Digital Money Forum

Janine Firpo, IFC

[Dave Birch] Janine Firpo is President of Sevak Solutions, a nonprofit company that she co-founded to promote inclusive systems for the delivery of financial services to the world’s 1.7 billion urban and rural poor. Janine is based in Jakarta, Indonesia, where she is working with International Finance Corporation (IFC), a member of the World Bank Group, helping regional advisory teams to accelerate the development and large-scale roll-out of mobile money solutions. In this podcast, she talks about mobile money in developing markets and the practicalities of managing and regulating agent networks.

Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.

Karin Huber, Mobilkom

[Dave Birch] Karin Huber is a Senior Product Manager at Mobilkom Austria and is responsible for marketing mobile payments. Vienna is one of the very few places in the world where real customers are walking into real shops and buying real NFC handsets, which makes Karin's experience almost unique. In this podcast, she explains some of Mobilkoms thinking -- in particular, why they decided to obtain their own banking licence rather than partner with a retail bank -- and some of their very innovative products.

Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.

Bear market

[Dave Birch] Russia is looking like a pretty interesting market for e-payments. The management consultants keep telling us to focus on the BRIC (Brazil, Russia, India and China) for our next growth markets, but it's important to understand that their mass, retail, e-payment markets are just not going to be like ours, partly because of industry structures, partly because of government direction and partly because of the technology starting point.

Russian central authorities are reportedly considering plans to set up an electronic payments network... The main objective of the prospective electronic payment system would be to challenge the dominance of established brands such as MasterCard and Visa, which currently hold around 85 percent of the Russian cards market. The plans for a Russian-operated electronic payment network come after in June 2008, Russia’s two largest banks – Sberbank and VTB Group – have teamed up to create the United Russian Payment System (URPS).

[From The Paypers. Insights in payments.]

What might the Russian "third scheme" look like, compared to a European "third scheme" (eg, PayFair)? Well, one reasonable prediction might be that the lack of infrastructure in Russia (Russia is a very big place) means that their third scheme might well jump ahead of the European third scheme in terms of its technology platform. Indeed, there are already strong indications that mobile and contactless technologies will be moving ahead quite quickly in that environment.

The head of Russia's largest bank briefed the country's President Dmitry Medvedev on the concept of mobile contactless payments last week — and explained that he is looking to launch a non-contact mobile payments system by 2011/12.

[From Russia looks to introduce mobile contactless in two to three years • Near Field Communications World]

A national contactless purse (perhaps a bit like NETS in Singapore or Touch n'Go in Malaysia) in a country the size of Russia would be a really interesting development. Singapore has shown that some judicious government steering can help to migrate to a contactless environment that is convenient for consumers who will...

...now have two payment cards to choose from to use on buses and trains, to pay for road tolls and carparks, and to make purchases from stores, eateries and entertainment outlets. On Friday, Nets (the Network For Electronic Transfers) launched its long-awaited multi-purpose contactless card... EZ-Link launched a similar contactless multi-purpose card in January.

[From Nets, more uses than one]

Transit is the vanguard, as always, but the point here is that competition to provide interoperable e-purses is at least a good step forwards.

Bottom of the pyramid schemes

[Paul Makin] Earlier this week, I attended an interesting and enjoyable round table session, hosted by the CSFI, entitled 'Credit and the emerging consumer: The developing world of African lending'. The discussion   was led by Jason Shedden (Blue Financial Services), Mark Napier (the newly-appointed Citi/DfID Fellow at the CSFI) and Malcolm Harper (BASIX). The discussion highlighted the fact that, despite high expectations of their effectiveness in reducing poverty, none of the existing microfinance institution (MFI) lenders actually reach the so-called "Bottom of the Pyramid" (BoP). Instead, not unreasonably, they are all lending to those that they have a reasonable expectation of being able to make repayments; those in employment, and self-employed businessmen wishing to expand their businesses.

This excellent event was the first in a series of roundtables that Mark will be running as part of his fellowship programme at the CSFI and we'll be asking him along to next year's Digital Money Forum as well so you can meet him there if not before.

More on Payez Mobile

[Dave Birch] I've been particularly interested in the French national NFC payments "experiment", not just because of the practical insight it delivers but also because it is a laboratory for co-ordinated specification development involving both bank and mobile operators. For many of our customers, this bank-operator interface is an important driver and/or barrier in their medium-term strategy, so it's important to understand it.

AEPM, the Association Européenne Payez Mobile, has updated the technical specifications for Payez Mobile, the NFC solution developed by the leading French banks and mobile operators that has been on test in the French towns of Caen and Strasbourg since November 2007. The new Version 2.1 of the Payez Mobile specification incorporates the latest GlobalPlatform specifications and follows the signing of a Memorandum of Understanding between AEPM and GlobalPlatform in July.

[From Payez Mobile updates NFC specifications • Near Field Communications World]

Since I think these specifications are important, I asked my colleague Neil Livingston (who has been leading some of our work in this area) if he could provide a more detailed introduction to the specifications for blog readers, and he has kindly provided the overview that follows. If you're interested in understanding how NFC is evolving in the payments space, it's well worth you taking a few minutes to read through.

contactless and nfc, EMV, mobile

Innovation that matters for the majority

[Dave Birch] That there is an interplay between the technology and monetary policy is obvious. Look what is going on in Africa. People who aren't allowed to hold dollar bank account hold dollar-denominated mobile top-up vouchers instead. Ugandans without an effective electronic payment system are using M-PESA from Kenya to execute local transactions in Kenyan shillings. Congolese without access to any banking network use mobile money instead (and may never, ever, want or need a bank account as a result). In India and elsewhere the banks have managed put a regulatory finger in the dyke but the pressure is building and money is already leaking away from conventional institutions and networks into newer, mobile-centric, customer-facing organisations. The dam will, at some point, burst. How will governments be able to "manage" the money supply when it is being zipped across borders by mobile phones, global handset hyper-hawala.

At the very first Digital Money Forum, the late Professor Glyn Davies (author of the magnificent "A History of Money") said that every technology revolution in money led to less centralised control. That's a good thing, but it also explains why the conservative nature of governments and regulators comes to the fore in questions concerning money. If anyone anywhere in the world can transact in any currency, then the weak will go to the wall very, very quickly. Gresham's Law on a global scale.

banking, currency, mobile, payments

Where is the next NFC breakthrough?

[Dave Birch] We've all been a bit fed up with NFC recently, having got carried away on a tide of hype that didn't take into account the complexity of the relationship between banks, operators and manufacturers. This relationship does not seem to have advanced much in last year: the operators want a business case before they order handsets, the manufacturers want commitment before they invest in handset production, the banks can't see an opportunity without handsets. So no NFC>

As my colleague Neil Livingston pointed out in his workshop at NFC World in Singapore, there are actually a range of practical uses for NFC, beyond payments, where there do seem to be business cases and it was interesting to me that much more of the discussion at NFC World today in Singapore was about consumer electronics opportunities rather than just about mobile-related opportunities. So there are no handsets, but that doesn't mean there are no NFC opportunities. Nevertheless, we have to be realistic. It hasn't taken off the way that many had hoped. It's not because of the consumer proposition. The fact is, however, that in all of the pilots and trials to date, the response of consumers has been overwhelmingly positive. They like NFC. So the fact that some stakeholders have been unable to agree a basis for moving forwards in the co-operative world of "apartment" USIMs, shared TSMs and revenue sharing (GSMA model) is, I think, unlikely to put the brakes on NFC completely.

contactless and nfc, mobile, smart cards, stickers

Drifting eastwards

[Dave Birch] I'm spending a lot of my time at the moment, because of a variety of projects, building up roadmaps linking business, social and technology change to try and help our customers to make better decisions about their next round of investment into the retail electronic payments space. If we assume that the key technologies for the medium term already exist, so we can try and assess the relationship between those technologies and business and social change without drifting into science fiction, then we still have to make some informed decisions about which of these technologies will shape the roadmap. Moreover, if we are trying to look at the payments roadmap over the medium term, another factor that we must take into account is the global shift in focus away from the current developed markets. Thus, we need to look at the dynamics of the payment sector and how different technologies are affecting the dynamics in different markets. One of the easier predictions to make is that China will have much bigger role shaping the future roadmap than it has done over the previous 3-5 years.

China is fast catching up with the US and Europe as a growth market for non-cash transactions, according to the latest edition of the annual World Payments Report from The Royal Bank of Scotland, Capgemini and Efma.

[From Finextra: China emerges as a growth market for non-cash payments]

China accounts for about 9% of global non-cash transactions, and is growing fast, but it's important not just because of the size of the market but because of the nature of that market. It is interesting to speculate whether China will see a market maturing towards a "Western" model of card-based retail payments or whether "Asian" models informed by new technology will dominate. I mean, as you might expect, mobile. In-Stat says that the mobile payments in China will approach $18 billion in 2013, split between $14 billion in remote payments and $4 billion in local payments.

Recent research by In-Stat [in China] found the following:

• SIM cards with RF SIM solutions customized by China Mobile are expected to launch in mid-2010, and the company is currently working to develop retail partners and deploy POS devices.
• Over half of respondents to In-Stat’s survey express interest in using their mobile phones as a payment tool.
• The largest proportion of current mobile payment services users (36.7%) responded that they prefer to use payment platforms funded by banks, indicating that the banking sector is the most trusted by Chinese consumers.

[From In-Stat - Press Releases]

To see these figures in context, bear in mind the most recent Juniper Research forecast for the total world NFC payments market:

the application of NFC as a mobile retail marketing tool via coupons and smart posters will support the growth of NFC mobile payment transaction values from $8bn in 2009 to $30bn within three years.

[From NFC Mobile Payments to Exceed $30bn by 2012]

So the Chinese local and remote mobile payments market roughly equates to about half of the total world local mobile payments market, just to give an indication of comparative scale. The point is that from Western Europe, then, we may find ourselves looking east for inspiration. Look at the great work already being done on mobile platforms in Eastern Europe (where mobile banking has been growing rapidly), on the internet in Russia (look at the growth of Forum friends WebMoney) and in the mobile proximity worlds of Korea and Japan. The CEE and Russia mobile markets are huge, which is why they are fertile ground for mobile payment initiatives.

On a proportionate basis, MTS Group, which runs networks in six Eastern European markets including Russia and Ukraine, is now the second-largest operator group in Europe, trailing only Vodafone. MTS Group's main regional competitors - VimpelCom and MegaFon - are also now among the top ten largest groups, in both cases due mainly to their operations in Russia.

[From Developing Telecoms - Russian mobile firms are now among the largest in Europe - Wireless Intelligence]

In these markets, mobile payments occupy a more central position in the payments roadmaps than in some Western markets, although the fact of the matter is that any medium term roadmap of retail payments now has mobile as a key path.

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.

[From Bank Systems & Technology: The Blog: Creating New Revenue Streams With the Mobile Channel]

For most people, in most of the world, for most of the time, electronic payments means mobile payments.

Liisa Kanniainen, Mobey Forum

[Dave Birch] Liisa Kanniainen works for Nordea Bank and is the Executive Director of the Mobey Forum, developing cross-industry collaboration to expand and shape the mobile financial services market. In Nordea she is in charge of mobile financial services at corporate level. In this podcast she explains the Forum's mission and talks about its current workplan.

Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.

contactless and nfc, mobile, money, podcast

Finnish line

[Dave Birch] I had a few questions from journalists about the announcement of the Nokia Money service. We'll get on to the service itself in a minutes, but the dreary pedant inside me can't resist first pointing out that most of the headlines were on about mobile banking:

Noki­a is to enter the mobile banking market

[From Nokia to Launch Mobile Banking Service]

The announcement from Nokia, of course, says nothing of the kind, and for a very good reason. In most countries, if you decide to launch a mobile banking service then you need to be a bank. An if you offer a banking service without a banking licence, you will tend to get arrested. The Nokia press release very clearly calls the service a "mobile financial service", and says that

we are enabling services such as payment of utility bills, purchase of train and movie tickets, top-ups, all through their mobile phones

[From Nokia - ShowPressRelease]

Quite. Nokia Money is a money transer service, not a banking service. If someone else want to run a banking service that uses Nokia Money as money transfer and payment mechanism, then that's great. My guess is that people will want to do this, although whether the operators will be sanguine about them doing so with Nokia rather than with the operators themselves remains to be seen.

There is every reason to see this business model as sound. There is a latent demand for financial services amongst the unbanked and there are organisations perfectly capable of delivering those financial services once the mobile money transfer service is in place. A good example of this is in the Philippines, where the G-Cash mobile money transfer service forms the payments platform for a growing range of financial services, including banking. This is how I would expect Nokia Money to evolve. To see an example, check out what Green Banks is doing with the Microenterprise Access to Banking Services (MABS) infrastructure

Now, rural banks are no longer just traditional depositories; it has also become a venue for clients to make the following transactions:

1. make loan payments (Text-A-Payment)
2. make deposits (Text-A-Deposit)
3. make withdrawals (Text-A-Withdrawal)
4. send and receive remittances (Text-A-Remittance)
5. disburse salaries (Text-A-Sweldo)
6. pay bills for schools and utility cooperatives in remote areas (Text-A-Bill Payment)

[From Mobile Phone Banking Blog]

A few years ago, I was involved in a study for a customer in Latin America who was looking at the business opportunity just for this last service, the bill payment. Without breaking any confidences, I think I can say that the business opportunity was substantial, but only available to an organisation with a large enough cash-in network, which meant agent networks rather than banks (either through retailers or specialist outlets) because it would be too expensive for banks to build big enough networks from scratch.