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Killian Clifford

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Killian Clifford - Mobile Money Consulting

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Visa, Mastercard to dominate mobile money?

13 September 2011  |  8730 views  |  6

Mobile Money – Will the card payment companies come to dominate?

As I mentioned in my previous post, Visa have indirectly come to be an important player in the mobile money market in Nigeria. In fact, the card payment companies (Visa, MasterCard et al) have been very active in this sector of late through their big name hires and acquisitions, which stands to reason –payments are their core business.

In developed markets, their moves into the mobile payments space have been defensive, in an effort to prevent newcomers from eroding their market share. They are, at least, one step ahead of their rivals with a recent survey showing that when it comes to mobile payments their brand is trusted more than entrants such as Google and Apple.

In the emerging markets it should be no surprise that the payment companies have been busy making inroads into mobile money. Even in these early days of industry fragmentation, it isn’t difficult to foresee a time when the card payments companies will come to dominate. They bring with them 50 years of experience in the payments industry, large balance sheets and deep pockets.

Whilst the card companies are defending market share in developed markets, they are expanding aggressively in emerging markets. Mobile money represents a new frontier for them. Not only is it a chance to expand into untapped markets and to establish their brand but it also gives them the opportunity to shape the payments landscape in places where there was none before.

Visa and MasterCard have taken slightly different approaches thus far. MasterCard has been busy setting up bilateral partnerships and joint ventures (JV) in different markets, such as The Philippines (Smart Hub) and Latin America (Telefónica/ Movistar). Its JV with Smart Hub will power the technical payments platform for its partnerships. It has also launched a virtual debit card linked to a mobile wallet in Kenya (Airtel). The JV with Telefónica is particularly interesting given that no one has yet made serious inroads into the Latin American market.

Visa has gone a different route in purchasing Fundamo outright. Fundamo is the market leader in mobile payment platforms by deployments and puts Visa in a very strong position. Taking Nigeria as an example, in a previous post I highlighted the candidates best placed to succeed - GTBank Mobile Money, Fortis and Monitise. Fundamo is the technical supplier to the first two and has a sizable minority stake in the third. The likelihood is that in the years to come if you have a mobile money wallet in Nigeria it will have come via Visa.

In getting involved with the platform providers, both MasterCard and Visa have strayed from their traditional business models. Platform providers generate their revenue from licence fees, either on an upfront or per-active-user basis. But one suspects that neither of these companies is in this to generate software licence fees. Could they move to a fee-per-payment model, as they operate with their credit and debit card businesses?

Currently, the most competitive mobile money schemes charge around 3% per transaction. What if, as an example, the payment companies were to take a small charge per transaction, say just 0.5%? With research companies predicting transfers in Africa alone to reach $200bn within five years, well, as you can see, the potential is enormous. This pricing model could allow the cost of the technology and implementation to be subsidised up front, making it more attractive to potential customers. This would also allow the payment companies to initially leverage off the mobile operators’ brand and build awareness in their own in those parts of the world where they haven’t yet achieved high visibility.

The potential for the card payment companies doesn’t end there. Might their involvement in mobile money be the catalyst that launches the take off of mobile international remittances? Virtual debit cards are already being issued off the back of mobile wallets. What’s to stop Visa or MasterCard issuing one with every platform implementation? The card can sit in the background only becoming active if the customer decides to use it. Then a mobile wallet to mobile wallet international remittance effectively becomes a debit card to debit card remittance and automatically falls under the jurisdiction of the financial regulator. This in turn gives regulators the reassurance they need that they are not ceding control of a financial service to the telecom operators. This has been one of the main stumbling blocks to mobile international remittances in the past and should have the money transfer organisations looking over their shoulders.

So where does that leave the other potential entrants in this market, such as the banks and technical vendors? Well it is still early days for this industry - it is still fragmented and there is no one standard operating model. The door is still open for these other players to roll out infrastructure and build up their brand in countries and regions where mobile money has yet to launch. But they need to focus on getting their business model right, act quickly and decisively, and be prepared to compete with some of the biggest players on the block.

Killian Clifford

Mobile Money Consulting

TagsMobile & onlinePayments

Comments: (11)

Colin Day
Colin Day - SunGard - London | 15 September, 2011, 10:41

An interesting article and you touch upon one of the key challenges in the m-payments eco-system and that is fragmentation or inter-operability across the various MNOs.  Sure there are many others; regulation, security and education but to mention a few.  But for me the issue of working across MNOs will be key for peer-to-peer payments both domestically as well as cross boarder.  It could be resolved through technology (options already exist today) or industry (consumer) presure and regulation for cross network support.  I think this is a case of watch this space to see how this one turns out.

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Killian Clifford
Killian Clifford - Mobile Money Consulting - London | 15 September, 2011, 11:46

Agreed - for mobile money to get traction in domestic markets it needs consumers using the service. One of the biggest hurdles to uptake in many markets is the lack of interoperability. If there are four or five different domestic mobile money offerings which one do I, as the consumer, use if none of them are talking to each other? I'm not convinced that the mobile operators have the motivation to offer this competitively without being required to, which is why we are seeing it being written into the mobile payments regulations in places like Nigeria and Indonesia. It will be interesting to watch developments in these markets. If the payment companies are getting involved in the mobile money platform markets they have the ability, and every incentive, to facilitate this.

Killian Clifford
Mobile Money Consulting
killianclifford@mobilemoneyconsulting.com

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Killian Clifford
Killian Clifford - Mobile Money Consulting - London | 15 September, 2011, 15:12

As alluded to above, Aiterl and Mastercard yesterday officially launched that virtual debit card linked to the mobile wallet. Is this to be the way forward for mobile payments in emerging markets?

http://mobilemoneyafrica.com/airtel-standard-chartered-mastercard-roll-out-virtual-card-on-mobile-phone/

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Christopher Williams
Christopher Williams - RTpay - Boca Raton | 19 September, 2011, 14:00

I fully agree that interoperability is vital for the controlled development of this market, both for P2P and for B2C as phone-based systems become more effective in POS environments as well.

The way that can, and should, take place is by the terms of the licenses granted by the government to any MNO operator, or indeed any new payment structure. In most countries that licensing will be the responsibility of the central bank, as part of its AML and KYC policies.

As this article identified, the card associations have had 50 years of experience in managing not ony the credit aspect but also the security against fraud in similar transactions. That would make them a very good provider, not least as they have the experience to manage a central clearing system for the central bank, including operating real time fraud analysis. 

The question comes as to whether they will be prepared to do this at a competitive rate. The risk is they will want to protect their card brand by continuing to price a debit-based system as if there were credit factors involved, i.e. pricing on the size of the transaction rather than just as a fixed cost per ticket.

The important point at this stage is that central banks do enforce a requirement for a central clearing system on all non-card, non-interbank payments. The MNOs and other providers are entitled to know what restrictions they may suffer at the earliest stage in order for them to create their accounting systems to fit.

There is one other major factor that may attract governments, namely the capability of collecting tax data - and even collecting the funds - in real time as transactions pass through the central clearing system.        

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Cristian Vlad
Cristian Vlad - Consult Services Ltd - London | 19 September, 2011, 20:39

The future of mobile banking does not belong to Visa or MC.  It lies somewhere else.

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Killian Clifford
Killian Clifford - Mobile Money Consulting - London | 20 September, 2011, 09:53

The article talks about mobile money and payments as opposed to mobile banking

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Cristian Vlad
Cristian Vlad - Consult Services Ltd - London | 20 September, 2011, 20:20

I tend to think faster than I can write - I was referring to mobile payments in banking - Visa and MC will be less and less important.

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Killian Clifford
Killian Clifford - Mobile Money Consulting - London | 23 November, 2011, 18:17

Visa have done as predicted above, by announcing a virtual card linked to their mobile wallet for developing markets

http://www.finextra.com/news/fullstory.aspx?newsitemid=23172

 

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Cristian Vlad
Cristian Vlad - Consult Services Ltd - London | 23 November, 2011, 18:29

Visa and MC are not a requirement when making mobile payments.  It will go out of fashion in a few years.  The recession has slowed down innovation, but come back to this thread in 5-7 years.

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Killian Clifford
Killian Clifford - Mobile Money Consulting - London | 23 November, 2011, 18:32

They aren't a requirement per se but they have the infrastructure, experience, branding and balance sheets to beat all new comers

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Cristian Vlad
Cristian Vlad - Consult Services Ltd - London | 23 November, 2011, 18:43

All of those you mentioned are now commoditised.  They can be outsourced in 90 to 180 days.

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