What's missing in remote mobile payments?

As we all know, around three-quarters of the world's population have access to a mobile phone.

However, also according to the World Bank, globally, only 3% of people use mobile phones to receive money and only 2% use them to pay bills.

And nearly one in three mobile money users globally is Kenyan.

Why the discrepancy?

Understanding the factors critical for success is crucial to any new venture, and especially so in remote mobile payments. Using a phone to make a payment doesn’t of itself make the process simpler and cheaper. The underlying service must be transparent and cost effective.

Sending money is a far more complex business than making a phone call or sending a text. It matters little if a phone call is disrupted or overheard, or an SMS lost or corrupted. In contrast, making payments requires that the sender and beneficiary are clearly identified; that the purpose of the transaction be understood; security is paramount; undelivered funds must be returned to sender. Providers of payments services are bound by a range of laws and regulations to protect client funds and data which go far beyond the obligations applicable to mobile network operators. In short, the payments part is much harder than the mobile part.

Though over 18 million people are served by M-Pesa, which handles $41m /day. [1], we are yet to witness strong adoption elsewhere, leading one senior banker to question whether M-Pesa is a global model or an anomaly.  GSMA reports 137 live mobile money (the taxonomy of mobile money, commerce, proximity and remote payments etc is covered elsewhere) services globally. Yet there is little commonality in their architectures and providers.

Mobile money has achieved broadest success in Sub-Saharan Africa, which lacks payments infrastructure – one of several critical success factors. Many other factors are important in establishing a successful service. They include:

-       Ubiquity: there are two participants to every payment. Schemes whose success depends on both sender and beneficiary being in the same ‘club’ face a long slow growth curve – hard to sustain without very deep pockets and sympathetic investors. Partnership with a provider offering reach to the maximum number of beneficiaries (and the most ubiquitous component is the standard retail bank account) may offer faster ROI.

-       User experience; in today’s Twitter and social media age, users are quick to learn about better services; those with high transaction fees and ambitious FX rates are likely to be shunned.

Several papers provide more detail on CSFs, including:

The Mobile Financial Services Development Report 2011, World Economic Forum.

Enabling Mobile Money interventions, US Aid (2010)

Mobile Financial Services Risk Matrix, US Aid

‘Will the banks or the telcos dominate?’ may be the wrong question. It depends; largely on who drives the adoption. Which might explain why there is little consistency in the banks, MNOs and technology vendors involved in the successful schemes to date. Organisations which understand consumer expectations and experiences best probably have the advantage. With so many people using mobile devices, and so few using them for basic needs such as sending and receiving money, the elusive ‘right’ remote mobile payments  model stands to achieve perhaps the widest and fastest adoption of any financial service ever.  Wake up and smell the coffee?

[1] Professor Ndung'u, Governor of the Central Bank of Kenya, speaking at the African Financial Inclusion Policy Forum in Zanzibar in March 2012