Our reliance on the internet and smartphones to move money has grown as online, mobile and electronic e-wallet technologies have spread their influence against more traditional siloed banking systems, says Uruthra Kumar Sreedharan, vice president for mobile transaction services’ at Western Union Digital, in this overview of the global mobile money sector and the lessons that can be learnt from its history.
The wait for the mobile money industry to truly take off has been long and uneven, with excitement levels sometimes increasing around failed initiatives such as the old SimPay initiative by UK mobile network operators (MNOs) to launch a mobile m-payment and commerce system, only to then fall away again. The pattern of failed initiatives and stalled pilots is well-known, covering remittance projects as well as m-payment ones, but there are often many lessons that can be learnt from these earlier attempts to launch mobile money upon the world, and it is this that I intend to explore in my blog.
As far back as 2002, mobile money was used in the Philippines, so it is not a new concept. Now an 11-year old industry, it is apparent that the uptake has not been as widespread as many first expected. There are some notable exceptions, in Kenya and elsewhere though, and these are instructive for people working in the mobile money industry now; especially those planning projects now that the technology at last seems to have caught up with the concept.
Kenya: M-Pesa, Africa and Learning Lessons
Kenya, one of the frontrunners in the mobile money sector, is a country in which the necessary components of the industry have come together in the right way, guaranteeing uptake and success. Significantly, the bricks and mortar branch banking infrastructure in the East African country was not sufficiently advanced before mobile wallets began to take off. This allowed M-Pesa, the mobile money transfer service launched in Kenya, to build up a financial structure around mobile payments and win customers. M-Pesa created an ‘ecosystem’ for the service, targeting the ‘unbanked’, merchant outlets, and mobile phones (widespread among the unbanked) to gain widespread acceptance. The service started out with a blank slate where mobile phones presented the most viable, cost effective means to develop the remittance and payment industry in the country.
Banking regulations, or indeed the lack of them, played a further key role in Kenya’s mobile money success story. When the service first launched many years ago, regulations surrounding it were more relaxed as mobile electronic m-wallets were not seen as a serious challenge to the established banking sector – M-Pesa almost slipped under the radar. Elsewhere in the world, for instance in the UK, this has not been the case. The well-established traditional banking infrastructure in other countries has meant that - to date - little room has been made for an alternative non-bank based ecosystem to be built out around the m-wallet, excepting the remittances segment where innovation has been more prevalent.
The Remittance Segment
In some African and Southeast Asian markets, other factors have contributed to the mobile money industry being embraced, principally the need for remittances from relatives working abroad to be easily sent home or for sole traders that aren’t with a bank to be paid from afar.
The common denominators in all such markets where mobile money has taken off is a strong remittance sector; low bank account ownership; high mobile phone ownership; and often long distances to travel to reach the nearest bank branch and/or cash point. Taking a moment to consider these factors, it seems only natural that mobile money is taking over in countries where these factors are in play, which often means the emerging markets in Africa or Southeast Asia.
The key benefit is the convenience factor: the recipient no longer needs to walk miles to the nearest funds pick-up collection point. They can receive money in what is essentially real-time from the comfort of their own home, via the mobile phone. Many shops also accept phone-based payments or redemption schemes. Delays can still occur due to problems with the reliability of local mobile connections, but these will only reduce in number as the local mobile and internet infrastructure grows and improves.
Consumer Acceptance and South America
Electronic m-wallets and the mobile money transfer industry, however, have more than just financial and infrastructural issues standing between them and global success. It takes time for consumers to accept new models of financial services, as they are essentially being asked to entrust their money to entities that are not traditional financial institutions.
Meanwhile, parts of Latin America have shown a slower uptake than might have been expected for such remote areas. This is due to high regulatory controls in South America introduced to help prevent drug money laundering. It takes more than an assurance of convenience to change regulations such as these, and South America has not seen the same explosion of interest in remittances and mobile money solutions as Africa for this reason.
Until now, significant uptake in mobile money usage has been seen mainly in emerging markets that are traditionally key receivers of remittance inflow. A newer trend is the gradual increase of its use in developed sender markets in the ‘West’ and elsewhere. Mobile m-wallets are becoming less of an unknown quantity and the association of big names such as Google with these wallets has gone a long way towards their legitimisation in developed markets.
At Western Union, we have been preparing for this increase in Western interest in mobile money for a considerable amount of time. What began as an internal mobile payment research department is now Western Union Digital - a dedicated department with its own office of 200 plus people based in San Francisco, USA. This is where I work, concentrating on researching and developing the mobile money marketplace.
Conclusions: More Innovation on the Way
At Western Union, establishing our Digital unit and investing in mobile money is not seen as a gamble. We have a 160-year-old tradition of innovation, and this is simply the next logical step in our progression. We have always been a network-based business (customers are able to send and receive money at over 515,000 WU Agent locations around the world), and the development of Western Union’s network of mobile partners over the past four years is just an extension of this.
We have attempted to make mobile money transfer more convenient by embedding it into other systems. As such, we have developed simple, modular ways to allow our partners to help our customers connect as quickly and efficiently as possible. Western Union currently has 18 mobile operators and their systems signed up as partners. This number is set to rise to 20 by the end of 2013. The mobile money industry is growing in Africa and becoming increasingly prevalent in strong markets like India, so we expect to see much more international growth in the sector.
There are currently 2.5bn ‘unbanked’ people in the world, according to the latest 2011 World Bank report into this area. This represents a huge audience and opportunity for the global mobile money transfer industry, and I also believe that once it is established it will not simply disappear as traditional retail banking infrastructures belatedly reach emerging markets.
Using a mobile phone to transfer money will remain the most convenient way to handle money in many cases - it provides 24x7 global access, wherever a phone signal reaches, and that functionality is difficult to compete with. Western Union predicts that all modes of money transfer within the industry - whether sending money by mobile, from a bank, or via the internet - will eventually converge to form a single, cross-platform channel. This should meet the customers’ need for easy access, security, reliability and convenience. The lessons from history suggest that this will come to pass sooner, rather than later now that the mobile money industry has traction across all countries in the world.