components:
- Interoperability layer: Connects bank accounts, mobile money wallets, and merchants in an open loop
- Directory service layer: Navigates the different methods that providers use to identify accounts on each side of a transaction;
- Transactions settlement layer: Makes payments instant and irrevocable
- Components which protect against fraud.
Gates Foundation also brought together four biggest mobile money vendors Mahindra Comviva, Huawei, Ericsson and Telepin to develop an Open API for mobile money interoperability. These APIs will allow mobile money providers to integrate seamlessly with Mojaloop and products built from it.
The way forward
2018 is a crucial year as mobile money interoperability will be launched in 3 key markets including Kenya, Ghana and Zimbabwe. With these new market launches the operational challenges, impact and benefits of mobile money interoperability will become clearer and set the path for other countries to follow.
GSMA: 2017 State of the Industry Report on Mobile Money
GSMA: 2016 State of the Industry Report on Mobile Money
GSMA: The long road to interoperability in Jordan
Gates Foundation Press Release: Bill & Melinda Gates Foundation Releases Open-Source Software to Support Efforts that Expand Access to Financial Services in Developing Countries
About the author: Mohit Bhargava has ten years of work experience in product marketing and research in the telecom domain. At Mahindra Comviva, he is serving as Manager in product marketing for the mobile financial solutions portfolio. His areas of function primarily include evangelizing Mahindra Comviva’s mobile financial products and their impact on transforming the financial landscape globally.