Blog article
See all stories »

Mobile Money Interoperability: Dream or Inevitability?


It is hard to remember back to when a person could only send an SMS to someone else who was using the same Instant Messaging (IM) platform.  Interoperability was eventually worked out between IM platforms back in the 1990s.  This post looks at mobile money systems around the world today—which lack interoperability—and how this situation will likely evolve.


Early days for mobile money interoperability

“The current state of the mobile-money environment can be likened to the early days of the credit-card industry.  The earliest credit cards were issued by retailers to their own customers, with no thought to interoperability or to the potential to share costly infrastructure.  It took Bank of America to change the way the business was structured by promoting acceptance across the entire retailer landscape and establishing mutually beneficial shared infrastructures....   Past experience shows that cooperation is the only way to achieve lasting scale and profitability.”


The above quote from IBM’s white paper, entitled “Mobile Money:  What Mature Markets Should Learn From Growth Markets,” summarizes the current lack of interoperability within today’s 250+ mobile money systems… and what is needed for sustainable growth.

First, even the word “interoperability” is interpreted differently and can create confusion.  In order to provide needed clarity, the CGAP created a framework describing three levels of interoperability.

Citi Group and U.S. Aid published a paper, entitled “10 Ways to Accelerate Mobile Money,” with one of the accelerators being to “promote open-architecture policies and interoperability within and across ecosystems.”

That said, the Mobile Network Operator (MNO) association, GSMA, has written a position paper, entitled “The Case for Interoperability.”

GSMA states:  “Our research suggests the importance of clarifying whether the lack of interconnection does in fact manifest itself as a pain point for a significantly large group of customers.  Given that the “walls” in the walled gardens of mobile money are, as we have seen, porous, it is not obvious that imposing interconnection would create significant welfare gains for customers.”

This position is reinforced by a blog from Vodafone’s leader of M-Pesa commercial strategy, entitled “Mobile Money is Not a Silver Bullet for Financial Inclusion.” 

She states:  “Mobile Money Interoperability (MMI) can undoubtedly lend support to extending the reach of mobile money and growing its prevalence over cash.  However, MMI can also pose significant risks for the attractiveness of the industry and halt the customer acquisition efforts.  In order to reap the benefits of MMI, the following three dimensions need to be considered:  1) Scope, 2) Structure and Incentives, and 3) Timing.”


How to get beyond today’s “Wild West”

It is not surprising that MNOs—who were early innovators with mobile money and who invested significantly to build proprietary agent networks—are resistant to allowing interoperability at this level (and allowing agents to represent multiple mobile money systems); however, we believe this evolution is inevitable.  The only question is timing.

Mondato, a management consulting firm with deep payments industry experience, shares our perspective in their blog, entitled “Is Interoperability Inevitable for Mobile Money?

Mondato states:  “It seems inevitable, nonetheless, that operator resistance to interoperability has a limited shelf life. It seems likely to ensure that in the not-too-distant future, if it hasn’t happened already, MNOs with leading mobile money market share will be willing to cede some of their own ground in order to grow the addressable market.”

In addition, newer country-wide cross-industry Central Bank-endorsed mobile money initiatives are gaining momentum.  The Peruvian Bankers Association (ASBANC) in Peru is one example of an interoperable mobile money solution based on an open ecosystem model which includes both banks and MNOs.

A new way of thinking—with a new business model—is needed, which is focused on growing the overall pie vs. any one participant’s piece.  One where multiple banks and MNOs can not only participate, but also interoperate.  A flexible multi-issuer/acquirer next-generation platform is needed to enable this new business model and interoperability.  Let us know what you think.




Comments: (3)

A Finextra member
A Finextra member 07 April, 2015, 17:46Be the first to give this comment the thumbs up 0 likes

Dan, thanks for your characteristically well-researched blog. Unfortunately, as you rightly point out, MNOs have had to reconcile interoperability with their business model which was largely based on churn-reduction.

In my view although there are now efforts to address this, some of the recent models used for interoperability are too heavily reliant on point-to-point rather than many-to-many. These appear to me to be more tactical than strategic.

From our study of the variety of approaches to this across the world, it seems some third party platforms especially geared towards this are currently positioning themselves to achieve traction across the whole ecosystem and where these are backed/sponsored by powerful entities this could prove to be a game-changing strategy.

A Finextra member
A Finextra member 07 April, 2015, 17:55Be the first to give this comment the thumbs up 0 likes


Agree with your comment.  This mobile money interoperability problem also reminds me of a quote from Albert Einstein:  "We cannot solve our problems with the same thinking we used when we created them."  Cheers.

Asenath Raja
Asenath Raja - besant technologies - chennai 28 April, 2015, 08:53Be the first to give this comment the thumbs up 0 likes

Why does Kenya lead the world in mobile money? |

Now hiring