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mobile wallet

Over the past few years, the mobile payments industry has certainly made its presence felt on the global stage. As per data released by Statista, in 2011, the number of global mobile payment customers stood at 160.4 million. A mere four years later (in 2015), this number jumped to 384 million.

However, while this growth is impressive, it varies across regions. In 2015, a majority of these customers hailed from the Asia-Pacific region (141.4 million), as per the firm. Meanwhile, a stark contrast was the Middle East, which had 4.7 million to its credit.

Moving on, let’s zoom closer into the Middle East and North Africa (MENA) region. Sample this-according to a report released by the Arab Financial Services Company, the financial landscape in the region is characterized by variations in financial inclusion. On one hand, over 65 per cent of adults in the GCC region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) have an account at a financial institution. On the other, however, this figure stands at less than 20 per cent in countries like Egypt, Sudan, Iraq and Yemen. Naturally, as a result, the development and uptake of mobile payment solutions in the region has been patchy at best. In fact, there is a wide gap between the kinds of solutions the customers are demanding as well. In this context, the report states that in the less developed countries, particularly North Africa, mobile money solutions have been the main growth vehicle for financial inclusion. Needless to say, the GCC region has a different story to tell. Here, developing mobile payment solutions such as mobile banking, mobile wallet, etc, is the norm.

Now let’s put the GCC region under the microscope. First off, there is little doubt that the business case for mobile payments in this region is strong, to say the least. How? Well, for starters, the average mobile penetration is very high-190 per cent. No mean number, this!

Needless to say, operators and third party providers didn’t let the grass grow under their feet before jumping onto the mobile payments bandwagon. As a result, the space saw a flurry of activity. Several examples can be cited in this regards but, for the sake of remaining crisp and concise, let’s cite a few.

It all started in 2013. Boloro, in collaboration with Zain, launched the GCC region’s first ever mobile payments service on buses in Kuwait. Customers could securely and conveniently pay their fares by simply tapping their mobile phone when boarding the vehicle. In fact, all the bigwig operators in Kuwait and Qatar, Zain, Ooredoo and Viva currently offer this service.

On the other hand, there are entities which have been a bit slow on the uptake. I allude to banks, which have preferred to adopt a “wait-and-watch” stance with regard to mobile payments. In my opinion, banks ought to flex their muscles on this stage. And why not? These players can easily leverage their already-established relationships with merchants, not to mention the treasure trove of customer data they’re sitting on.

So, what’s stopping them? Well, the biggest barrier is the fact that these entities still consider the mobile handset and all applications concerned as a value added service. As a result, non-banking players have ventured far ahead of them in the mobile payments game. Allow me to add my two cents-it is time that these players straighten up and chalk out a strategy to at least finish neck-to-neck with the competition. The first step? Start considering the mobile channel as an integral part of the business!

Of course, these entities must have a war chest in place before meeting the competition head-on. Enter the prepaid wallet. Now, the advantages of the prepaid wallet have been discussed ad nauseam, which is why I won’t wax eloquent on the same. I would like to point out, though, that the most important reason (arguably) why banks ought to take prepaid wallets seriously is two-fold. First, their merchants are empowered and second, this service reduces the high “card not present” rate during a transaction. A prepaid wallet is typically built around a stored value account. Customers can transfer the money from their bank account or card to the prepaid wallet. Since payments are not made directly through cards, the high “card not present” charges do not apply. As a brief side-note, permit me to point out that the very enthusiastic uptake of smartphones in the region can play a crucial role in the uptake of this service. After all, 68 per cent of all handsets in the region belong to this category! So, why shouldn’t such applications flourish?

Now let’s turn our focus to another interesting trend that is rearing its head up in the region. Enabling seamless payments through contactless cards is the new kid on the block. In fact, a few banks have already launched their offerings in this regard. The revolution was sparked off in 2015 by Boubyan Bank, the first entity to launch Tap & Pay credit cards in Kuwait. Later that year, Riyad Bank and NCB (supported by AFS) followed to introduce Saudi Arabia’s first contactless credit card. Also, with mobile payments foraying into the game, expect the contactless card to be replaced by the mobile handset.

Let’s take a quick look at the secret sauce behind mobile-based contactless payments-namely, the technology. Several can be used for this service, for instance, Near Field Communications (NFC), QR Codes and sound-based technologies. Of these, NFC is emerging as the forerunner in this race. The reason is simple-Host Card Emulation (an NFC variant) lets banks launch contactless payments rapidly without changing the existing SIM card and involving a trusted service manager (TSM). Little wonder, then, that NFC is the technology of choice for banks and financial institutions alike.

Adding another dimension to this, banks may consider investing in developing their own HCE platform, as opposed to opting for OEM pays like Apple Pay and Samsung Pay. Here’s why – a bank-owned HCE platform works on any NFC-enabled device, unlike the Apple Pay and Samsung Pay, which function only on the Apple iPhone 6 and the Samsung S6 devices respectively. Moreover, with their own HCE platform, banks will have complete control over the tokenization platform as well as the token lifecycle. Banks will have the ability to monetize the token platform to enhance tokens for other use cases, like token based ATM cash out, P2P using tokens, etc.

Net, net, it is only a question of time before prepaid wallets and contactless payments are in the spotlight in the GCC region. The revolution is well and truly underway. What remains to be seen is the direction it takes, in terms of uptake, technologies and services. After all, the Middle East market is an inherently contradictory one. A customised stance is thus needed to succeed. Remember, there is no “one size fits all” approach to mobile payments!

June 29, 2016 0 comment
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The cashless societies – where every transaction is performed digitally- are being envisioned for decades. But hardly there’s been a country that has made it a reality.  But a few of them are of course getting close to it. First, Kenya was in talks for the major uptake of mobile payments and now Sweden has become a forerunner.

Revolutionizing the banking system

Fast cash has almost disappeared in Sweden. The Swedish people have limited the use of cash to only a small portion of their day to day activities and that too is decreasing at a lightning speed. While 6 years back, 106 billion Swedish crowns were in circulation in the country’s wallet and cash registers; presently just 80 Billion Swedish crowns are in circulation. And even out of that, merely 40 to 60 percent is actually in circulation regularly.

Even if one walks through the second city of Sweden, Gothenburg, it is almost impossible to first a single shop that does not accept card payments. The locals have made it a habit to carry no coins or notes in their pockets. They use mobile money apps that enable fast, simple payments and money transfers on mobile devices.  The mobile payments apps allow real-time transactions to take place, enabling users to transfer money directly from their bank account to the any other person having a bank account, wherever they are. This has revolutionized the local banking system.

The initiatives that Sweden took to eliminate Money Laundering

A couple of factors perform as major contributors towards the rapid shift of Sweden towards electronic-only money transactions. Not only have the various businesses done away with the minimum spent rule when talked about the card transactions but also there has been a huge uptake of mobile wallets and mobile payments apps. As of the past 4 years, payments for every 4 out of 5 purchases in Sweden have been made electronically.

The Banks in Sweden are also going down the cashless path. Several bank branches in the country have almost stopped accepting cash. As per the regulation jotted down targeting money laundering and terrorist financing, at the offices, which do handle cash, the customers must explain the cash source. And, thus, any suspicious cash transaction is immediately reported to the police.

The challenges for a cashless society  

The Swedes are used to embracing new technologies. Their shift towards cashless and the replacement of physical wallets by the digital ones is definitely a good move and now it’s unstoppable. The strict guidelines about cash use have also pushed forward the uptake of mobile payments.

While Sweden is quite closer to cashless-ness than any other country on Earth; there are some concerns regarding those left behind by the transition. The homeless people, the elderly or the immigrants have great chances of struggle accessing the country specific digital payment services through mobile devices or even computers. Also, we do have a question, “Is it necessary to tool a thumb rule- Something is wrong if you pay in cash- for achieving a cashless society or for the growth of mobile wallets?”

December 9, 2015 0 comment
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In broad terms, interoperability is the interconnection of mobile money services with external parties, with the aim to create value for both customers and commercial players. Viewed as a “silver bullet” for greater financial inclusion, it is increasingly cited as a solution to increase transaction volumes and extend the range of financial products offered through the mobile phone.

Opportunities for interoperability arise where interconnections with external parties can create greater value for customers and service providers than a single mobile money service provider can create alone. Once an opportunity for interoperability has been identified, it needs to be strategically or financially compelling for all parties involved to jointly pursue it.

To assess the opportunity, it is important to define what services fall within and adjacent to this category. The universe of these services is expanding rapidly with the growing desire to connect a pure mobile money network with other money transfer networks as boundaries blur between payments. For mobile money transfer, it is important to view interoperability in two ways:

Domestic interoperability – The ability to transfer money between two different mobile money services. For example, in Tanzania, Mahindra Comviva enables Airtel Money customers to send money directly to Tigo Pesa customers.

International remittance or International money transfer (IMT) – The remittance services should not be limited to domestic money transfer and need to move beyond boundaries so that migrants and expats can send money back to their relatives in their native country. To enable international remittance, mobile money service providers can partner and integrate seamlessly with major MTO’s such Western Union, WorldRemit and Moneygram.

Another aspect of IMT is direct account-to-account money transfer between mobile money services in neighbouring countries or countries within the same region. For example, Orange facilitates money transfer between Orange Money customers in Cote d’Ivoire, Mali, and Senegal. MTN Mobile Money customers in Cote d’Ivoire can transfer money to Airtel Money customers in Burkina Faso.

Another upcoming trend in mobile money interoperability is switches.

Mobile money service providers are investing in switch-like infrastructure that will interlink various mobile money services and third-party payment networks.  For example, a multi-country operator in Africa has implemented a switch that enables direct money transfer between mobile money accounts of its customers in different countries.

There is also investment to interconnect with card networks to provide seamless interoperability with heterogeneous systems and services, bringing in convenient and integrated solutions to the consumers.

For merchants to capitalise on an uptake in payments and revenues, it is imperative to devise solutions that enable the acceptance of payments from mobile money accounts. In turn this puts emphasis on compelling consumers use mobile money for everyday payments.

However, the merchant network of current mobile money services is limited.   Customers can pay only via mobile money to merchants who are registered with the mobile money service provider. We have to move beyond the closed loop systems and embrace an open-loop merchant payment approach. To enable open-loop payments mobile money providers are integrating with global card networks like MasterCard and Visa to issue companion cards (linked to mobile money account) which can be used for payment at any MasterCard and Visa powered POS machine both nationally and internationally.

The open-loop approach exponentially increases the merchant acceptance network for mobile money. Even virtual cards linked to mobile money account can be issued for making online transactions.

September 1, 2015 0 comment
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Hasan, while returning on his way from work goes to a mobile money agent, tells him the mobile number of his mother back in his village and hands over Rs.3000 cash. The agent using his own mobile sends the money instantly and confirm to Hasan. Hasan informs her mother on call and be on his way to home. This is what we call an Over-the-counter (OTC) transaction. Hasan does not have to worry about entering the mobile numbers, amount and PIN anywhere and completely relies on the Agent for the transaction. He often does not know about the service provider which facilitates the transfer. An average agent employs the services of at least 3 money transfer service providers and more often than not, is free to choose among them to actuate the transfer. The factors leading to selecting a particular services provider can be read at https://blog.mahindracomviva.com/commission-is-no-longer-the-key-to-a-successful-and-sustainable-mobile-money-deployment/.

As opposed to OTC, wallet transactions are those where customer uses his own mobile money account on his mobile device to make the transactions. The customer has to ensure the required amount is available in the wallet, and enter all the details for completing the transaction. The upside is that the customer can do this transaction 24*7 at his own convenience and does not have to visit any agent or depend on agent’s liquidity.

OTC transfers are the widespread phenomenon in Pakistan’s mobile banking services industry, which processes 64 million transactions, worth $2 billion in the last quarter of 2014 (see table). OTC constitutes of 91% of the total transactions and hence is a major contributor in the revenue of the Service providers. But as it happens with OTC, the big chunk of the revenue goes to channel commission to agents, distributors and cash executives. With the absence of direct customer interaction, the operators are unable to track customer behavior, cross-sell, offering more products and generate loyalty through analytics etc.

Easypaisa the largest mobile banking service provider by market share in Pakistan is gearing up for converting these OTC transactions to wallet transaction through various measures. The result of these measures were reflected in statistics for December quarter of last year where out of 64 millions, share of m-wallet transactions were 6 million (9%). This is a whopping 22% jump over the previous quarter in terms of number of transactions and 26% increase in value. While there is a lot of ground to cover, this is a very significant indicator of transition from OTC transactions to wallets. This increase was largely catalyzed by Easypaisa as it incentivized its customers by waiving off fees on m-wallet to m-wallet transfers coupled with other valued added services. The road to sustained migration from OTC to wallets is challenging and it is worthwhile to understand the OTC model in depth and its success factors.

Customer transaction Analysis – OTC Vs M-Wallets (Oct-Dec 2014)
Type of Transactions OTC Wallet
  Volume of Txns (millions) Value of Txns ($ millions) Avg. txn ($) Volume of Txns (millions) Value of Txns ($ millions) Avg. txn ($)
Fund Transfers 27.9 1210.5 43.4 0.6 21.3 35.6
Bulk payments 2.6 107.0 41.2 1.3 55.6 42.8
Cash Deposit and Withdrawal 2.2 89.0 40.4 3.7 134.6 36.4
Bill Payments 23.5 316.2 13.5 0.5 10.6 21.2
Top – ups 0.6 1.1 1.8 3.5 1.8 0.5
Loan disbursements/repayments 0.75 21.6 28.8 0 0.0 0.0
Others 0.35 31.0 88.7 0.06 24.7 411.6
Total 57.9 1776.4  NA 9.66 248.6  NA

Source: State Bank of Pakistan quarterly newsletter


Why OTC transactions are a hit with customers?

From the customer’s perspective, OTC provides the most frictionless way of conducting transactions and offers a lot of convenience. This is especially applicable to a large section of population which is un-banked and prefers agent-assisted transaction. This segment of the population feels insecure conducting financial transactions themselves and is unsure of using technology. They prefer to rely on an Agent to conduct transactions on their behalf with little extra cost and time. Operators finds it difficult to maintain profitability because the OTC-only segment increasingly faces competition as new entrants offers low prices to gain markets customer loyalty is largely absent. That said, OTC is a permanent and integral part of any mobile money business and is there to stay.

Measures to accelerate migration from OTC to Wallet transactions

Easy paisa is the leading mobile money operator in Pakistan with 54% share in overall volume of transactions has taken several steps to increase wallet transactions including completely waiving off the fees on wallet transactions. However, the overall thought process revolves around following points:

  1. Even through OTC, try to capture as much as data possible without increasing the friction. This will require special training to Agents on the type of data sought. The mobile money operators then derive meaningful information from the data and aim to create targeted offers by way of customer segmentation. Collected data should be used to gain insights into socio-economic status, behaviors and preferences which will allow the operator to segment and offer targeted products. This will provide the operator with the ability to retain customers and cross-sell other financial services.
  2. Build an ecosystem of merchants and service providers that acts as the tipping point for mass adoption of e-wallets. Lack of ‘sufficient’ number of acceptance points severely limits the use of e-wallets.
  3. Aggressively explore on-boarding online merchants and integrate seamlessly to provide convenience and frictionless experience.
  4. Tying up with NGOs for aid distribution, MFIs for loan and repayments and with companies for salary transfers have proven to be effective tool to engage customer on a regular basis
  5. Introduce products to increase customer stickiness for e.g. Offer savings account with insurance and credit availability.
  6. Run promotional schemes around festivals (e.g. free p2p transfer through, offer bonus talktime etc). Data shows increase in frequency of transactions with reduced transaction size for wallets which indicates frequent customer engagement.
  7. Continue these promotions until they have reached critical mass required for network effects to fully take over and sustain the momentum

I would like to offer a small caveat here. Though I have tried to generalize the recommendations made above but as we are well aware; local demographics, regulations, and other socio-economic factors play a huge role in wide spread adoption of mobile money. Thus, careful considerations must be applied to make these recommendations work in selected geographies.

Since this case study is based on Mobile money is Pakistan, let me highlight a major factor enabling adoption of wallet transactions. In Pakistan customer account opening is done using centralized biometric verification which warrants installation of necessary fingerprint capture devices at agent locations. Fingerprint verification for account opening is done with National Database and Registration Authority (NADRA) and is charged significantly. This has deterred agents and operators and results in only 15% of the agents able to open m-wallet accounts and perform m-wallet transactions at their locations. But now with NADRA reducing the verification cost to Rs. 10 (10 US cents) for account opening, number of agent for account opening and performing m-wallet transactions have increased to 22%. Easypaisa agents alone grew significantly to 25% from 2% over a quarter.

August 10, 2015 0 comment
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