Disruptive innovation often involves fragmentation and incompatibility… especially in the short-term.  Most entrepreneurs focus on solving a specific immediate problem vs. laying the foundation for longer-term usage and growth.  Thus, perhaps not surprisingly, the huge majority of all mobile money implementations around the world are not interoperable.  This post focuses on interoperability as a key ingredient for driving the next generation of mobile money growth.

Strong mobile money interest, but usage is narrow

Mobile money has led to significant increases in financial inclusion, but the 100+ million people who use mobile money each month use it in a somewhat limited manner.  Almost 90% of all mobile money transactions are for airtime top-ups of mobile minutes and for domestic P2P transfers.

The Reuters piece entitled, “For the ‘unbanked,’ mobile money still has some way to go,” states:  “if you take out airtime, you have a true view of mobile money, and it is not a good story more than a decade on.”

The consulting firm, Ernst & Young, wrote a 20-page report entitled, “Mobile money—the next wave of growth” which includes many good recommendations for mobile money industry participants.  They highlight the critical need of interoperability and open systems as follows:

“Interoperability can bring many benefits, helping platforms and ecosystem members to achieve reduced costs, greater customer value through enhanced functionality and convenience, and ultimately increased choice for end customers.”

Driving the next wave of mobile money growth

We believe interoperability which is designed into a mobile money solution from the start will enable positive network effects to be reached sooner and, hence, more value for consumers and faster ROI for investors.

In August, the Payments UK 20-page report describes what is needed for world-class payments.  At the highest level, they say world-class payments systems must meet these needs by audience:

• Consumer:  “I can pay (or receive payments from) who I want, when I want and where I want”
• Small businesses:  “Payment options that suit the way I do business”
• Corporates and government:  “Payment services that allow my organization to be more cost-effective”
• Financial institutions:  “I can access and process payments in a way that allows my institution to compete and cost-effectively innovate”

We see interoperability as the key foundational element, or prerequisite, to enable next-generation mobile money solutions to achieve these needs.

 “The Guardian” wrote a compendium piece entitled, “12 way mobile money can go further,” which includes a quote about the importance of enabling interoperability:

“Outside of Tanzania, Indonesia and Rwanda, most subscribers can only send to people on the same mobile network, and can only cash in and out at agents belonging to that network. In order to reach the ubiquity that Safaricom has achieved in Kenya, regulators need to encourage mobile money interoperability.”

Invest in mobile money platforms which enable interoperability

We believe interoperability is inevitable for mobile money—initially within a given country.  Prudent central bank leadership and effective policies should facilitate this inevitability.  That said, there will surely be bumps along the way, but progress is being made.

CGAP describes how Tanzania established mobile money interoperability, and other experts are discussing the different levels of interoperability and conditions needed to enable it.

In closing, visionary organizations should only invest in mobile money platforms that will enable interoperability.  It is a prerequisite for the next-generation of mobile money… and will enable all ecosystem participants to realize greater long-term benefits.  Let us know what you think.