Mobile Money Africa

Ramzi El Fekih
Creova CEO
Email: ramzi@creova.com

Abstract: This article targets MFIs encouraging them to go beyond the current regulatory and distribution hurdles. It invites them to put their faith in the hands of CREOVA which expertise and experience -as a pioneer- would be the guarantee to success. The article laid down arguments that each institution will have to ponder individually and see if they apply to their specific activity, type of offer, and the idiosyncrasies of their local environments.

MFI around the world recognize the advantages and great value of mobile banking, but legislative, distribution, and other hurdles have made the deployment difficult.
The objective remains the same: allow the entrepreneurs to manage their loans, pay the installments due. The advantages for the MFI and the micro-entrepreneur are well known. The urgency is key for the growth of these MFI’s.
This article suggests to is to reach this objective in multiple steps, which are not mutually exclusive and can co-exist in the future, so nothing is lost. These deployment steps or ‘models’ are as follows
1. MFI Mobile Agent Deployment model
2. Bank or Financial Institution Partnership
3. Mobile Banking distribution network
The idea of ‘waiting’ for regulation, or having all the pieces of the puzzles in place, will only delay deployments. Technology is ready and MFI are embracing it to grow.
The first step is to enable the MFI to have access to information more freely. For example, agents on the field should have access to customer and prospects information. Secondly, branches should not be connected to Headquarter even in areas where there is little or no Internet connectivity. MFI’s should first extend their MIS system to the mobile phones, of course keeping a high level of security, and privacy. Once this step is implemented and well managed through processes and tools, an extension of information access to the user, will only help. This step would be analogous to Internet Access to standard bank accounts; but adapted to the MFI world.
This MIS extension to the mobile, whereby the customers and agents can use the mobile to view and manage their loan, and even register in real-time certain transactions using the mobile phone.
In addition to its direct benefits, the first step will pave the way for the second in terms of user acceptance, ‘mobile user education’, and will possibly help regulatory authorities get familiar and move to opening up the way for a more comprehensive mobile banking solution.
The second step is to have a bank partner (if the MFI is not a bank) “sponsor” and host the service. In this model, the bank will handle money (cash) transactions as it is performed from the mobile phone. This will resolve the regulatory issue of having a licensed financial institution manage people’s money. Here, the MFI will need to count the partnerships and local initiative to offer the service. There are several possible incentives for the bank to be interested in offering this service. These include improving its image as an innovator or a ‘socially responsible’ bank, improving loyalty of existing customers, and offering additional services, etc. Here the bank will offer the service in partnership with the MFI and will allow the users to directly pay from their phones the loans. The transactions are posted in real-time with both the bank and the MFI. Once again, this has tremendous benefits for all parties.
We reach the final hurdle: distribution. There are different possible solutions and the decision will be based on the local environment. Our research and experience show that one of the preferred solution is to find a third party service provider, which can be a mobile operator, or a reputable company with a large number of points of sales (example: post office, services franchises, etc.) interested in partnering to offer such a service. This model can include a bank from the previous step, depending on the regulation requirements. This will finally allow the MFI’s to have customers everywhere and not just within x kilometers from its branches. This will allow the users to finally pay without thinking about travel, cash, etc, and will allow the MFI to focus on managing the ‘business’ and grow its reach with fewer concerns. Here we reach the final objective that the mobile payment and mobile banking for the MFI is available to all.
For each of these steps and most importantly the second and the third, the work, the ‘how’, and the execution will be based on:
- Regulation
- Objectives of the service
- Strategy of implementation
- Cost of ownership
For countries of MFI’s where the regulation is in place for e-banking, branchless-banking, or mobile banking, all options are available. The decision will be based on the best model for the distribution channel and the business model.
Regulation:
The regulations come into effect with respect to e-banking and branchless banking. The lack of e-banking and branchless banking regulations, make it fall in to the interpretation of the standard banking guidelines that are strict on how money (cash) is handled. The fact that money is being ‘handed’ or ‘deposited’ for mobile-money (electronic money) that can be used for a non-specific purpose or sent to other people, constitutes a regulation requirement to have a licensed financial institution involved. This excludes the MFI’s with Non-Governmental-Organization (NGO) status.
Therefore, in the case of lack of regulation, the possible solutions are:
1- Limit the mobile service offer to the transaction for payment of the loan. So the system is “closed” to the MFI and cannot be used for anything but the payment of the loan. In this case, the mobile payment solution is an extension of the MFI MIS system to the mobile and only allows to register the payments in real-time; either from an agent/partner or at the agency. In this case, there is a secondary application that allows MFI branches and agents to collect the cash and register the payments in real-time (without even needing a PC with an Internet connection at the branch).
2- Partner with at least one bank (or post office), whereby the user can still use the mobile but the ‘cash-in’ operation will happen at the bank (or post office). The value of the solution here is still important because the transactions are:
a. Real-time to the MFI MIS system
b. All transactions are accounted for and reconciled between the MFI and the bank (or post office)
The above solutions allow, in most countries, to eliminate the regulator hurdle, with respect to cash transactions, and launch an initial service that is only the first step to mobile banking/payments. The idea here is that the regulations will evolve to adapt to the needs of these services and the MFI can start now by offering some of the services and grow as the environment becomes favorable.
Distribution:
The ultimate objective is to reach a state where “agents” for the service are everywhere and especially in rural areas. To reach this objective it will take time, regulations, and partnerships. We propose to plan different stages for the distribution based on the local environment. Here is an example of steps to be taken:
1- Bank or post office partnership is a win-win for both parties
2- MFI distribution through its agents and customers for the loan payment – this can be the first step depending on the local environment and MFI policies and procedures
3- Expand depending the distribution to “certified” agents and partners depending on local environment.
Creova works with the MFI to analyze the local environment and help in the decision on the distribution model and strategy.

Cost of ownership:
The cost of ownership for such a service, whose objective is to help the poor reduce expenses, and focus on their business at hand, is a sensitive subject. There should be a few options to the MFI’s depending on which product/service, from the above steps, is offered. It could be a technology acquisition, a usage based licensing of the service, which the MFI subscribes to, or a general public service offered by partners with an agreement for the MFI customers. At the end of the day, it is important to have the options and decide based on the business plan of the MFI, taking into account the initial cost of ownership, and cost once the service successful.
About CREOVA
CREOVA is a privately held company headquartered in Paris, France. CREOVA is a Mobile Payment technology provider with an innovative software platform that offers a secure, easy-to-use, feature rich, and reliable mobile payment applications for financial institutions (such as banks, and Micro-Financing Institutions) and mobile operators.
Creova has been working with mobile operators, banks, and Microfinance Institutions beyond the technology to test different deployment, partnership, and legal models that suit best the MFI. Creova solutions are already deployed in Tunisia with the leading MFI, ENDA inter-arabe, throughout the country.

www.creova.com

Micro Finance Institutions in Nigeria though still struggling to get a piece of the pie from stronger and more capitalized commercial Banks, but some are still coming up with impressive returns in the last few years. More than 840 MFI’s are currently operating in the Nigerian market space while many others are getting ready to open to public in the next few months.

Some viable MFI’s are posting results that are close to what established commercial Banks with over 50 Branch networks were earning before the pre – consolidation era when they had to increase their capital Base.

Virtual Banking and Mobile banking will give massive leverage to the commercial Banks in the next few months and this will massively differentiate them further from the MFI’s and widen the gap. In the evolving scenario, what opportunities are open to the MFI’s? Can they take on the Mobile channel as a strategic channel to play catch up? Will the Banks just use them as a cash in / cash out points for their Mobile money roll out plans?

From the regulatory point of view, MFI’s are allowed to play in mobile landscape but Infrastructurally, they are limited by their access to technology platforms like the financial switches. They still not directly connected and will have to get connection via a third party Bank.

Mobile Banking and mobile money is the easiest route to go for any growth oriented MFI in Nigeria with wide disparate demographics and prohibitive cost for Brick and mortar Branch roll outs. Mobile presents a strong compelling advantage for the MFI’s.

Though the Mobile is an unfamiliar terrain for most operators in the financial services sector but opportunities abound. The question is, what is out there.

64 million mobiles subscribers is a significant and potential customers base that can be engaged using the mobile channel.Network coverage is nearing 70 percent of total landmass in Nigeria, an extensive reach is what the Mobile channel offers. Mobile Phones is also what they already have with negative acquisition cost to enable potential customers use the service.

Using Mobile Phones, the MFI’s can develop independent collection points, therefore cash in / cash points using the Human Atm models across areas of operations and in concentrated commercial areas like the Major markets without a need to physically have a Brick and Mortar presence.

Increase the market penetration by serving the currently unbanked population leveraging on their Mobile and Network coverage to bring services to these group of financially excluded at a significantly lower cost to the customer and less paper work which is always a barrier for many semi Illiterate and illiterate citizens which mostly constitute the majority of the financially excluded.

Getting more products to the existing customers is a way to retain and keep customers. Many other products can be bundled into the mobile service provisioning of the MFI’s to make it more attractive to existing customers.

Remittance business which has been the cash cow of commercial banks are areas where the MFI’s can change the business models. Online remittance gives them the reach to the potential senders; worldwide while the Mobile Phone of the local receiver is the connection point of engage for the MFI’s.

To save cost and achieve competitiveness in the face of biting Global Cash crunch and in local operating environments in Nigeria, Virtual and Mobile Banking is not a question when for the MFI’s, It is a question of How.

Emmanuel Okoegwale
emmanuel@mobilemoneyafrica.com

Jeppe Dorff

The following is part of a series of articles on mobile financial services written by Clickatell. To read the full series, please visit http://www.clickatell.com/solutions/financial.php

Does past experience combined with the current global financial setting provide insight for creating a successful mobile business model?

Since the late 1990’s analysts have asked how and when mobility will impact the established financial landscape. The Silicon Valley boom at the end of the 20th century boosted online commerce, while making household names out of organizations that still thrive today. People are less likely to know, however, that one of these brands, PayPal, started out as a Palm-based mobile payment solution. PayPal quickly moved beyond mobile and ultimately found its niche to help change the way consumers purchase goods online. More importantly, they spurred a stream of consciousness from Denmark to Israel and back to Silicon Valley where the dream originally hatched. Today, eBay-owned PayPal is the No. 1 online “alternative” payment method and enjoys hundreds of millions of customers worldwide.

The online commerce market hit the world by storm, giving organizations a new way to think about buying and selling. Many new businesses—eBay, Amazon, buy.com—created new models and increased revenue by utilizing only the Internet. For a decade, experts have pontificated about a similar promise in mobile, yet it hasn’t yet experienced explosive growth.

Typically, markets are driven by a number of factors: pain points, market readiness, consumer education, technology barriers, overpromising vs. underperforming, etc. Mobile isn’t “just” another credential to be utilized for payments. In fact, mobile payments are likely to emerge as the primary payment channel substituting the incumbent’s cash and plastic in less than five years. This, paired with the complex value chain and subsequent claim of customer ownership, presents a bigger question: “How is the global financial sector going to accommodate the onset of the mobile commerce market?”

More Questions than Answers

Until now, the industry has been keenly aware of its position in the four-party system: acquirer, issuer, merchant, customer. The advent of mobile payments introduces additional parties, which will likely change the status quo. The entry of more players may seem simple, but numerous issues complicate the opportunity. Questions such as: Who pays to support new mobile devices, new software and POS devices? Who supports the customer when transactions fail or cards are stolen? Who determines the standards for interaction? Will there even be standards? What technologies will be used, or will the agenda continue to steer towards proprietary solutions giving more control to carriers? And, the biggest question: Who owns the customer?

The Case for Mobile Payments

“Everyone” has a Mobile Phone: Compare the mere 1.4 billion credit cards in use today with the 4 billion mobile phones around the world, with 99.9 percent supporting SMS, USSD, WAP, and voice “out of the box” to facilitate financial interactions. ABI forecasts that approximately 30 percent of mobile devices shipped by 2011 will support NFC, a wireless technology making it possible for cell phones to interact with existing payment infrastructures. Jupiter predicts that mobile payments, including those from contactless NFC, will generate transactions worth around $600 billion globally by 2013. The sheer scale of the mobile opportunity is staggering. There is clearly an opportunity for a myriad of billion dollar businesses to be created.

“Everyone” Makes Payments: According to Unisys, nearly 45 percent of a bank’s revenue comes from payments, which represents about 40 percent of total profit. Gartner estimates that 104 million global citizens will make mobile payments by 2011. A study compiled by the Federal Reserve found that more than 65 billion electronic payments were made in 2007; a majority of which were “low” value of around $50. Additionally, the Center for Financial Services Innovation reported that FIs are tapping into the cash-dominated micro-payments market ($5 or less), valued at $4 trillion globally.

The financial world needs to acknowledge the ubiquity of mobile and the success that other sectors have experienced when integrating this forward-moving technology into commerce. Given the current federated model operating in today’s banking systems, the established participants should address the questions that such an incorporation yields: revenue, customer retention, and remaining in the center of financial transactions. It is also important to transcend the current discussions and define the framework of how the ecosystem fits together and how the stakeholders support each other.

Based on customer experience, initial deployments, headlines, and supporting statistics, mobile payments is the next tsunami to hit the financial world. Right now, however, mobile payments is still in the deep waters gathering its strength. When it arrives, FIs need to be fully prepared. Much is already happening in the industry and every institution should keep close tabs on global current events including analyst reports and published studies regarding mobile pilots, so they can tap into the rich field of knowledge held by mobile banking and payments vendors.

Jeppe Dorff is VP of mobile financial services for Redwood City, Calif.-based Clickatell, a provider of mobile messaging services around the world.

M-PESA

By kachwanya

Mobile banking, powered by cell phones, has become a big success story in Kenya and the whole world now talk about it. But this has been basically the M-Pesa story and the banks trying to emulate the same have had very little success so far. Mobile banking utilizes technology which enable bank customers to use their mobile devices to manipulate their bank accounts, and do a number of transactions such as paying bills, transfer funds and even pay for credit. Banks trying to introduce mobile banking find themselves in a direct competition with M-Pesa and Zap and that is why for sometime banks have had silent beef with M-Pesa. After realizing that M-Pesa is here to stay they have come round and started to offer their own version of mobile banking. The problem come in from the fact that they have to use the same mobile service providers to deliver their services. At the end people basically end up using
M-Pesa instead of the bank mobile banking system.

M-Pesa.

The banks use the addictive mobile banking model in which the mobile phone is used as a channel to an existing bank account. This is the system which would have essentially catered for the population with bank accounts while the M-Pesa which uses transformational mobile banking model left for the unbanked population. M-Pesa has outgrown what it was meant for initially and now both rich and poor, upper class and lower class and even classless use it. Its popularity is increasing each day as big corporations continue to adopt the M-Pesa in paying for their products and services.

Many banks in Kenya which have introduced their mobile banking systems have struggled to separate their version from M-Pesa. Look at the following examples where although banks provide the mobile banking system the clients still end up using M-Pesa intead:

Equity Bank introduced mobile banking –Equity Bank EAzzy 24/7 in September last year. One year later not many people are using the system. Most Equity Bank account holders would rather withdraw the cash from the bank and head to M-Pesa for the money transfer and payment of the bills and even goods. Equity account holders with Safaricom lines can credit and transfer cash into each other’s account using their mobile phones in real time, subject to the availability of funds. Equity bank clients are also able to pay their utility bills, purchase airtime, request their bank statements and perform 13 other crucial banking inquiries. The big mystery is why the Eazzy 24/7 not popular despite the fact that Equity Bank is among the banks with largest clients base in the country.

* CFC Stanbic Bank teamed up with Safaricom to offer service called bulk payments which enable CFC Stanbic clients to transfer funds from their accounts to specified beneficiaries’ mobile phones. According to this service, businesses can pay a large number of people through Safaricom’s M-pesa service by simply submitting their names and mobile phone numbers to a local commercial bank. M-Pesa is in full use here.

Family Bank recently introduced e-payment system. The Family Bank system which is known as Pepesha Pesa, allows Family Bank customers to send money directly to their account in order to offset loans and other obligations. The most interesting aspect of Family system is that account holders use the M-Pesa through Paybill feature.

* Consolidated Bank customers can transfer money from their bank accounts to M-Pesa , which means they are essentially enabling the use of M-Pesa directly.

How can banks turn around this trend and stop giving their competitors undue advantage:

First, for banks to be successful in Mobile banking they have to develop their own platform. The majority of banks rely on the M-Pesa platform for their mobile banking while it is clear that M-Pesa itself is mobile banking. Relying on your competitor to deliver your services to your client is in a way surrendering the advantage to the rival right way. For successful mobile banking the banks have to come up with their payment platform, something closer to but not M-Pesa or Zap.

Secondly, increase market penetration. It is quite clear that the bulk of M-Pesa money transfers are from urban centers to rural areas. Unless the banks covers the rural areas, meaning that they have to make their presence be felt up to local shopping centers, they will continue to lag behind. One the ways of doing this is the use of Mobile to access the ATMs. The ATMs can be easily constructed in rural shopping centers and at the same time they can increase the number of their branches to local towns.

Finally, the banks have to get a way to maneuver tough regulations they work under . When come to M-banking there some regulations in a number of fields which the banks can do without: e-commerce, payment systems, competition, deposit taking, telecommunications, consumer protection.

Nigeria with only 18 million Bank accounts and 62 million Mobile Phone subscribers is posed to be Africa’s biggest market for Mobile Money in coming months.Despite the late start of Mobile Money in Nigeria, the strong compelling needs of the millions of unbanked populations will propel it to enviable heights that will surpass kenya’s seemingly achievements with 6.5m subscribers with MPESA in coming years.

With four world class Mobile operators, 25 large commercial Banks and 840 micro Finance Banks and an addressable market of 140 million people and newly released guidelines for Mobile money by the National finance regulator, The Central Bank of Nigeria, the stage is set for Africa’s most populous Nation to commence Mobile money roll outs.

The mobile operators are positioning themselves for a significant share of the market. MTN Mobile money platform will go live in coming weeks while the likes of Zain are working towards a launch too. It is not too clear yet the plans of operators like Glo and Etisalat in the evolving mobile money ecosystem in Nigeria. From the Banking sector, UBA Group and Zenith are looking like top contenders. Zenith Bank recently conducted public demonstrations of Mobile money transfers with technology provider, Tagattitude Nigeria at the Card expo event in Lagos.

Despite all the technology and marketing budget that will be thrown into these ventures by the Banks and mobile operators, agent networks will play a significant role in the success of these enterprises. While the operators which are known for low value and high volume transactions with very useful experiences in managing transactions through agent networks for pre paid cards distributions, same cannot be said of Banks with little or no experiences in Banking through agents. Banking through agents is a novel in Nigeria.

Agent Banking is popular in Peru, Brazil, Kenya and Phillipines. In Agent Banking, it is basically a technology play for Banks. They provide the technology that enable Banks and their customers to interact remotely in a trusted way through existing local retail outlets. Without the likes of large retails store chains like shoprite, Dunns or UK’s telcos,the players will have to make do with what is available, the eateries and gas stations. Mr Biggs is a very prominent eatery with over 907 outlets in major urban and semi urban towns across the length and breath of Nigeria while the gas stations are present in cities, towns and rural areas.

These outlets will perform cash in / cash out points for Mobile money, serve the customers, may enroll customers and implement simple KYC while the Banks manage the technology platforms. The advantage of using these channels are,cash are available in the merchants kitty from shop sales,the cost of setting up brick and mortar Branches are significantly reduced, agent provides the space, energy and trained manpower to provide services to customers.

Set up time is also significantly reduced. An agent can be set up and running in 5 hours while it will take average of five to six months to commission a Bank Branch.

Experiences has shown that agent Banking can help Banks decongest Brick and mortar Branches, expand into new commercially unviable territories, create a virtual Bank and tapping into new customer segments that were previously left behind.

Though it is not all sweet honey pot banking through agents. Risk such as security, ID manipulations and Point of transactions frauds are issues that the Banks will have to tackle through such third party relationships. With adequate risk management, robust technology platform and proper training and monitoring systems, Nigerian Banks may be on their way to joining the likes of Lemon Bank in Brazil without a single Bank Branch while working through over 5,000 bank agents. Welcome to the future.

Emmanuel Okoegwale
emmanuel@mobilemoneyafrica.com

Africa Map

The basic cornerstone of good governance are quality of service, quick response mechanism and above all, accountable and transparent process mechanism but the existing systems does not reflect any of these in any of its activities across all sectors and arm of government in Africa.

Mobile Government is extending the concept of government further with delivery of information and services to the doorsteps of the citizens in a personalized way via what they already have, the mobile phone.

Mobile Government is the next inevitable direction of evolution of e-Government. It is about modernizing the public sector organizations – hence the business processes the work and the workers – using mobile technologies, applications and services. M-government is not only about technology but rather how technology revolutionize the public sector activities and how the society adopts these technologies. Africa is one of the leading continents with growing mobile penetration.
Mgovernment is a two way traffic. While government provisions some services via the mobile phone, the citizens too will be required to make payments to the government for some services using same channel. The challenges of making mobile micro payments in Africa is the core challenge of the adopting of Mobile government in Africa. Being able to make payments conveniently and securely is an essential ingredient in Mobile government.

Mobile government payment circle could take many forms like Government to citizens ( pension, wages, loans), citizens to Government ( taxes, contributions, loan repayments, levies, utilities ) .

Governance in Africa is structured along the colonial master’s master plan without a recourse to the local operating environment which differs significantly. While electronic payments is a way of life in Europe and North America, same cannot be said of in Africa. European economies are better managed with very efficient tax collection systems,African Nations are still grappling with ability to collect citizens taxes. Inability of Governments in this regards in the past were the cost of collecting small payments across disperse populations, far flung geographic locations and reach.

Mobile Money helps to solve all the challenges militating against these untapped government revenue sources. Reach is achievable via mobile payment technologies using third party retail outlets in the local communities without a need for long Bus trips to pay taxes at central locations of State capitals.
The services can be delivered at significant cost reduction for the government and the citizens using low cost mobile payment technologies.

Record keeping capabilities are enhanced through receipt issuance capability of mobile payment technologies which reduces the potentials for fund diversion or fraud. The back end server also updates each payee at the back server which may be connected to the central government data systems for real timely updates.
Forward thinking, a city like Lagos (Nigeria) with 20 million inhabitants, more than 700 standard eateries and 600 gas stations can quickly convert these outlets to citizens engagement outlets to serve a significant proportion of the populations. With estimated 3 dollars per month tax payment rate for the millions of non government workers, artisan and non formal workers, government will rake in 6million dollar monthly if only 10 percent of the population pays up and 72 million dollars annually. That will go a long way in providing basis amenities that are currently lacking.

More than ever before, African Nations can engage the citizens in a more effective and efficient method of collecting government revenues across all strata of the economy for meaningful and purposeful development without dependence on extractive industries which fuels corruption and environmental degradation and leads to unrest like in the case of Niger Delta of Nigeria.

Emmanuel Okoegwale
emmanuel@mobilemoneyafrica.com

Mina, a Ghanaian Lady that I met on my recent trip (While conducting Mobile Money and Payment;Pre Survey study) from Accra, the capital city of Ghana to Aflao, the border town with Republic of Togo, was traveling to conduct withdrawal transactions with her ATM card and nine other cards belonging to friends. The distance to Aflao from her rustic roadside village is close to 45 kilometers and return trip will consume three hours of her productive time as a school teacher. She said ‘I do this every week and also help my friends but I don’t know if I can continue this way. She continued ‘If by the end of the year, no Bank stations an ATM in her locality or open a Branch, I will resort to keeping my money under my pillow. At least I don’t incur chargers to make withdrawals from under my bed’. That is the typical scenario across Africa’s rural population. She might end up adding to the statistics of the previously banked by the year end.

In Africa, in bid to turn in massive profits and assume a continental Player status, Banks are focused on the Big picture :Africa, while neglecting their backyards where credible statistics has shown that 70% percent of the citizens live in the rural and semi Urban areas. The Banks are engaged in Grand prix like race to breast the tape into many African countries.

With the ear bursting sermons of Banking the unbanked in Nigeria and yet the attitude of the Banks are a direct opposite, it seems to be fashionable to sing the song but never dancing to it. While some Large Rural local governments in some parts of Nigeria are without a Bank branch, a high street in Lagos of 1.8 kilometer stretch, has 8 branches of a particular Bank which translates into a bank branch for every 180 meters. These are same Banks with aggressive African roll outs, exporting same disconnections.

Governments in it’s wisdom, thought Micro Finance Institutions will bridge the gap but they too fell into the large commercial Banks trap by modeling their services to be exact or look alike. They issue same standard KYC forms and conditions like the large commercial Bank ( LCB) to a different type customer .Some even went further to style their offices to look imposing and as intimidating and located in the major cities like the LCB, far away from their potential and targeted market. Rather than close the gap, the MFI’s by design are widening it.

For the unbanked African, with few options for formal financial inclusion, out of sight is out of mind. They continue to patronize the informal channel which is unreliable and unsafe. While promoting this imbalances, the LCB are slow to take on innovations that can significantly change this pattern and are quick to muscle in any perceived incursions into what they think will be their bread and butter forever, the unbanked populations.

The games changers are here. Regulations across the world is changing and favoring the entities that can make it happen. In Kenya, while the Banks are still importing security doors and window blinds to set up ‘profit centres’ Bank Branches, Safaricom through Mpesa was signing up agents.

While the telcos are promoting a Bank in your pocket strategy, The Banks are busy pushing the crowds through their doors. Last update on Banking statistics in Nigeria, there are 22,000 people to a Bank Branch.

With the new thinking amongst African Financial and telecommunications regulators, the bridge is closing on the Financial institutions that are not ready to use what the Left Behinds already have, the Mobile Phone. Little snippets from the Bank / Telcos, war front capital – Kenya, The Crying Babies are the Banks and the winner is Mpesa with 6.5 million subscribers and 10 million monthly usage. Will the likes of MTN Mobile Money, Wizzit in South Africa, Txtpay in Ghana,Mi-pay in sierra leaone and Tagattitude in Nigeria, be able to replicate the Mpesa challenge? Only time will tell but for sure,the game changers are here.

Emmanuel Okoegwale
emmanuel@mobilemoneyafrica.com

Mobile commerce is quickly becoming one of the most cost-effective, far-reaching means of giving the ‘un-banked’ poor their first taste of financial services. Yet many of these services are almost entirely informal, connected to neither banks nor traditional forms of regulation. A new initiative — CreditSMS — aims to integrate m-commerce with traditional financial management tools, thereby formalizing the informal and bridging the financial divide.

The widespread popularity of M-PESA in Kenya and GCash in the Philippines shows that people throughout the developing world are eager to leverage the technologies they have (i.e. mobile phones) in order to gain access to the services they need (i.e. savings, credit, remittances and insurance). What is interesting is that many innovations in this field tend to be initially developed not by corporate researchers but by the ‘un-banked’ themselves. Instead of loading pre-paid airtime into their phones, for instance, many users began instinctively sending the airtime activation codes to their friends via SMS, which gave rise to a de facto airtime sharing service.

Taken one step further, end users then realized they could either sell the airtime back to an airtime distributor at a discount or sell it at a premium to people in their community who didn’t have access to a phone. In essence, they discovered that airtime itself could be a source of income, and an informal mobile money transfer system was born. Now that airtime and mobile money transfer systems are becoming the norm, the question has evolved from ‘How do we formalize the transfer process?’ to ‘How do we formalize the more complex transactions made possible by mobile transfers?’. Put more simply, how do we give informal operators and ‘branchless banks’ the same tools as formal institutions?

CreditSMS is constructing a financial management software module to be run through FrontlineSMS that allows real-time communication between m-money transactions and individual profiles. (FrontlineSMS is free and open source software that turns a computer and a mobile phone into a two-way group messaging hub). By doing so, any user within an airtime or mobile money transfer network will be able to distribute and keep records on m-money transactions en masse, allowing microfinance institutions (MFIs), cooperatives, rotating savings and credit associations, or even extended kinship networks to run their own ‘branchless banks’ across broad areas without necessarily registering with local regulators.

In addition to providing the means to keep track of basic transactions, the CreditSMS platform will provide all the necessary parameters for users to create and transmit unique financial packages via SMS. For instance, they will able to provide savings services by holding m-money in the SIM card of the local CreditSMS hub. When a saver within the network wants to deposit or withdraw savings, all they need do is text the corresponding key code and amount to the hub which will then automatically check the request against their profile and deposit or release the appropriate funds.

But savings are only the beginning. MFIs that use the CreditSMS system will be able to distribute micro-loans and receive scheduled repayments via SMS, saving both the costs of transportation and time traditionally needed to reach rural and disconnected clients. In turn, MFIs will be able to reduce the interest rate on loans (which is typically greater than 25 percent) and have more time to manage larger client portfolios across greater distances.

CreditSMS will also enable MFIs to provide insurance and social security services to their clients. By allowing users to create unique service packages and track regular payments via SMS, MFIs can track which clients are covered by which package and what their expected payouts are. Although insurance and social security may seem like unnecessary luxuries in the developing world, access to services like crop, emergency, health, and life insurance could potentially transform the way clients view the future and take entrepreneurial risks. Not only that, but reliable use of these services will allow clients to build credit ratings that will encourage their eventual graduation to the formal economy.

There are, or course, caveats to facilitating the increased efficiency and reach of ‘branchless banks’. Where no regulation exists to protect clients from usurious charges, financial mismanagement or even outright theft, protection mechanisms play a crucial role. The success of informal money transfer systems like Hawala, Hundi and Fei Chen do show us one thing, though — the importance of trust. Take Afghanistan as an example. In the absence of formal banking institutions (and, more generally, the rule of law), money exchange dealers in Kabul formed an association based on quality service and honesty. Money exchange dealers who violated the rules of the association were expelled, blacklisting them from the Kabul market and effectively running them out of business. Although trust is no substitute for bodies such as the Federal Deposit Insurance Corporation (FDIC), it does remain a powerful and ubiquitous force in informal economies that cannot be ignored nor discounted. It is, after all, the very glue that holds these informal economies together.

Although any system is susceptible to manipulation and human error, the services made possible by CreditSMS have the potential to revolutionize — and perhaps democratize — the world of finance for the better. By making it possible to literally place a full range of financial services in a client’s hand, regardless of where they live, CreditSMS aspires to help mitigate one of the greatest inequities of our time.

Ken Banks, founder of kiwanja.net, devotes himself to the application of mobile technology for positive social and environmental change in the developing world, and has spent the last 15 years working on projects in Africa. Recently, his research resulted in the development of FrontlineSMS, a field communication system designed to empower grassroots non-profit organisations. Ken graduated from Sussex University with honours in Social Anthropology with Development Studies and is currently working on a number of mobile projects funded by the Hewlett Foundation. Ken was awarded a Reuters Digital Vision Fellowship in 2006, and named a Pop!Tech Social Innovation Fellow in 2008. Further details of Ken’s wider work are available on his website at www.kiwanja.net

Benjamin Lyon is founder and Executive Director of CreditSMS. He is passionate about leveraging technology in order to broaden financial inclusion throughout the world. He graduated from Rhodes College with a degree in Economics and International Studies, where he specialized in microfinance and informal economies. For further details visit www.creditsms.org

Ben Lyon
CEO – CreditSMS.

Aaron Ewedafe wakes up every morning at least one hour before the sun rises. Donning his satchel full of client records and repayment schedules, he hails the nearest okada driver and races into the surrounding countryside to begin a long day of loan group meetings. The trip from headquarters in Oshogbo to the village of Ojudo and back can take all day. Aaron rarely makes it home before nightfall. Altogether, Aaron spends 112 hours and 5,000 naira a week to manage 350 microloan recipients. His profit is negligible.

Although Aaron is fictional, his story is not: representatives of microfinance institutions (MFIs) spend countless hours and energies to reach loan recipients to collect their repayments. In the process, they lose valuable time and money, constraining their potential for portfolio growth and forcing them to pass costs on to clients in the form of interest. In 2006 CGAP estimated the average interest rate charged by MFIs to be 28%, with standard rates varying from 25% to 100%.

Transportation costs constitute the single greatest contributor to high interest. Where potential clients are scattered and infrastructure is weak, the costs of issuing credit are either exorbitant or prohibitive. But what if loan officers could cut transportation costs in half? What if they could simply receive scheduled loan repayments via text message?

They can with CreditSMS.

CreditSMS was developed to create a standard and accessible platform for MFIs to integrate mobile money and airtime transfer systems into their business models. By converging text message management software and local money and airtime transfer systems like M-PESA, Mobile Money, or Me2U, CreditSMS allows loan officers to distribute and manage credit over broad areas from their computer.

The benefits of integrating CreditSMS into the MFI business model are twofold. First, loan officers like Aaron will save hundreds of hours a year in travel time, allowing them to focus their energies on building and managing a larger client portfolio. In turn, MFIs will earn higher net revenues. Second, MFIs will be able to lower interest rates commensurate with saved transportation costs. Lower interest rates will reduce barriers to entry and thus encourage higher participation from bottom of the pyramid (BOP) entrepreneurs. More simply, CreditSMS enables MFIs to pull higher revenue while simultaneously pushing down the cost of credit.

To learn more about CreditSMS and our upcoming pilot programs across Africa, please visit our website (www.creditsms.org) or contact our office at info@creditsms.org. We are happy to accommodate international callers and are available via Skype (username: CreditSMS).

David Taylor is the Founder of the PCI Knowledge Base and former E-Commerce and Security analyst with Gartner.

As more people start paying for goods and services using their phone, rather than a credit card, they are venturing into that ethereal netherworld that is “beyond PCI” – in this case, literally, as their daring actions challenge the Payment Card Industry to drop “card” from their name. But there’s more to the challenge than semantics.
As the mobile payment wave has hit Asia and Europe, the payment networks, major banks and international retailers have not been the leaders of the revolution. Instead, the wireless service providers, cell phone manufacturers, and emerging mobile payment specialty firms, working with mostly Ecommerce merchants have taken most of the risks and are reaping the rewards (if any). How will this change as the mobile payments wave reaches the American shores?

• Work with PCI Compliant Service Providers for Pilots

Even though mobile payment technologies such as Near Field Communication (NFC) are not specifically addressed in the PCI standards, the companies providing them for your pilot should still have their software development and services reviewed by a PCI QSA, in order to ensure that the standards for the protection of data are being met, within the limits of the current standards. This would include the mobile communications companies, the payment service providers, the cell phone and POS hardware providers and the systems integrator (if any). Mobile payment is both new and complex, so merchants have a responsibility to ensure that by implementing a pilot they do not “poke a hole” in their otherwise compliant and/or secure infrastructure. But beyond looking for PCI compliance, there are several other issues and organizations that merchants should pay attention to when they are evaluating the implementation of mobile payment.

• Watch the Moble Network Players

In mobile payment, “mobile” is more important than “payment” at this point in driving the market and determining whether it’s safe for retailers to make technology investments. Essentially, this is a technology infrastructure issue. Before it will be financially justifiable for retailers to invest in mobile payment beyond the pilot phase, essentials like NFC-capable phones and POS devices have to be available at reasonable prices.
One organization to watch to help determine when mobile payment is “ready for prime time” in the U.S. is the GSMA (Global System for Mobile communication Association), which includes 700+ worldwide mobile technology and service providers. For example, one metric to consider is the percentage of mobile phones that have (or can support) mini-SD or micro-SD chips that support TDES or AES 256 level encryption, which is important for secure mobile payment, and will likely be required for PCI compliance as the standards are, presumably, extended to include mobile payment.
Another issue is whether a phone that has a stored 16 digit card number, even if encrypted, is in PCI scope. I expect to see the credit card number tokenization made into a critical part of mobile payment, so that the only thing the NFC phones have stored is a token, with the card numbers centrally stored and mapped by the TSM (Trusted Service Manager). That would be a more secure implementation, IMHO.

• Monitor Emerging Mobile Payment Standards

Another organization to watch when it comes to mobile payment security is the FSTC (Financial Services Technology Consortium), a group of financial institutions and technology providers, which recently announced that is has formed a working group to develop mobile payment security standards. Since the PCI SSC has committed to an “every other year” cycle of releasing standards, I’m expecting the FSTC to come out with a draft of their standards before the PCI SSC’s next release in the Fall of 2010. Whether (or when) the FSTC standards are reconciled with the work of the PCI SSC will likely be a gating factor to widespread mobile payment adoption by either Ecommerce or traditional retailers. Speaking of retailing and standards, I expect that the National Retail Federation’s ARTS (Association for Retail Technology Standards) group’s UnifiedPOS standard will also be impacted by the need to support mobile payment at the POS.

• The Bottom Line

There are enough aspects of mobile payment that are “in flux” that I believe the best strategy at this point is for multi-channel and E-Commerce merchants to look for mobile payment technology providers that can demonstrate the security of their approach and/or for partners who are mobile payment specialists, have run multiple pilots, and are willing to share the risk and manage the pilot.
If your customer demographics fit the profile of the aggressive mobile device user, then mobile payment deployment may be justifiable before all of the mobile payment security issues are shaken out. But these issues and market indicators I’ve mentioned are certainly worth consideration as part of your mobile payment project due diligence. In conclusion, we’d love to speak with anyone involved in mobile payment, to broaden our mobile PCI best practices research. Please visit the PCI Knowledge Base, and our Contact Us page.
www.pciknowledgebase.com

Contacts:

David Taylor, CISSP
Founder, PCI Knowledge Base
620 Timber Way
www.pciknowledgebase.com