The potential for mobile money platforms to drive economic development and financial inclusion is enormous. In frontier and emerging markets, particularly Africa, pioneering platforms have been transformational in delivering a range of financial services to under-banked and unbanked communities.
But as the number of platforms increases – many with different operating models and user requirements – the question remains: how can the market best adapt to deliver seamless money transfer and bill payment functionality across different mobile networks, countries and hardware choices? What role does interoperability play in the next stage of growth, particularly in frontier and emerging markets?
By way of background, mobile payments come in many shapes and sizes, but it is useful to look at three of the main operating models:
Mobile Network Operator (MNO)-led model: This is perhaps the most basic model, in which a MNO acts in effect as a “bank” for its customers, facilitating financial transactions using SMS/USSD protocols. Perhaps the most famous example is Kenya’s M-Pesa, launched back in 2007 by Safaricom, a Vodafone affiliate. Typically, MNO-led models (including M-Pesa) are closed-loop models, available only to users who are already subscribers of that MNO. In February 2015, however, Millicom, a telecommunications and media company, through its Tanzanian subsidiary Tigo Pesa, entered into a partnership agreement with Vodafone’s subsidiary Vodacom in Tanzania, giving users access to each other’s platforms.
Bank-led model: In this model, conventional banks offer a variety of mobile financial services options to their customers through a network of agents, often managed by or in partnership with a MNO. For example, Easypaisa, a branchless banking service in Pakistan, operates as a partnership between Tameer Microfinance Bank and Telenor Pakistan. The service is available not only to Telenor subscribers, but to all registered mobile phone users. Standard Chartered has partnered with local MNOs in several countries to provide a range of mobile money services to its bank account holders. However, the models that require users to set up a conventional bank account in the first place, are not ideally suited for under-banked or unbanked markets.
Independent model: An independent company (typically neither an MNO nor a bank) provides a range of financial services on its own platform using a network of agents. PayPal, Western Union and mobile payment platforms like Google Wallet, offer payment services independently. Some platforms are pre-paid, and others facilitate card or bank account payments. The main feature is that users need not subscribe to a particular MNO and in some cases need not have a bank account at all (although the platform operator may partner with MNOs and banks to deliver the services). Some platforms are cloud-based, which can eliminate the need for any particular app or handset requirements and open the platform to a wider range of users.
We refer to “interoperability” as the ability of a mobile money user on one platform to transact as seamlessly as possible with a user on another platform. To put interoperability into perspective, imagine not being able to withdraw money from ATMs operated by a different bank from your own, or not being able to call or message your colleagues or loved ones simply because they used a different MNO or used a different type of handset. Of course, the success of ATMs is due in no small part to their having become almost universally interoperable. In the world of card-based payments, Visa and MasterCard, and more recently PayPal, achieved dominance largely due to their ubiquity and interoperability. In the messaging world, “over-the-top” (OTT) companies such as Whatsapp have bridged the MNO gap very successfully, allowing users to exchange messages and make voice calls regardless of their MNO and without having to pay SMS charges.
However clear the benefits, interoperability is not without its challenges in this fast-moving sector. Competitive forces may hinder cooperation among MNOs, banks and other stakeholders and could make it difficult to reach consensus on technical and commercial models required for interoperability. Regulatory frameworks will also require some degree of harmonisation.
Despite the challenges, we see interoperability as essential for mobile money to achieve its full potential. For the time being, domestic peer-to-peer transfers and domestic airtime top-ups contribute the most to mobile payments volume but a majority of peer-to-peer transfers are still happening within the same network, limiting users from transacting with account-holders who use a different network. Other rapidly growing transaction categories such as bulk disbursements, bill and merchant payments and international remittances will also require varying degrees of interoperability in the future to reach their full potential.
Change is already happening, with some MNOs joining hands in a boost to interoperability. Indonesia, for example, was a pioneer in the adoption of mobile payments interoperability. In May 2013, Indonesia’s three leading mobile operators, Telkomsel, Indosat & XL, agreed to allow interoperability between their mobile wallets. Initial data by GSMA suggests that interoperability is already augmenting transaction volumes for Tigo-Airtel. And in April this year, a partnership was formed between M-Pesa and MTN Money, enabling users of the platforms to transact with each other in East Africa.
Seeking to disrupt the MNO-led model and offer cloud-based interoperability, a new generation of innovative platforms is taking the lead in frontier and emerging markets. iKaaz, the Indian mobile payments platform, last year pioneered a POS terminal and tap-and-pay protocol that is intended to be interoperable across NFC and non-NFC smartphones and different MNOs. GeoPay Inc., an independent mobile money platform based in the US, operates a cloud-based OTT money transfer, remittance and payment platform in Kyrgyzstan that is designed to be interoperable between different MNOs and – importantly for under-banked and unbanked consumers in frontier and emerging markets – requires neither a smartphone nor a bank account to use.
We believe that in an increasingly competitive and fragmented market, mobile money platforms are less likely to succeed so long as they operate as islands unto themselves. In frontier and emerging markets with largely under-banked or unbanked populations and a variety of hardware and software profiles, the advantages of interoperability are clear on many levels.
Given the choice, consumers will likely choose those mobile money providers that allow a seamless user experience across networks and across borders. Similarly, those providers that play well with others outside their own walled gardens stand to benefit from new revenue streams and expanded markets. Watch this space.
Lucien Moolenaar (@lmcrowd) is Co-Founder & Director of Emerging Crowd. He has over 20 years’ experience advising, structuring and executing corporate finance transactions globally and has dedicated most of his career to emerging and frontier markets.
Before co-founding Emerging Crowd, Lucien spent six years in senior leadership positions at Renaissance Capital, the emerging markets investment bank. As Executive Director and Head of Legal for Africa and a member of the Africa Management Board, Lucien helped develop and execute the firm’s pan-Africa strategy and its expansion to seven locations across the continent. Prior to that, he was a Director in the Investment Banking Legal Department of Merrill Lynch in London and Johannesburg.
He is a qualified lawyer, and practiced corporate law at Sullivan & Cromwell in New York and Rogers & Wells in London. Lucien was educated at Harvard University and Fordham Law School and is a member of the New York Bar.