Rise of Mobile Financial Services (MFS) in Emerging Markets

What constitutes “Mobile Financial Services”?

The phenomenal adoption of next-generation mobile handsets in emerging markets has created opportunities for new and innovative mobile services. Mobile Financial Services has been a very promising one, among them.

Mobile Financial Services include a diverse range of financial services that are delivered using a mobile phone. It can be broadly categorized into M-banking and M-payment.

Mobile banking (m-banking) is the use of a mobile device primarily as a channel to conduct transactions from one or more bank accounts. It also offers a range of informational functions, such as balance enquiries, simplified statements, transaction notifications, or account alerts.

Mobile payment (m-payment) is the use of a mobile device to make a payment involving e-money. There are a variety of types of mobile payments, including:

• Person-to-Person (P2P): also known as a mobile money transfer or mobile remittances.
• Person-to-business (P2B): the payment of bills, goods, and services, and purchase of airtime.
• Business-to-Person (B2P): when businesses pay people for example, in wages or for goods delivered, banks transferring loan amount, or microfinance.
• Government-to-Person (G2P): an official body makes a payment, such as a salary or social transfer to an individual.

What are the partnerships in play?

Mobile Financial Services is a very complex business environment with several players teaming up to provide these services. The key players in MFS include:

• Banks and other financial institutions
• Telecom operators
• Mobile equipment manufacturers
• Software vendors enabling services
• Retailers
• POS registers
• Customers

In addition to their core strengths, both banks and telecom operators have a role as content creators and providers. Sometimes telecom operators also attempt to serve as financial institutions by granting credit for micropayments. Furthermore, the roles and functions these players perform today are not necessarily sustainable. Retailers, for instance, are introducing services that bypass both operators and banks.

Some very successful implementations (cases across the world)

• WIZZIT – South Africa

• A cellphone based banking facility developed WIZZIT as a joint venture with the South African Bank of Athens
• Using any telecommunications network, clients can:

• make bill payments,
• transfer money to other WIZZIT users or any bank account
• buy airtime via their mobile phone

• Deposits can be made at postal outlets, Bank of Athens and Absa Bank branches, while a “Maestro” debit card is issued to allow for purchases at retail outlets and money withdrawal at any ATM.

• M-PESA – Kenya

• Mobile phone-based service for sending and storing money offered by Safaricom, Kenya’s largest mobile service provider.
• Safaricom customers can register for M-PESA by visiting one of more than 10,000 merchants who act as “agents” for account opening, handling of deposits and withdrawals into the customer’s virtual “wallet,” and customer support.
• Customers can then use an application on their mobile phone to:

• check their balance
• send money to other people
• pay bills, and
• purchase mobile phone airtime.

• Customer funds are held in a special trust account at the Commercial Bank of Africa.

• SMART Money – Philippines

• GLOBE telecoms G-Cash services of Philippines include financial products targeting clients of microfinance initiatives
• The overall service provision utilizes mobile phones as “mobile wallets” allowing subscribers to send and receive domestic and international remittances through SMS, make purchases and payments at retail establishments, pay bills, and convert G-Cash to prepaid mobile credits.

Challenges in implementing MFS

Implementation of Mobile Financial Services is faced with multiple challenges. Some of the most notable challenges are:

• Regulations: Regulatory bodies have been a major obstacle. For instance, regulations may require banks to assume responsibility for branding an implementation or contract the agent network in a market where the bank has limited ability or commercial interest to do so.
• Competition: Two dominant companies from diverse industries seeking to launch a MFS product are bound to create a conflict.
• Partnerships: Partnership may not be possible where companies have competing interests to control some part of the supply chain or a service component.
• Revenue sharing: The division of revenue and cost between partners play an important role in the evolution of the implementation.
• Eco-system: It has taken more than 40 years for major payment networks to build an eco-system in place today where electronic payments are globally accepted. To build an eco-system faster, changes in established payment networks, interchange rates, new and improved relationships, and industry developments need to keep up with mobile technology.

Role of an IT Service provider such as THBS in MFS initiatives

Torry Harris has been a key MFS solution provider for one of its Telecom clients in Africa and LATAM. THBS has developed Bulk Payment solutions integrated with Payment gateways to be used by merchant entities for activities like bulk payment of salaries to employees, bulk disbursal of loans, etc. The Payment Gateway solution allows telecom providers to integrate with banks and bill payment companies using a configurable solution. The solution is reusable, cost effective, quick-to-market and delivers a smooth experience.

THBS has also helped other Mobile Network Operators (MNOs) develop end-to-end solutions to offer insurance products to their customers. Key focus has been on increasing revenue by integrating mobile money for payments and using open source tools with an onsite-offshore model to make it cost effective. Delivering Great user experiences for end users has always been a priority for the company.

References:

http://www.federalreserve.gov/econresdata/consumers-and-mobile-financial-services-report-201303.pdf
http://www.slideshare.net/mgopik/mobile-financial-services-3262311
http://www.cin.ufpe.br/~tvsd/Artigos/p42-mallat.pdf
http://www.gsma.com/mobilefordevelopment/programmes/mobile-money-for-the-unbanked

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